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Run-away oil consumption in the Middle East eats at Saudi ability to meet production emergencies
04/25/2011 2:08 pm EST
Indonesia, which had exported 1.2 million barrels of oil a day in 1980, became a new oil importer in 2004. The reason? Huge domestic subsidies had made oil so cheap that Indonesians had tripled their domestic consumption.
That seems to be what’s happening in Saudi Arabia and Kuwait now, Reuters reported. In Saudi Arabia oil consumption has climbed by 50% in the last decade to an estimated 2.7 million barrels a day. Saudi Aramco, the national oil company, projects that demand could hit 8.3 million barrels a day by 2030.
In 2010 Saudi Arabia exported 7.5 million barrels of oil a day. Add in estimated spare capacity of 2.8 million barrels a day. And then to the very scary math: If Saudi consumption rises to 8.3 million barrels a day, the country will consume almost all of the 10.3 million barrels a day it has in exports and spare capacity.
Where’s all this consumption growth coming from? Population growth accounts for some but the big bite comes from that population’s growing use of cars (in Saudi Arabia gasoline costs about 15% to 20% of what it costs in the United States) and air conditioning. It now costs Saudi Arabia 1 million barrels of oil a day in the summer months to produce the electricity it needs to run the national air conditions. Another huge bit comes from the country’s dependence on desalination of seawater to produce its drinking water. The countries 27 (and counting) desalination plants provide 70% of Saudi Arabia’s drinking water—at the cost of 1.5 million barrels of oil a day.
Saudi Arabia isn’t alone on this trend. Oil consumption in Kuwait is rising so fast that it will have to start reducing oil exports within a decade, according to the Brookings Institution.
The Middle East as a whole will consume 11 million barrels a day by 2035. That would be up from consumption of 6 million barrels a day in 2007, according to the International Energy Agency.
Right now the world relies on Saudi Arabia to act as swing producer—it is the only country with enough spare capacity to step up production in a crisis like that in Libya that reduces oil production. If the Saudi’s can play that role in the future, because domestic consumption has eaten up all the country’s spare capacity, the world will see a huge increase in the price of oil—crisis or no crisis—because the oil market will become structurally much more volatile.
And that will happen long before Saudi Arabia goes from oil exporter to oil importer. (Although whom the Saudi’s might import from is a fascinating question.)
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