Saudi oil use to grow steeply

The Khurais oil field in Saudi Arabia. Demand for petrol in the kingdom rose by 22.4 per cent in January compared with a year earlier.

Saudi Arabia has emerged as the second-biggest source of global oil demand growth after China. Higher oil consumption in the Arab world's biggest economy is forecast to account for 11.7 per cent of global expansion this year, the International Energy Agency (IEA) said. While that is still well behind China's projected 26 per cent share of worldwide growth in oil consumption this year, the rising demand for crude and oil products in Saudi Arabia is outstripping increases in the major developing economies of Russia, Brazil and India. "This is a testimony to [Saudi Arabia's] resilient economy, which managed to escape the global recession with little damage, particularly on the fiscal side," the IEA said in its latest monthly oil report, released yesterday. "Saudi Arabia has ambitious plans to expand its industrial base in order to create high-value jobs, and is particularly keen on becoming a petrochemical powerhouse." But the Paris-based energy adviser to industrialised countries added that demand for transport fuel in the kingdom was also being bolstered by "the skewed incentives provided by very low end-user prices". Demand for petrol in Saudi Arabia which, like most Middle East countries, subsidises the cost of fuel for consumers, rose by 22.4 per cent in January compared with a year earlier, after expanding by 9 per cent last year, the IEA said. The preliminary data "suggest that growth this year may well reach double-digit figures", the agency added. Besides increasing the demand for transport fuels and for certain oil products such as petrochemical feedstock, Saudi Arabia's industrial expansion has also driven up electricity consumption. The kingdom has been increasingly burning its own crude oil to generate power, particularly in summer months. The IEA classifies "direct crude" burnt for power generation in an oil category it calls "other products". Last year, Saudi consumption of other products rose by 58.7 per cent, the agency noted. "Recent statements by Saudi officials made clear that the share of direct crude in power generation is set to increase sharply over the next decade, since power demand is poised to rise by some 45 per cent over that period," it said. Editorial, a19 Riyadh had publicly acknowledged for the first time that direct crude burning allowed the kingdom to increase light crude production while sticking to its OPEC commitment to curb exports, meet stricter environmental standards and reduce or eliminate fuel oil imports during summer, when demand for electricity peaks in the Gulf. Previously, Saudi Arabia had been importing significant volumes of heavy fuel oil to burn in power plants. That led to more carbon emissions and air pollution than if it had burnt Arabian light crude. A still less polluting option would be to use gas for the boiling process in its steam-turbine power plants. "However, the policy of increasing direct crude burning reflects limited success in expanding the country's natural gas reserves and boosting production," the IEA said. Globally, the IEA said oil demand might set a record this year, wiping out the big contraction of the previous two years thanks to economies in Asia, the Middle East and North America recovering faster than expected. It projects oil demand this year of 86.6 million barrels per day (bpd), up 30,000 bpd from last month's forecast. The previous annual peak was in 2007, when the world consumed 86.51 million bpd of oil. Oil demand shrank to 86.21 million bpd in 2008 and 84.93 million bpd last year, for a total 1.8 per cent decline, according to IEA data. That was the first contraction over two successive years since the 1980s. Within the Organisation for Economic Co-operation and Development (OECD), recent upturns in oil demand in North America and industrialised Asia-Pacific nations were offsetting "inordinately weak European data", the IEA said. Nevertheless, it projected another overall decline in oil demand in the developed world this year. Outside the OECD, the agency raised its forecast due to "higher-than-expected demand readings in Asia, with China continuing to exceed expectations, and in the Middle East, as Saudi Arabia demand continues to be boosted by direct crude burning for power generation". The IEA predicted that almost three quarters of global oil demand growth this year would come from six large developing countries: China, Saudi Arabia, Russia, Brazil, Iran and India. The agency did not expect oil producers to have difficulty meeting the rising demand, with countries outside OPEC expected to supply 220,000 bpd more than the IEA predicted last month. The IEA raised its output forecasts for Canada, the UK, and Russia. "Russia in particular continues to show steady growth due to ramp-up at new fields." Oil output by the 11 OPEC members bound by quotas has also been creeping up. [e-mail]