Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS) Baseline Report and Assessment

Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS) Baseline Report and Assessment

http://www.worldwatch.org/cserms/baseline-report

The Caribbean region stands at a crossroads, faced with several critical challenges associated with the generation, distribution, and use of energy. Despite the availability of tremendous domestic renewable energy resources, the region remains disproportionately dependent on imported fossil fuels, which exposes it to volatile oil prices, limits economic development, and degrades local natural resources. This ongoing import dependence also fails to establish a precedent for global action to mitigate the long-term consequences of climate change, which pose a particularly acute threat to small-island states and low-lying coastal nations.

While onerous, these shared challenges are far outweighed by the region’s tremendous potential for sustainable energy solutions. By acting on this potential, the Caribbean can assume a leading role in the global effort to combat climate change while promoting sustainable regional economic and societal development. Representing a geographically, culturally, and economically diverse cross-section of the region, the Caribbean Community (CARICOM) provides the ideal platform to construct the legislative and regulatory frameworks necessary to achieve this transition.

CARICOM represents 15 diverse member states: Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago. Although these states vary widely, they face many common energy challenges.

CARICOM has already begun to play a crucial role in the regional transition to sustainable energy. Recognizing the need to develop a coordinated regional approach to expedite uptake of renewable energy and energy efficiency solutions in the Caribbean, CARICOM adopted its regional Energy Policy in 2013 after a decade in development. The policy charts a new climate-compatible development path that harnesses domestic renewable energy resources, minimizes environmental damage, and spurs social opportunity, economic growth, and innovation.

To translate these intentions into action, the CARICOM Secretariat commissioned the Caribbean Sustainable Energy Roadmap and Strategy (C-SERMS), designed to build on existing efforts in the region and to provide CARICOM member states with a coherent strategy for transitioning to sustainable energy. In this C-SERMS Baseline Assessment and Report, the Worldwatch Institute provides an analysis of the region’s current energy and energy policy situation, evaluates regional potential for renewable energy and energy efficiency solutions, and recommends regional targets for energy sector transformation in the short, medium, and long terms.

Download Report: http://www.worldwatch.org/system/files/C-SERMS_Baseline_10.29.2015.pdf

 

 

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The collapse of Saudi Arabia is inevitable

On Tuesday 22 September, Middle East Eye broke the story of a senior member of the Saudi royal family calling for a “change” in leadership to fend off the kingdom’s collapse.

Saudi King Salman bin Abdulazi

In a letter circulated among Saudi princes, its author, a grandson of the late King Abdulaziz Ibn Saud, blamed incumbent King Salman for creating unprecedented problems that endangered the monarchy’s continued survival.

“We will not be able to stop the draining of money, the political adolescence, and the military risks unless we change the methods of decision making, even if that implied changing the king himself,” warned the letter.

Whether or not an internal royal coup is round the corner – and informed observers think such a prospect “fanciful” – the letter’s analysis of Saudi Arabia’s dire predicament is startlingly accurate.

Like many countries in the region before it, Saudi Arabia is on the brink of a perfect storm of interconnected challenges that, if history is anything to judge by, will be the monarchy’s undoing well within the next decade.

Black gold hemorrhage

The biggest elephant in the room is oil. Saudi Arabia’s primary source of revenues, of course, is oil exports. For the last few years, the kingdom has pumped at record levels to sustain production, keeping oil prices low, undermining competing oil producers around the world who cannot afford to stay in business at such tiny profit margins, and paving the way for Saudi petro-dominance.

But Saudi Arabia’s spare capacity to pump like crazy can only last so long. A new peer-reviewed study in the Journal of Petroleum Science and Engineering anticipates that Saudi Arabia will experience a peak in its oil production, followed by inexorable decline, in 2028 – that’s just 13 years away.

This could well underestimate the extent of the problem. According to the Export Land Model (ELM) created by Texas petroleum geologist Jeffrey J Brown and Dr Sam Foucher, the key issue is not oil production alone, but the capacity to translate production into exports against rising rates of domestic consumption.

Brown and Foucher showed that the inflection point to watch out for is when an oil producer can no longer increase the quantity of oil sales abroad because of the need to meet rising domestic energy demand.

In 2008, they found that Saudi net oil exports had already begun declining as of 2006. They forecast that this trend would continue.

They were right. From 2005 to 2015, Saudi net exports have experienced an annual decline rate of 1.4 percent, within the range predicted by Brown and Foucher. A report by Citigroup recently predicted that net exports would plummet to zero in the next 15 years.

From riches to rags

This means that Saudi state revenues, 80 percent of which come from oil sales, are heading downwards, terminally.

Saudi Arabia is the region’s biggest energy consumer, domestic demand having increased by 7.5 percent over the last five years – driven largely by population growth.

The total Saudi population is estimated to grow from 29 million people today to 37 million by 2030. As demographic expansion absorbs Saudi Arabia’s energy production, the next decade is therefore likely to see the country’s oil exporting capacity ever more constrained.

Renewable energy is one avenue which Saudi Arabia has tried to invest in to wean domestic demand off oil dependence, hoping to free up capacity for oil sales abroad, thus maintaining revenues.

But earlier this year, the strain on the kingdom’s finances began to show when it announced an eight-year delay to its $109 billion solar programme, which was supposed to produce a third of the nation’s electricity by 2032.

State revenues also have been hit through blowback from the kingdom’s own short-sighted strategy to undermine competing oil producers. As I previously reported, Saudi Arabia has maintained high production levels precisely to keep global oil prices low, making new ventures unprofitable for rivals such as the US shale gas industry and other OPEC producers.

The Saudi treasury has not escaped the fall-out from the resulting oil profit squeeze – but the idea was that the kingdom’s significant financial reserves would allow it to weather the storm until its rivals are forced out of the market, unable to cope with the chronic lack of profitability.

That hasn’t quite happened yet. In the meantime, Saudi Arabia’s considerable reserves are being depleted at unprecedented levels, dropping from their August 2014 peak of $737 billion to $672bn in May – falling by about $12bn a month.

At this rate, by late 2018, the kingdom’s reserves could deplete as low as $200bn, an eventuality that would likely be anticipated by markets much earlier, triggering capital flight.

To make up for this prospect, King Salman’s approach has been to accelerate borrowing. What happens when over the next few years reserves deplete, debt increases, while oil revenues remain strained?

As with autocratic regimes like Egypt, Syria and Yemen – all of which are facing various degrees of domestic unrest – one of the first expenditures to slash in hard times will be lavish domestic subsidies. In the former countries, successive subsidy reductions responding to the impacts of rocketing food and oil prices fed directly into the grievances that generated the “Arab Spring” uprisings.

Saudi Arabia’s oil wealth, and its unique ability to maintain generous subsidies for oil, housing, food and other consumer items, plays a major role in fending off that risk of civil unrest. Energy subsidies alone make up about a fifth of Saudi’s gross domestic product.

Pressure points

As revenues are increasingly strained, the kingdom’s capacity to keep a lid on rising domestic dissent will falter, as has already happened in countries across the region.

About a quarter of the Saudi population lives in poverty. Unemployment is at about 12 percent, and affects mostly young people – 30 percent of whom are unemployed.

Climate change is pitched to heighten the country’s economic problems, especially in relation to food and water.

Like many countries in the region, Saudi Arabia is already experiencing the effects of climate change in the form of stronger warming temperatures in the interior, and vast areas of rainfall deficits in the north. By 2040, average temperatures are expected to be higher than the global average, and could increase by as much as 4 degrees Celsius, while rain reductions could worsen.

This would be accompanied by more extreme weather events, like the 2010 Jeddah flooding caused by a year’s worth of rain occurring within the course of just four hours. The combination could dramatically impact agricultural productivity, which is already facing challenges from overgrazing and unsustainable industrial agricultural practices leading to accelerated desertification.

In any case, 80 percent of Saudi Arabia’s food requirements are purchased through heavily subsidised imports, meaning that without the protection of those subsidies, the country would be heavily impacted by fluctuations in global food prices.

“Saudi Arabia is particularly vulnerable to climate change as most of its ecosystems are sensitive, its renewable water resources are limited and its economy remains highly dependent on fossil fuel exports, while significant demographic pressures continue to affect the government’s ability to provide for the needs of its population,” concluded a UN Food & Agricultural Organisation (FAO) report in 2010.

The kingdom is one of the most water scarce in the world, at 98 cubic metres per inhabitant per year. Most water withdrawal is from groundwater, 57 percent of which is non-renewable, and 88 percent of which goes to agriculture. In addition, desalination plants meet about 70 percent of the kingdom’s domestic water supplies.

But desalination is very energy intensive, accounting for more than half of domestic oil consumption. As oil exports run down, along with state revenues, while domestic consumption increases, the kingdom’s ability to use desalination to meet its water needs will decrease.

End of the road

In Iraq, Syria, Yemen and Egypt, civil unrest and all-out war can be traced back to the devastating impact of declining state power in the context of climate-induced droughts, agricultural decline, and rapid oil depletion.

Yet the Saudi government has decided that rather than learning lessons from the hubris of its neighbours, it won’t wait for war to come home – but will readily export war in the region in a madcap bid to extend its geopolitical hegemony and prolong its petro-dominance.

Unfortunately, these actions are symptomatic of the fundamental delusion that has prevented all these regimes from responding rationally to the Crisis of Civilization that is unravelling the ground from beneath their feet. That delusion consists of an unwavering, fundamentalist faith: that more business-as-usual will solve the problems created by business-as-usual.

Like many of its neighbours, such deep-rooted structural realities mean that Saudi Arabia is indeed on the brink of protracted state failure, a process likely to take-off in the next few years, becoming truly obvious well within a decade.

Sadly, those few members of the royal family who think they can save their kingdom from its inevitable demise by a bit of experimental regime-rotation are no less deluded than those they seek to remove.

- Nafeez Ahmed PhD

 

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Solar panels empower indigenous people in Canada's north

BEHCHOKO, Northwest Territories, Canada, Oct 26 (Thomson Reuters Foundation) - Daniel T’seleie, an indigenous activist in Canada’s far north, is campaigning to help his people wean themselves from a worrying dependence on imported fuel and food, recover old traditions and win greater autonomy from the government.

Daniel T’seleie

In a region with nearly 24 hours of daylight in the summer, one way to help meet his goals seems obvious: more solar power.

“Right now a lot of communities in the Northwest Territories are dependent on diesel-generated electricity, along with store-bought food,” said T’seleie in an open air interview near Behchoko, a clutch of small wooden houses nestled along the shores of Great Slave Lake.

Standing beside spindly jack pine trees growing from thin soil on the hard granite rock that covers much of northern Canada, T’seleie sees renewable energy as the force which could respond to the region’s complex, intertwined challenges.

Canada’s north is particularly vulnerable to global warming, which is making it harder for indigenous people to continue their traditions of hunting and trapping on the land, as ice sheets melt and caribou herds collapse.

And although indigenous people want what they call a “nation to nation” relationship with the Canadian government, they largely depend on it for diesel fuel in order to keep warm.

By harnessing renewable energy, T’seleie believes indigenous communities could gain more freedom from the state and revive ancient cultural practices, while doing their part to combat climate change which is hitting them particularly hard.

“Any way that communities can produce energy at a local level produces independence,” said the 34-year-old, sporting a baseball cap and jeans, the informal dress common in Canada’s rugged north.

SOLAR SURGE

The Northwest Territories has seen a surge in the use of solar power over the last five years, after the regional government spent about $50 million to boost renewable energy production and improve efficiency, said Jim Sparling, the territory’s senior climate change manager.

“On a per capita basis, we are second only to Ontario (Canada’s most populous province) for installed solar capacity,” Sparling told the Thomson Reuters Foundation in the territorial capital Yellowknife.

The huge and sparsely populated northern territory has fewer than 50,000 residents, about half of whom are indigenous, many from the Dene Nation, a tribal people who traditionally hunt caribou.

Solar power still represents a fairly small part of its energy consumption, though the level is rising, said Sparling.

Private individuals and companies in the territory are also installing solar panels on their own to try and bring down their energy bills and cut dependence on imports, he said.

That combination of rising use of renewable and better energy efficiency has allowed the province to hold its climate-changing emissions stable at 2005 levels despite a rise in the population and a growing economy, Sparling said.

The territorial government plans to be part of a Canadian delegation going to Paris for a U.N. climate summit in December, aimed at reaching a new global agreement on climate change.

Average temperatures in parts of the northern territory have already risen more than 3 degrees from pre-industrial levels, Sparling said.

Scientists say average world temperatures should not rise more 2 degrees if the world is to avoid the worst disasters associated with global warming.

“We have to scale up the ambition,” Sparling said. “We are very vulnerable if this problem gets worse.”

SWITCH OVER

North of the Arctic Circle, the village of Colville Lake, with fewer than 200 residents, is in the midst of a major switch from diesel power to solar.

Last year, the mostly indigenous community faced weekly power outages. But after a new solar power system was set-up, the area is now nearly self sufficient in electricity production during summer months when the sun shines almost round the clock.

It still needs to import fuel for the winter, but officials believe the new investments will lead to a 30 percent drop in diesel consumption, helping the environment and saving money.

Other small northern towns are looking to mimic the project to save cash and allow people to maintain traditional lifestyles by being less dependent on expensive imports.

“In the last 10 to 15 years there has been a huge push from (indigenous) communities to try and support themselves,” said Ashlee Cunsolo Willox, an indigenous studies professor at Cape Breton University and a researcher on climate change impacts.

As global warming leads to the thinning of Arctic sea ice and changes in the habits of northern animals, the region’s indigenous inhabitants are struggling to adapt their lifestyles while holding onto old traditions, she said.

The caribou population has collapsed in parts of the territory in a development experts link to climate change, and melting ice makes it harder for hunters to navigate the land in search of other animals to hunt.

“The north is the fastest changing geography in the world,” Cunsolo Willox said in a phone interview. “There is a lot of concern that traditional knowledge and skills will be lost with climate change.”

OLD TRADITIONS, NEW TECHNOLOGIES

Building greater self sufficiency - including by adapting cleaner, cheaper energy - may be a strategy for holding onto the old ways, activists say.

T’seleie, a law school graduate, said he previously tried to work through Canada’s court system and treaty negotiations to win greater autonomy for his people, after what he considers years of colonial abuses.

In the 1920s, Canadian colonial administrators declared the government’s aim was to “get rid of the Indian problem” by ending indigenous cultural practices, corralling the population into reserves and forcing aboriginal children into grim residential schools.

Canada’s government signed treaties with many indigenous groups, often in return for political support during periods of conflict, granting them access to parts of the land they once controlled and other benefits.

But many legal scholars and historians say the government did not honor those agreements in good faith.

After becoming disillusioned with the legal process, T’seleie decided working towards greater self-sufficiency in food and energy was the best way forward.

T’seleie is part of the first generation of indigenous people not forced to attend residential schools usually run by religious groups in other parts of Canada which took children from their parents, and forced them to speak English rather than native languages as a means of assimilation.

Sexual and physical abuse were rife at the institutions, the government now admits following years of litigation.

Health experts and indigenous leaders believe the legacy from these schools - including that many parents never learned how to raise children, as they were taken from their own parents - partially explain high rates of substance abuse, family violence and poverty in some indigenous communities.

Allowing people to stay on their ancestral land, continuing hunting and trapping practices, and learning stories and traditions from community elders are key to overcoming these problems, said Cunsolo Willox.

To support traditional practices and allow indigenous communities to live off the land as they have done for centuries, they need access to renewable energy, T’seleie said.

“A huge aspect of our lives, culture and language is lost when we can’t be on the land,” he said. “For me, that’s one of the biggest threats of climate change.” More

 

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IEA Ministers Call for Successful COP 21

18 November 2015: The International Energy Agency (IEA) held its 2015 Ministerial meeting under the theme, ‘Innovation for a Clean, Secure Energy Future.’

According to the Summary of the Chair, Ernest Moniz, US Secretary of Energy, discussions focused on “the critical role that energy sector policies and energy innovation can play to successfully combat climate change.” Among the meeting outcomes was a statement calling for the successful outcome of the 21st session of the Conference of the Parties (COP 21) to the UNFCCC.

The IEA Ministerial Statement on Energy and Climate Change highlights five key opportunities for reducing emissions from the energy sector and advance the date that emissions peak. These opportunities are: increasing energy efficiency in the industry, buildings and transport sectors; phasing-out the use of the least-efficient coal-fired power plants; increasing investment in renewable energy technologies (including hydropower); gradual phasing out of inefficient fossil-fuel subsidies to end-users; and reducing methane emissions from oil and gas production.

In the context of COP 21, the ministers call for explicit recognition and a signal that an energy transformation is necessary to achieve climate goals and that the transformation is underway. They further pledge to support their negotiators to successfully conclude an ambitious agreement.

During the meeting, ministers heard from IEA Executive Director Fatih Birol on three pillars for modernizing the IEA, the first being the opening of the IEA’s doors to membership of emerging economies. On 16 November 2015, Mexico announced its decision to pursue membership of the IEA. The second pillar, according to Birol, is broadening the IEA’s core mandate of energy security, and the third pillar relates to “transforming the Agency to become a global hub for clean energy technologies and energy efficiency.” According to the Chair’s Summary, ministers also noted an analysis by the IEA Secretariat that energy efficiency is the “first fuel” and is supporting economic growth without increasing emissions.

The meeting was held 17-18 November 2015, in Paris, France. All 29 IEA countries were represented by ministers or other high-level officials at the meeting. Nine partner countries and 30 top business executives also attended. [IEA Press Release] [Chair’s Summary] [IEA Ministerial Statement on Energy and Climate Change]

 

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Saudi Arabia risks destroying Opec and feeding the Isil monster

The rumblings of revolt against Saudi Arabia and the Opec Gulf states are growing louder as half a trillion dollars goes up in smoke, and each month that goes by fails to bring about the long-awaited killer blow against the US shale industry.

“Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff. Helima Croft, RBC Capital Markets

Algeria’s former energy minister, Nordine Aït-Laoussine, says the time has come to consider suspending his country’s Opec membership if the cartel is unwilling to defend oil prices and merely serves as the tool of a Saudi regime pursuing its own self-interest. “Why remain in an organisation that no longer serves any purpose?” he asked.

Saudi Arabia can, of course, do whatever it wants at the Opec summit in Vienna on December 4. As the cartel hegemon, it can continue to flood the global market with crude oil and hold prices below $50.

It can ignore desperate pleas from Venezuela, Ecuador and Algeria, among others, for concerted cuts in output in order to soak the world glut of 2m barrels a day, and lift prices to around $75. But to do so is to violate the Opec charter safeguarding the welfare of all member states.

“Saudi Arabia is acting directly against the interests of half the cartel and is running Opec over a cliff. There could be a total blow-out in Vienna,” said Helima Croft, a former oil analyst at the US Central Intelligence Agency and now at RBC Capital Markets

The Saudis need Opec. It is the instrument through which they leverage their global power and influence, much as Germany attains world rank through the amplification effect of the EU.

The 29-year-old deputy crown prince now running Saudi Arabia, Mohammad bin Salman, has to tread with care. He may have inherited the steel will and vaulting ambitions of his grandfather, the terrifying Ibn Saud, but he has ruffled many feathers and cannot lightly detonate a crisis within Opec just months after entangling his country in a calamitous war in Yemen. “It would fuel discontent in the Kingdom and play to the sense that they don’t know what they are doing,” she said.

The International Energy Agency (IEA) estimates that the oil price crash has cut Opec revenues from $1 trillion a year to $550bn, setting off a fiscal crisis that has already been going on long enough to mutate into a bigger geostrategic crisis.

Mohammed Bin Hamad Al Rumhy, Oman’s (non-Opec) oil minister, said the Saudi bloc has blundered into a trap of their own making - a view shared by many within Saudi Arabia itself.

“If you have 1m barrels a day extra in the market, you just destroy the market. We are feeling the pain and we’re taking it like a God-driven crisis. Sorry, I don’t buy this, I think we’ve created it ourselves,” he said.

The Saudis tell us with a straight face that they are letting the market set prices, a claim that brings a wry smile to energy veterans. One might legitimately suspect that they will revert to cartel practices when they have smashed their rivals, if they succeed in doing so.

One might also suspect that part of their game is to check the advance of solar and wind power in a last-ditch effort to stop the renewable juggernaut and win another reprieve for the status quo. If so, they are too late. That error was made five or six years ago when they allowed oil prices to stay above $100 for too long. But Opec can throw sand in the wheels. More

 

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The long-term petroleum price outlook - When will it escalate?

For the last few years, the Saudi kingdom’s insistence on pumping oil at high capacity has dramatically depressed oil prices. The result has undermined Saudi’s major oil rivals in OPEC – like Iran and Venezuela.

It has also hit Russia, hard.

Rating agency Standard & Poor forecasts that Russia’s budget deficit is set to swell to 4.4 per cent of GDP this year. Russia’s own finance ministry concedes that if expenditures continue at this rate, within sixteen months – by around the end of next year – its oil reserve funds will be exhausted.

Meanwhile, over the last year real incomes have dropped by 9.8 per cent, and food prices have spiked by 17 per cent, heightening the risk of civil unrest.

System failureh

Rumbling along beneath the surface of such financial woes are deeper systemic issues.

A report from the Swedish Defence Research Agency notes that “prolonged dry periods in southern Russia are having the effect of reducing the level of food production”.

Most of Russia’s wheat imports come from Kazakhstan, “where climate change is expected to exacerbate droughts. These impacts would make farming harder and food more expensive,” observe Dr. Marina Sharmina and Dr. Christopher Jones of the Tyndall Centre for Climate Change Research.

Russia’s looming energy crisis is the other elephant in the room. In 2013, HSBC forecasted that Russia would hit peak oil between 2018 and 2019, experiencing a brief plateau before declining by 30 per cent from 2020 to 2025.

That year, Fitch Ratings came to pretty much the same conclusion. And last year, Leonid Fedun, vice-president of Russia’s second largest oil producer, Lukoil, predicted that the production could peak earlier due to falling oil prices and US-EU sanctions.

Faced with overlapping economic, food and energy crises, Russia is well and truly on the brink. More

Furthermore, According to a recent report from the IMF, Saudi Arabia’s public debt is estimated to rise from below 2 percent of its GDP in 2014 up to 33 percent by the end of 2020. The report also shows that in the past three years, Saudi Arabia’s budget surplus was turned into a deficit reaching 21.6 percent of GDP in 2015. More

 

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It's Time for the United States to Start Worrying About a Saudi Collapse

As if there weren’t already enough problems to worry about in the Middle East, Saudi Arabia might be headed for trouble.

From plummeting oil prices to foreign-policy missteps to growing tensions with Iran, a confluence of recent events is mounting to pose some serious challenges for the Saudi regime. If not properly managed, these events could eventually coalesce into a perfect storm that significantly increases the risk of instability within the kingdom, with untold consequences for global oil markets and security in the Middle East.

Here are some of the percolating problems that could throw the country off kilter.

Fissures Within the Royal Family. Last week, the Guardian published two letters that an anonymous Saudi prince recently circulated among senior members of the royal family, calling on them to stage a palace coup against King Salman. The letters allege that Salman, who ascended to the throne in January, and his powerful 30-something son Deputy Crown Prince Mohammed bin Salman have pursued dangerous policies that are leading the country to political, economic, and military ruin. In an interview with the Guardian, the prince insisted that his demand for a change in leadership not only had growing support within the royal family but across broader Saudi society as well. “The public [is] also pushing for this very hard,” he claimed. “They say you have to do this or the country will go to disaster.” The article, which includes the letters, written in Arabic, has been shared more than 15,000 times.

The Yemen War. The longer it drags on, the greater the risk that the Saudi intervention against Houthi rebels could become a serious source of internal dissension. In its story on the prince’s letters, the Guardian reported that “many Saudis are sickened by the sight of the Arab world’s richest country pummelling its poorest.” Particular blame is attached to Prince Mohammed bin Salman, who also serves as the kingdom’s defense minister and by all accounts has been the driving force behind the war effort. Tagged with the unofficial nickname “Reckless,” Prince Mohammed bin Salman has been accused of rushing into Yemen without a clear strategy or exit plan, resulting in mounting costs in blood and treasure, an ever-expanding humanitarian crisis, and growing international criticism.

Economic Problems. Thanks largely to Saudi policy, oil prices plummeted by more than 50 percent in the past year. Facing a market glut due to the U.S. oil boom, Saudi strategy has been to maintain high production, fight for market share, allow prices to collapse, and wait for higher cost producers, particularly in America, to be driven out of business. With cheaper oil spurring increased demand and squeezing out excess supply, the theory was that higher prices would return before the kingdom ever felt any real economic pinch.

But it hasn’t quite worked out that way — at least not as quickly as the Saudis anticipated. Indeed, Saudi Arabia’s 2015 budget was based on the assumption that oil would be selling at about $90 per barrel. Today, it’s closer to half that. At the same time, the Saudis have incurred a rash of expenses that weren’t planned for, including those associated with King Salman’s ascendance to the throne (securing loyalty for a new king can be expensive business) and the war in Yemen.

The result is a budget deficit approaching 20 percent, well over $100 billion, requiring the Saudis to deplete their huge foreign exchange reserves at a record rate (about $12 billion per month) while also accelerating bond sales. The Saudis have reportedly liquidated more than $70 billion of their holdings with global asset managers in just the past 6 months.

While there’s no danger that the kingdom will run out of money anytime soon, the longer this trend of large budget deficits, lower oil prices, and declining foreign exchange reserves continues, the more nervous international markets will become — with potential implications for key indicators like credit rating and capital flight. Adding to long-term concerns is the fact that Saudi net oil exports have been in slow decline for years as internal energy consumption rises dramatically. Indeed, analysts now suggest that rapidly expanding domestic demand could render the kingdom a net importer of oil by the 2030s. It goes without saying that such a development poses a mortal threat to the kingdom, where oil sales still account for 80 to 90 percent of state revenues. More

 

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