Assessing energy policy instruments: LNG imports into Saudi Arabia

Rami Shabaneh,Maxime Schenckery

doi:10.1016/j.enpol.2019.111101

Rami Shabaneh, Maxime Schenckery

Open Access

https://doi.org/10.1016/j.enpol.2019.111101

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Abstract

Saudi Arabia relies heavily on oil-based generation to meet its power needs within a geographically unbalanced pattern of natural demand and supply. Many initiatives are currently being assessed to reduce the high opportunity cost of burning oil for the country. This paper examines the cost and implication of a disruptive policy where Saudi Arabia imports liquefied natural gas (LNG). To determine the possible and optimal sources to procure LNG into Saudi Arabia we use and configure a partial equilibrium model, specified as a linear programming problem. Two import scenarios were tested: the first assumes an import terminal with a capacity of 5 million tonnes per annum (MTPA) and the other scenario assumes 22 MTPA. Results show that Saudi Arabia can import LNG for power generation at a discount to the opportunity cost of oil. Especially during the summer months, as Saudi Arabia's gas demand is counter-seasonal to major importing regions it leads to even more interesting market pricing conditions. It also shows a small difference in landed cost of LNG between the two scenarios which implies the global LNG market can accommodate relatively large demand from Saudi Arabia without distorting significantly the global market pricing mechanism.

Highlights

Natural gas consumption in Saudi Arabia represents 37% of the country’s primary energy demand (BP, 2018)
While this paper investigates the optionality of liquefied natural gas (LNG) imports for Saudi Arabia, it does raise the question whether gas imports via pipeline from nearby sources such as Qatar and Iran can be considered as a feasible and a lower cost option
When running the model assuming that the current restriction of flows from Qatar to Saudi Arabia has been lifted, the model clears without any imports from Qatar

Summary

Introduction

Natural gas consumption in Saudi Arabia represents 37% of the country’s primary energy demand (BP, 2018). Rapid growth in domestic power demand, driven mainly by population growth and industrial development, has increased the demand for crude oil and other liquid fuels to make up for the shortfall in the country’s gas supply. Given this expected growth in future power demand, maintaining the status quo in the power mix implies the increased use of crude oil and oil products as fuels for electricity generation. This would result in a large opportunity cost from the reduced quantity of domestically produced crude oil available for export

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