Efficient industrial energy use: The first step in transitioning Saudi Arabia's energy mix

Abstract

In Saudi Arabia, industrial fuel prices are administered below international prices and firms make decisions based on low energy prices, increasing domestic energy demand. This analysis explores alternative policies designed to induce a transition to a more efficient energy system by immediately deregulating industrial fuel prices, gradually deregulating fuel prices, and introducing investment credits or feed-in tariffs. It uses a dynamic multi-sector, mixed-complementarity model. Continuing existing policies results in a power system still fueled completely by hydrocarbons. The alternative policies result in a transition to a more efficient energy system where nuclear and renewable technologies become cost-effective and produce 70% of the electricity in 2032. Introducing the alternative policies can reduce the consumption of oil and natural gas by up to 2 million barrels of oil equivalent per day in 2032, with cumulative savings between 6.3 and 9.6 billion barrels of oil equivalent. The energy system sees a net economic gain up to half a trillion 2014 USD from increased oil exports, even with investments in nuclear and renewables. The results are robust to alternative assumptions regarding the value of oil saved and the growth in end-use energy demand.