Huge oil subsidies in the Middle Eastern oil-producing nations mean that residents pay very little for oil.

One big problem in getting everyone to reduce use of harmful fossil fuels is that gas is too cheap some places. The worst offenders pay the least for gas, and it has long encouraged grotesque over-consumption.

Most of Europe has long since adjusted to its high gas prices, with the UK now paying $6.60 for a full gallon, Norway and Denmark; $7.41 and $6.89 respectively. Even in Hong Kong, gas costs $6.87, according to a report published this year by US-based research firm AIRINC that collated global gas price data from around the world in US dollars.

But gas guzzling Americans, currently screeching at the prospect of topping $3, pay only $2.85. Middle Eastern drivers are even worse. UAE residents pay even less, currently just $1.57. Kuwaitis pay only 85 cents and at the very bottom of the Gulf state list, according to Arabian Business, are the Saudis who pay just 45 cents a gallon!

But all that could change. Bahrain’s oil minister has now urged a rethink of fuel price supports in order to stop the rampant over-consumption. For the Middle East this would mean ending the soaring government subsidies that have kept gas costs artificially low for consumers.

“The per-capita energy usage is quite staggering bearing in mind the Gulf states don’t have a very high output compared to Western countries,” says Samuel Ciszuk, Senior Energy Analyst for Middle East and North Africa at IHS Global Insight.

Even apart from more direct fossil fuel subsidies that it pays to oil companies, Saudi Arabia is bankrolling $35 billion a year in annual fuel subsidies. When oil prices bottomed out recently, Emirates National Oil Company (ENOC) was losing up to $2m a day because of the price cap.

“Where the problem is now arising is that you’re starting to see shortages,” says Kate Dourian, Middle East editor at energy analysts Platt’s. “In this region there’s no taxation at the forecourt, so there’s no way for the retailers to make up for any of their losses, and there’s no way for the government to recoup any of its losses,”

“Today, even when the price of oil is very high or very low, it doesn’t really change the price at which oil is sold to industry, so it will be sold at $10 even when the price is at $100,” notes Dourian.

Saudi Aramco warned early this year that the country’s crude export capability will fall by 3 million barrels per day to less than 7 million billion barrels per day within 18 years if energy demand growth in the Kingdom continues unchecked. Increased oil consumption is on a trajectory to have grown almost 250% from current levels by 2028, despite a 3.4% average annual growth rate of GDP since the 1990s.

Just last month, we covered how, in Dubai, gas stations are running out of gas. As peak oil hits, it might have an earlier impact on the rest of the world because of these subsidies, Dourian suggests. “If they continue with subsidized prices or controlled prices in the Gulf, then they’re going to have less crude for export”.

Image: SkyscraperCity

Source: Arabian Business

::IHS Global Insight

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