AS the US raced over the past five years toward becoming a global petroleum powerhouse, the world’s biggest oil exporter Saudi Arabia quietly seized a market milestone from America: the largest source of peak summer demand.
From June through August, when temperatures in Riyadh routinely rise above 100 degrees Fahrenheit (38 degrees Celsius), Saudi Arabia diverts as much as a tenth of its crude output to fuel power plants that run full tilt to meet surging demand from air conditioners.
The result is that Saudi Arabia’s winter-to-summer “swing” in oil consumption has eclipsed that of the US, where gasoline consumption jumps by as much as 10 per cent every summer as millions of families take advantage of school holidays and warm weather to embark on the classic American road trip.
This May 23-25 Memorial Day weekend, however, that trend may begin to reverse as the most Americans in a decade will fill up their gas tanks and rev up their engines for highway holidays, taking advantage of lower gasoline prices and a growing economy.
The American Automobile Association predicts a 5.3 per cent rise in Memorial Day car travel to the highest level in 10 years. The boost at the pumps will add to already strong demand for gasoline after years of diminishing use because of a switch to more fuel-efficient cars.
“The fall in prices is trumping the efficiency gains for the summer,” says Amrita Sen, chief oil analyst at Energy Aspects.
Saudi Arabia is likely to maintain or even extend its use of domestic crude and fuel in power plants this summer, according to Sen and other analysts. Yet the country appears to be making some progress toward slowing its dependence on one of the most costly forms of electricity.
There is growing debate in Saudi Arabia over higher power tariffs that might curb wasteful use, and a younger generation of Saudis are coming of age in an era of conservation, says Professor Paul Stevens, a Senior Research Fellow for Energy at Chatham House who co-authored a 2011 report on the issue.
Saudi use of oil for power will be “continually growing, but not at the sort of growth rates of the past 10 years,” Stevens said.
The surge in summer demand this year will have an even greater significance for global oil prices than usual, as bullish traders are counting on it to help drain inventories that swelled at a rate of more than 1.5 million barrels per day in the first half of this year.
In the US, gasoline demand is expected to grow by about 524,000 bpd between the first quarter and the June-August period, according to the US Energy Information Administration, although some analysts expect more.
Saudi Arabia’s peak crude oil burn rate is likely to top 900,000 bpd this summer, analysts say, up from around 350,000 bpd in winter, according to the Joint Oil Data Initiative.
But consumption of refined fuels such as diesel, some of which is also used in power plants, also surges in summer, taking the total seasonal swing to around 1.2 million bpd, a 50 per cent jump in domestic demand.
Saudi Arabia’s power challenge began a decade ago as high hopes for a booming domestic natural gas industry began to fizzle just as rising oil prices fueled an economic upturn, both from wealthier citizens and a small but growing industrial base.
In the 10 years to 2012, total power generation more than doubled, with two-thirds of the growth met by burning oil. To meet the surge at the peak of summer, Saudi Arabia, home to approximately 16 percent of all crude oil reserves, has simply pumped additional crude to use at home. — Reuters