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91 comments on IEA WEO 2008 - Fuzzy Focus on Saudi Arabia

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drillo on November 19, 2008 - 6:18am Permalink | Subthread | Parent | Comments top

"at Saudi Arabia's current rate of increase in consumption, in 2030 they would be consuming about 12 mbpd, versus 2 mbpd in 2005 (total liquids)"

I appreciate very much the export land model. But I don't think that there will be a purely linear consumption trend:
1st: Even if the Saudis get (even more) extremely rich there will be an upper limit of oil consumption. As soon as each Saudi has his set of gold-plated luxury cars they will spend their remaining money elsewhere (e.g. state funds).
2nd: I am not sure if the petro dollars will trickle down to all of the KSA's population. In history this was not so, and many stayed rather poor.
3rd and most importantly: It would be illusory to think that KSA (and other OPEC countries) become increasingly rich whereas the rest of the world suffers a terrible crisis due to peak oil. As soon as oil prices rise and global economy goes down also the OPEC countries will have a restricted inflow of money - just like what is happening now.

So I expect that in the lower part of the export land curve the decline will decrease, as internal consumption goes down.

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westexas on November 19, 2008 - 2:08pm Permalink | Subthread | Parent | Comments top

I agree that Saudi Arabia is unlikely to show a +7.2% rate of increase in consumption for 25 years, but my point is that the IEA and other agencies are basically just ignoring the net export issue.

Here is a "What if" scenario, assuming a +5.7%/year rate of increase in consumption, with a flat total liquids production rate of 11 mbpd for Saudi Arabia. A key point to keep in mind regarding Saudi consumption is that the average Saudi family has something like six kids.

http://graphoilogy.blogspot.com/2008/01/quantitative-assessment-of-futur...

If we go back to the original ELM, with a -5%/year rate of decline in production and a +2.5%/year rate of increase in consumption, net exports from Export Land go to zero in 9 years. With no increase in consumption, net exports go to zero in 14 years. In any case, I estimate that the cumulative shortfall between what Saudi Arabia would have (net) exported at their 2005 rate and what they actually exported will exceed a billion barrels of oil next year.

Regarding relative wealth, consider the increase in oil prices from 1972, through 1986. The big drop in oil prices did not occur until Saudi Arabia boosted production in 1986, even with the recession in the US in the early Eighties.

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drillo on November 20, 2008 - 2:45pm Permalink | Subthread | Parent | Comments top

I just read an article in The Economist, which makes myself doubt about the 3rd point of my above statement. Among others it says:

"Saudi Arabia plans to turn itself into an industrial powerhouse. It is building no fewer than six new “economic cities” and a giant industrial zone, at a combined cost of some $150 billion, which will incorporate aluminium smelters, refineries and car-assembly plants. For its part, Kuwait plans to spend half that sum on just one new town, Silk City, which is meant to be a free-trade zone linking Asia and Europe, with a projected population of 700,000 people by 2030."

If these projects come true and give them more self-sufficiency then their economy could grow more with less dependence from the world economy, somewhat similar to the situation in China.
A strategic alliance between China (or East Asia) and the OPEC countries would be a logical consequence.

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91 comments on IEA WEO 2008 - Fuzzy Focus on Saudi Arabia

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