Saudi Arabia will see “substantially larger” levels of oil and refined product export revenue by 2030 if it continues to pursue development of its downstream sector, Jadwa Investment said in a new report.
“Although the importance of oil revenue, in proportion to non-oil revenue, is expected to decrease come 2030, investment in the refining sector is still expected to ensure diversified economic growth and employment opportunities,” the firm said.
Saudi Arabia has seen heavy investment in highly complex refineries in recent years, which has significantly improved both the quality and quantity of refined products as well as overall revenue.
“In fact, the expansion of refined products has actually reduced the Kingdom’s reliance on crude oil revenue to some extent,” Jadwa Investment said.
The Kingdom's refined product exports, which did not exceed 8 percent of total liquid exports up until the end of 2013, rose sharply to around 20 percent of total liquid exports at the end of 2017.
As per the latest data, refined product exports rose by 30 percent in year-on-year (YoY) in 2016. Major increases were seen in diesel (up 36 percent YoY), gasoline (up 34 percent YoY), and Liquid Petroleum Gases (up 24 percent YoY).
According to the report, many key measures are planned to ensure that crude oil refining remains a vital, albeit less prominent, pillar of Saudi Arabia’s economy.
One of the steps is further energy price reforms over the next few years, following domestic energy price hikes in 2016 and 2018.
These reforms are expected to save the government a total of SAR 209 billion per year and incentivize reducing consumption, the report said.
Other steps seen to boost refined product exports are increasing the share of natural gas and renewables in the generation mix, in order to diversify away from oil and refined products in the electricity generation.
Meanwhile, the quality of the Kingdom’s refined oil product export will get a shot in the arm following the opening of the 400,000 barrels per day Jizan refinery this year.
“At the same time, we expect a gradual improvement in global oil prices, with our forecasted Saudi oil export price at $69 per barrel (bbl) in 2023,” Jadwa said.
Due to the improved refined product slate, the price of Saudi refined product exports is estimated to be marginally higher than the forecasted Saudi oil export, at $71/bbl.
Accordingly, the firm said it expects the average domestic price of a barrel of refined oil to rise by anywhere between 40 to 153 percent by 2023.
“Taken together, all of this should bring out consistent growth in overall oil revenue over the next decade or so,” the report concluded.
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