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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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Saudi Arabia's Rising Domestic Oil Consumption to Threaten Exports?

Saudi Arabia is currently the world’s leading oil producer, containing approximately one-fifth of the world's proven oil reserves. According to the U.S. Energy Information Agency, Saudi Aramco reported that it had reached its target production capacity of 12 million barrels per day (bpd), even as Reuters reports that Saudi production is just under 10 million bpd.
 
Whatever the actual figures, Saudi Arabia nevertheless produces roughly one-third of the Organization of Petroleum Exporting Countries (OPEC) total output of roughly 30 million bpd.
 
Saudi Arabia’s economy remains heavily dependent on crude oil, as oil revenues have accounted for 80-90 percent of total Saudi revenues and more than 40 percent of the nation’s gross domestic product (GDP).
 
Accordingly, a recent report by the Saudi newspaper Al Sharq quoting Britain’s prestigious Chatham House think tank about rising domestic consumption should be the focus of attention of governments from Washington to Beijing.
 
Chatham House warned that rapidly rising domestic energy consumption is threatening the Kingdom's ability to meet the global demand for oil.
 
The solution?
 
According to Chatham House, the Saudi government should increase the price of fuel to decrease consumption beyond is current rate of 91¢ a gallon. The think tank further observes that although Saudi Arabia provides its citizens with fuel at low prices and charges below-cost fees for electricity and water, the policy cannot continue for long without affecting the ability of the Kingdom to provide the growing worldwide demand for oil.
 
But are lead-footed Saudi motorists tooling around the country in their SUVs really the biggest threat to the Kingdom’s oil exports?
 
And what if, Allah forbid, Saudi women eventually get the right to drive, effectively doubling the number of the country’s motorists? Should oil traders in NYC and London be quailing at the prospect?
 
Actually, the more immediate threats to Saudi exports come more from external foreign threats than hordes of hijab wearing mamas putting pedal to the metal blasting out of Riyadh for a day at the Red Seaside with the kiddies.
 
The biggest threat to Saudi oil exports is the rising tension between Iran and the U.S.
 
For better or worse, Saudi Arabia is heavily dependent upon exporting its crude oil through the Strait of Hormuz. Iran has threatened to blockade the strait in the event of a confrontation with the U.S. and Israel over its civilian nuclear energy program, which both Washington and Tel Avid insist in fact masks a covert nuclear weapons program, a charge Iran strenuously denies.
 
Why should this dispute unsettle Riayadh?
 
Simple – the Kingdom’s Ras Tanura refinery processing complex has approximately 6 million barrels per day (bpd) capacity and the world's largest offshore oil loading facility which includes the 2.5-million bpd port at Ras Tanura, which offloads more than 75 percent of Saudi oil exports.
 
Saudi Arabia also utilizes the 3-3.6-million bpd Ras al-Ju'aymah facility, again - on the Persian Gulf.
 
On its western Red Sea coast, Saudi Arabia exports most of its remaining 25 percent crude from its Yanbu terminal, which has a loading capacity of approximately 4.5 million bpd and an additional 2 million bpd for natural gas liquid (NGL) and other hydrocarbon products.
 
So, to put it mildly, if a Western-Iranian confrontation leads to the Strait of Hormuz being closed, then Saudi Arabia is –
 
… in a difficult position, to put it mildly.
 
Accordingly the Saudi Al Sharq Al Awsat newspaper is reporting that Saudi Arabia and its allies in the Gulf Cooperation Council (GCC) “believe they are forced to prepare for a war that they don't want, in light of the escalation between Iran and the U.S… These developments coincide with Iranian threats to close the Strait of Hormuz.”
 
Accordingly, Chatham House’s fixation on increasing Saudi domestic oil consumption threatening global oil exports seems a bit… daft.

By. John C.K. Daly of Oilprice.com




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  • Philip on January 13 2012 said:
    Its interesting how sometimes one article can put so much in perspective.Saudi internal oil consumption is increasing. Though this is unlikely to affect oil production as much as closure or a threat of such at the Straits, it might be an indicator of something else. More people (presently men) in Saudi are driving fuel guzzlers further and more often. perhaps. However what if, and its a big what if, as Mr Daly says (Allah forbid) women began driving as well...This might still not affect internal oil consumption as much as external events would, but how it might affect Saudi internal socio-politics is another matter entirely, not to mention socio-econimics if Saudi women (Allah forbid) becamer independant enough to increase their own purchasing powert. tbc...
  • Philip on January 13 2012 said:
    continued...The resultant upheaval in Saudi were any of this to happen might possdibly affect Saudi religion and regime in ways akin to a threatened closure of the Straits...I'm sure Iran would interested in promoting such a development.After all, propaganda to the contrary not withstanding, Iranian attitudes towards women's education and more equal status are by ME standards and cetainly by Saudi standards very progressive. Within the context of traditions of Moslem dress and etiquette (all this fuss about headscarves; Balkan Christian women have worn almost Moslem headscarves for genberations) Iranian women are very independant and liberated by ME traditional standards. Miuch more so than their Saudi sisters. Saudi is as scared of this aspect of Iranian influence as she is of more obvious Iranian capabilities. And this article indirectly just happens to point to that...

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