Saudi Arabia fact of the day

by on April 5, 2012 at 9:27 am in Economics | Permalink

The country is not energy efficient:

With domestic electricity demand rising 10% per year in Saudi Arabia, the kingdom now devours more than a quarter of its oil production—nearly three million barrels per day. International Energy Agency figures show that Saudi Arabia now consumes more oil than Germany, an industrialized country with triple the population and an economy nearly five times as large.

That is from Jim Krane via Brad Plumer.

Donnie April 5, 2012 at 10:13 am

They do have to air-condition every building in 120+F, so you would expect that they would have high and rising energy usage if they are building new buildings.

david April 5, 2012 at 10:15 am

Desalination consumes a heck lot of energy, too.

libert April 5, 2012 at 10:43 am

Don’t forget the massive oil subsidies the Saudi government lavishes on its population. I don’t recall the source for this figure, but I read somewhere that after the subsidies, a barrel of oil costs about $10/barrel within Saudi Arabia. With oil that cheap, what incentive is there for consumers to be efficient?

On a related note, the government doesn’t want to let domestic consumption drain its oil reserves, which is why it’s investing heavily in solar and nuclear power, letting them export the oil that they no longer have to consume domestically.

By the way, Tyler, the Economist beat both the Washington Post and the WSJ to this exact story by a week: http://www.economist.com/node/21551484

Rahul April 5, 2012 at 11:23 am

In terms of energy consumption (not just electricity), I wonder, is 120 F worse or, say, the weather of Canada, Scandinavia or one of similar colder nations. i.e. on a per-degree-differential basis is heating more expensive or cooling?

Jody April 5, 2012 at 11:40 am

I assume cooling is more expensive, as inefficiencies in processes normally show up as waste haste, which when you’re trying to heat something isn’t so wasteful.

KLO April 5, 2012 at 11:54 am

Yeah, but. Heating and cooling are remarkably similar processes, with one just the reverse of the other. I think the two are actually quite close in terms of energy efficiency, with cooling being slightly more efficient. See:

http://www.wired.com/science/planetearth/magazine/16-06/ff_heresies_02ac

The likely reason people think that heating is more efficient is due to the relative cost of heating v. cooling. Cooling is almost exclusively accomplished through appliances that run on electricity (I know you can use NG, but I have never seen this in a residential structure), whereas heating can be done using any number of different energy sources. The increased energy source flexibility in heating likely drives down the total cost of heating relative to cooling.

Dave Anthony April 5, 2012 at 12:27 pm

Where are you from that you’ve never seen Natural Gas used to heat residential structures??? Lots of homes in the northern parts of the US use NG to heat homes!! In the south you can get away with just heat pumps because they operate pretty efficiently until you get below 15F or so. My house is a heat pump for cooling and heating and my costs are much higher in the winter mainly because I’m heating from 30F to 75F (+45) vs the Summer when I am often cooling down from 90F to 75F (-15).

Finch April 5, 2012 at 1:20 pm

He’s never seen _cooling_ done using NG directly in residential structures. Not heating. Obviously gas heat is common.

Jody April 5, 2012 at 2:53 pm

Didn’t like KLO’s link so much as it seemed to be assuming different temperature differentials, so I googled a bit, and here’s what I’ve learned mostly from here: http://en.wikipedia.org/wiki/Heat_pump

A heat pump’s steady-state efficiency is bound by the following equation (larger values are more efficient):

Effic <= Indoor Temp / abs(Indoor Temp – Outdoor Temp)

(That collapses the two COP equations at the wiki page into one).

Thus in theory, it's the same efficiency either way, but the heat pump becomes less efficient as the temperature gradient becomes larger. So for an equal temperature differential, heating and cooling are equally efficient via a heat pump.

But waste heat does tilt the balance as I suspected. Quoting wiki (my emphasis):

"Heat pumps are more effective for heating than for cooling if the temperature difference is held equal. This is because the compressor’s input energy is largely converted to useful heat when in heating mode, and is discharged along with the moved heat via the condenser. But for cooling, the condenser is normally outdoors, and the compressor’s dissipated work is rejected rather than put to a useful purpose.

Dan Weber April 5, 2012 at 12:18 pm

I thought 1 BTU of energy can remove (ball park figure) 5 BTU’s of heat via an air conditioner. But 1 BTU of energy can only make 1 BTU of heat.

Heat pumps are more efficient than burning fuel — let’s say for argument just as efficient as cooling — but you can’t use them when it’s 0 degrees outside.

Finch April 5, 2012 at 1:03 pm

Is the 1 BTU of energy measured at the plug or at the power generator?

That clarification aside, I have brand new heating and cooling systems, and I spend a lot more on heating than cooling in the northeast.

Rahul April 5, 2012 at 1:21 pm

@Finch

Are your degree-heating-days equal to degree-cooling-days? I suspect the fact that you spend more on heating is not related to the per-unit costs or efficiencies.

Finch April 5, 2012 at 1:34 pm

We usually transition from heating to air conditioning around this time of year. The house seems to heat up when the outside temperature goes above 60. In the fall, I think the heat goes on sometime between September and November, depending on weather.

The temperature differential is probably on the side of heating – we experience seven months where the low is below 50 and eight months where the high is above 50. But we probably get a lot more 30 degree days than 90 degree days. I keep the house at roughly 70.

Finch April 5, 2012 at 2:23 pm

> I suspect the fact that you spend more on heating is not related to the per-unit costs or efficiencies.

We spend 10x as much on heating as cooling, so it isn’t just down to the number of days each system is employed.

KLO April 5, 2012 at 11:44 am

Assuming that both heating and cooling were equally efficient (and I think they are close), you would expect more energy usage where there was the greatest temperature difference between ambient outside and desired indoor temperatures. The average year-round temperature in Riyadh is about 80 F. Lowering the temperature to, say, 72 F is a difference of 8 degrees. The average temperature of New York City is about 55 F. Getting that up to 72 F requires increasing temperature 17 degrees. Based on this, I would expect more energy to be expended to keep a NYC building at 72 F than one in Riyadh.

Obviously, this is greatly simplified, but it seems to be born out with actual numbers. CO2 emissions related to the heating and cooling of the average home in Florida is emits 6,600 pounds of CO2 for HVAC, whereas in Minnesota it is 9,000 pounds of C02 for all electric HVAC.

Rahul April 5, 2012 at 11:51 am

But are Minnesota and Florida equally far from 72 F? I suspect Minnesota has a higher differential to fight.

KLO April 5, 2012 at 11:58 am

You could be right, and you identify the proper focus, which is on the difference between ambient and desired temperatures. Cooling v. heating is not really important, because they are similar processes that are similarly efficient to the extent that they rely on the same energy source.

Rahul April 5, 2012 at 12:11 pm

@KLO

I guess differentials are more important, yet, from practical considerations (not thermodynamics) I still feel heating a degree is cheaper than cooling the same degree. Not sure by how much though.

Urso April 5, 2012 at 2:48 pm

It’s not the average, it’s the swings. Desert climes have much more drastic swings. Imagine a place where it’s 140 degrees during the day and 0 degrees during the night. You couldn’t say “well on average it’s 70 degrees so their heating and cooling costs are zero. QED”

Rahul April 5, 2012 at 3:37 pm

Ironically day-night swings are relatively cheap to compensate for, at least partially. All you need is a large heat capacity reservoir. Think of a pebble filled pit or water tanks etc.

The problem of finding a heat-reservoir large enough is harder when, like, say Chicago, you have months of sub-freezing temperatures (conversely months of hotness). That’s where there’s projects trying to harness deep lake water or deep-bored-wells.

JD April 5, 2012 at 5:02 pm

Don’t forget about the humidity. Condensation loads are very important in system sizing (think Houston vs Dallas). Take a look at a psychrometric chart to see the full story.

Yancey Ward April 5, 2012 at 5:50 pm

But it is a dry heat.

KLO April 5, 2012 at 10:42 am

Although I am sure that Saudi Arabia is not very energy efficient, energy consumption rather than electricity consumption is probably a better measure of efficiency.

Probably a more amazing fact is that Iceland’s per capita electricity consumption is more than four times that of the U.S. Norway, not a country typically thought of as extremely wasteful, has a per capita electricity consumption figure that is more than twice that of the U.S. Saudi Arabia’s per capita figure is around half that of the U.S.

jmo April 5, 2012 at 10:43 am

Is it because due to all the hydro (in Norway) and geo-thermal (in Iceland) electric heat is cost effective in those countries?

KLO April 5, 2012 at 11:28 am

I think that is it. Electricity in Norway is much cheaper than in other European countries. Not sure about Iceland.

Ryan Miller April 5, 2012 at 11:29 am

No, in Iceland’s case it’s that all the geothermal made power so cheap that major Aluminum smelters, whose chief expense is electricity, relocated there–making aluminum Iceland’s second leading export after fish. Since at 320k population it’s not even the size of a large city, it doesn’t take more than a few major aluminum plants to skew the numbers dramatically.

Dan April 5, 2012 at 11:35 am

Low electricity prices draw energy-intensive industries like aluminum smelting, driving up their per-capita usage:

“The presence of abundant electrical power due to Iceland’s hydroelectric energy sources has led to the growth of the manufacturing sector. Power-intensive industries, which are the largest components of the manufacturing sector, produce mainly for export”

http://en.wikipedia.org/wiki/Economy_of_Iceland#Manufacturing

TallDave April 5, 2012 at 11:40 am

A better measure for efficiency is energy consumption per dollar of PPP GDP per capita.

Otherwise, one confuses “poor” with “efficient.”

revver April 5, 2012 at 12:24 pm

Why not U.S. dollars per kilowatt hour?

TallDave April 5, 2012 at 12:43 pm

I think that would be “cheap” rather than “efficient.” You would lose the benefit of, say, a new technology that uses less kWh to perform a given task.

Willitts April 5, 2012 at 12:31 pm

I think it should be energy consumption per dollar of PPP GDP, otherwise one confuses “efficient” with “heavily populated by dirt poor people who use very little energy either in consumption or production.”

TallDave April 5, 2012 at 12:48 pm

Yes, you’re right, throwing per capita in there doesn’t actually make sense, since we’re talking about the total energy, not the energy per capita. You would have to put it both sides, which means it doesn’t do anything.

8 April 5, 2012 at 10:46 am

Subsidized oil prices help drive up demand. And the lack of nuclear power.

Rahul April 5, 2012 at 11:33 am

In any case isn’t this a natural outcome? An area with cheap oil overuses that input.

Doesn’t it make economic sense?

TallDave April 5, 2012 at 11:43 am

Only in the absence of cheap arbitrage.

Unless you mean “natural” in the sense of “it’s natural for a corrupt kleptocracy to buy off the people with cheap subsidies of something it has a lot of.”

JF April 5, 2012 at 12:36 pm

But Saudi Arabia doesn’t have cheap oil in opportunity cost. Nobody does.

Willitts April 5, 2012 at 12:36 pm

Plenty is the enemy of efficiency. The opportunity cost of inefficiency is very low. You could test this hypothesis by looking at per capita water consumption.

My hypothesis is that humans in the northern latitudes developed faster because of their need to harness energy to perform work and the relative paucity of things to hunt and gather. The harshness of their conditions bred technology and, perhaps, violence.

NAME REDACTED April 5, 2012 at 1:59 pm

But humans in the northern latitudes DID NOT develop faster. Civilization developed at lower latitudes.

TallDave April 5, 2012 at 3:20 pm

OTOH, some northern cultures did develop much faster since the industrial revolution — Europe went from being relatively poor next to southern cultures to being ridiculously wealthy, while (for instance) the previously superior Ottomans were left behind; after the Second Siege of Vienna it became a blowout. Victor Hanson identifies some cultural attributes that seemed to be decisive. I suspect some portion of cultural pragmatism derived from having to survive winters.

I don’t know that they were any more or less violent, though.

Careless April 5, 2012 at 11:53 pm

Define “north”. The Nile Delta is at 30 degrees. Babylon a few degrees more. Rome and Istanbul are at 41. Ancient China is in the 30s. Indus Valley civilization was at 30 degrees. In US terms, that’s between the southern end of Georgia and the northern border of Connecticut. Pretty northern, globally speaking.

jmo April 5, 2012 at 10:47 am

“Energy Agency figures show that Saudi Arabia now consumes more oil than Germany, ”

Doesn’t German get a lot of its energy from natural gas?

Andrew' April 5, 2012 at 10:53 am

They tire of selling oil to people that hate them.

Willitts April 5, 2012 at 12:49 pm

Not really. Remember that they restrict supply to drive up prices. This creates excess supply that has to be absorbed. They absorb it, in part, by subsidizing domestic consumption.

If there were a black market where Saudi citizens could sell gasoline to other countries, the cartel pricing would be undermined.

I also wonder if Saudi gasoline is regulated for emissions anywhere near the degree that Europe and the US do. Do they have leaded or unleaded gasoline? Do they add detergents and other additives?

TallDave April 5, 2012 at 12:53 pm

Heh, I bet there is a LOT of black-market arbitrage.

Urso April 5, 2012 at 2:51 pm

To where? Don’t all the neighboring states have similar subsidies? Not to mention that Saudi punishment for smuggling is probably not exactly compatible with the 8th amendment

TallDave April 5, 2012 at 8:54 pm

To anywhere gas costs more. Even a state with a merely smaller subsidy could be very profitable.

Benny Lava April 5, 2012 at 8:47 pm

Why would it create excess supply? That doesn’t make any sense.

kiwi dave April 5, 2012 at 11:30 am

What is more notable is that despite controlling a vast portion of the world’s oil supply, and having been top-dog in world energy production for decades, and not having such a large population, Saudi Arabia’s per capita GDP (per the World Bank) is only $15,836 — less than Portugal, Greece, Solvenia and Slovakia. The term “Dutch Disease” doesn’t do it justice. Beverly Hillbillies on an epic scale?

TallDave April 5, 2012 at 11:44 am

And I suspect it’s really much worse than that. They have millions of noncitizen workers.

Rahul April 5, 2012 at 11:45 am

OTOH last year Saudi GDP growth was about 7% whereas German 3%. That does, to some extent, justify the consumption growth but not the high baseline.

TallDave April 5, 2012 at 11:52 am

Probably has more to do with oil price fluctuations than anything happening to the economy internally. Obviously if that trend had persisted for decades they would not be as poor as they are today.

Their non-oil economy is a tenth the size of the oil economy. Compare that to the U.S. or Norway.

TallDave April 5, 2012 at 11:56 am

Sorry I misread “non-oil mfg” being 10% of the economy as the entire non-oil economy. It’s actually about half.

TallDave April 5, 2012 at 11:48 am

In fact I remember reading a few years back that they are not even capable of building their own drill bits.

But you have to remember, this is country in which it is still not uncommon for women to be buried alive in the desert if they anger their men by doing something disrespectful like wearing makeup. It really is a Third World culture sitting on oil.

Rahul April 5, 2012 at 11:55 am

Then again, if you had a huge and highly profitable oil and gas sector would you want to make your drill bits?

Is Monaco capable of making drill bits?

TallDave April 5, 2012 at 12:52 pm

There would be no reason not to make them, but no particular reason to make them either, since shipping isn’t all that expensive.

But drill bits aren’t all that hard to make — the fact they cannot make them even if they wanted to is telling; i.e. the absence of a sufficient machining sector is what’s odd, or at least was at the time.

Rahul April 5, 2012 at 1:28 pm

I am not sure if they cannot make them or is it simply that they do not make them?

A nation that can run billions of dollars of complex refining operations can probably set up machining (if they wanted to). All run by expats, of course.

TallDave April 5, 2012 at 9:00 pm

Apparently they’ve been doing just that.

http://www.rigzone.com/news/article.asp?a_id=103931

But it’s still the same problem really: they do not have this kind of technical expertise or ability natively. That isn’t an economic response to the fact they’re better off just focusing all their efforts on producing oil, because they aren’t even trying to do that.

Willitts April 5, 2012 at 1:02 pm

Comparative advantage says no. Strategic assets says yes.

Iran sits upon vast pools of petroleum and gas, but they don’t have the refining capacity to supply their own needs. I wonder what their malfunction is in not building more refineries. It’s not as though they give a damn about the environment or what the people think of refineries in their backyards.

Saudi Arabia has been importing high skilled foreign labor for as long as I remember. There might be a socio political reason for keeping domestic human capital low. The ruling monarchy and the Wahhabists have maintained a tenuous balance of power for a long time, and both rely on a relatively poor, uneducated, and powerless populace. It’s a schizophrenic country that wants to be rich, modern, powerful, and democratic while at the same time wanting to remain conservative, centralized, austere, and reverent. Oil is its curse and blessing. It’s to our great credit and diplomatic brilliance that we have built and maintained the alliance we have.

Rahul April 5, 2012 at 1:25 pm

There might be a socio political reason for keeping domestic human capital low.

Or you could invoke Steve Sailer-ian theory and posit that it is a fundamental, genetic, IQ deficiency?

Anti-Gnostic April 5, 2012 at 3:33 pm

I wonder what their malfunction is in not building more refineries.

I’m sure all the onerous trade and financial sanctions don’t help. Also, I expect a substantial number of the right-side Iranian IQ distribution–the ones capable of building and maintaining refineries–have devoted their intelliegence and energy to getting the hell out of Iran.

It’s to our great credit and diplomatic brilliance that we have built and maintained the alliance we have.

LOL. Our “diplomatic brilliance” is close to sparking a third world war.

Dave Schuler April 5, 2012 at 12:09 pm

The subsidized Saudi gas prices are about $.50 per U. S. gallon.

Willitts April 5, 2012 at 12:38 pm

That’s at least $1 per gallon difference from the taxed and regulated price of gas in the US.

Willitts April 5, 2012 at 12:51 pm

Sorry, did you mean that they pay 50 cents per gallon or that their subsidy is 50 cents per gallon?

NAME REDACTED April 5, 2012 at 2:02 pm

The first.

Sunset Shazz April 5, 2012 at 12:34 pm

Sunset Shazz April 5, 2012 at 12:35 pm

Sorry for blank post. This is what I meant to embed:

http://img.sparknotes.com/figures/0/039bab1e6f1ef2a65b5f4c8ddc66073a/ceiling.gif

Ray Lopez April 5, 2012 at 1:33 pm

Energy inefficiency is one way communist countries GDP was estimated. I’ve also concluded (and blogged on Usenet, subsequently confirmed by a professional economist) that China’s stated GDP is also overstated, based on energy consumption.

libert April 5, 2012 at 3:02 pm

What’s the data source for energy consumption? China claims that its official energy numbers from IEA are too high. It seems to me they wouldn’t do that if it could be used to show that their economy is weaker than it appears.

Floccina April 5, 2012 at 2:19 pm

We minimize human effort and cost not energy usage so this is not much of a surprise considering they do not pay the world market price for petroleum in Saudi Arabia.

Peter April 5, 2012 at 2:38 pm

It takes a lot of oil to produce oil.
Even in Saudi Arabia oil doesn’t squirt out of wells. It has to be pumped out using diesel-powered pumps.

Rahul April 5, 2012 at 3:57 pm

That’s a great point. It also takes a fair bit of oil to refine crude.

TallDave April 5, 2012 at 9:07 pm

The ratio has to be pretty good, since it only costs something like $5/bbl to extract oil in SA. I would guess the ratio of gas extracted and refined to gas burned in the process of extraction is something like 100:1 for Mideast oil.

I would be curious to know how much of SA’s fuel is oil production, though. Could be a fair portion.

Law Schools Lie April 5, 2012 at 9:36 pm

I’m not sure about the actual liquid amounts used, but there is a metric called Energy Returned on Energy Invested (EROEI). The ratio for oil was originally about 100:1 – you got about 100 times as much energy from the oil as you spent to find and process it. In Saudi Arabia, the newer wells are about 10 to 1, the older ones are falling fast because of water injection and secondary drilling. For comparison, the tar sands are about 3:1, and the kerogen shale – the supposed trillions barrels of oil in Utah, Wyoming, etc. – is about 1:1.

Kyle s April 7, 2012 at 3:07 pm

The parent post implies Saudi electricity is fed on oil. Isn’t NG a much better fuel stock for electricity generation, especially at current prices? You’d think SA would have access to tons of cheap NG due to their oil production and proximity to Qatar.

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