Thursday, December 23, 2010
Saudia Arabia's Fiscal Reality
The Saudi government is basing its fiscal budget for 2011 on a world oil price of about US$50/bbl, which is more than a third lower than the current market price of US$90/bbl. It is now drawing on reserve funds and deficit spending to keep its multi-year US$400 billion infrastructure improvement program on track.
Saudi Arabia is very concerned about its ability to sustain its infrastructure projects in the face of both slackening oil demand (from a possible global recession) and constrained supply (from reservoir depletion). Despite Saudi Aramco spending $100 billion on improvements in production capacity to 12 million bbls/day, average daily output in 2009 fell by 11%. This inability to raise production may be more a function of dwindling reserves than insufficient infrastructure. They may be throwing good money after bad in the face of Peak Oil, much as Dubai did.