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.
Brad Bourland and Paul Gamble at Jadwa forecast the kingdom?s breakeven oil price to be over $320 per barrel by 2030. The breakeven price is defined as the rate at which actual government revenue will equal actual government expenditure. That compares to around $84 a barrel this year.
“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.
Last year Khalid al-Falih, chief executive officer of Saudi Aramco, sent shivers down the spine of the world?s oil market when he said that, if unchecked, domestic demand in the kingdom would increase nearly 250 per cent by 2028 to 8.3m barrels a day.
The assumption is that al-Falih was sending a message to his political masters: do something about heavily subsidised prices which distort demand or else watch Saudi Arabia?s bumper hydrocarbon revenues dissipate into the haze of a Gulf summer.
Earlier this week Javier Blas, FT commodities editor, described how?demand for oil in the Gulf state has surged by 75 per cent?in the last ten years as economic growth and domestic subsidised prices boosted consumption.
The Gulf kingdom, the world?s top oil exporter and largest Arab economy, currently produces nearly 8.5 million barrels per day of crude but local demand is as high as 2.5-3.4 million bpd, mostly used in power generation, said the report by the state-controlled Saudi Electricity Company (SEC). Saudi Arabia controls around 266 billion barrels of proven oil resources, more than a fifth of the world?s total crude deposits.
Sources: ogj, FT, Emirates 24|7