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Saudi Electricity Sector and Its Unsustainability Essay


Introduction

Saudi Arabia is one of the countries that produce electricity through different approaches. In Saudi Arabia, thermal power stations that use energy from coal facilitate the generation of 41% of electricity in the country (Alshehry and Belloumi 240). However, as the paper reveals, the energy sector in the country is unsustainable since the electricity demand is on the rise, owing to the economic boom experienced in the oil-rich country. Thus, there is a need to address the public utility issue by assessing the factors that contribute to the unsustainability of the energy industry in the Middle Eastern Kingdom. In this concern, this paper analyzes the issue of unsustainable Saud Arabian electricity.

The Influence of the Electricity Sector on the Saudi Arabia Economy

Saudi Arabia is identified as one of the countries that are recording a rapidly increasing demand for electricity. For this reason, the country has the fastest electricity consumption rates in the Middle East. Transportation fuels in the country account for the most consumed forms of energy. In 2005, Saudi Arabia was ranked among the largest consumers of energy, as it secured the 15th spot globally. Surprisingly, 60% of the electricity was based on energy from oil (Nachet and Aoun 9).

The period between 1990 and 2010 saw an increasing demand for electricity in Saudi Arabia, thereby calling for an increased generation of the form of energy to power industries and homes as an outcome of rapid economic growth. Notably, in 2001, Saudi Arabia reached its maximum electricity load at the tunes of 25 GW, a range that was 25 times higher relative to the levels recorded 25 years earlier. By 2023, estimates show that Saudi Arabia would be consuming at least 65 GW (Nachet and Aoun 21).

Currently, the country generates 65% of its electricity from oil while natural gas and steam contribute to about 27% and 8% of the generation, respectively (Nachet and Aoun 15). Nonetheless, the country can generate at least 65 GW, implying that there is a need for the establishment of measures that can boost the sustainability of the energy sector. Importantly, increasing the capacity of electricity generation is critical towards addressing the looming shortage created by the economy’s unprecedented growth. Forecasts reveal that the electricity demand in Saudi Arabia will rise to 120 GW by 2023 (Wada 584).

The increasing electricity demand implies that the country is required to inject substantial investments in the energy sector. In this concern, estimates reveal that the country needs at least $90 billion to meet the increasing electricity demand in the country. Besides injecting money in the energy sector, there is a need for the establishment of sustainable energy generation approaches to foster the efficiency of the sector in the short and long-term (Ouda et al. 404). Importantly, the sustainable energy generation and consumption approaches need to consider Saudi Arabia’s significant dependence on hydrocarbon resources.

The Economy’s Dependence on Hydrocarbon Resources

The oil sector in Saudi Arabia influences the country’s economy significantly. For this reason, the country controls the industry substantially since oil production or supply is the major economic activity. The oil sector is responsible for a significant 43% of the economy. Thus, the country controls it since it forms the major source of revenue. In this case, oil revenues along with 55% of the returns that are derived from the GDP represent 85% of what is gained from exports (Alshehry and Belloumi 244). In this case, the government perceives oil production as a major generator of revenues. As such, it focuses more on the hydrocarbons as a key influencer of the country’s economic growth and development.

Furthermore, the fluctuation of oil prices affects the extent to which the country balances the respective budget. Notably, between 2012 and 2013, oil prices increased from €66.4178 to €75.78 per barrel (Nachet and Aoun 7). The significant increment during this time affected the economy positively since the country collected higher export revenues. Conversely, the period between 2014 and 2015 saw a considerable 55% weakening of oil prices, a situation that created concerns about the ability of the government to finance its budget from the oil sector. The situation created a 10% financial deficit in budgeting during the 2015/2016 fiscal year (Wada 586).

Besides the dependence on oil revenues, the Saudi Arabian population, which is comprised of at least 30 million people, creates a demographic pressure that undermines the sustainability of the electricity sector (Ouda et al. 403). The reduction of oil production relative to the population from 16,000 barrels to 9,000 barrels between 1990 and 2013 created considerable pressure on the country’s energy sector, thereby calling for interventions that would foster the energy and demographic balance.

In response, the country initiated several reforms that would facilitate the diversification of its economy to reduce the witnessed reliance on the energy sector (Rambo et al. 3839). However, the difficulty of diversifying an economy that significantly relies on the production and distribution of oil has undermined the realization of energy sustainability in the country. For this reason, the country continually focuses on injecting funds that seek to facilitate the generation of power from hydrocarbons.

As a result, the demographic pressure poses a great threat to the economy since it influences the rise of unemployment among the youths in Saudi Arabia. Important to note, the case of the oil industry facilitating the generation of electricity in the country besides it being an international trade commodity is very capital intensive. Such capital-demanding nature of producing and generating electricity is a burden that has a negative effect on the employment of youths. Additionally, the oil plants and power stations do not employ a significant number of the Saudi Arabian nationals (Farnoosh et al. 303). In this view, the unsustainability of the electricity sector in Saudi Arabia is also denoted by the extent to which it influences the unemployment problem among the country’s youths.

Furthermore, the energy sector in Saudi Arabia receives significant subsidies from the government, a situation that poses pressure on the economy. Interestingly, the country takes the second spot among the largest subsidizers globally. Notably, 9% of its GDP goes to subsidizing the energy sector. The government offers subsidies worth €12.9 billion to the electricity sector (Nachet and Aoun 9). In this respect, the activity of electricity generation and supply contributes to the creation of a financial burden among the Saudi Arabia nationals.

The Dimensions of Electricity Unsustainability in Saudi Arabia

The electricity sector is considered unsustainable, owing to the economic weight it exerts among the youths, as well as its failure to meet the demand following the increased consumption of the resource. The observed changes in oil prices have affected the national budget over the years. In this regard, economic tides, which affect the prices in the oil sector, also influence the country’s economy considerably (Wada 588). In this respect, since oil accounts for at least 41% of Saudi Arabia’s electricity generation, price fluctuations would in turn influence the sustainability of the sector in the end.

Besides price fluctuations affecting the sustainability of the electricity sector, the demographics of the country pressurize the electricity sector. Notably, the young population has failed to gain substantially from the oil sector. Thus, it is employed mainly in the public sector. The unemployment issue is a major one since most of the young people do not get direct employment from the country’s major economic activity (Al-Tamimi 7). Therefore, the electricity sector in Saudi Arabia continues to affect the labor market negatively, this denoting its influence on the sustainability of the economy.

The heavy subsidization level by the Saudi government in the area of electricity is also a concern. Notably, the government injects at least €12.9 billion in the form of subsidies. The heavy subsidization raises concerns over the sustainability of the sector, owing to its influence on the budget. Amid the country acting as a rentier state that distributes the benefits from the energy sector equally among its citizens, the economic burden presented by the electricity and oil sectors is worrying. The sustainability of the electricity sector continues to be a major issue as consumption rises by the day.

Saudi Arabia is among the largest consumers of energy in the world, sitting in the sixth position behind countries such as the United States and China among a few others. On a daily basis, the country consumes at least 3 million barrels of oil on an average day. The oil ends up generating at least 40% of the country’s electricity before being supplied to various households and enterprises. The increasing energy consumption in the country has surpassed the GDP growth over the past few years, thus creating an imbalance, which raises the energy intensity. In this case, in 2011, the Saudi Arabian economy recorded a 137 toe of energy utilized for every €855 of the GDP.

Compared to other economies, the toe is considerably lower. For instance, the European Union utilizes a 95-energy toe for every €855 of the GDP of a given country in the region (Nachet and Aoun 10). The situation implies that consumption prompts the government to spend more on sustaining the energy sector. Figure 1 below shows the Kingdom’s energy consumption pattern over the years.

Saudi Arabia’s energy consumption in millions per toe. 
Figure 1: Saudi Arabia’s energy consumption in millions per toe. Source: (Nachet and Aoun 10).

The trend shows how the consumption of energy has been on a significant rise over the past four decades. The increasingly high GDP spending in the energy sector creates worries regarding its sustainability in the near future. The generation of alternative sources of energy is a considerable approach that may solve the issue temporarily. Nonetheless, the up-surging demands for electricity in the current economic boom in the country continue to escalate the public utility problem in Saudi Arabia.

In the current situation, electricity generation is the largest consumer of oil in the Middle Eastern Kingdom. Besides the electricity sector, water desalination and transportation account for considerable oil consumption in the country. In 2013, oil was responsible for 21% of the electricity produced in the country besides other energy forms, including heavy oil fuel, diesel, natural gas at15%, 10%, and 46%, respectively (Nachet and Aoun 11).

In the last 10 years, the electricity demand in Saudi Arabia has been rising at an average rate of between 7.5% annually. The situation is alarming since the generation of electricity is not steadily increasing to meet the consumption demands of the rapidly growing population. In the recent past, Saudi Arabia has seen the emergence of petro cities that demand electricity for conditioning besides other functions that make it conducive to live and carry out daily activities in urban settings. For this reason, the conditioning of homes accounts for 70% of the electricity demanded during the climax of the summer season (Farnoosh et al. 301).

The situation denotes the extent to which the climate of the Middle East contributes to the increasing electricity demand in Saudi Arabia. During winter, the demand for conditioning goes down to a considerable 35%. The critical nature of the situation was denoted by the 93% increase in electricity demand during the 2004-2013 period. Projections reveal that the electricity demand would see a 6% increase in demand annually, a situation that will create an imbalance in the generation and consumption nexus in the country’s energy sector.

With the rapidly increasing electricity demand from the residential sector, there is a need to increase the electricity generation and supply to the projected 120 GW by 2032. Failing to accomplish this goal would create an energy demand crisis in the rapidly growing economy. The population increase in the country implies that the residential sector’s electricity demand would also rise. Currently, the residential sector in the country accounts for at least 50% of the electricity (Al-Tamimi 4). The rise in the population may also prompt greater electricity consumption in the commercial sector.

Besides, the increasing water demand in Saudi Arabia has called for extensive investment in desalination plants. Shockingly, the many desalination plants account for up to 20% of the electricity demand in Saudi Arabia. The end users only pay for between 5-10% of the cost used to produce and supply water through desalination (Rambo et al. 3840). Such costing imbalances imply that the electricity sector in the Middle Eastern country is unsustainable, owing to factors such as the inefficiency of the water sector.

Factors such as over-dependence of the economy on the energy sector, demographic pressures, the increasing electricity demand, and the ineffectiveness of the water sector pose a significant threat to the sustainability of the electricity sector (Rambo et al. 3841). In this regard, there is a need for the implementation of strategies that can facilitate the efficiency of the sector.

Recommendations

The deployment of energy efficiency mechanisms is of paramount importance in the case of Saudi Arabia. The need to urgently put in place measures that can bolster energy conservation is key since it would create a balance between the generation and consumption of electricity in the country. Undoubtedly, attaining energy efficiency may be one of the cost-friendly means of handling the public utility issue affecting Saudi Arabia.

The liberalization of the energy sector in Saudi Arabia may also contribute to the sustainability of electricity. Hence, a reduction of the government’s control will allow the private sector to bring about competitiveness in the production and distribution of electricity in the country, thus fostering energy efficiency. Moreover, investing in renewable sources of energy in Saudi Arabia has the possibility of alleviating the problem considerably. By so doing, the country will realize its target of generating 50% of the energy from renewable energy sources. As such, there is a need for a greater injection of funds to facilitate the establishment of renewable energy plants to alleviate the electricity unsuitability issue in Saudi Arabia.

Works Cited

Alshehry, Saad, and Mounir Belloumi. “Energy Consumption, Carbon dioxide Emissions and Economic Growth: The Case of Saudi Arabia.” Renewable and Sustainable Energy Reviews, vol. 41, no. 1, 2015, pp. 237-247.

Al-Tamimi, Nedhal. “A State-of-the-art Review of the Sustainability and Energy Efficiency of Buildings in Saudi Arabia.” Energy Efficiency, vol. 1, no. 1, 2017, pp. 1-13.

Farnoosh, Arash, et al. “Electricity Generation Analyses in an Oil-exporting Country: Transition to Non-fossil Fuel based Power Units in Saudi Arabia.” Energy, vol. 69, no. 1, 2014, pp. 299-308.

Nachet, Said, and Marie-Claire Aoun. “The Saudi Electricity Sector: Pressing Issues and Challenges.” Note de l’Ifri, IFRI Research Center, vol. 1, no. 1, 2015, pp. 1-31.

Ouda, Omar, et al. “An Assessment of the Potential Contribution from Waste-to-energy Facilities to Electricity Demand in Saudi Arabia.” Energy Conversion and Management, vol. 75, no. 1, 2013, pp. 402-406.

Rambo, Khulood, et al. “Water-Energy Nexus in Saudi Arabia.” Energy Procedia, vol. 105, no. 1, 2017, pp. 3837-3843.

Wada, Isah. “Energy Production and Economic Growth in Saudi Arabia: Dynamic Causality.” Energy Sources, Part B: Economics, Planning, and Policy, vol. 12, no. 6, 2017, pp. 584-590.

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