Domestic energy demand growth in Saudi Arabia is cause for international concern. If it continues at the current rate, it could jeopardize the country's ability to stabilize world oil markets.
Given Saudi Arabia's level of dependence on oil revenues, excessive consumption will cause economic and social pressures long before oil exports end – within a decade if nothing changes.
Current policies are not enough. Planned additions of renewable power supply would help maintain the fiscal balance for an additional two to three years; given the lead times nuclear power would have little or no impact.
Huge economic, social and environmental gains from energy conservation are possible in Saudi Arabia but the long period of low prices and the bureaucratic structure of the state present several challenges to implementing effective pricing policy and regulatory measures.
Fear of confronting these challenges has deterred meaningful government action in the past. However, some immediate, targeted investments could produce effective results even in the absence of price reforms.
Raising prices is politically difficult but international experience can help in preparing society through a range of efficiency, educational and infrastructure adaptation measures to smooth the transition. This must be done within a package of measures that increase private-sector employment for Saudi nationals.
Chatham House won in the energy and environment category at the 2012 Prospect Think Tank of the Year Awards. Judges gave special mention to this report.