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Saudi Arabia May Become Oil Importer by 2030

By Countercurrents.org

05 September, 2012

Flame of oil is not eternal. The horizon carries all signs of peak oil. Saudi Arabia, the world’s biggest crude exporter, risks becoming an oil importer in the next 20 years, according to Citigroup Inc. It will have far reaching and deep implication in life, society and politics.

A Bloomberg report by Ayesha Daya and Dana El Baltaji on Sept. 4, 201 (1) said:

Oil and its derivatives are used for about half of the [Saudi Arabia’s] electricity production, which at peak rates is growing at about 8 percent a year, the bank said today in a an e-mailed report. A quarter of the country’s fuel production is used domestically, more per capita than other industrialized nations, as the cost is subsidized, according to the note.

“If Saudi Arabian oil consumption grows in line with peak power demand, the country could be a net oil importer by 2030,” Heidy Rehman, an analyst at the bank, wrote. The country already consumes all its natural-gas production and plans to develop nuclear power, which pose execution risk amid a lack of available experts, safety issues and cost overruns, Rehman said.

Saudi Arabia, which depends on oil for 86 percent of its annual revenue, is accelerating exploration for gas and is planning to develop solar and nuclear power to preserve more of its valuable crude for export. The kingdom has refused to import gas, unlike neighboring producers such as Kuwait, and the United Arab Emirates that also lack fuel for power generation.

Saudi Arabia’s per capita consumption in 2011 is higher than most industrialized nations, including the U.S., according to the report. The nation’s 10-year historical consumption compound annual growth rate may increase 6 percent, double its projected population growth, Rehman wrote.

“Indeed we would expect consumption to continue to outstrip population growth as Saudi Arabia’s currently young population ages and consumer spending increases supported by rising GDP per capita,” Rehman wrote.

Saudi Arabia’s $600 billion economy, the largest in the Arab world, may expand 5 percent this year, according to the median estimate of 12 economists surveyed by Bloomberg.

The country produced 11.2 million barrels a day of oil and natural-gas-liquids last year, 13 percent of the world’s supply and more than any other nation, according to BP Plc (BP/)’s statistical review. It was the eighth-largest gas producer, providing 9.6 billion cubic feet a day to the domestic market, according to the report.
Saudi Arabian power providers pay $5 to $15 a barrel for its fuel from state-owned Saudi Arabian Oil Co., according to the report.

“As a result of its subsidies we calculate ‘lost’ oil and gas revenues to Saudi Arabia in 2011 to be over $80 billion,” Rehman wrote. “At the domestic level, we believe the only real way to rationalize energy consumption would be to reduce subsidy levels.”

Ambrose Evans-Pritchard wrote in The Telegraph (2) on Sept. 5, 2012 headlined “Saudi oil well dries up”:

If Citigroup is right, Saudi Arabia will cease to be an oil exporter by 2030, far sooner than previously thought.

A 150-page report by Heidy Rehman on the Saudi petrochemical industry should be sober reading for those who think that shale oil and gas have solved our global energy crunch.

The basic point – common to other Gulf oil producers – is that Saudi local consumption is rocketing. Residential use makes up 50pc of demand, and over two thirds of that is air-conditioning.

The Saudis also consume 250 liters per day of water – the world's third highest (which blows the mind), growing at 9pc a year – and most of this is provided from energy-guzzling desalination plants.

All this is made far worse across the Gulf by fuel subsidies to placate restive populations.

The Saudis already consume a quarter of their 11.1m barrels a day of crude output. They are using more per capita than the US even though their industrial base as a share of GDP is much smaller.

The country already consumes all its gas. (Neighboring Kuwait is now importing LNG gas from Russia:

Citing Heidy Rehman, Ambrose Evans-Pritchard added:

If nothing changes Saudi may have no available oil for export by 2030.

It Already Consumes All Its Gas Production — Saudi Arabia produces 9.6bn ft3/day of natural gas. This is entirely consumed domestically. It is looking to raise gas production to 15.5bn ft3/day by 2015E, implying a 2011-15E CAGR of 12.7%. However, peak power demand is growing at almost 8% pa. We believe Saudi Arabia will need to find new sources to meet residential & industrial demand.

This may concentrate a few minds in The Kingdom. The country is already planning an 80GW nuclear blitz though they are woefully short of nuclear power experts.

It has big hopes from solar projects based on successes of solar farms in California. Both nuclear and solar would allow it export more of its oil output.

A great deal could change. New desalination filters should reduce energy use drastically, for instance. Saudi fuel subsidy policies may change.

Earlier, citing WikiLeaks cables John Vidal, environment editor, reported in guardian.co.uk (3) on February 8, 2011 headlined “Saudi Arabia cannot pump enough oil to keep a lid on prices”:

The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.

The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%.

However, Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached.

According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil".

Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap.
One cable said: "According to al-Husseini, the crux of the issue is twofold. First, it is possible that Saudi reserves are not as bountiful as sometimes described, and the timeline for their production not as unrestrained as Aramco and energy optimists would like to portray."

It went on: "In a presentation, Abdallah al-Saif, current Aramco senior vice-president for exploration, reported that Aramco has 716bn barrels of total reserves, of which 51% are recoverable, and that in 20 years Aramco will have 900bn barrels of reserves.

"Al-Husseini disagrees with this analysis, believing Aramco's reserves are overstated by as much as 300bn barrels. In his view once 50% of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output."

The US consul then told Washington: "While al-Husseini fundamentally contradicts the Aramco company line, he is no doomsday theorist. His pedigree, experience and outlook demand that his predictions be thoughtfully considered."

Seven months later, the US embassy in Riyadh went further in two more cables. "Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period."

A fourth cable, in October 2009, claimed that escalating electricity demand by Saudi Arabia may further constrain Saudi oil exports. "Demand [for electricity] is expected to grow 10% a year over the next decade as a result of population and economic growth. As a result it will need to double its generation capacity to 68,000MW in 2018," it said.

It also reported major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." While fears of premature "peak oil" and Saudi production problems had been expressed before, no US official has come close to saying this in public.

In the last two years, other senior energy analysts have backed Husseini. Fatih Birol, chief economist to the International Energy Agency, told the Guardian last year that conventional crude output could plateau in 2020, a development that was "not good news" for a world still heavily dependent on petroleum.

(1) http://www.bloomberg.com/news/2012-09-04/saudi-arabia-may-become-oil-importer-by-2030-citigroup-says-1-.html

(2) Telegraph.co.uk (blog)

(3) www.guardian.co.uk



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