SHIFTING GEARS IN SAUDI ARABIA129EFFECTS ON DEMANDThere are any number of terrific reasons for abolishing fossil fuel subsi-
dies, whether for climate benefits, reduced local pollution and traffic con-
gestion, better health (both physical and fiscal), and improved social
equity. But the biggest prize for the Gulf petrostates has been the hope
that higher prices will begin to throttle down the relentless growth in
energy demand and, as a consequence, extend these countries’ ability
to export.
A simple hypothetical exercise that holds all variables constant other
than consumption offers basic insight. At an average annual increase in
domestic oil demand of 7 percent, Saudi Arabia would consume all of
its 2015 oil production of 10.2mbd by 2035. Reducing that rate to 2 per-
cent pushes the date out to 2085.^32 The lower the growth rate of domes-
tic demand, the more breathing space the kingdom has to diversify its
economy before oil exports come to an end.
When the price increases hit, Saudis faced a choice: they could main-
tain their habits and pay more for energy or reduce their consumption
and pay a similar amount. Would higher prices start to budge demand?
Would people insulate homes or downsize vehicles? The answer is yes.
Electricity demand declined for the first time in the sixteen- year history
of the Saudi Electricity Company.^33 Peak load in 2016 dropped 2.3 per-
cent over 2015, and the average per customer consumption was down by
just over 5 percent (figures 8.1 and 8.2).^34 The data must have cheered the
technocrats at Saudi Aramco: behavior seemed to be responding to
higher prices.
Demand for transportation fuel also responded. The 88 percent
increase in diesel prices played havoc on Saudi consumption, which
dropped by 10 percent in 2016 and fell another 16 percent in 2017. In
the first three months of 2018, diesel demand continued downward,
dropping another 14 percent compared with the same period the year
before. As for gasoline, the price increase produced a less dramatic
response. Gasoline demand remained flat in 2016 and rose by nearly
6 percent in 2017. However, the major price hike in 2018 finally convinced