Local demand for hydrocarbons long-term challenge in Saudi Arabia

The key long-term challenge facing Saudi Arabia’s oil and gas industry remains the high and growing domestic demand for hydrocarbons, Jadwa Investment, the diversified Islamic investment bank headquartered in Riyadh, said in its first “Outlook for Unconventional Oil & Gas” report released.

“This is exacerbated by low prices locally, which will distort internal economic decisions and reduce the available income from the Kingdom’s oil exports,” it noted.

Moreover, petrochemical industries in Saudi Arabia could find their comparative profitability reduced by the cheap NGLs. This, in turn, could even encourage some Saudi petrochemical firms to expand their capacity in the US in order to benefit from the abundance of cheap feedstock.

“As a result of increased production in the US from tight oil and shale gas formations, we see the main impact on Saudi Arabia through the reduction of price differentials between light and heavy crudes on one hand, which could change how oil is refined in places like Europe, and a more significant impact on the petrochemicals industry on the other hand, due to the large output of cheap yet valuable natural gas liquids (NGLs) which are used as feedstock in this industry,” Fahad Al Turki, Head of Research at the Riyadh-based investment bank, said.