RIYADH: Energy subsidies are breeding inefficiency — all around. It is causing demand within the GCC to balloon faster. Oil consumption in Saudi Arabia has risen 369 per cent since 1980 to approximately three million barrels per day, eating into its oil exports.

The Energy Information Administration (EIA) estimates that in peak summer months, when electricity demand for air conditioning is highest, Saudi Arabia burns more than one million barrels of oil per day to generate power.

Saudi Arabia today is the world’s sixth biggest consumer of oil, despite being only the 20th largest economy, and GCC members are all among the least energy-efficient countries globally.

Lower oil prices, reduced exports or both remained the biggest risks to Saudi Arabia’s financial position, the International Monetary Fund (IMF) says.

“Saudi Arabia has one of the highest levels of energy consumption per capita in the world and one of the lowest prices,” the IMF observed. “Low energy prices are one of the ways that oil wealth is distributed to the population.”

If domestic energy consumption continues to grow at current rates, it would reach more than 20pc of output by 2018, up from 16pc at present, the IMF said.

And indeed this trend is not isolated to Saudi Arabia. IHS estimates that over $1 trillion of investment is now required over the next 17 years just to meet demand for gas and electricity in the Middle East and North Africa.

As per its estimates, demand for natural gas in the GCC is likely to rise more than 50pc, from 256 billion cubic metres (bcm) in 2011 to 400 bcm in 2030. Oil demand will also grow more than 50pc in the next 17 years, from around 4mbpd to over 6.2mbpd, IHS said.

However, this cannot go on. Aramco CEO Khalid al-Falih is on record having forewarned that if current trend continues, Saudi Arabian domestic oil consumption is “on a pace to go over 8m bbl/d (oil equivalent) by 2030.”

The MENA region’s energy subsides are equivalent to $236.7bn annually, according to the IMF — 50pc of the global total.

The just unveiled World Energy Outlook, the WEO-13 by the IEA, is also emphasising on the need to curtail subsidies. It points out “the pervasive nature of fossil-fuel subsidies which incentivise wasteful consumption at a cost of $544bn in 2012.”

Governments around the world subsidised consumption of fossil fuel to the tune of $544bn last year—more than five times greater than supports for renewable energy, which totaled $101bn in 2012.

The region is well aware of the problem. Walking through the management corridors of the Saudi Aramco offices in Dhahran, one could easily notice the rumblings of an ongoing debate on the issue.

The United Arab Emirates and Oman too have already seen their gas exports constrained by ballooning domestic demand.

Subsidised petrol and electricity programs are causing a huge waste of energy across the Gulf and threatening economies, Oman’s oil and gas minister Mohammed bin Hamad al-Rumhy told the Adipec energy conference in Abu Dhabi.

“We are wasting too much energy in the region and the barrels that we are consuming are becoming a threat now, for our region particularly...I think we have a serious problem,” he said.

“What is really destroying us right now is subsidies...We simply need to raise the price of petrol and electricity. In some countries in our region electricity is free and you leave your air conditioning for the whole summer when you go on holiday. That is really a crime,” he said.

“Our cars are getting bigger, our consumption is getting bigger and the price is almost free. So you need to send a signal to the pockets of the public,” he argued in a rather frank admission of the existing scenario in the region.

The subsidy issue is acute and needs deft handling. The next steps — problematic and painful as those might be — should not be much behind.