Saudi  Arabia’s  Energy  Crisis  

Posted  on  May  15,  2012  by  admin   By  Robert  W.  Lebling     The  good  news  for  Saudi  Arabia  is  that  its  economy  is  booming.  The  bad  news  for  us   –  and  for  the  Saudis  as  well  –  is  that  the  Kingdom  is  consuming  more  and  more  of  its   precious  petroleum  resources,  and  within  a  decade  may  have  to  begin  cutting  back   on  its  oil  exports  to  the  rest  of  the  world.    

  Saudi  Arabia     Chatham  House,  a  leading  international  affairs  think-­‐tank  based  in  Great  Britain,  has   spent  over  a  year  studying  energy  use  in  Saudi  Arabia  and  reports  that:   • Energy  consumption  has  been  climbing  since  the  early  1970s  and  shows  no   slowdown  in  response  to  dips  in  the  oil  price;   • Oil  and  gas  continue  to  account  for  all  of  Saudi  Arabia’s  energy  production,   with  oil  continuing  to  dominate  the  energy  mix;  and   • Steady  diversification  into  gas  began  in  the  early  1970s;  but  Oil’s  share  in  the   energy  mix  has  nevertheless  begun  to  rise  again  over  the  last  six  years.     Trends  and  Indications  for  Stabilizing  Global  Energy  Markets     In  a  recent  report  entitled,  “Burning  to  Keep  Cool:  The  Hidden  Energy  Crisis  in  Saudi   Arabia,”  Chatham  House  researchers  Glada  Lahn  and  Prof.  Paul  Stevens  said   unchecked  growth  in  energy  consumption  in  Saudi  Arabia  was  a  “cause  for   international  concern.”  If  it  continues  at  its  present  rate,  this  would  threaten  the   Kingdom’s  ability  to  stabilize  world  oil  markets.  

Current  consumption  trends  in  the  Kingdom  could  deprive  the  world  market  of  up   to  2  million  barrels  per  day  (bpd)  by  2020,  under  the  International  Energy  Agency’s   supply  scenario.  Khalid  Al-­‐Falih,  president  and  CEO  of  Saudi  Aramco,  the  Kingdom’s   national  oil  company,  has  warned  that  Saudi  crude  export  capacity  would  fall  by   about  3  million  bpd  to  under  7  million  bpd  by  2028  unless  domestic  energy  demand   growth  is  checked.

                                       Source:  United  States  Energy  Information  Administration.  Graph  by  Index  Mundi.     Fiscal  and  Social  Implications     Current  trends,  if  unchecked,  will  also  cause  mounting  economic  and  social   pressures  on  the  Saudi  Government.  Without  income  from  oil  exports,  the  Kingdom   won’t  be  able  to  pay  for  its  ambitious  social  programs.  Saudi  Arabia  currently  relies   on  oil  revenues  for  about  80  percent  of  its  government  spending,  according  to   official  figures.     Chatham  House  warns  that  present  Saudi  energy  policies  are  not  enough.  Plans  to   add  renewable  power  would  help  maintain  fiscal  balance  for  another  two  or  three   years,  but  that’s  all.  As  for  Saudi  plans  to  move  into  nuclear  power,  given  the  lead  


times  involved,  this  initiative  would  have  little  or  no  impact  within  the  coming   decade,  when  serious  problems  will  start  to  mount.    

  Solar  Research  Center  outside  Riyadh,  Saudi  Arabia  ©  Martin  Prochnik,  2009     Saudi  Arabia  hopes  to  buy  itself  some  time  with  major  energy  conservation  efforts.   Saudi  Aramco  is  pursuing  an  initiative  in  cooperation  with  the  Kingdom’s  utilities   and  business  sector  to  generate  massive  energy  savings  on  as  rapid  a  timetable  as   possible.  This  initiative  includes  moves  into  renewable  power  sources  like  solar  and   wind,  plus  efforts  to  slash  energy  waste  and  duplication  and  create  a  business   culture  sensitive  to  energy  efficiency.     Over  half  of  the  power  used  in  Saudi  Arabia  in  the  summertime  goes  into  air   conditioning.  Saudi  Arabia  has  a  vibrant  AC  manufacturing  industry,  but  the  current   business  practice  is  to  export  high-­‐efficiency  units  to  other  countries  and  sell  the   cheaper,  low-­‐efficiency  air  conditioners  inside  the  Kingdom.  Tougher  regulations   are  needed,  but  communication  efforts  with  the  Kingdom’s  consumers  are  also   required,  to  acquaint  local  shoppers  with  the  importance  of  buying  high-­‐efficiency   units,  even  if  they  cost  more.     Chatham  House  believes  “huge  economic,  social  and  environmental  gains  from   energy  conservation  are  possible  in  Saudi  Arabia”  but  it  cautions  that  the   longstanding  Saudi  tradition  of  low  energy  prices  and  the  Kingdom’s  sluggish   bureaucracy  pose  “challenges”  to  implementing  needed  pricing  and  regulatory   reforms.     “Raising  prices  is  politically  difficult  but  international  experience  can  help  in   preparing  society  through  a  range  of  efficiency,  educational  and  infrastructure   adaptation  measures  to  smooth  the  transition,”  the  report  said.  “This  must  be  done   within  a  package  of  measures  that  increase  private-­‐sector  employment  for  Saudi   nationals.”  

  Human  Resource  Challenges     On  this  latter  point,  Saudi  Aramco  has  just  announced  a  new  educational  program   that  seeks  to  provide  critical  training  for  some  two  million  Saudi  young  people   entering  the  work  force  by  2020.  The  program  is  in  keeping  with  King  Abdullah’s   vision  of  creating  a  “knowledge  economy”  in  Saudi  Arabia  –  similar  to  that  of  South   Korea  or  Singapore.  It  would  also  reduce  the  Kingdom’s  dependence  on  expatriate   labor.     Ithra  Youth,  a  new  national  initiative  announced  this  month  by  Saudi  Aramco’s  Al-­‐ Falih,  aims  to  help  teach  young  people  the  principles  of  science,  math,  engineering   and  technology  skills,  as  well  as  special  skills  to  build  personal,  lifelong  learning   skills.  Beginning  in  June,  the  program  will  provide  500,000  hours  of  training  in  2012   alone.     And  where  will  the  new  jobs  come  from?     Saudi  Aramco  is  banking  to  a  large  extent  on  the  petrochemical  sector.  The  oil   producer  is  joining  forces  with  Dow  Chemical  in  a  venture  called  Sadara  to   manufacture  a  wide  range  of  petrochemical  products  in  Saudi  Arabia  and  hopefully   spark  a  new  generation  of  industries,  creating  plastics  and  other  products  for   domestic  and  export  markets.    

  Saudi  Arabia's  proposed  "Economic  Cities"  ©  OECD,  2011     Presumably  the  Kingdom  will  also  be  moving  into  its  own  renewable  energy   industries.  Over  the  relatively  short  term,  Saudi  Arabia  is  aiming  to  generate  about   10  percent  of  its  power  needs  from  solar  energy  by  the  year  2020.  Saudi  Aramco  

and  Showa  Shell  of  Japan  hope  to  begin  producing  thin-­‐film  solar  cells  in  Saudi   Arabia  within  a  few  years.  The  two  companies  have  already  launched  a  pilot  solar   power  plant  project  in  the  Kingdom  and  are  planning  others.  We  can  anticipate   similar  moves  for  other  renewable  energy  sources.     The  Kingdom’s  master  plan  for  creating  six  “Economic  Cities”  throughout  the   country  shows  a  desire  to  diversify  the  economy  beyond  the  hydrocarbon  sector.   The  cities  will  take  advantage  of  the  knowledge  economy  concept,  emphasizing   education  and  advanced  communication  technologies.  But  these  projects  will  take   many  years  to  complete.  The  first,  King  Abdullah  Economic  City  north  of  Jeddah,  is   scheduled  for  completion  in  2020,  but  most  observers  say  that  is  a  very  optimistic   deadline.     ROBERT  LEBLING  is  a  Senior  International  Affairs  Fellow  at  the  National  Council  on   U.S.-­‐Arab  Relations  and  a  communications  consultant.  He  has  worked  as  a  journalist  in   Egypt,  Lebanon,  and  Saudi  Arabia,  and  as  a  corporate  communications  specialist  for   Saudi  Aramco.­‐arabias-­‐energy-­‐crisis/    

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