Saudi Arabia is the world’s largest crude exporter, contains a massive 16 percent of the world’s proven oil reserves, and has the world’s fifth-largest natural gas reserves, to boot. It is, in other words, awash in hydrocarbons. Why, then, is Riyadh so reliant on burning oil, an energy source best suited to be a transportation fuel, to provide electricity? Last July, Saudi Arabia consumed nearly a million barrels of oil per day, a number it’s sure to match as temperatures once again rise this summer.Using natural gas is the more efficient option for electricity production, and a better choice than burning the country’s key export commodity at home. But as the FT reports, government subsidies and the way that gas must be extracted (it’s pumped from the same wells as crude) are handcuffing Saudi attempts to tap those prodigious reserves:
Although [Saudi Arabia] appears to already have a huge supply, worth 77 years of consumption, much of this gas can only be produced together with the oil that the country has in reserve. Only increasing oil production excessively would enable the extraction of this associated gas. But that is not an option for a so-called global swing producer of crude. So it will need to look elsewhere to meet its future consumption needs. […]…[I]ncreasing production may make little commercial sense as the natural gas price is subsidised at $0.75 per thousand cubic feet, roughly a quarter of the US price. At that price, only very large discoveries of gas reserves would be economic. Importing expensive liquefied natural gas is not an option at such low domestic prices. Besides, the Saudi petrochemical industry, which uses gas as an input, objects to higher costs when it has a mandate to expand chemical exports.
The EIA also points to the high sulfur content of Saudi gas as a reason why the country is finding it difficult to attract producers.Saudi Arabia’s economy is growing and its electricity consumption is swelling even faster, putting even more pressure on this push to find an alternative to oil-fired power plants. Riyadh surprised many over the past year when it refused to cut production, as it had worked to do with OPEC in the past; this time around, the Saudis seem intent on abdicating the role of global swing producer, and indeed production hit a nine-and-a-half year high in March. This new drill-crude-at-any-price tactic could boost associated domestic gas production, though the subsidy problem will remain a tricky issue for Riyadh.It just goes to show, even one of the world’s most energy-rich countries can face power problems.