Emirates Business 24/7 reported that Saudi Arabia's crude oil exports are expected to sharply decline in the long term as its output is projected to rise slightly and domestic demand is growing fast. The Riyadh based Jadwa Investment said that the sharp fall in oil exports constitutes a major challenge to the world's dominant oil power given its heavy reliance on crude exports in the absence of other major sources of income. Jadwa said that Saudi Arabia's oil exports had already plunged from around 7.5 million barrels per day in 2005 to 5.8 million barrels per day in 2010 and could dive to 6.3 million barrels per day in 2015. An expected high growth in domestic consumption could further depress exports to around 6 million barrels per day in 2020 and only 4.9 million barrels per day in 2003. The study said that three important trends come together to pose a significant challenge to Saudi Arabia's continued dependence on oil revenues. We have addressed two the Kingdom is likely to experience only a very gradual increase in production of crude oil and the government's spending will continue to rise at a rapid pace and rely primarily on oil revenues. The third of these trends is that the country's domestic consumption of energy, especially oil, at very cheap prices is also likely to continue to rise rapidly, sharply reducing the amount of oil available for export. Combined, these trends paint a picture of significant future challenges for the Kingdom. Jadwa said that oil consumption is rising rapidly in Saudi Arabia with domestic use of crude averaging 2.4 million barrels per day in 2010 up from 1.9 million barrels per day in 2007 and 1.6 million barrels per day in 2003. Annual growth has averaged 5.2% since 2003. Domestic consumption in the Q1 of 2011 was 2.9% higher than the same period of last year though it declined in the subsequent two months. Consumption peaks during the summer owing to the amount of energy that is used to power air conditioning. At its peak, in August 2010, domestic consumption was 2.9 million barrels per day compared to a low point for last year of 1.9 million barrels per day in November when it was cooler and offices and shops were closed for part of the month because of the Eid al Adha. Jadwa said that the impact of the rapid growth in domestic consumption on local oil demand has been compounded by shortages of gas in Saudi Arabia. Four JV between Saudi Aramco and foreign oil companies began searching for gas in the Empty Quarter in 2004 with their exploration areas covering 332,000 square kilometers. But it added that the discoveries have not been that large and the exploration costs are relatively high. As a result, some projects that were based on gas feedstock are instead using crude oil as feedstock. Mr Jadwa said that setting aside natural gas and looking solely at the domestic growth in oil consumption, if continued at its average growth rate of the past eight years, then the Kingdom will be consuming 3.9 million barrels per day of oil annually by 2020 and 6.5 million barrels per day by 2030. If we assume that only transportation and industrial use of oil grows at that rate while oil used for power generation stays constant, then domestic oil consumption in 2030 grows to 5.5 million barrels per day. Recall this would be a portion of our base case view of total production of 11.5 million barrels per day leaving the country with only around 6 million barrels per day for export.

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