Saudi Arabia Domestic Energy Problem

Hassan Aljama
November 14, 2014

Submitted as coursework for PH240, Stanford University, Fall 2014


Fig. 1: Saudi Arabia Domestic Energy Consumption. [1]

The terms "Saudi Arabia" and "oil" can't be decoupled. The nation is both the world's largest oil producer and the holder of the largest oil reserves. In the international market, it is regarded as one of the most reliable suppliers of black gold. The country plays a vital role in stabilizing the global oil market through carrying an estimated 2 million barrel of additional capacity. However, all of these are endangered by the current alarming rate of domestic energy consumption.

Historical Account

Over the past few decades, Saudi Arabia's energy consumption has been rapidly growing. This is illustrated in Fig. 1 . Since 1965, Saudi Arabia's energy consumption has increased by a factor of 5. In 2013, around 25% of oil produced in Saudi Arabia was consumed domestically. [1] Considering the fact that the country is the top oil producer with a relatively small population size of less than 30 million, this is very significant. This trend is clearly not sustainable, especially with a population that growing at a rate of around 2%.

Looking at natural gas consumption further illustrates the significance of the problem. Saudi Arabia is among the top 10 nations in terms of gas production, however, none of this gas is exported. All of it is consumed domestically. Even its high production capacity remains insufficient in meeting local demands, especially during the hot summer months.

Fig. 2: Relationship between Energy use per capita (in kg oil equivalence) and GDP per capita (in current US$) [2]

Energy Intensity illustrated

Fig. 2 best tells the story. It shows the relationship between energy per capita and GDP. All countries want to climb up the ladder. This generally requires spending energy. However, the position of Saudi Arabia on the graph shows that it is spending much more energy than needed to achieve its current level. In other words, energy is not being efficiently translated into GDP, presenting a missed opportunity. To put things into perspective, in 2009, Saudi Arabia used 157.9 million metric ton of oil equivalent (mtoe). The domestic consumption is not far from that in the UK (196.8 mtoe), although the population size of the UK is more than double that of Saudi Arabia. [2]

Impact Domestically and Internationally

This inefficient use of resources creates many problems on national and international levels. The country is heavily reliant on its oil and gas reserves. The oil and gas industry accounts for 75% of the budget revenues, 45% of GDP, and 90% of export earnings. [3] But the problem is far reaching. As mentioned earlier, the world is dependent on Saudi oil, especially in stabilizing the world market. Higher oil consumption domestically means less exported barrels. Rough calculations based on business as usual scenario show that Saudi Arabia can be a net oil importer by 2040.

Reasons for High domestic Consumption

There are reasons for this alarming trend. I will briefly touch on the main ones in the following discussion:

  1. Inefficiency: As mentioned earlier, the climate of Saudi Arabia reaches hot extremes in the summer, when temperature can exceed 50 °C (>120°F). Significant joules are spent in keeping buildings cool. The issue here is that most of the used air-conditioners (AC) are of low efficiency. Some studies show that they can be 18% below global average. In addition, in the summer months, peak demand can be 50% higher than usual, requiring the nation to carry an additional capacity. It is estimated that 5% of total electricity generation is used only during peak demand for only 48 hours per year!

  2. Electricity Consumption: The excessive use of electricity in Saudi Arabia is mainly a result of the electricity prices. Current prices in Saudi Arabia are around $0.04/kWh, (compare it to prices in the United States, which are close to $0.12/kWh). Many locals are not worried about electricity bills because prices are cheap, which drives up consumption rates. There aren't many incentives for people or industries to invest in energy efficiency as this would only lead to marginal savings. In addition, at current prices, alternatives such as solar and wind can't compete.

  3. Low Oil Prices: Liquid fuels are heavily subsidized in Saudi Arabia. The IEA in its World Energy Outlook claimed Saudi Arabia was second in the world in terms of its level of subsidy on domestic energy prices, and computed the cost at $23 billion. Prices now are around $0.45/gallon for gasoline and $0.25/gallon for diesel. Quick survey on gasoline/diesel prices in countries neighboring Saudi Arabia shows that it has by far one of the cheapest prices. This results in higher consumption rates and abundance of SUVs and heavy fuel consuming cars, where price concern in absent. Add to this an almost inexistent public transportation system, and the problem is further compounded.

  4. Water Consumption: Saudi Arabia suffers from scarcity of natural water resources (which are further depleting), making it heavily dependent on desalinated water supplies. It is estimated that 70-80% of the water supplies come from water desalination, which is an energy intensive process. The problem is exacerbated by the cheap water price. Low water prices provide little incentive for individuals to conserve water, even though much energy is consumed to produce it.


The good news is that all these problems could be addressed, albeit not easily. There are many possible paths to reverse the trend and release more barrels for export. My argument is that energy efficiency is the key. Many people have argued that the introduction of alternatives (e.g. nuclear, solar, and wind) is what Saudi Arabia needs. Although these are essential long-term solutions, energy efficiency provides immediate impact. Add to this the fact that renewables are not economically competitive with fossil fuels (in general). Whether or not alternatives are introduced in the future, current energy consumption trend must be corrected.

Special focus should be given to AC, which account for around 70% of the residential energy consumption. This can be done by setting higher efficiency standard, as well as by implementing adequate insulation measures. Rough calculations can show that bringing AC's efficiency to state of the art level can reduce energy demand by a factor of 2. Going a step further and providing a thick polystyrene insulating layer can further reduce energy consumption. Although significant efforts might be needed to achieve the full-scale of these standards, simple modification can lead to drastic reductions. There are also many other opportunities for energy savings. For instance, the Industrial sector, provides a great opportunity. Current consumption rate is very high (which is driven by the low prices and the lack on incentives to implement energy efficiency measures). Clearly, there are great opportunities and much room for improvement.

This presents a pressing issue. The impact is not limited to Saudi Arabia, but it has far reaching implications. Actions must be taken.

© Hassan Aljama. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] BP Statistical Review of World Energy," British Petroleum, June 2014.

[2] World Bank Development Indicators 2012 (World Bank Publications, 2012).

[3] Y. Alyousef and P. Stevens, "The Cost of Domestic Energy Prices to Saudi Arabia," Energy Policy 39, 6900 (2011).