One major policy challenge is the rapid rise of domestic fuel consumption which will decrease high-value crude oil and gas monetization. Latest data indicate that local consumption of oil and natural gas accounted for an overall 37% share of total production in 2010. This has prompted investments in renewable energy sources, as well as energy conservation initiatives to ensure sustainability.
All the fuel for Saudi Electricity Company (SEC) power generation is supplied under long-term arrangements by Saudi Aramco, with prices set by the government. Fuel consumption for power generation alone, including both liquid fuels and gas, has grown by 75% since 2000 to reach 53mn tons of oil equivalent (toe) in 2009, equal to an estimated 1,069,037 b/d of oil. Over the same period, consumption of heavy fuel oil, crude oil and diesel grew by 73%, 75% and 44%, respectively.
The supply of crude oil, however, has come under pressure following a government decision to free up oil stocks for export and higher-end uses rather than for direct-burn power generation. (Direct burn refers to crude oil which has not been processed in oil refineries and is burned for power generation and in water treatment/desalination plants.)
As a result, more gas has been allocated to power generation. According to the Kingdom’s Electricity and Cogeneration Regulatory Authority, between 2000 and 2009 gas consumption for power generation grew by 94% to reach 22,095mn cubic meters. In 2010, crude oil continued to command the largest share, at 40% of fuel consumption.
In 2011, this decreased by 3%, while the share of gas climbed to 37%. Saudi Arabia is boosting output from its non-associated offshore Karan and Rabib gas fields as a substitute for the oil it burns to meet domestic demand for electricity. By June of this year, Karan’s gas production was expected to reach 1.5bn cubic feet per day (cfd), up from last summer’s 400 million cfd. It is forecast to climb to 1.8bn cfd by April 2013.
Figures posted on the Joint Organization Data Initiative’s (JODI) website reveal that direct burning of crude oil is at its highest during the months of May until September, when the Kingdom’s climate is hottest. Daily consumption has averaged 698,000 b/d for these five months over the past three years. In May of this year, Saudi Arabia cut this back to 559,000 b/d, a 19.7% reduction from the 696,000 b/d consumed in May 2011 and the lowest to date since record keeping commenced in 2009.
Households are the largest consumers of electricity, with approximately 5mn residential subscribers accounting for 49.7% of the total, or 109,261 GWh, in 2011. Heating, Ventilation and Air Conditioning (HVAC) units, on average, represent a significant 70% of residential consumption, due in part to the lack of insulation in buildings and the installation of older and less efficient air conditioning models. The majority of residential air conditioning in the Kingdom is not sufficiently efficient at high temperatures. Under the Montreal Protocol, which Saudi Arabia has ratified, the use of hydrochlorofluorocarbons (HCFCs) in refrigerants is to be phased out gradually to decrease greenhouse gas emissions. This is to be directed by the Saudi Standards, Metrology and Quality Organization (SASO), and compliance with these regulations was made compulsory starting in mid-2010.
As the country undertakes large investments in social and physical infrastructure, it is expected that the air conditioning market will grow at a healthy pace. This brings to the fore – once again – the issue of higher fuel consumption, particularly during the hot summer months.
SEC recently warned that peak hours of the day occur between the hours of 1300-1600 and that electrical appliance usage should be kept to a minimum. The Saudi Energy Efficiency Center has categorized the Kingdom as energy inefficient. Based on US Energy Information Administration data, its energy production was 14,409 BTU per dollar of GDP in 2009 and had increased by approximately 22% since 2000.
Malaysia, comparable to the Kingdom in terms of both population and level of development, stood at half that figure at 7,555 BTU per dollar of GDP during the same year, down by an estimated 7%. The current US figure is 7,340 BTU per dollar of GDP, having declined by 17% since 2000.
Moving forward, Saudi Arabia should enact stronger legislation to ensure that air conditioners, whether imported or produced locally, are more energy efficient and accordingly reduce their call on the Kingdom’s fuel supplies. Other steps include mandating the energy conservation requirements contained in the Saudi Building Code (SBC 601), which could reduce the electrical energy consumption in residential buildings by 15–30%.