Lowering Saudi Arabia’s fuel consumption and energy system costs without increasing end consumer prices

Summary:

approach—which introduces investment credits for solar and nuclear and allows more natural gas consumption in the power sector—achieves almost all the benefit of raising inter-sector transfer prices for fuels to world market equivalences, but only

• Our modeling shows it is possible to solve the apparent contradiction of inducing greater efficiencies and lower energy consumption, while preserving current consumer prices.

• All scenarios lead to substantive reductions in fuel consumption and attractive net economic gains when compared to the baseline scenario. The Price-deregulation scenario, which prices fuels at the marginal value, yields the highest net gain, but those gains are broadly matched by the gains achieved with the Investment-credit option.Furthermore, the latter option maintains the profitability of the utilities.

• The net economic gain is impacted by the assumed value of oil saved, which also affects the optimal equipment mix, but that gain is always positive irrespective of the chosen value of oil saved.

• In all scenarios, the economic gain for the nation as a whole, as well as for the government, is substantial. The petrochemical and utilities sectors suffer reduced net revenues relative to the baseline scenario, but those losses are more moderate in the Investment-credit scenarios and would be ameliorated in practice by honoring the terms of existing contracts.