Thinking Aloud: Saudi Arabia, Net Oil Importer?

July 7, 2015 by Darius 

Saudi Arabia has been among the world’s leading oil exporters for half a century.  But by 2030, Saudi Arabia could be a net oil-importing country.  How could that be true?

Saudi Arabia’s domestic energy consumption has been rising by about 7.5% per year for the last several years.  Saudi Arabia derives the vast majority of its electricity from oil and gas, and most Saudi homes and businesses do not have smart meters that accurately track energy use.  Fuel is heavily subsidized by the government, giving ordinary Saudis, and Saudi companies, almost no incentive whatsoever to economize on the petroleum they burn.

If Saudi domestic energy consumption continues to rise, it spells bad news for both the Saudis and the rest of the world.  Numerous countries, especially in Asia, rely on Gulf oil for almost all their imports.  Given that Saudi Arabia’s economy remains almost exclusively dependent on oil revenues, without oil exports, the Saudis have very little to offer the world economy.  Moreover, the Saudi trend is echoed, if less strongly, throughout the rest of the Gulf.  If this oil is consumed domestically, it obviously cannot be exported.

As with most reform initiatives, the Saudi government has responded more with vague promises of action than with concrete steps.  Fuel subsidies, that most pernicious of government intervention in the economy, are unlikely to be lifted.  Sustainable energy development is nonexistent on the government’s priority list despite what would seem to be obvious opportunities for solar energy development given the geography.  As oil prices fall and the Saudi budget constricts, little is likely to be devoted for investment in energy-efficient and renewable products.

Saudi Arabia has an estimated 15 years before it becomes a net oil importer, plenty of time for change.  But this is Saudi Arabia we’re talking about; indecision is a local specialty.

For more, see “Saudi Arabia Field Report: Another Oil Crisis in the Middle East,” Brookings, July 2, 2015, http://www.brookings.edu/blogs/markaz/posts/2015/07/02-saudi-energy-subsidies-hino?utm.

 

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