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Page added on July 3, 2015
As Saudis Keep Pumping, Thirst for Domestic Oil Swells
Saudi Arabia is poised to break records for oil production this summer, analysts said, as domestic-energy needs soar during its scorching summer and the holy month of Ramadan and threaten its ability to ramp up exports.
Saudi Arabia has said it produced a near-record 10.3 million barrels a day in May, a mark that industry observers said could increase to 11 million barrels this summer as air-conditioning use increases with temperatures reaching 110 degrees Fahrenheit. The country has the ability to produce 12.3 million barrels a day for 90 days, but it has never pumped this much. Saudi output averaged 9.22 million barrels a day from 2006 to 2014, according to the U.S. Energy Information Administration. Most of its oil is exported.
For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country’s crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom’s population has increased 17% since 2005, faster than most developed countries.
At this pace, the kingdom would have to start importing oil by 2030, Citigroup Inc. has predicted, a once unthinkable prospect for the linchpin of the world’s oil market. Khalid al-Falih, the current chairman and former chief executive of the kingdom’s state-owned oil company, Saudi Arabian Oil Co., known as Saudi Aramco, said in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030.
Other analysts are doubtful Saudi Arabia would need to import oil. But in a country where subsidized crude still powers most homes and businesses, and a gallon of gasoline costs less than a bottle of water, Saudi Arabia’s ravenous energy appetite is starting to strain the kingdom’s oil infrastructure and hamper its capability to throttle up exports. In order to tap into reserves, the kingdom will need to extract more heavy crude, which requires large investments to sustain.
ENLARGE Ramadan—the month when observant Muslims observe the revelation of the Quran to the Prophet Muhammad—has seen heavy electricity usage, as families break the daylight fast with late-night feasts that strain the power grid in the summer months. Blackouts have become a regular feature of the holy time.
“When it comes to outages, they deliver every year,” said Ibrahim al-Qahtani, a 37-year-old chemical company worker in eastern Saudi Arabia.
Mr. Qahtani’s Ramadan celebrations are typical of Saudi families: long afternoon naps, evenings watching soap operas and long meals that go into the wee hours. The air conditioner is generally on full blast. Ramadan began this year on June 18 and ends July 17.
Officials at Saudi Aramco, Saudi Electricity Co. and the Ministry of Petroleum and Mineral Resources didn’t respond to requests for comment. Ministry of Water and Electricity officials told Saudi media in March that more outages may occur this summer.
Saudi Arabia burned nearly 900,000 barrels of crude oil for electricity in July 2014, the month when the bulk of Ramadan fell, nearly 63% higher than the year’s monthly average. Total Saudi crude burned for domestic use rose more than 14% in 2014 over 2013.
The ever-increasing domestic needs come at a sensitive moment for Saudi Arabia. Crude oil is trading at about $60 a barrel, 40% lower than the highs of 2014. A flood of American oil has rendered useless Saudi Arabia’s usual tool for controlling prices—production cuts made in tandem with the Organization of the Petroleum Exporting Countries.
Those developments have made exports more important than ever for Saudi Arabia, forcing it to ramp up production and fight for buyers to continue feeding a treasury dependent on oil revenue. It will have to keep producing more to keep up, said Robin Mills, the Dubai-based head of consulting at Manaar Energy. “Otherwise they would have to cut exports,” he said.
That won’t be easy, said Amrita Sen, chief oil analyst at research firm Energy Aspects, calling it “not something the kingdom is keen on doing at current price levels.”
About 90% of Saudi Arabia’s revenue comes from oil. According to Deutsche Bank AG , the oil price that the kingdom needs to balance its budget increased to $106 a barrel last year. On Thursday, Brent crude, the global oil benchmark, settled at $62.07 a barrel.
Saudi Arabia’s spare capacity—the gap between its output and what it can produce—hasn’t been as low as two million barrels a day since 2008. It is a number closely watched by the oil market as a sign of the kingdom’s power to flood the world’s supplies. Saudi Arabia’s oil minister has said the kingdom would maintain current production levels.
Other Middle Eastern countries face similar energy demands in the summer, but they have switched to natural gas for power generation. Saudi Arabia is the world’s largest consumer of crude oil for electricity, according to the EIA, using an average of about 700,000 barrels a day during summers from 2009 to 2013. The next two highest, Iraq and Kuwait, averaged roughly 80,000 barrels a day for electricity, the administration said.
Saudi officials have repeatedly warned that demand for energy, particularly electricity, has been rising to challenging levels, but the kingdom’s plans for nuclear and solar power have made sluggish progress. One step the government could take, but hasn’t, is eliminating subsidies for domestic energy products. Those subsidies keep gasoline prices at 50 cents a gallon and electricity costs for consumers as low as 1.3 cents a kilowatt-hour, far lower than U.S. prices for both.
Saudi officials also have talked of increasing production capacity, but several projects have stalled.
Instead, the government has made a push to promote energy efficiency, with a stated goal of reducing consumption by up to 30% by 2030. Television, radio and street ads across 24 cities now tell consumers how to read efficiency labels on home appliances.
The government also has rolled out new efficiency standards for commercial buildings and industrial operations, and introduced the first fuel-economy standards for cars. Such initiatives will eventually save the country “millions of barrels of oil,” said Christophe de Mahieu, a partner at consulting firm Bain & Co.
11 Comments on "As Saudis Keep Pumping, Thirst for Domestic Oil Swells"
penury on Fri, 3rd Jul 2015 9:01 am
I seems that a steady increase in the population combined with increased spending capacity will in the end destroy most nations.
joe on Fri, 3rd Jul 2015 10:59 am
Exponential growth model meets limited resource. What’s next is called scarcity. People on this site use another phrase, but the result is the same.
tahoe1780 on Fri, 3rd Jul 2015 1:26 pm
“the kingdom would have to start importing oil by 2030” From who?!
BobInget on Fri, 3rd Jul 2015 9:09 pm
Islamic State’s incursions in Iraq and Syria have left large areas of both countries under the militant group’s control. The extremists’ beheadings of western hostages have sparked outrage across the world. Since its military successes, other jihadi groups have flocked to affiliate themselves with the radical movement.
Iraq
Born out of al-Qaida in Iraq – which emerged during the US occupation – Isis now controls vast swaths of the country’s Sunni heartland. The militants launched a lightning offensive last summer in which they conquered the province of Nineveh and its capital, Mosul, Saddam Hussein’s hometown of Tikrit, and large parts of Anbar province, from which it had once been evicted by the US-backed Sunni “Awakening” movement.
Isis lost Tikrit in an operation this year led by a volunteer army dominated by Shia militias with close ties to Iran, but the militants demonstrated their resilience conqueringby Ramadi, 80 miles west of Baghdad, in May. The US has sent hundreds of military advisers and led a coalition conducting regular air strikes against the group, but has so far failed to stem the militants’ advance.
Screengrab from a video released by Isis allegedly showing a member destroying parts of a frieze at the ancient Iraqi town of Nimrud.
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Screengrab from a video released by Isis allegedly showing a member destroying parts of a frieze at the ancient Iraqi town of Nimrud. Photograph: Handout/EPA
Isis has all but ended centuries of coexistence in Iraq with its hounding of minorities, emptying the plains of Nineveh of its Christian population and attempting to enslave and starve thousands of Yazidis. It has destroyed artefacts and historic sites that are part of the ancient heritage of the Assyrian empire.
Syria
Isis now controls roughly half of Syria’s landmass and the city of Raqqa is the capital of its self-proclaimed caliphate. Territories held include most of Raqqa and Deir ez-Zor provinces in the north-east and east of the country, areas around the cities of Aleppo and Homs (including the historic city of Palmyra), as well as parts of southern Damascus, where it recently seized the besieged Yarmouk Palestinian refugee camp.
The group has fought against all sides in the civil war: Syrian rebels, troops loyal to the Assad regime, Kurdish militias and even the al-Qaida affiliate in Syria, Jabhat al-Nusra. It split from al-Nusra in 2013 after the group’s leader refused to pledge allegiance to the Isis chief Abu Bakr al-Baghdadi.
Syria is where Isis suffered its most devastating defeat, when an ill-fated advance on the border town of Kobani was met by fierce Kurdish resistance and intense aerial bombardment by the US-led coalition. Isis lost nearly 2,000 fighters. An alliance of Kurdish miltia and opposition fighters has recently dealt Isis a series of defeats in northern Syria, conquering territory including the key border town of Tal Abyad, a source of foreign fighters and supplies.
Egypt
A group called the Province of Sinai (once known as Ansar Beit al-Maqdis) emerged in the aftermath of the uprising that ousted Egypt’s autocrat Hosni Mubarak. Its attacks have become more ferocious since the removal of Mohammed Morsi, the Muslim Brotherhood-backed president, in 2013, and pledgedit allegiance to Baghdadi late in 2014.
The Sinai-based group has attacked the Egyptian army as well as targets in Cairo. This week it launched a series of coordinated assaults on army positions near the towns of Sheikh Zuweid and Rafah. In the most significant escalation in the peninsula in years, F-16s and Apache helicopters were deployed by the government of Abdel Fatah al-Sisi, which the insurgency seeks to topple.
Yemen
Isis has had a limited presence in Yemen compared to al-Qaida in the Arabian Peninsula, the jihadi network’s most powerful franchise, but it has claimed a number of devastating attacks in recent months, primarily targeting Yemeni Houthis – who belong to the Zaydi sect of Shia Islam – including a double suicide bombing of two mosques in March that killed more than 100 worshippers. Isis considers Shias heretics.
Isis stands to benefit from the chaos in Yemen, which is engulfed in a debilitating civil conflict and blockade. A Saudi-led coalition launched an air campaign in March against the Iranian-backed Houthis, who took control of the capital, Sana’a, last year and advanced on the country’s south, exiling the Saudi-backed president.
Cars destroyed by a bomb outside the Green Dome mosque on 17 June 17 in an attack reportedly claimed by Isis.
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Cars destroyed by a bomb outside the Green Dome mosque on 17 June 17 in an attack reportedly claimed by Isis. Photograph: Sebastiano Tomada/Getty Images
Gulf states
An Isis affiliate called the Najd Province, named after the central region of Saudi Arabia, has claimed responsibility for recent bombings in Saudi Arabia and Kuwait that have primarily targeted Shia communities in an attempt to sow greater sectarian tension.
Last week a suicide bomber detonated an explosive vest in a Shia mosque at the centre of Kuwait City, killing more than two dozen worshippers, in the country’s worst terrorist attack in years. One-third of Kuwait’s population is Shia. Isis has also claimed responsibility for attacks on Shia mosques in May in Dammam and Qatif, Saudi Arabia. Isis despises the Gulf monarchies.
Afghanistan and Pakistan
Isis declared the creation of the “Khorasan province” earlier this year, referring to a region spanning parts of Pakistan and Afghanistan and making inroads into Taliban territory, with foreign fighters loyal to it recruiting local fighters. The group has attacked Taliban positions in recent weeks and months, including beheading 10 Taliban fighters in June and seizing territory from their militant rivals.
Isis claimed its first major attack in Afghanistan in April with a suicide bombing in Jalalabad that killed dozens of people. The Taliban published a letter last month urging Isis to stay out of Afghanistan.
Dagestan
Insurgents based in the northern Caucasus region in Russia have pledged allegiance to Isis and declared the so-called Vilayat Dagestan. The militants once belonged to the Caucasus Emirate, a jihadi group that has claimed bombings in Moscow.
Libya
Ansar al-Sharia, one of the largest militant groups in the country, which was blamed in 2012 for the killing of the US ambassador to Libya, has rebranded itself as Isis in Benghazi, Sabratha and Sirte. The group’s key territory in the country, which has descended into chaos following a power struggle between Islamists and their elected successors, is the city of Sirte and the surrounding villages and oil fields. The militants were pushed out of the city of Derna last month in battles with rival Islamist groups.
Small units have battled the Libyan army in Benghazi and have carried out attacks in the capital, Tripoli, including one in January targeting the Corinthia hotel. The affiliate has released videos depicting the beheadings and shootings of Coptic Christians from Egypt and Ethiopia kidnapped by the militant group in Libya in recent months.
Tunisia
British and Irish tourists pray together in front of a memorial to the Sousse victims.
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British and Irish tourists pray together in front of a memorial to the Sousse victims. Photograph: Chris Stephen for the Guardian
Fighters from Tunisia account for one of the largest per capita contributions to Isis’s foreign contingent in Syria Iraqand, with the government estimating their number at 3,000. Inside Tunisia, groups operate as cells in towns and cities, mostly south and south-west of Tunis, with the army fighting intermittent battles with jihadi groups criss-crossing borders with Libya and Algeria.
Kairouan, the home of the gunman who massacred tourists in the beachside city of Sousse last week, is an important jihadi recruitment centre. Isis has claimed responsibility for the attacks in Sousse and the Bardo museum in Tunis this year in statements on social media, though their authenticity has not been verified.
West Africa
The insurgent group Boko Haram pledged allegiance to Isis in March, a declaration that has been accepted by Isis in an effort to spread the influence of its self-proclaimed caliphate in west Africa. The group, which was formed in the early 2000s in to impose sharia rule in northern Nigeria, has slaughtered thousands and carried out hundreds of kidnappings in attacks that have spread to neighbouring Chad and Niger.
Boko Haram suicide bombers killed dozens of people in attacks in Chad’s capital, N’Djamena, in June, and the militant group is believed to have committed another massacre in Borno this week, killing 150.
Bosnia
Isis has recently begun attempting to recruit fighters from among poor and unemployed youth in the Balkans, with Bosnia and Herzegovina a particular focus. A recent video featured Bosnian fighters urging their countrymen to join the group.
BobInget on Fri, 3rd Jul 2015 9:11 pm
By MATT BRADLEY
July 3, 2015 7:22 a.m. ET
BAGHDAD—An oil-sales deal between Iraq and the semiautonomous Kurdistan Regional Government is close to collapse about six months after it was signed, undermining the country’s unity as it struggles to fight Islamic State and contain an escalating financial crisis.
Months of acrimony between Baghdad and Erbil, the KRG’s capital, came to a head in June, when the Kurdish side reduced the amount of oil it sold through Iraq’s state-owned Oil Marketing Company, known as SOMO, and began ramping up its independent sales of oil through the Turkish port at Ceyhan.
The sales undercut an agreement struck in December that gave Iraq’s central government access to revenue from Kurdish oil, which accounts for about 15% of the 3.8 million barrels the country pumps each day on average. In exchange, the Kurds were to get 17% of federal expenditure—an amount KRG officials say hasn’t materialized.
“The oil deal between Baghdad and KRG has reached a deadlock,” said Kawa Mohammed, a Kurdish member of the Oil and Energy Committee in the Iraqi parliament. The accord “was built on uncertain foundation, very weak foundations, with a lack of trust on both sides.”
RELATED NEWS
Iraq and Kurdistan Agree on Oil Deal(Dec. 2, 2014)
How Islamic State’s Win in Ramadi Reveals New Weapons, Tactical Sophistication and Prowess (May 25, 2015)
Analysis: Oil-Price Drop Adds New Element to Middle East Tensions(Dec. 2, 2014)
If the deal does collapse, it could rupture the fragile unity that Iraq relies on to fight Islamic State, which took over more than a quarter of the country in a startling blitz last summer. The KRG’s economy is facing a fiscal crunch that threatens its ability to support the Kurdish fighters who have taken a leading role in combating the extremist insurgency.
A failed deal would also thwart one of the signature achievements of Iraqi Prime Minister Haider al-Abadi, nearly a year into a premiership that many Iraqi and foreign policy makers had hoped would usher in a new era of Iraqi unity to confront Islamic State.
That fight has largely stalled nearly two months after the extremist insurgent group took over the provincial capital of Ramadi in a major defeat for Iraqi forces. Without the presence of U.S. troops, Iraq’s government is shouldering most of the ground fighting, straining a budget that relies heavily on oil revenue.
The situation underscores the uncertainty surrounding Iraq’s oil industry as it pumps record amounts of crude, in part to pay for the conflict with Islamic State. With oil trading at prices 45% below last year’s highs, Iraq’s government coffers rely on its ability to fight for buyers in the export market with rivals like Saudi Arabia and Kuwait.
Under the December agreement, the Kurds were to market 550,000 barrels of oil each day through Iraq’s SOMO. The Kurds say they instead exported most of their oil independently in June, because Baghdad was giving them less than their share of the budget. They also cited a need to make good on deals with oil traders who gave the Kurds cash up front for oil to be delivered later.
Those sales “kept the region financially afloat at a crucial time for the security and stability of Kurdistan and Iraq,” the KRG said Thursday.
Iraqi Arab policy makers fault the Kurds for failing to provide their agreed-upon share of the oil.
“Baghdad didn’t pay what Kurdistan was asking for because Kurdistan didn’t give Baghdad what it was supposed to,” said Jabbar Abdul Khaliq, an Arab member of parliament’s finance committee, who held out hope that the December 2014 deal might prevail.
Richard Mallinson, geopolitical analyst at Energy Aspects, who closely follows the Iraqi oil sector, said the oil deal was “crumbling.”
“It feels like it will probably limp along for a while longer, but in practical terms the deal is probably on its last legs,” he said.
The risk is particularly acute for the Kurds, whose balance sheets are squeezed by an escalating financial crisis, the influx of millions of displaced people from Iraq and Syria, and the burden of fighting Islamic State militants.
The KRG’s front line with Islamic State extends for more than 1,000 kilometers (620 miles) and the province hosts more than 2 million displaced people—challenges that add up to a $1.4 billion burden on the semiautonomous state, said Mr. Mohammed.
Kurdish state employees, who make up a majority of the region’s workforce, haven’t been paid since April and many are protesting. Oil companies such as Genel Energy PLC, Gulf Keystone PLC and Norway’s DNO ASA have gone unpaid for much of the crude oil they have exported via the pipeline to Ceyhan for the KRG. Last month, Erbil sought international investors in a proposed bond issue to mend a nearly $5 billion budget deficit.
“The fight against ISIS…cannot happen if you don’t have the economic means to do it,” Ashti Hawrami, the KRG’s minister for natural resources, told a London conference in June.
Selina Williams and Sarah Kent contributed to this article.
Write to Matt Bradley at matt.bradley@wsj.com
Makati1 on Fri, 3rd Jul 2015 10:13 pm
The Saudi domestic consumption has been about 7% per year increase for the last 5-10 years. At that rate, the amount doubles every 10 years.
I didn’t read all of the article because it is another guesstimate about a situation that is radically changing day by day. Saudi Arabia is not likely to exist as a nation in 2030. Maybe not even in 2020. The WSJ and Citi are not reliable sources of facts.
Davy on Sat, 4th Jul 2015 2:32 am
Mak, WSJ and Citi are reliable sources of facts. The key to those facts are distillation and digestion. This is the same thing that must be done with your comments. One must sift through the agenda’s and underlying propaganda that is being peddled to get at the core facts.
Makati1 on Sat, 4th Jul 2015 7:04 am
FYI: The gasoline price in Saudi Arabia today is about $0.60 per gallon.
http://www.globalpetrolprices.com/Saudi-Arabia/gasoline_prices/
Kenz300 on Sat, 4th Jul 2015 8:21 am
KSA needs to start rolling back subsidies…….
The world needs to pay the true cost of fossil fuels if there is to be any hope of dealing with Climate Change.
———————
A 9-Minute Guide to Pope Francis’ encyclical on climate change : Biofuels Digest
http://www.renewableenergyworld.com/articles/2015/06/a-9-minute-guide-to-pope-francis-encyclical-on-climate-change.html
BobInget on Sat, 4th Jul 2015 2:14 pm
First we need to acknowledge KSA is at war with neighboring Yemen. KSA has managed to cobble a multi national ‘coalition’ bent on Sunni domination. The principal; aircraft used would be the F/16 and F/15.
How many gallons of fuel does a US Air force F-16 fighter plane carry and what is its consumption rate per minute at full speed?
– (Brough Dorny)
A: Dear Brother Dorny,
The F-16 is a crazy beast. Like just about any piece of military machinery, it is very modular, meaning there isn’t one universal configuration. The USAF factsheet says that the F-16 has an internal capacity of 7,000 pounds of fuel, with a 12,000 pound capacity with two external fuel tanks, whereas the Aviation Photo Album, the F-16 C carries 6,972 lbs of fuel, about 1,073 gallons and the F-16 D configuration carries 5,785 lbs or 890 gallons.
Finding the fuel consumption was a bit trickier. In an interview with the Alliance to Save Energy, Rep. Steve Israel said that “A single F-16 can burn 23 gallons of fuel per minute when its afterburners are lit.” This is obviously a gross estimate, as flight configurations differ so drastically, and over the course of an eight hour flight, the plane can lose almost 20,000 lbs. in fuel alone. A table I read said that the F-16 C expended 415 kg of fuel per minute at mach .5 at sea level, 310 kg/min at mach .8 at 15,000 feet, and was at peak fuel efficiency of 260 kg/min at mach 1.4 at 36,000 feet. The statistics I can find seem to be touting the fuel efficiency of the plane.
The best answer I can find, though, is in the least reliable spot. This conversation on the F-16.net message board seems to set max fuel consumption at 36,000 pounds of fuel an hour on a fully-loaded F-16 C with a full-afterburner takeoff. I guess that’s what you wanted, the extreme high end of the fuel capacity.
Dr. Smeed
https://en.wikipedia.org/wiki/Saudi_Arabian-led_intervention_in_Yemen
AS luck would have it the USA sent refueling tankers for mid-air refueling.
http://www.usatoday.com/story/news/world/2015/04/08/saudis-air-refueling-yemen-uae-houthis/25468119/
It’s safe to say KSA is supplying jet fuel for everyone involved in the Yemen genocide.
I’ll say Saudi ‘domestic consumption’ is greater then usual!. If you concede KSA is bombing Yemen, you need to believe oil is
involved directly.
MY prediction has been for day one;
Saudi Arabia and all its Holy places including every oil field and refinery will ultimately come under IS control. Here’s proof:
http://www.ibtimes.co.uk/isis-loses-control-three-key-oil-fields-iraq-1495521
Just so ya know:
https://www.middleeastmonitor.com/news/middle-east/18952-opposition-says-isis-controls-80-percent-of-syrias-oil
Oh, as a side bar: KSA is NOT supporting, by land or air any counter ISIS combat in Syria or Iraq. In point of fact, KSA is covertly supporting ISIS by its bombing the enemies of ISIS (and Al Qaeda) the Houthis in Yemen.
Saudi Arabia will collapse from with-in making US intervention moot.
Kenz300 on Sun, 5th Jul 2015 7:42 am
It is time to end the subsidies of FOSSIL FUELS and begin to show their true cost to society.
Alternative energy sources like wind and solar are cleaner, safer and cheaper. They do less harm to the environment.
Local energy production with wind and solar help the local economy by providing local jobs. That is much needed and a good thing for the economy and for the people.