The Global View

Saudi Arabia’s domestic thirst for oil threatens world markets

A looming but hidden energy crisis in Saudi Arabia could wreak havoc both at home and internationally, throwing world oil markets into ever-more volatility, a new report warns.

“The world’s largest exporter of oil is consuming so much energy at home that its ability to play a stabilizing role in world oil markets is at stake,” write Glada Lahn and Paul Stevens of Chatham House, a London-based research organization.

In a study titled, “Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia,” Lahn and Stevens note that domestic demand for Saudi Arabia’s oil and gas is growing at a pace that’s unsustainable in the near term: 7 percent a year.

“At this rate of growth, national consumption will have doubled in a decade,” they write. “On a ‘business as usual’ projection, this would jeopardize the country’s ability to export to global markets.”

Saudi Arabia’s homegrown appetite for oil is especially great during the summer months, when gas-generated electricity alone can’t keep up with demand for cooling and power plants begin burning heavy fuel oil and crude oil. The situation has already led to electricity shortages and rare protests in a monarchy determined to maintain social order despite widespread unrest throughout the rest of the Middle East.

While the Saudi government is working to expand energy supplies — both fossil and renewable — those efforts alone won’t be enough to give it the time it needs to make the transition to a less oil-dependent economy. The country will also need to urgently adopt new efficiency policies, regulations and tools to make the switch, the researchers said.

The study offers several recommendations for the Saudi government:

  • Reduce national energy intensity by 3 percent a year between 2010 and 2020, then by 2 percent a year between 2021 and 2030.
  • Promote building efficiency and energy-efficient air-conditioning.
  • Launch educational and other measures aimed at smoothing the transition to higher domestic energy prices, which have been kept artificially low and encourage high consumption.
  • Institute measures to increase private-sector employment for Saudi nationals.
  • Develop a better understanding of the economic costs of the domestic energy system to enable long-term development.