By March 7, 2017 Read More →

Saudi Arabia to conserve oil at home to meet demands abroad during supply cut

Saudi Arabia

Saudi Arabia hopes a reduction in domestic crude use will free up oil for export and make the upcoming Saudi Aramco IPO more attractive to investors.

Saudi Arabia moves to natural gas in power stations

Oil-rich Saudi Arabia is hoping to reduce its crude consumption this summer by shifting some of its power plants from oil to natural gas.

The move would free up more crude for export, and not force the kingdom to push output to the record high of 10.67 million b/d reached last July.  With more crude to export, it would also make the upcoming Saudi Aramco IPO sale more attractive to investors.

“More volume (exported) abroad means more revenue for investors,” an industry source told Reuters. “That should help Aramco’s valuation.”

For years, the kingdom subsidized energy costs and kept power and fuel prices at a fraction of cost price, ultimately straining government funds and not encouraging consumers to buy smaller cars or switch off air conditioners even when they are not home.

After the crash in oil prices, with state coffers lacking, the kingdom looked for ways to wean Saudi Arabia off cheap energy and encourage use of its massive natural gas reserves.

“That’s a national objective. Aramco’s been doing this for years, reducing crude burning by increasing use of gas and encouraging the state power generation sector to become more efficient,” another source familiar with the matter told Reuters.

In December of 2015, the government hiked electricity rates for industry and prices at the pump by about 50 per cent and more gradual increases are planned up to 2020.

Despite the energy price increases, energy costs remain low and residents are good customers.  Saudi Arabia is the fifth largest energy consumer in the world with the 20th largest population size.

During the hottest months, from May to August, the kingdom burned an average of 700,000 b/d of oil to power electricity plants to help keep citizens cool.  Saudi Arabia is looking to move from oil to natural gas as the fuel for power plants.

To meet the demand, Saudi Aramco is expected to nearly double gas production to 23 billion standard cubic fee a day in the coming decade.

 

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