Saudi Consumption — Not Production — Is Key to Peak Oil

The Shoaiba power plant, a sprawling complex of giant boilers and towering chimneys, is the improbable ground zero of the forces reshaping the energy market. Located in Saudi Arabia, it’s the world’s largest oil-fired electricity generator. At its peak, it gulps about 200,000 barrels a day, more than enough to meet the daily consumption of a small European nation like Portugal1.

If global oil demand is to peak within the next five years, as the International Energy Agency just predicted, it will require more than mass adoption of electric vehicles. Ironically, Riyadh will have to slash its own use of its homemade power source, making the Shoaiba and similar power plants the stuff of yesteryear.

The staggering amount of oil the Saudis consume – 3.7 million barrels a day, the world’s fourth most, behind only the US, China and India — means the kingdom would play a key role in shaping demand to 2030, potentially accelerating peak consumption – or delaying it2.

In its latest projection, released last week, the IEA forecast that Saudi oil demand would see the second-steepest decline in absolute terms between now and the end of the decade, falling by more than 500,000 barrels a day. Only the US, thanks to work-from-home and more efficient gasoline and diesel vehicles, in addition to EVs, would see an even larger drop3.

Put succinctly, global oil demand can only peak in 2030 if Saudi Arabia plays ball, embarking in a massive oil-saving program. If it doesn’t, the global numbers don’t add up.

The kingdom, a nation of roughly 35 million, needs lots of electricity to power air conditioning during its sweltering summers and to desalinate sea water4. The power-and-water sector accounts for about 25% of total Saudi oil consumption, a global oddity: The rest of the world largely stopped using crude for power generation after the 1970s oil shocks made the fuel prohibitively expensive.

But oil is, of course, cheap in the kingdom, and the Saudis often burn it directly in power plants, without first refining it into diesel or fuel oil. It’s an inefficient and filthy system, but it works, particularly during the summer when the Saudis need to boost electricity production sharply at short notice. At its seasonal peak, typically in late August and early September, Saudi Arabia burns about 1.4 million barrels a day of unrefined crude and fuel oil in its electricity plants — that’s equal to the total oil daily consumption of France.

Thankfully, the Saudis plan to switch to gas-fired power plants and renewables, reducing, if not phasing out, oil in electricity generation by 2030. Thus, the IEA projection is based largely on what Saudi officials have themselves promised to do.

The kingdom has launched the so-called “Liquid Fuel Displacement Program” to save about 1 million barrels a day by 2030. Key to that plan is the development of the Jafurah basin, a shale-type natural gas reservoir in the Saudi eastern coast. The additional gas from Jafurah “will eliminate” oil consumption to generate electricity, Amin Nasser, the chief executive officer of state-owned Saudi Aramco told investors recently. “Almost 50% of the utility [sector] will be in renewable and 50% will be in gas,” he said.

The Saudi promises echo the forecast the IEA presented last week. The agency, which has clashed with Riyadh repeatedly in recent years about when global oil demand would peak, estimates that the kingdom would reduce direct crude burn in power generation by 500,000 barrels a day by 2030, while fuel oil and gasoil use would fall by 350,000 barrels a day and 150,000 barrels a day, respectively.