The New York times has discovered something very interesting this week about Saudi oil and global energy prices. One of the big mysteries about the current low oil price is why the Saudis keep pumping the stuff. After all they have never behaved this way before, always wanting since 1973 to cut production to maintain higher prices. Even when oil hit an all time high in 2008 they didn’t really make serious production cuts. It even more surprising when analysts have needed the Saudis need much higher oil prices than than they are at the moment. Whilst much of Saudi oil from mature fields is very cheap to produce (probably less than $10/barrel) the Saudi economy is reliant on high prices.
Various theories have been doing the rounds for this reluctance to cut production I’ve reported on these and advanced a few of my own. It looks like the NYT may have come up with the answer. Its not Saudi oil, but gas that is the reason. Outside the peak oil community there has been little attention given to the fact that the Saudis are using much more of the oil they produce themselves. Their population has grown and with it their affluence. The Saudis use oil and in particular gas for much of their electricity generation. According to the BP statistical review of world energy they use all the gas they produce (graph above). This gas which as in so many fields overlies the oil. Its difficult to produce one without the other and in this case the Saudis are stuck- locked into a fossil fuel dependence they have done so much to create.