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Page added on February 18, 2017
How Saudis Cut Oil Output Without Really Cutting
Saudi Arabia has led the way among major energy exporters in cutting oil production. At the same time, the kingdom is adding to global supply in a surprising way.
The deal to cut oil output has been a success, at least for its first month, largely because there was little cheating and because Saudi Arabia cut production by 500,000 barrels a day.
Don’t ignore the other side of the ledger, though: the Saudis, huge consumers of energy themselves, are economizing. That could allow them to export more.
In 2015, the average Saudi resident used 50 barrels of crude or some five times more than a slightly wealthier Swiss. Oil consumption jumped 77% for Saudi Arabia in the 10 years through 2015, topping even China, which grew 72%, according to data from BP .
Saudi Arabia is far less populous but, even in absolute terms, those incremental barrels were the equivalent of adding another France’s worth of oil demand.
Photo: The Wall Street Journal
Per capita oil consumption is a function not only of wealth but also local incentives. Petrostates have some of the lowest pump prices in the world because local populations view cheap fuel as a birthright. As a result, Kuwait, which is about as wealthy as South Korea, uses nearly four times as much oil per capita. Gasoline retail prices are just a fourth as high.
But, in the case of Saudi Arabia, it goes beyond motor fuels. For example, the country has long flared off huge quantities of gas and left untouched reserves that could more easily be used to generate electricity. The Saudi Energy Efficiency Center says fuel consumed for power has grown by 135 million barrels of oil equivalent annually over the past eight years.
The latter is changing as part of the country’s “Vision 2030” initiative. One big gas and power project that came online in 2016 helped reduce demand for oil to generate electricity last summer by the equivalent to Ireland’s daily crude demand. Solar projects are also taking off in the sunny country with the goal of meeting 20% of power needs in 15 years. Local demand for motor fuel may moderate following a 50% gasoline price increase, freeing up more Saudi crude and crude products for export.
Add it all up and in the first 11 months of 2016 Saudi Arabia’s actual domestic consumption of unrefined crude oil and its increase in production left a combined 3.5 million additional barrels available for refining or export compared with 2015, according to data from the Joint Organisations Data Initiative.
No wonder the Saudis are so enthusiastic about cutting output to support prices.
6 Comments on "How Saudis Cut Oil Output Without Really Cutting"
rockman on Sat, 18th Feb 2017 8:22 am
And beyond the KSA word game of “cutting oil production” vs “cutting oil exports” and reducing internal consumption there’s an additional revenue source. Not long ago a new 600,000 bbl (?) per day refinery in KSA began operations. Being a joint venture between the Saudi and China there’s no way to verify how much was being processed before and after the KSA “production cut”. In reality the Saudis might be supplying the global market with more Btu’s now then a couple of months. Which means its actions may have had little to no net effect on the price of oil.
joe on Sat, 18th Feb 2017 8:27 am
Thanks for that Rockman. IMHO America and Europe needs to closely monitor Sino/Jihadistan relations more. I don’t think fracking has a stellar future, its probobly a lifeline. But then again, humanity doesn’t have a stellar future.
Nony on Sat, 18th Feb 2017 10:19 am
The crude burning was/is very wasteful. SA has been trying to convert to gas for a while. Even looking for frackers to come and prospect in SA (employees, services, not new concessions).
Ironically SA and Kuwait are relatively gas poor. SA is big enough to have different geographies, but that corner of production around Kuwait/Iraq/SA in the Riyadh area is gas poor.
I’m not sure why they don’t use piped gas from Qatar or Iran (one of biggest gas fields in the world, possibly the biggest) is not that far away. But they don’t use it. We actually shipped US LNG to Kuwait! Not sure if it is politics (Shia/Sunni) or the Qataris driving too high of a price.
BobInget on Sat, 18th Feb 2017 12:45 pm
Update on Venezuela’s debt services to BOTH China and Russia. Predictions of diminished
exports to the US, thereby lowering US inventory,
raising oil prices have yet to be realized.
http://blogs.barrons.com/emergingmarketsdaily/2017/02/13/as-opec-cuts-oil-output-venezuela-owes-china-russia/
http://www.reuters.com/article/us-venezuela-oil-insight-idUSKBN15O2BC
How will DJT protectionist policies affect US imports?
http://www.hellenicshippingnews.com/trumps-protectionism-opportunity-for-latam-to-diversify-trade-ties-venezuelan-economist/
Venezuela and Ecuador may try to ‘stiff’
Russia and China to the tune of 60 billion $
Stay tuned.
Anonymous on Sat, 18th Feb 2017 1:12 pm
Wall st Urinal claims
“Saudi Arabia has led the way among major energy exporters in cutting oil production. At the same time, the kingdom is adding to global supply in a surprising way.”
What would be surprising, if this were actually true. But amerikans excel at fake news, juts like their saud colony specializes in fake oil statistics, so that part, at least, is not surprising at all.
peakyeast on Sat, 18th Feb 2017 5:00 pm
Solarenergy: 20% in 15 years… That is slow for a country that rich in money, and sunshine… Disappointing.. But then KSA is disappointing in so many ways…