x Abu Dhabi, UAESunday 23 July 2017

Concern over Saudi Arabia's summer diesel consumption surge

Saudi Arabia shipped in 9 million barrels of diesel last month to feed peak power demand. One bright solution would be to add renewables to the energy mix.

Diesel is used extensively in Saudi Arabia as a fuel for transportation and to generate electricity. Fahad Shadeed / Reuters
Diesel is used extensively in Saudi Arabia as a fuel for transportation and to generate electricity. Fahad Shadeed / Reuters

As Ramadan approaches, there is a unique trend that is about to engulf the entire Middle East - a rise in food consumption. In the kingdom of Saudi Arabia, there is a second trend that is equally eye-catching - a spike in diesel consumption.

In Saudi Arabia, diesel is used extensively as a fuel for transportation and for electricity generation. As people entertain more during Ramadan, they use more air conditioning, hence more electricity.

This year, the seasonal jump in electricity consumption is expected to be particularly acute as Ramadan falls during July and August, the two hottest months of the year with temperatures as high as 50°C.

In the past, Saudi Arabia would have been able to satisfy all of its fuel requirements, including for diesel, through its own means. But as the population has grown, so has the need for fuel to power an ever-growing electricity generation network. According to the Saudi Electricity Regulatory Authority (Ecra), demand has risen by 7 per cent to 10 per cent annually during the past 5 years, one of the highest growth rates in the world. This is projected to continue until 2020.

Meanwhile the kingdom's production of diesel has remained relatively flat. So while there is still a vast amount of oil under ground, the country has not been able to extract and refine it fast enough to keep pace with demand. As a result, Saudi Arabia, the kingpin of oil, has had to start importing diesel, among other oil products.

At first, the volumes were small. But in line with galloping demand, these volumes have ballooned.

This summer, the country is on track to import record high volumes of diesel. The national oil company, Saudi Aramco, is believed to have imported 9.5 million barrels of diesel last month alone, up from an estimated 7 million barrels in May.

The same volume, or higher, is expected to be imported during Ramadan. To put it in perspective, this is equivalent to having a ship the size of a cruise liner show up at the port every day of the month to discharge 40,000 tonnes of diesel. At roughly US$120 per barrel, this is costing the government more than $1 billion per month in diesel imports alone.

To be fair, the kingdom has taken measures to tackle its rising fuel imports. Saudi Aramco is building three gigantic new oil refineries that will eventually produce enough fuel to power all of its demand for refined oil products, including diesel.

The first of these plants is expected to come online later this year and produce 176,000 barrels per day of diesel. But while these refineries will gradually curb diesel imports, they will also eat into crude oil production that would have otherwise been exported.

Assuming Saudi Aramco is able to increase its oil production by the same amount that is consumed by its three new refineries then the only implication will be that there will be less crude oil left underground for future generations. But in the event that Aramco's oil production is unable to keep pace with domestic consumption then this will inevitably have a serious effect on the country's vital oil exports and its ability to generate revenue to meet the needs of its ever-expanding population.

One bright solution would be to diversify the fuel supply and incorporate renewable forms of energy, such as solar power. There is certainly no shortage of inputs - the kingdom has enough sun and enough land to power the entire world with solar energy.

Encouragingly, the government unveiled an ambitious renewable energy target in April 2010. Under the King Abdullah City of Atomic and Renewable Energy, Saudi Arabia plans for solar and wind to account for about one quarter of its electricity production by 2032. This would be a huge achievement. It would position Saudi Arabia among the global leaders in renewable energy, with corresponding benefits in terms of job creation and carbon emissions.

Since that landmark unveiling in 2010, however, very few concrete actions have been taken in terms of deploying projects. The authorities are still debating how this programme will be funded and how the coordination will take place between the various stakeholders. Meanwhile, fuel consumption continues to climb, creating more headaches and more costs for the kingdom.

What is perhaps most alarming is that an increasing number of market observers, notably Citibank and Chatham House, have started to suggest that if current trends continue, Saudi Arabia will consume all of its oil production domestically in the next 20 years, leaving nothing to be exported. So the urgency is there. And the solution is there. What is needed now is political will.

 

Vahid Fotuhi is the president of the Emirates Solar Industry Association