Thursday, 8 September 2011

How much oil will Saudi Arabia have spare to export?

For a long time the Export Land Model has been used to argue that as a country's internal oil consumption rises, less is available for it to export. This makes sense, and as long as oil prices rise, the exporting country may continue to earn sufficient income from its reduced exports. Normally we think of this increased domestic oil demand as coming from greater economic activity, resulting in more cars and trucks driving around, or more oil being used in industry. In Saudi Arabia however there are two other significant sources of demand...

The first is air conditioning, which needs electricity. Most countries avoid burning oil or oil-derived fuels to generate electricity as they are too expensive, but Saudi Arabia burns crude oil in some of its power plants, so more air conditioning results in more domestic oil use.

The second is desalination. Saudi Arabia has very little water, and oil-fired desalination plants are used to produce the water needed for agricultural, industrial and domestic use.

A recent article from Reuters said:

The International Energy Agency and analysts at HSBC bank estimated Saudi Arabia's rate of direct crude burning more than doubled from 2008 to 2010 because of a rapid rise in power demand and a shortage of natural gas. How much of that went to desalination is not known but experts believe it is significant.
Of course, the ideal would be that water is used more carefully, but if this doesn't happen, and demand for aircon keeps rising, the rate of oil exports from Saudi Arabia could be falling pretty quickly before too long...


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