Sep 06 2012
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Saudi: Oil importer by 2030?
06 September 2012
For the second time in less than a year, an analyst has raised the prospect of Saudi Arabia turning into an oil importer within a few decades.
This is an astonishing prediction for a country that is the Arabian Gulf's largest producer and exporter of oil, with the largest spare capacity in the world.
But how can the Kingdom be toppled from its enviable position and turn into an oil importer in less than two decades?
"Saudi Arabia is the Gulf's largest oil producer (11.1million barrels per day) and exporter (7.7-million bpd). It also consumes 25% of its production," notes Heidy Rahman, analyst at Citigroup.
Late last year, UK-based Chatham House suggested that Saudi Arabia could turn into a net oil importer by 2038 if its domestic energy consumption continues to grow unchecked.
"The country currently consumes over one-quarter of its total oil production - some 2.8 million barrels a day. This means that on a 'business as usual' trajectory it would become a net oil importer in 2038," said Chatham House.
While Saudi oil minister Ali Al-Naimi has rejected the report's finding, there is no doubt that the Kingdom's energy consumption is rising at a brisk pace.
Led by Saudi Arabia, Middle East oil demand is set to grow by 2.7% in 2012, averaging 7.8 million barrels per day, according to OPEC's August report.
Saudi Arabia's oil consumption has risen from just over two million bpd in 2007 to 2.7-million bpd by 2011 alone.
The answer for the Kingdom is to switch to cheaper fuels such as natural gas and renewable energy and free crude for exports.
But that's easier said than done. Saudi Arabia produces 9.6-billion cubic feet per day of natural gas and consumes all of it domestically. Citibank says the Kingdom is looking to raise gas production to 15.5-billion cubic feet per day over the next three years, suggesting an annual growth of 12.7% through to 2015.
The Kingdom's energy officials including the Aramco chief has focused on the Kingdom's prospects of harnessing solar power. There are at least four solar projects mostly in planning stage, according to Zawya Projects Monitor.
These include the small Aramco-Kapsarc Solar Power Plant (3.5 MW), a USD1-billion Polysilicon Plant to be used in the manufacturing of solar panels in Jubail, and the KA Care Solar Program with a capacity of 4,500 MW. The project will be developed in two phases - the first phase 1 with a capacity of 2,000 MW and the second generating 2,500 MW, according to Zawya.com.
Overall, KACARE is hoping to lead a USD109-billion drive to generate a third of the Kingdom's energy consumption via solar power over the next 20 years. That would mean generating 41,000 MW of energy, with KACARE producing nearly half of it. That's an ambitious task given that the country has installed only three megawatt of solar panels to date.
Equally important, the KA-Care expects to harness nuclear energy to solve its energy consumption demands which are set to triple in the next two decades.
KACARE also plans to generate a sixth of the demand via nuclear energy and generate 21 GW by 2032.
But analysts think the country's road to energy diversity will not be smooth.
"We believe nuclear presents specific risk given: 1) 25 years of underinvestment in the industry (implying lack of available expertise); 2) plant safety (e.g. keeping reactors cool in the desert); and 3) risk of cost over-runs," said Citi's Rehman.
The Kingdom's residential power needs account for 50% of its total consumption, which is a higher proportion than the global average. In addition, Saudi energy consumption per capita is higher than most G7 nations while its water consumption per capita is also among the highest in the world.
The demands on the Kingdom's finite energy resources could wipe out some of the advantages of its world-class petrochemicals industry which benefits from the availability of cheap natural gas and oil.
The investment bank believes as natural gas and oil resources are diverted to residential demand, the country's feedstock costs could rise and the government may be forced transfer some of the burden to private companies.
"With feedstock availability at risk of restriction, growth options will lie with overseas greenfield investments or acquisitions. Sabic has expanded into the US, Europe, China & Japan. The other companies... have no such experience."
In this scenario, the Kingdom's plans to create jobs, diversify and maintain significant subsidies could prove a "challenge".
The Kingdom appears reluctant to rapidly monetise its impressive hydrocarbon reserves. The country sits on the second largest oil reserves in the world and could potentially raise its production capacity. Media reports suggest it is looking at an additional 100-billion of oil reserves from its existing fields and offshore in the Red Sea.
But there are few major oil development plans under way, which suggests that an acceleration of its alternative energy plan is crucial for its future prosperity.
Saudi Demographic Challenge
Saudi Arabia's 100-Billion Barrels
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