Domestic demand is growing fast but production will rise lightly
Saudi Arabia's crude oil exports are expected to sharply decline in the long term as its output is projected to rise slightly and domestic demand is growing fast, a key investment firm in the Gulf Kingdom said on Wednesday.
The sharp fall in oil exports constitutes a major challenge to the world's dominant oil power given its heavy reliance on crude exports in the absence of other major sources of income, the Riyadh-based Jadwa Investment said.
In a study sent to Emirates 24/7, Jadwa said Saudi Arabia's oil exports had already plunged from around 7.5 million barrels per day in 2005 to 5.8 million bpd in 2010 and could dive to 6.3 million bpd in 2015.
An expected high growth in domestic consumption could further depress exports to around six million bpd in 2020 and only 4.9 million bpd in 2003, it said.
"Three important trends come together to pose a significant challenge to Saudi Arabia's continued dependence on oil revenues. We have addressed two: the Kingdom is likely to experience only a very gradual increase in production of crude oil, and the government's spending will continue to rise at a rapid pace and rely primarily on oil revenues," the study said.
"The third of these trends is that the country's domestic consumption of energy, especially oil, at very cheap prices, is also likely to continue to rise rapidly, sharply reducing the amount of oil available for export. Combined, these trends paint a picture of significant future challenges for the Kingdom."
Citing official data, Jadwa said oil consumption is rising rapidly in Saudi Arabia, with domestic use of crude averaging 2.4 million bpd in 2010, up from 1.9 million bpd in 2007 and 1.6 million bpd in 2003.
Annual growth has averaged 5.2 percent since 2003, it said, adding that domestic consumption in the first quarter of 2011 was 2.9 percent higher than the same period of last year, though it declined in the subsequent two months.
Consumption peaks during the summer owing to the amount of energy that is used to power air conditioning, according to the study.
At its peak, in August 2010, domestic consumption was 2.9 million bpd compared to a low point for last year of 1.9 million bpd in November, when it was cooler and offices and shops were closed for part of the month because of the Eid al-Adha.
Consumption of petroleum products (which includes refined products and natural gas as well as crude oil) was 3.2 million barrels of oil equivalent per day in 2009, according to the Ministry of Petroleum and Mineral Resources.
This was nearly 69 percent higher than in 1999 and a whopping179 percent greater than in 1989, the report showed.
"The pace of consumption growth has picked up in recent years, from an annual
average of 4.8 percent between 2000 and 2004 to 5.9 percent between 2005 and 2009. If growth is maintained at this latter pace, domestic consumption of both oil and gas would reach 5.9 million barrels of oil equivalent per day by 2020 and 10.6 million barrels of oil equivalent per day by 2030."
Jadwa said the impact of the rapid growth in domestic consumption on local oil demand has been compounded by shortages of gas in Saudi Arabia.
It noted that four joint ventures between Saudi Aramco and foreign oil companies began searching for gas in the Empty Quarter in 2004, with their exploration areas covering 332,000 square kilometers.
But it added that the discoveries have not been that large and the exploration costs are relatively high. As a result, some projects that were based on gas feedstock are instead using crude oil as feedstock.
The report said oil is also increasingly being used to power water desalination and to generate electricity, adding that an average of 582,000 bpd of crude will be burned for power generation in 2011, up from 170,000 bpd in 2006.
"Setting aside natural gas and looking solely at the domestic growth in oil consumption, if continued at its average growth rate of the past eight years, then the Kingdom will be consuming 3.9 million barrels per day of oil annually by 2020, and 6.5 million barrels per day by 2030," Jadwa said.
"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 bpd. Recall this would be a portion of our base case view of total production of 11.5 million barrels per day, leaving the country with only around six million bpd for export."
Jadwa's figures showed Saudi Arabia's crude oil production stood at around 9.4 million bpd in 2005 before diving to 8.2 million bpd in 2010. It projected output to rebound to 9.3 million bpd in 2015, around 10 million bpd in 2020, to 10.7 million bpd in 2025 and a record high of 11.5 million bpd in 2030.
Domestic consumption stood at 1.9 million bpd in 2005 and surged to 2.4 million bpd in 2010. The report forecast it to swell to 3.1 million bpd in 2015, to 3.9 million bpd in 2020, to 5.1 million bpd in 2025 and 6.5 million bpd in 2030.
Oil exports fell from about 7.5 million bpd in 2005 to 5.8 million bpd in 2010 and are projected to dip to six million bpd in 2015, to 5.6 million bpd in 2020 and as low as 4.9 million bpd in 2030, the report showed.
© Emirates 24|7 2011
