MANAMA: An economic slowdown coupled with energy reforms has adversely affected domestic fuel consumption growth across most of the GCC, and in some cases even led to negative growth.
APICORP’s Energy Research reveals that Saudi Arabia, the region’s largest fuel consumer, saw a 10% decrease in demand for diesel in 2016, while gasoline demand flatlined. Kuwait, Qatar and Bahrain have also experienced a drop-in gasoline consumption since major reforms were introduced in 2016. Lack of transportation alternatives has resulted in greater fuel switching, as consumption of premium grade gasoline in Oman declined and was offset by larger volumes of the lower grade fuel. Having implemented energy liberalization plans in August 2015 – leading to lower domestic prices and falling global crude prices – the UAE is the only country where demand for both gasoline and diesel increased in 2016.
Ever since January 2015, oil prices have teetered around the $50 mark, placing huge fiscal pressures on net oil exporting countries. Declining GDP growth rates and reduced government revenues led many countries in the region to initiate energy reforms and cut subsidies. While the new prices were still low by international standards, the reforms represented a fundamental shift in economic and social policies. The resulting effects of higher domestic energy prices and lower economic growth have in turn driven domestic demand for petroleum products down.
This development means that net energy exporters have benefitted from higher export volumes than they would have otherwise, slightly offsetting the lower revenues. But oil prices have failed to recover, despite a collective agreement from OPEC in November 2016 to cut output. In the 16 years since the turn of the century, the MENA region added more than 4.8m b/d to global oil demand, second only to China’s 7.9m b/d and ahead of Africa, Latin America and the rest of Asia (excluding China). But demand will likely slow down further as countries in the region continue to undergo energy reforms.
Rapidly growing demand for petroleum products has long been typical for the GCC countries. High population growth, robust economic performance until recently, and low fuel prices led to rising demand for gasoline and diesel in the transportation sector, and in the case of Saudi Arabia and Kuwait, rising demand for liquids in the power sector. Governments therefore prioritised the expansion of the downstream sector, adding 1.2m b/d of refining capacity in the last five years, with diesel representing more than half the additions and 350k b/d of gasoline.
In early 2016, the GCC introduced energy price reforms that led to a hike in domestic prices, including gasoline and diesel. Whilst prices remained relatively low by global standards, the region began to experience a slowdown in demand growth and in some cases negative growth.
