Saudi Arabia’s oil exports warning

The head of Saudi Aramco, Khalid al-Falih, made a rather dramatic statement in a speech last week. The nation, the world’s biggest net oil exporter*, would have to divert a large chunk of its production capacity away from global markets and towards its own domestic needs,

Al-Khalil said Saudi Arabia would have to take some 3m barrels per day of oil off the global market by 2028, if the country does not become more energy efficient.

From Khalid al-Falih’s speech:

While energy is a key enabler of the Kingdom’s economic development and a major competitive advantage, we need to make sure that we use our precious oil and gas resources efficiently, wisely and minimizing waste. The total domestic energy demand is expected to rise from about 3.4 million barrels per day of oil equivalent in 2009 to approximately 8.3 million barrels per day of oil equivalent in 2028, or a growth of almost 250 percent.

We estimate that through improved efficiency, while maintaining the same economic growth, the increase in energy demand can be cut into half. This is a highly desirable goal because increasing domestic consumption of oil reduces the export availability. If no efficiency improvements are achieved, and the business is as usual, the oil availability for exports is likely to decline to less than 7 million barrels per day by 2028, a fall of 3 million barrels per day while the global demand for our oil will continue to rise.

As the FT reported:

It is believed to be the first time a Saudi oil official has so explicitly addressed concerns about the impact of domestic demand on exports. Analysts welcomed the announcement, saying the world’s largest oil producer and exporter needed to tackle the issue now.

It’s well-known that Saudi Arabia has something of a domestic energy consumption problem, and that this could squeeze its export capacity.

Saudi Arabia has the world’s fourth-largest proven gas reserves, but much of what is produced goes to oil production efforts. Its efficiency is poor, in part thanks to heavily-subsidised gasoline and electricity.

The biggest threat?

But is domestic consumption a problem that will fade in terms of simple declining output? Risk.net quotes Andrey Kryuchenkov from VTB Capital as saying that Saudi Arabia is essentially talking its own book – boosting oil prices. The bigger problem, he says, is Ghawar:

“Saudi Arabia is running out of oil and Ghawar field will exhaust itself in the end,” says Kryuchenkov. “It has been producing oil since 1948, which is unprecedented for any field and still accounts for around 55–60% of exports. The decline will accelerate from here and I think these are more immediate concerns than its consumption growing.

Khalil’s figures, he said, simply extrapolate current energy consumption growth rates, adding:

“As a rule of thumb in the oil industry, Saudi Arabia is seen as the following: a 5% decline in production and a 2% rise in consumption is approximately 15% decline in net oil exports. However, this is not the case just yet.”

On a related note – though Saudi Arabia’s oil has increasingly gone to Asia rather than the west, Petroleum Intelligence Weekly noted that Angola, not Saudi Arabia, was the biggest source of China’s imports last month. Update: Platts says it was neither Saudi nor Angola, but Venezuela.

*Although recently overtaken by Russia as the world’s biggest exporter, this is due to Saudi Arabia’s role in the Opec quotas.

Related links:

Saudi Arabia struggling with gas needs - FT Energy Source
The power of Saudi Arabia - FT Energy Source

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