• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes The Inconvenient Truth Of Electric Cars
  • 8 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 24 mins Here we go folks, the wish of so many: Pres. Trump threatens to lessen US security role in Strait of Hormuz, unveils sanctions
  • 5 hours Climate change & Wildfires: More Wildfires To The Western U.S., Will Affect Tens Of Millions Of People
  • 8 hours Wonders of Shale - Gas, bringing investments and jobs to the US
  • 6 hours Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 14 hours Hard To Believe: UAE Will Work To Defuse Middle East Tension
  • 3 hours The Strait of Hormuz is the world’s most important oil transit chokepoint
  • 9 hours The Plastics Problem
  • 10 hours Looks like Trump is putting together a "Real" Coalition to protect Persian shipping lanes. Makes perfect sense. NO Fake "Coalition's of the Willing" UPDATE REUTERS Pompeo "Sentinel Program"
  • 3 hours Here We Go: New York Lawmakers Pass Aggressive Law To Fight Climate Change
  • 12 hours Cherry Picking Climate Data
  • 16 hours Oil Demand Needs to Halve: Equinor
  • 16 hours Green vs. Coal: Bavaria Seeks Fast-Track German Coal Exit in Snub to Merkel Plan
  • 8 hours Is $60/Bbl WTI still considered a break even for Shale Oil
Alt Text

Iran Won’t Leave OPEC

Iran has no intention of…

Alt Text

Expert: Chances Of U.S.-Iran War Are At Least 50%

There’s at least a 50-percent…

Rory Johnston

Rory Johnston

Rory Johnston is a Master of Global Affairs student at the University of Toronto’s Munk School of Global Affairs where he focuses primarily on the…

More Info

Premium Content

GCC Energy Subsidies Unsustainable, Says Oman’s Oil and Gas Minister

Energy subsidies have led to massive energy waste in Gulf Cooperation Council (GCC) countries, according to Mohammed bin Hamad al-Rumhy, Oman’s Oil and Gas Minister. Speaking at the Abu Dhabi International Petroleum Exhibition and Conference on Sunday, al-Rumhy stated that energy subsidies in the region are unsustainable in the long-term and pose a significant threat to GCC economies.

"What is really destroying us right now is subsidies ... We simply need to raise the price of petrol and electricity. In some countries in our region electricity is free and you leave your air conditioning for the whole summer when you go on holiday. That is really a crime," al-Rumhy said, “so you need to send a signal to the pockets of the public."

World v GCC Consumption
Source: EIA

Subsidized energy is causing demand within the GCC to balloon far faster than the global average. The region has seen natural gas consumption rise by 722% compared to a global average of 124%, and oil consumption rise by 405% compared to a global average of 41%. This energy demand growth has been fueled primarily by increased demand for transportation, electricity, and desalination in a region with very little fresh water.

Related article: Libya's Oil May be its Downfall

These countries are some of the largest energy exporters in the world and contribute needed liquidity to global markets. They also depend heavily on energy exports as a source of government revenue to fund the region’s generous social spending programs. However, these subsidies are causing domestic energy demand to rise too quickly, eating away simultaneously at both the primary source of government revenue and available state funds.

One can look to Saudi Arabia, the largest oil producer in the region, as a case study of this phenomenon. Saudi Arabia’s oil consumption has risen 369% since 1980 to approximately three million barrels per day, eating into its oil exports. While some of this rise is due to economic development and a growing population, Saudi Arabia also uses oil to generate the majority of its electricity. The EIA estimates that in peak summer months, when electricity demand for air conditioning is highest, Saudi Arabia burns more than one million barrels of oil per day to generate power.

Saudi Arabia Oil Consumption v Production
Source: EIA

Like other countries in the region, the Saudi state depends on oil export revenues for almost the entirety—over 90%—of its budgetary needs. Khalid al-Falih, CEO of Saudi Aramco, has warned that if current trends continue, Saudi Arabian domestic oil consumption is “on a pace to reach over 8 million bbl/d (oil equivalent) by 2030.”  This would drastically reduce the availability of oil for export and put tremendous fiscal pressure on the Saudi government.

Related article: Natgas In These 4 Places Just Became Worthless

Furthermore, this trend is not isolated to Saudi Arabia—IHS conservatively estimates that GCC oil and natural gas demand will grow over 50% by 2030, to 6.2 million barrels and 400 billion cubic meters per day of oil and natural gas, respectively. Solar and nuclear power plants are being considered as a means of shifting electricity generation away from oil and gas, but this will only serve as a temporary measure as it does little to flatten steep demand growth. A reduction in energy subsidies in the long-term is required to communicate the true cost of consumption to GCC populations.

Whether or not the GCC will actually raise energy prices is a different story. The GCC embarked on large social spending programs in the wake of the 2011 Arab Spring in the hopes of stemming the tide of revolutionary fervor sweeping through the region; cutting subsidies and raising energy prices now would undo much of the goodwill that has been gained. A difficult political decision is inevitable at this point—either GCC governments must address the unsustainability of energy subsidies now, or they will face certain fiscal hardship in the future.

For the sake of global energy markets, let’s hope they choose the former.

By. Rory Johnston




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News