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

Walid Matar (), Frederic Murhphy, Axel Pierru () and Bertrand Rioux

Discussion Papers from King Abdullah Petroleum Studies and Research Center

Abstract: Saudi Arabia aims to reduce the growth of its energy demand. This paper outlines an approach that could help the country to reduce substantively its current fuel consumption and could result in a net economic gain without increasing current end consumer prices and while maintaining positive utility sector net cash flows. Using a new multi-sector equilibrium model developed by KAPSARC (the KAPSARC Energy Model or KEM), we estimate the magnitudes of the potential economic gains that different policies would generate. Our long term static version of the model reveals that an annual economic gain exceeding 23 billion USD in 2011, or almost 5% of that year’s GDP, could have been achieved while the water and power sectors continue to live within their cash flows. Our 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 moderately increases current transfer prices. Importantly, this gain does not require an increase in consumer prices of electricity or water.

Keywords: Consumer behavior; Decentralized decision making; Domestic oil consumption; Economic Development; Energy consumption; Energy demand; Energy policy; Energy market reform; Investment Credits; KAPSARC energy model (KEM) (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-03
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https://www.kapsarc.org/research/publications/lowe ... end-consumer-prices/ First version, 2014 (application/pdf)

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Journal Article: Lowering Saudi Arabia's fuel consumption and energy system costs without increasing end consumer prices (2015) Downloads
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