Burning less oil at home will help Saudi exports and Aramco IPO

DUBAI: Saudi Arabia is likely to reduce the amount of oil it burns to generate power this summer as the kingdom hikes domestic energy prices and uses more natural gas in power stations, industry sources said.

Burning less crude at home means the world’s top oi l exporter may not need to push output to the record high of 10.67 million barrels per day ( bpd) reached in July last year, even if the Organization of the Petroleum Exporting Countries and other producers end supply curbs in June.

It may also make the sale of a 5 per cent stake in Saudi Aramco more attractive to investors because the national energy giant will have more crude to export, if needed, and can sell fuel at higher prices to the domestic market.

“Now we are using more and more natural gas, and with the reforms in electricity prices, crude burning will go down,” said a Saudi- based industry source. “This summer you will see less crude burning.”

Saudi Arabia’s domest ic energy reforms aim to rein in waste which threatens to erode the amount of oil available for export.

The kingdom’s energy subsidies have long kept power and fuel at a fraction of cost price, draining the state budget and giving consumers little incentive to buy smaller cars or switch off power-hungry air conditioners – even when they leave home.

But a slide in international oil prices to around US$ 55 a barrel now from above US$100 in 2014 has left a gaping hole in state coffers, encouraging efforts to wean the nation off cheap energy and use more of its huge gas reserves.

“That’s a national objective. Aramco’s been doing this for years, reducing crude burning by increasing use of gas and encouraging the state power generation sector to become more efficient,” said another source familiar with the matter.

In December 2015, the government, which spent nearly 300 billion riyals on energy and water subsidies that year, hiked electricity for the industry and gasoline prices at the pump by about 50 per cent. More gradual increases are planned until 2020.

Under the 2015 rises, 95 octane gasol ine rose to 0.90 riyal ( US$ 0.24) per litre from 0.60 riyal, a big rise for Saudi drivers but still offering them some of the cheapest fuel in the world.

A further 30 per cent rise could come as early as July, sources said. — Reuters