Amjad Parkar Saudi Gazette SAUDI ARABIA, as a fast developing country, is becoming increasingly reliant on its fuel reserves to power its businesses, industries and households. According to the International Energy Agency (IEA), energy consumption in the Kingdom in 2011 was about 7,400 kilowatt/hours per capita and increasing at about 7.5 percent a year, while demand for gasoline is also increasing at a similar rate. The IEA's Middle East analyst, Christopher Segar, told Saudi Gazette that even though the Kingdom has just over 2 million barrels a day of oil refining capacity, in recent years it has had to import both gasoline and diesel. He said the country's 261 billion barrels of conventional oil reserves and production capacity of 12.5 million barrels a day would easily meet its rapidly increasing energy consumption rate in the medium term, but not in the long term. He said: “Already, demand growth in electricity has outpaced the capacity of the gas and fuel oil sectors to supply the power stations. “In recent years, more and more crude oil has been diverted to direct burning in the power sector . “It is estimated that this reached an average of over 500,000 barrels a day in 2011, but for the peak demand in summer it will have reached over 900,000 barrels a day.” The Kingdom's overall energy demand is estimated at 3.4 million barrels of oil equivalent a day (oil, gas and fuel oil combined) and it has been estimated that this figure could reach 8.3 million by 2028. This would mean 3 million barrels a day of crude oil would have to be diverted to the power sector. As Segar points out, this would mean the same amount of oil would be lost to the world markets and also cut the Kingdom's export revenues substantially, especially as current crude prices stand at $100 a barrel. To help meet its domestic energy demands, the Kingdom also has substantial gas reserves, which Segar said was never intended for exporting. Saudi Arabia has a reported 286 trillion cubic feet of gas reserves and produces 10 billion cubic feet a day, expected to rise to 15.5 billion by 2015. The Kingdom aims to meet this increase in production through Saudi Aramco's development of the country's first offshore field, the Karan field, and its ongoing development of the Hasbah and Arabiyah fields. It is important to emphasize that while the long-term scenario is worrying, there are plenty of opportunities to ensure energy demands are met in the medium-term at least. Three refinery projects in Jubail, Yanbu and Jazan are expected to come on stream over the next three years, each with a capacity of 400,000 barrels a day, while seven gigawatts of power capacity is currently under construction. The Saudi Electricity Company also says it aims to reach 77 gigawatts capacity by 2020. Energy demand in Saudi Arabia has been fueled mainly by rapidly increasing population, which has reportedly grown by 180 percent between 1980 and 2010 according to the United Nations. GDP growth has also been a factor, with the International Monetary Fund estimating it at 7 percent in 2011 and forecasting a 5 percent growth in 2013. The Kingdom has to rely on desalination techniques for its water needs and processes a reported 3.5 million cubic meters of water a day, a figure that is set to grow. Segar said per capita consumption of water is 235 liters a day, nearly twice the global average. According to IEA, the high temperatures in the Kingdom is also a driver for energy demand, with the building sector accounting for as much as 80 percent of total power demand, with 70 percent of that taken up by air conditioning. Segar said: “Last but not least, fuel and electricity prices are, understandably enough, very low by world standards. Gasoline is about $0.12 a liter. “Electricity charges are graduated according to monthly consumption, but only range between $0.03 and $0.06 per kilowatt/hour. “At these prices it is difficult to encourage drastic energy savings.” Segar said the IEA emphasizes on the importance of energy efficiency in order to reduce energy consumption. Indeed, the agency's World Energy Outlook 2012 report outlines the substantial potential savings that can be made from investing in energy efficiency, both in terms of reduced fuel spending and lower costs on the supply side. Segar said the opportunities for promoting energy efficiency in the Kingdom are numerous, with the building sector a good starting point. “One of the advantages here which Saudi Arabia shares with many of its Middle East neighbors is the relatively rapid development of the housing stock and of the commercial building sector generally. “A recent estimate suggests that the Kingdom will need an average of 200,000 housing units every year over the next decade. “If these can be built to the latest insulation and ventilation standards, the long-term savings could be considerable. Likewise, a visitor has only to glance at the pace of commercial development in the major Saudi cities to see the scope for equivalent savings there too.” Segar said the government's recent decision to implement appliance standards for air conditioning units that are produced locally and imported is a quick way to reducing energy consumption in buildings. “In conjunction with that, the introduction of smart grids and smart metering can go a long way to reduce peak loads and thus the strain on the power system in high summer.” He also recommended trying to push vehicle fuel consumption up from 20 miles to 50 miles a gallon combined with investment in public transport systems such as the Riyadh Metro and a railway freight system operating throughout the Kingdom. There are also opportunities for reducing energy consumption in industry and power generation, said Segar. “The Saudi Electric Company is already open to supply from independent power producers (IPPs) who bring in international investment (on a project finance basis) and offer international experience in optimizing large-scale power systems. “Domestically, both the Saline Water Conversion Corporation and Saudi Aramco will in the future be net producers of energy and should be able to feed into the grid. “It seems that the Electricity Cogeneration Regulatory Authority is working to bring this about.” The other obvious route for reducing reliance on fossil fuels is to focus on renewable energy. In an April article on renewable energy opportunities in the Kingdom, Saudi Gazette reported that Saudi Arabia's government had announced plans to supply nine gigawatts of power from wind farms along the Red Sea coast the Arabian Gulf, in addition to 41 gigawatts of solar power by 2032, allocating $109 billion to achieve this aim. It has already reportedly planned a first round wind tender of 650 megawatts and a second round of 1.05 gigawatts, with the whole scheme being run by the King Abdullah City for Atomic and Renewable Energy (KA-Care). As a result, the Kingdom achieved a place for the first time on Ernst & Young's All Renewables Index at No. 37, a ranking that the firm believes will improve if the country manages to convert its plans into tangible solutions. In addition, Saudi Arabia has also earmarked $100 billion to build 16 nuclear stations that will supply 18 gigawatts of power. The first phase of solar power projects is expected soon to be launched and managed by KA-Care. Segar said: “To put the costs in perspective, the first seven gigawatts of solar power to be installed by 2020 should save at least 1 billion cubic feet a day of gas based on a combined cycle gas turbine unit operating at average summer conditions. “Integration with the grid is a key step. It appears that KA-Care and Electricity & Co-Generation Regulatory Authority are working to set up a Sustainable Energy Procurement Company to supply the grid through appropriate power purchase agreements (PPAs). “The design of the PPAs on offer should be such as to encourage international participation in the renewable energy sector as well as using a feed-in tariff to allow industry to sell any surplus power back into the grid.” There are also opportunities for local solar photovoltaic industries to play their part in helping to reduce energy consumption, by giving customers the opportunity to install PV systems to feed power back into the grid at medium and low voltages. “Solar power does not have to be a substitute for a gas-powered generating station. Especially at today's prices, it can operate effectively at the retail level in both the residential and the light industry sectors.” He said it was encouraging that Saudi Arabia was already implementing local-level renewable energy solutions such as a solar powered public lighting system in Makkah. It is important then for Saudi Arabia to maintain its revenue levels from oil exports to allow the country to invest in energy efficiency solutions while doing its best to curb sharply increasing domestic energy demand. Segar said with a current capacity of 12.5 million barrels a day and production somewhere between nine and 10 million barrels, the current need to supply crude to the domestic market at levels of 500,000 barrels is manageable, though in recent years the summer peak of domestic crude oil demand of close to 1 million barrels has been significant. “As a number of prominent Saudi officials have pointed out, there is a danger that unless the sharp upward trend in domestic energy demand is moderated, consumption could reach a point where close to 3 million barrels a day of crude could be lost to exports. This would have serious implications.”
