Saudi Arabia’s energy challenge

By Malini Hariharan

Saudi Arabia’s growing oil demand is rapidly becoming a matter of concern for the country’s planners. A new report forecasts that the Kingdom could fail to meet domestic demand in 2030 if current consumption trends are maintained.

Saudi Arabia, the world’s largest crude oil exporter, is already consuming a third of its output and has one of the highest per capita consumption levels. And demand is projected to grow rapidly in the coming years especially from the power sector which is expected to expand at 7-8% annually for the next ten years.

How the government responds to this challenge has implications for the rest of the world and also extends to the petrochemicals industry.

The efforts so far are focused on boosting crude oil production and investing in alternatives such as solar and nuclear power which would free up oil for lucrative exports.

Plans have already been made to build 16 nuclear reactors over the next 20 years at a cost of more than $300bn and nuclear power is projected to meet 20% of the Kingdom’s power needs.

The Saudi oil minister Ali-al-Naimi has very confidently stated that the country has the potential to produce enough solar power by 2020 to meet more than four times global demand.

And the government’s seriousness to promote this alternative is source is evident in Saudi Aramco’s decision to form a joint venture with Saudi Electric Co and Show Shell Sekiyu to develop a 500kw solar plant on Farasan Island.

But going solar or nuclear will only partly solve the problem. The Saudi government spends nearly $13bn a year to subsidize power and water consumption for citizens.

The bigger challenge will be to manage demand growth by raising domestic prices of electricity and gasoline to international levels- a sensitive task given the social unrest that the Middle East and Arab world has been seeing.

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