A headline in the Telegraph of September 6 said “Saudi oil well dries up”, which is the newspaper way of sensationalising a report published by Citigroup earlier about Saudi Arabia production that raised alarms not only in Saudi Arabia but around the world.
The report titled “Saudi Petrochemicals — The End of the Magic Porridge Pot?” was released on September 4 but I have seen no reporting or discussion in the media on the petrochemical side of the report and all the concentration was on one point relating to the possibility that Saudi Arabia might become an oil importer by 2030 according to the report.
Of course, this possibility is very important not only to Saudi Arabia but to the whole world due to the fact that Saudi Arabia is a leading oil and gas producer and exporter to world markets and in the view of many observers we are unlikely to discover in the foreseeable future another country or region that can give the world an equal potential.
But the notion of Saudi Arabia becoming oil importer is not new. The Royal Institute of International Affairs (Chatham House) alluded to that more than once in its researches and is said to predict 2040 as the year when Saudi Arabia will become an oil importer.
Jadwa Investment, a Saudi local research firm pointed in a paper in July 2011 titled “Saudi Arabia’s coming oil and fiscal challenge” to the same problem as it predicted that by 2030 local oil consumption will exceed oil export volumes and that oil production in that year is not expected to rise above 11.5 million barrels a day (mbd).
All these reports have an important thing in common and that is the persistent and high growth rates of domestic consumption of oil and gas.
According to BP Statistical Review, Saudi combined oil and gas production in 2000 was just over 501 million tons of oil equivalent (mtoe) and its domestic consumption was almost 118 mtoe meaning that domestic consumption was almost 24 per cent of production. However, in 2010 production was close to 543 mtoe while domestic consumption sharply rose to 201 mtoe and the consumption to production ratio was much higher at 37 per cent.
Saudi Arabia consumes all the gas it can produce and has been trying for years to increase further its gas production. This has been largely achieved as gas production increased by 68 per cent since 2000 and there is what may amount to an additional gas production of 70 mtoe a year in the next two years.
But its oil consumption is much higher because a lot of it is used for generating electricity and oil consumption has increased by 72 per cent since 2000. In 2010, for instance, gas consumption of 75.5 mtoe is only 37.6 per cent of total consumption and oil consumption in this case was 125.5 mtoe or 62.4 per cent.
The ratios in 2000 were 38 and 62 per cent respectively, which means that although gas production is increasing, it is not yet sufficient to bring oil consumption down.
Therefore, if these trends continue, there is no doubt that Saudi oil exports will come under pressure and will be progressively reduced. The date when Saudi Arabia becomes an oil importer may not be 2030 as Citigroup suggests or even 2040 as Chatham House suggests and many changes can be effected to prolong the life of Saudi exports.
The panic in some circles is well answered by a well-reasoned article by Mohammad Al Sabban, advisor to Saudi oil minister and chief environmental negotiator for Saudi Arabia. He shed doubt about the estimates in the reports as they assume that production and consumption trends will continue for the foreseeable future while these can and should change according to the market and circumstances.
However, Al Sabban considered these reports as a warning bell and urged that Saudi Arabia reconsiders its domestic pricing policy as a key to conserve energy and reduce consumption. He also advocated a programme for public transport within and between cities. The gas initiative must be expedited and similarly the same for the declared programme of expanding the use of renewable energy.
Saud Kabuly in Al Watan newspaper seems to be genuinely concerned that Saudi foreign policy will lose its edge as oil production goes down and ventures to ask what will replace oil — with the US “our political and security umbrella.”? I can only say do the right thing and let the Saudi people be your umbrella.
The Saudis sooner or later will realiswe that if something is limited then it can one day finish. They should reduce their dependence on oil not only in consumption but by driving their economy gradually in other directions.
The writer is the former head of the energy studies department in the Opec Secretariat at Vienna