Friday, July 22, 2011

Increasing domestic demand threatens Saudi oil exports

Saudi Arabia's oil exports look to decline sharply over the long term as the Middle Eastern country’s own domestic demand is expected to consume more of its production.

“The country's domestic consumption of energy, especially oil, at very cheap prices, is…likely to continue to rise rapidly, sharply reducing the amount of oil available for export,” said a report by Riyadh-based Jadwa Investment.The report noted that the sharp drop in oil exports constitutes “a major challenge” to Saudi Arabia given its heavy reliance on oil exports in the absence of other major sources of income.

The report notes that Saudi Arabia's oil exports had already plunged from 7.5 million b/d in 2005 and could fall even further to 6.3 million b/d in 2015.An expected high growth in domestic consumption could further depress exports to 6 million b/d in 2020 and to only 4.9 million b/d in 2030, it said.

Jadwa said oil consumption is rising rapidly in Saudi Arabia, with domestic oil use averaging 2.4 million b/d in 2010, up from 1.9 million b/d in 2007 and 1.6 million b/d in 2003."The pace of consumption growth has picked up in recent years, from an annual average of 4.8% between 2000-04 to 5.9% between 2005-09,” the report said."If we assume that only transportation and industrial use of oil grows at that rate, while oil used for power generation stays constant, then domestic oil consumption in 2030 grows to 5.5 million b/d,” the report said.

“Recall this would be a portion of our base case view of total production of 11.5 million b/d, leaving the country with only around 6 million b/d for export."

The Jadwa outlook is largely in line with earlier remarks by Saudi oil officials, who as a result, have been advocating the use of nuclear power and other forms of renewable energy within the kingdom.

"The total domestic energy demand is expected to rise from about 3.4 million boe/d in 2009 to 8.3 million boe/d in 2028, or a growth of 250%," Saudi Aramco Pres. and Chief Executive Khalid A. Al-Falih said last year.At that rate, he said, "the oil availability for exports is likely to decline to less than 7 million b/d by 2028, a fall of 3 million b/d while the global demand for our oil will continue to rise" (OGJ Online, Jan. 31, 2011).

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