While Saudi Arabia is blessed with vast oil and gas reserves, the country is also experiencing a surge in domestic electricity demand. With an estimated population of 27 million people currently using up to 49 GigaWatts (GW) of electricity, according to the country’s Electricity and Cogeneration Regulatory Authority, and an ambitious pipeline of multi-billion dollar infrastructural projects, the country’s electricity consumption will surely rise.
The rise in electricity consumption puts forward a challenge for the Saudi government. In order to provide this electricity, the country has burned oil and gas that could be exported, leading to a loss in export revenues.
Similarly, oil and gas resources are provided to local utilities at a subsidized rate, further exacerbating the problem of lost income.
In fact, the International Energy Agency predicts that the Kingdom could turn into an energy importer within the next 20 years, if the rate of electricity consumption continues.
Therefore, developing unconventional resources like shale gas could provide an innovative solution to address increasing domestic electricity demand.
It provides resources to produce electricity, while freeing up the existing oil reserves for export, thus earning the country valuable revenues.
It also means that the “business case” for the country for Shale Gas is attractive. Although the local gas sale price is heavily subsidized (at $0.75 per million BTUs — about 20 percent of process in the US), using this gas to substitute for oil produces an attractive return based on the international sale price of the produced oil now available for export rather than on the gas price.
In addition a “multiplier” effect means that this gas, as well as releasing oil for export, also produces electricity which supports the economic growth of the country, allowing it to continue to diversify from being a crude oil exporter to an exporter of refined products and other goods and services.