Oman Oil Minister Slams Gulf Culture Of Energy Subsidies

Subsidised petrol and electricity programmes are causing a huge waste of energy across the Gulf and threatening economies, Oman’s oil and gas minister said on Sunday, in a rare official warning over surging demand in the region.

Energy prices are heavily subsidised in the six member states of the Gulf Cooperation Council (GCC), giving little incentive for their fast-growing populations to moderate use of big gas-guzzling cars or around-the-clock air conditioning.

As a result, top crude oil exporter Saudi Arabia 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. The United Arab Emirates and Oman have already seen their gas exports constrained by ballooning domestic demand.

“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,” Oman’s oil and gas minister Mohammed bin Hamad Al Rumhy told the ADIPEC energy conference in Abu Dhabi.

“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.”

It was not clear whether Rumhy’s remarks indicated any fresh change to Oman’s domestic energy pricing policies, which would be politically sensitive. His comments were unusually strong for a Gulf minister – officials in the region generally tend to avoid public criticism of long-established policies.

In a rare reform, Oman announced plans in early 2013 to double its industrial gas price to $3 per million British thermal units, still cheap by international standards, by 2015.

Oman is under more immediate pressure to reform than its wealthy Gulf neighbours as its energy resources are less ample. The International Monetary Fund has warned that Oman’s state finances could slide into deficit in coming years because of recent public spending rises.

In 2010, the UAE government hiked its domestic gasoline price to Dhs1.72 ($0.47) per litre to cut the burden of subsidies on public finances and promote efficiency. But after the Arab Spring uprisings began in the following year, plans for further price rises were put on hold to avoid stoking public discontent.

Omani diesel is still so cheap that trucks from the UAE drive over the border to fill up on it.

Population growth and artificially low energy prices in the GCC member countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – mean the countries that the world has long relied upon for oil and gas need to spend heavily over the next decade just to meet their own energy needs.

According to a study published by consultants IHS on Sunday, over $1 trillion of investment is needed over the next 17 years to meet demand for gas and electricity in the Middle East and North Africa.

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