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Saturday, May 14, 2011

The Saudi Oil Sinkhole


Friday's Financial Times reported on Saudi Arabia's booming oil consumption, which threatens to eat ever larger portions of its vast production.  Saudi currently uses 3.2 million barrels of oil per day, making it the eighth largest petroleum consumer in the world.  The chart above uses 2009 data, which is the latest dataset available from the U.S. Energy Information Administration, at which time Saudi's consumption was only 2.4 million barrels per day.  The 30 percent increase over the past two years is not reflected in the chart.  If reforms are not enacted, Saudi consumption is projected to grow to 8 million barrels per day in 2028, against a current production that bounces around 9 million barrels per day.  By comparison, the U.S. consumes 18.8 million barrels daily.  When you consider the population of each country, the U.S. uses only half of what the Saudis do per capita; despite being a far more advanced economy with greater industrial and transportation needs.  In the 2009 dataset, Qatar, UAE, and Kuwait outstripped Saudi consumption per capita, but it seems that Saudi has since caught up to all but Kuwait.  All but Oman and Bahrain use far more than the U.S.  A significant culprit in this is the subsidies that Gulf states pour into energy for domestic consumption, encouraging wasteful practices (like having an indoor ski slope in one of the world's hottest and driest places).  Yet, the Gulf monarchs are probably not eager to remove these props at a time when they are especially sensitive to stirring up any more public dissent.  The problem with the current Gulf model of development is that it is predicated on heavy industries, opulent developments with lush grass in the middle of the desert, massive buildings, and so forth, all of which require petroleum to fuel and run on utilities that are heavily subsidized. Once these supports are removed, the model will change entirely, making it far more difficult to sustain a model that has already been over-speculated.

What is more, these sectors are staffed largely by expatriate specialists (from the West and some high-skilled professionals from the developing world) and laborers (mostly from south Asia).  The heavy industry and real estate projects are an attempt to balance the oil sector with new rent opportunities.  Unfortunately, the projects are not creating sufficient job opportunities for local nationals with respect to their skill level and desired mode of employment.  That is, the local educational systems are not putting out enough skilled professionals to displace those upper level expats, while the locals do not want to do the labor that will displace the low-skilled expats.  The transformation required is significant and will take some time to enact.  Really, it will be a generational change and likely will be significantly destabilizing until a new mode of socio-economic and political organization is found in the Gulf.

The data comes from the U.S. Energy Information Administration for consumption data and World Bank and U.S. Census Bureau for population statistics.

1 comment:

  1. The problem with the current Gulf model of development is that it is predicated on heavy industries, opulent developments with lush grass in the middle of the desert, massive buildings, and so forth, all of which require petroleum to fuel and run on utilities that are heavily subsidized. Once these supports are removed, the model will change entirely, Ascenergy

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