(P)GCC Energy, Power Subsidy Unsustainable

(P)GCC Energy, Power Subsidy Unsustainable
(P)GCC Energy, Power Subsidy Unsustainable

Subsidies in Persian Gulf states that keep gasoline prices as low as 45 cents a gallon are proving difficult to dismantle amid growing regional turmoil.

Members of the (Persian) Gulf Cooperation Council, comprising Kuwait, Saudi Arabia, Bahrain, Qatar, Oman and the UAE, are seeking to stem demand that the US Energy Department estimates is growing at 5 percent a year on average, more than twice the global rate. Saudi Arabia, with the world’s 46th biggest population, was the sixth-largest oil consumer last year, according to data from BP Plc.

Saudi Arabia’s gasoline price of 45 cents a gallon (12 cents a liter) is the world’s cheapest after Venezuela, data compiled by Bloomberg show. The kingdom spent almost $25 billion subsidizing gasoline and diesel in 2012, more than any other nation.

All the Persian Gulf countries subsidize electricity and gasoline for their citizens. Qataris get power and water for free. The average UAE resident consumes more than twice as much energy as an American and almost five times more than a German, US Energy Department data show.

“Every state has its method of addressing and dealing with subsidies, but we all agree it’s a challenge and not sustainable if we continue to stay at the current consumption level,” UAE Energy Minister Suhail al-Mazrouei said earlier in September.

The UAE last raised gasoline prices in 2010 and is likely to be the first of any Persian Gulf states to boost them again. UAE retail prices, the highest among the six monarchies, are still about half global market rates.

Failure to reduce energy demand in GCC states could curtail hydrocarbon exports from a region with 29 percent of the world’s oil reserves and 23 percent of its gas.

“While these regimes desperately need to reduce domestic consumption of their main exportable resource, they are afraid of the political blowback that would come from raising prices,” said Jim Krane, a Houston-based research fellow at Rice University’s Baker Institute for Public Policy and the author of a book about Dubai’s economy.

  Conservation Measures

The countries have sought to conserve oil and gas by investing in efficiency improvements and renewable energy. Qatar cut per-capita power use by 10 percent last year. Saudi Arabia plans to build solar and nuclear plants, while the UAE is set to inaugurate its first reactor in 2017.

Dubai wants to generate 1,000 megawatts from solar power by 2030. The UAE’s second-biggest emirate is also targeting a 30 percent cut in projected energy demand for that year.