In 2016 Saudi Arabia announced it’s 2030 vision which included the prospective reforms to be implemented in the energy sector. The target for these reforms was to de-subsidize domestic energy prices and eventually match them to the benchmark standards based on international prices.
Therefore, since the energy reforms announcement, we have already witnessed two hikes in the electricity prices bringing the prices to 37% of the benchmark. According to the current goals of the Kingdom, domestic prices for natural gas, diesel and electricity will reach 100% of the benchmark pricing by 2025. Which means that the current low consumption tier pricing for electricity of 0.18 SAR will match the international benchmark of 0.47 SAR within the next 5 years.
Furthermore, as the annual electricity consumption in the Kingdom is estimated to increase by 5-8%, this increased demand is planned to be met by increasing the dependence on renewable energy. Currently, the energy mix for the production of electricity includes crude oil 30%, natural gas 50%, diesel and heavy fuel oil the rest 20%. Since, the government plans to decrease the allocation of crude oil in the energy mix to enable more oil export revenue, it will be increasing its dependence on natural gas by pushing its percentage to 70%, as portrayed in ARAMCOs goals for the Marjan and Berri fields on increasing its local natural gas production. However, as mentioned before, the natural gas prices are to be increased to international benchmarks as well, which could make the cost of producing electricity higher.
Lastly, the government plans on growing the non-oil revenue to be 10% of GDP by 2024 from 4.8% currently, which indicates more reforms being implemented in the near future, especially considering the fiscal deficit increased in 2019.
