Saudi Arabia burns its own crude to keep cool, limiting the amount of oil it can export


Saudi Arabia’s crude-oil exports may be capped by its increasing reliance on oil-fired power generation, with Saudi direct crude burning set to hit record highs this year, the International Energy Agency (IEA) said on Wednesday.

The IEA predicted global oil demand would rise next year to a hefty 91 million barrels per day (bpd), outpacing a more conservative prediction by OPEC.

But the world’s top crude exporter is expected to burn a record average of 600,000 bpd of its own crude in 2011, the energy adviser to the Organization for Economic Co-operation and Development (OECD) group of countries said, limiting Saudi exports despite an increase in production promised in June.

Although a huge summer surge in Saudi crude burning went largely unnoticed in the summer of 2009, as global oil demand sagged in the worldwide economic downturn, the kingdom’s ever-increasing thirst for its biggest export product is now weighing on global supplies.

“This is a convenient outlet for large oil producers eager to maintain production in periods of weak global demand, as in the recent Great Recession in 2009,” the IEA report says.

“Yet, despite the economic rebound, Saudi direct crude burn has continued to rise steadily and is on track to reach a new historical record in 2011, potentially capping future Saudi crude exports, despite rising production.”

Saudi Energy Minister Ali Al Naimi said Saudi Arabia would produce as much crude as needed after OPEC output talks collapsed in early June.

But analysts say most of the increase in output will probably be soaked up by an increasingly dramatic summer surge in air conditioning demand, which could see as many to 1.2 million barrels burned in Saudi power plants on the hottest days, leaving little extra crude for the rest of the world.

“This new pattern of direct crude burning has implications for global demand seasonality,” the IEA said on Wednesday.

The difference between peak and trough Saudi direct crude demand increased from about 180,000 bpd in 2002-2008 to about 660,000 bpd in the years since 2009, it said.

The IEA said treating direct crude burning as part of its “other products” demand in reports compounds the usual third-quarter global product demand swing and “wreaks havoc” with average seasonality figures analysts use to project demand.

Based on scant Saudi government production, export and refining throughput data made available through the Joint Oil Data Initiative, the IEA estimates Saudi Arabia burned fewer than 200,000 bpd on average for most of the 2000s, but gobbled up more than 450,000 bpd when demand for its main export earner fell in 2009.

Saudi Arabia’s increasing demand for power-hungry air conditioning units in summer, as a growing population tries to keep cool when temperatures outside soar from May to September, is already squeezing spare oil-supply capacity and threatens to slash Saudi exports in the long term unless much more natural gas is fed to the power sector.