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KSA prepares to scale back electricity subsidies

IHS Global Insight' Sam Ciszuk analyses latest government statements.

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Saudi Arabia is considing measures against excessive use of electricity.
Saudi Arabia is considing measures against excessive use of electricity.

Saudi Arabia is using about 877,000 b/d of its oil production to feed its power plants, Abdullah al-Shehry, governor of the kingdom’s Electricity and Co-Generation Regulatory Authority told a conference on Tuesday.

The kingdom’s use of about 11% of its crude production capacity was due to its high domestic electricity subsidies, which led to rampant demand growth and encouraged very wasteful consumption patterns, with al-Shehry saying that his agency now was preparing a plan to rein in subsidies while making sure that the low-income strata of society would not be hurt, Platts commodity news reports.

Recently, Saudi Aramco’s chief executive Khalid al-Falih warned that Saudi Arabia’s crude export capacity would fall by about 3 million b/d to under 7 million b/d by 2028 unless the kingdom’s domestic energy demand growth was checked. The KSA’s total crude production capacity currently stands at 12.5 million b/d.
Al-Shehry broke down the Kingdom’s power consumption to 53% going to the domestic sector, 14% to the state sector, 18% going to industries, 13% to commercial users, and agriculture, hospitals, and mosques taking the remaining 4%. Saudi Arabia in 2000 had a generation capacity of 21,000MW, which last year had grown to 41,000MW and still struggled to meet demand, while the generation cost in the kingdom averaged 14.2 halala (US$0.5) per kWh, despite being sold domestically at less then 12.5 halala/kWh.
A first-stage rise to 13.8 halala/kWh has been proposed, according to Platts, while al-Shehry also warned that refined fuel subsidies would lead to domestic demand growing from 3.4 million b/d in 2009 to 8.4 million b/d by 2028.

Saudi Arabia needs to tackle wastefulness now

Saudi Arabia is not the only country in the Middle East and North Africa region—where virtually all countries subsidise electricity and fuels heavily—that is struggling to keep up with domestic demand and to finance wasteful consumption, which increasingly has to be met by imports of, at least certain, products. Iran is far gone in this direction, while Saudi Arabia represents more of a middling case.
Still it needs to address the politically sensitive issues now in order not to lose its strategic spare capacity crude production cushion, which gives it such a dominant role within OPEC and provides much of its international relations strength.

 

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