King Abdullah Petroleum Studies and Research Center (KAPSARC)
12:20 - 12:45
Wednesday, 18 September 2019
S2.4 Assessing Energy Policy Instruments: LNG Imports for Saudi Arabia
Saudi Arabia burns diesel, crude oil, and heavy fuel oil (HFO) to generate electricity. Many initiatives are currently being assessed to reduce the high opportunity cost of oil burning for the country. The findings of our study examines the cost and implications of a very disruptive policy where Saudi Arabia imports liquefied natural gas (LNG). We discuss the opportunity and benefits of such policy in the local regulated energy market of Saudi Arabia. To determine the possible and optimal sources to procure LNG into Saudi Arabia we use the World Gas Model (WGM) by Nexant. WGM is a partial equilibrium model which includes a database that covers all countries that produce, consume and transits gas. It also contains data on all import and export terminals. The model optimizes supply and trade flow of gas, including LNG, to meet input demand for each node or country. In WGM's database, Saudi Arabia, as a country node, is already allocated in the model. However, the model assumes the country's supply and demand for gas is well balanced even in the long term. Two scenarios were tested: one floating storage and regasification (FSRU) with a 5 million tonnes per annum (MTPA); the other scenario assumes 22 MTPA of LNG import capability to eliminate all liquid fuels from power generation. Results show that Saudi Arabia can import LNG for power generation at a discount to the opportunity cost of oil. Especially during the summer months, as Saudi Arabia's gas demand is counter-seasonal to major importing regions it leads to even more interesting market pricing conditions. The global LNG market can accommodate relatively large demand from Saudi Arabia without distorting significantly the global market pricing mechanism.