Saudis Look to Oil for Electricity

Source:

". . .the surge in electricity demand in Saudi Arabia will invariably affect the world [oil] market."

Saudi Arabia's booming economy and soaring demand for electricity is increasing the kingdom's reliance on oil to produce power. By 2012, it may be using 1.2 million barrels per day (bpd)—nearly twice current levels—to meet its electricity needs. This increasing use of oil is occurring because the Saudis' natural gas production cannot keep up with power demand.

The gas shortage is occurring even though Saudi Aramco has been working to boost natural gas production. But a combination of reasons and trends point to the inevitable increased use of oil, a factor that could have deep impact on world oil markets in the future, despite Saudi Arabia's current spare oil production capacity of about 4 million bpd.

In 2009, the Saudis were using 730,000 bbls/d for electricity generation. By 2012, according to a recent report by JP Morgan, that amount could nearly double. How this increased consumption of oil within Saudi Arabia will affect the global oil market remains to be seen and will depend, in part, on the strength of the global economy. It will also depend on how much production can increase, most notably in Iraq, which is planning to ramp up production significantly in coming years.

Regardless, Saudi Arabia's rising electricity demand will undoubtedly alter the spare capacity picture once world economies recover. "The seasonal peak in refinery demand for crude could face competition from price insensitive consumers in the Middle East," the JP Morgan report says.

Saudi Arabia's gas reserves have increased more than 45% since 1990 to 267 tcf, with an increased share coming from non-associated gas, which today accounts for almost half of all reserves.

But the surge in electricity demand in Saudi Arabia will invariably affect the world market because it is likely to alter the amount of fuel oil the country produces.

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