Saudi Arabia's Place in the World Oil Market - Essay Example

CRITICALLY REVIEW HOW SAUDI ARABIAS PLACE IN THE WORLD OIL MARKET IS THREATENED BY UNRESTRAINED DOMESTIC FUEL CONSUMPTION, AND HOW THE COUNTRY IS RESPONDING, IN THE MEDIUM- TERM [10-25 YEARS], TO THIS THEAT. By Author’s Name Name of the Class Name of the Professor Name of the School City, State 28 December, 2014 Introduction Middle East and North Africa regions normally identified as MENA are known to hold the bulk of oil reserves around the globe. Saudi Arabia is a member of OPEC and a major player in the global oil market. Until recently, Saudi Arabia had been the leading country in both proven crude oil reserves and oil exportation to the rest of the world. However, recent research revealed that Venezuela in South America had surpassed Saudi Arabia by approximately 2 percent in oil reserves (EIA, 2014). Saudi Arabia remains the largest supplier and hosts the largest oil deposit field known as Ghawar field, not to mention the other 7. Unlike non oil producing countries, Saudi’s consumers experience the advantage of low oil prices and easier access even during its shortage. Saudi has strived to meet the demand of its nation and the global market, but recent trend in production and consumption have exposed its possible threats in future. The hiking demand of its domestic fuel consumption is a major internal challenge and threat to Saudi’s place in the global oil market. Hence the country seeks to implement strategic long and medium term structural changes to offset and eventually eliminate the threat. How unrestrained domestic fuel consumption is a threat for Saudi Arabia The amount of Saudi Arabia’s oil export risks declining in future, due to the rapid growth of its domestic oil consumption. Over the last decade, the population of people have increased by approximately eight million and it economy expanded, which was in line with the high immigration and huge investments for industrial purposes (Callahan, 2011). Saudi Arabia has a relatively low population of people than most developing countries, but ranks the sixth in oil consumption worldwide (Gately, Al-You-Sef and Al-sheikh, 2011). Back in 70s, the country’s population was less than 15 million, but since its oil exploration and production began, the number has risen to around 28 million. This growing population have rapidly shifted its demand in energy consumption and would adversely affect the rate of oil exportation from KSA. Oil is the major source of energy used in running industries’ activities and highly relied upon for residential consumption. Its population is no doubt intertwined to its high energy demand and level of oil export in future. The high energy requirement for Saudi has been driven by the increasing per capital demand. Consumption of oil per day by end of 2011 had almost doubled a day’s consumption a decade ago. Official records revealed that between 2003 an d 2010, the domestic consumption hiked by more than 5 and later to 7 percent annually between 2009 to 2012 (2.4 and 2.8 million barrels per day (bpd) in 2010 and 2011) (Fineren, 2011). Huge subsidies in energy have also fuelled the demand to exceed the KSA’s GDP growth annually. At its current consumption rate, it may fail to maintain its oil export level within the next decade if its oil production rate remains constant with almost double consumption rate. Its economical influence and capability to play a stabilizing role in the global oil market will be at risk (Lahn and Stevens 2011). KSA would have to consume more (inclusive a substantial share of export) or be an oil importer, which imply another producer may take the dominant place in the oil market as KSA’s oil export decline. KSA’s medium term response to the threat Improving energy production With the increasing households and commercial activities’ demand for more energy, the KSA intends to enhance its energy production to meet the domestic needs. Electricity capacity has to double in the next two decades to sustain the nation. Apparently, most people currently use electronic appliances in their homes automating even the simple task, which all contribute to high electricity demand. According to Hamdan “Saudi Arabia is planning a huge expansion in generating capacity, to 120 gigawatts by 2020 from 55 gigawatts now, with further increases in the years to 2032” (2014). This is expected to meet the fluctuating demand of electricity during the winter and summer and cater for economic development in the future. KSA will achieve it by investing in renewable energy. Renewable energy: Saudi Arabia has in the past harvested its power from the hydrocarbons. As the resources are also depleting with time, the need to invest in green energy has arises. First, Saudi Arabia lies in the desert, a region with high level of direct normal irradiation (DNI) and large areas of empty space suitable for solar power harvesting (Aljamaan, 2012). Solar energy has been tapped elsewhere in developing and industrialized nations with limited space and positioning for radiation, yet has successfully minimized energy consumption. Saudi Arabia has invested in clean energy technologies and intends to harvest about 41 GW from the solar energy by 2032 (EIA, 2013). Though it requires a high capital investment it will help the country preserve its high oil revenue from exports and retain its place in future. Geothermal prospects are also ongoing in Harrat volcanic sites of Saudi Arabia. Nuclear power is another strategy in diversifying its energy production. Saudi Arabia hydro carbon resources are already produced beyond capacity and may not last forever. While neighbouring countries like UAE have advanced in nuclear power research, Saudi’s increasing needs have forced the government and energy committee to assess the probability of atomic energy consumption. In 2011, the minister of commerce and industry announced that approximately “US$100 billion would be invested in building the 16 nuclear power plants to produce electricity” (Al-Tamimi, 2013, p.122). Saudi Arabia’s energy research centre has entered in agreements with foreign partners in development of the nuclear energy on issues concerning identification of the locations, raw materials and technologies required, nuclear reactors themselves and waste management among others. The plan entails 17 GW productions by 2032 (EIA, 2013). Energy regulation and price reforms The government has been reviewing its welfare program and energy subsidies it offers the domestic consumers to assess how to recover the forgone revenues. Having established its inefficiency in high energy subsidies, it moves to reform its energy prices. It will gradually increase the prices of electricity in several phases to curb the growth of unrestrained demand. However, no plan has taken place in reduction of subsidies or energy prices so far. The other plan is improving awareness for energy conservation in the society by providing standard electronic appliances for household use. This seeks to induce behavioural change in electricity and energy for better management and efficient use. Conclusion The skyrocketing domestic fuel consumption of Saudi Arabia risks demanding a double share in future, which imply cutting back oil exportation to the word oil market to meet the domestic needs. The government intends to improve its electricity generation in the medium term by investing in nuclear and renewable energy, reforming energy prices and employing energy control measures. The reduction in spending of oil will spare a greater share which would be channelled back to exportation and ensure Saudi Arabia retains its place in the world oil market. References Aljamaan, H. 2012. The Importance of Solar Energy in Saudi Arabia. [Online] Available at:[Accessed 29 December 2014] Al-Tamimi, N. M. 2013. China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience Or Strategic alliance. Oxon: Routledge Callahan, J. 2011. Saudi Arabia Oil Exports to Decrease Due to Increased Domestic Demand. [Online] Available at:[Accessed 28 December 2014] EIA. 2013. Energy profile of Saudi Arabia. [Online] Available at: Read More