Saudi poised to increase summer crude burn for power as fuel oil becomes costly
By burning more crude, the OPEC kingpin could ease some concerns over global oversupply after OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies such as Russia, agreed to increase production by nearly 1 million barrels per day (bpd) in April, May and June.
Wood Mackenzie expects Saudi Arabia to consume 465,000 to 470,000 bpd of crude for power generation this year, up 10,000 to 15,000 bpd from 2024, while several traders also said they expect an increase. FGE's estimate is at 423,000 to 428,000 bpd, stable to higher than last year.
The Middle East typically burns crude and high-sulphur fuel oil (HSFO) for power between June and August when air conditioning demand spikes.
While analysts have cut oil price forecasts this year after OPEC+'s decision to expedite output hikes stoked fears about rising supply, refiners' profits from producing HSFO from Dubai crude reached a record $4.45 a barrel.
"Lower crude prices and higher HSFO cracks are expected to shift some power generation demand from fuel oil to crude burn," said Priti Mehta, a senior research analyst for short term refining and oils at Wood Mackenzie.
Saudi Arabia's energy ministry and Saudi Aramco did not respond to requests for comment.
Saudi Arabia's oil production quota for June is at 9.367 million bpd, up from 9.034 million bpd in April, OPEC data showed.
"Saudi Arabia may well have an incentive to produce more crude but not to export it and burning it for power generation is one good option in this context," said David Wech, chief economist at analytics firm Vortexa.
Meanwhile, high prices are likely to cap Saudi Arabia's fuel oil consumption for power generation this year while its imports from Russia are unlikely to breach last year's record, said analysts and trade sources.
The kingdom has turned to importing more discounted Russian fuel oil for summer burn since 2023 as prices for Russian barrels declined following Moscow's invasion of Ukraine.
Saudi Arabia primarily generates electricity from natural gas, followed by oil, with minimal contribution from renewables.
However, the country has launched renewables projects and signed deals to expand its gas network and production at its Jafurah gas field.
"Further increases in liquid burn for 2025 will be restricted due to approximately 6 gigawatts of renewable energy power plants coming online and the commencement of operations at the Jafurah shale gas field later in the year," Woodmac's Mehta said.
Rystad Energy expects Saudi Arabia to slash crude use and tap more gas for power generation towards 2030.
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