Assessing energy policy instruments : LNG imports into Saudi Arabia

Abstract

International audience Saudi Arabia relies heavily on oil-based generation to meet its power needs within a geographically unbalanced pattern of natural demand and supply. Many initiatives are currently being assessed to reduce the high opportunity cost of burning oil for the country. This paper examines the cost and implication of a disruptive policy where Saudi Arabia imports liquefied natural gas (LNG). To determine the possible and optimal sources to procure LNG into Saudi Arabia we use and configure a partial equilibrium model, specified as a linear programming problem. Two import scenarios were tested: the first assumes an import terminal with a capacity of 5 million tonnes per annum (MTPA) and the other scenario assumes 22 MTPA. Results show that Saudi Arabia can import LNG for power generation at a discount to the opportunity cost of oil. Especially during the summer months, as Saudi Arabia's gas demand is counter-seasonal to major importing regions it leads to even more interesting market pricing conditions. It also shows a small difference in landed cost of LNG between the two scenarios which implies the global LNG market can accommodate relatively large demand from Saudi Arabia without distorting significantly the global market pricing mechanism.