Andrew Hashim

P I P SThe Project on International Peace and SecurityInstitute for the Theory and Practice of International RelationsThe College of William and Mary

Brief No. 6.4

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The Curse of Plenty Countering Saudi Arabia’s Emerging Oil Crisis through Energy Diplomacy APRIL 2014 Andrew E. Hashim

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The Project on International Peace and SecurityInstitute for the Theory and Practice of International RelationsThe College of William and Mary

P I P S

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The Curse of Plenty Countering Saudi Arabia’s Emerging Oil Crisis through Energy Diplomacy Saudi Arabia is projected to become a net oil importer by the 2030s, a shift which threatens economic and social stability in the country, world energy market security, and U.S. interests in the Middle East. Saudi efforts to diversify energy consumption and increase natural gas production are insufficient to address their emerging energy problems. To counter this trend, the United States should broker an energy deal between the Kingdom and Qatar, a neighbor rich in natural gas. Additionally, the United States can assuage any Saudi fears of supply disruption by guaranteeing access to U.S. natural gas exports. In the event a regional energy deal is not secured, Saudi Arabia should have the option of importing U.S. natural gas. Introduction Since its founding in 1932 the Kingdom of Saudi Arabia has had considerable global economic and political influence as the holder of the world’s largest strategic oil reserves.1 However, due to increased internal energy consumption, the Kingdom is projected to become a net oil importer by the 2030s. This trend has the potential to destabilize energy markets and threaten Saudi internal and regional security. In response, the Saudi government has sought to diversify its energy sources, but the Kingdom’s current plans are insufficient to address the emerging energy challenge. This white paper argues that the United States should work with Saudi Arabia to broker natural gas import deals—in particular, with Qatar. Such deals would provide the Kingdom time to diversify internal consumption and initiate structural reforms to achieve a sustainable energy future.2 Saudi Arabia’s Emerging Energy Crisis Threatens its Stability

Our analysis shows that if nothing changes [Saudi Arabia] may have no available oil for export by 2030.

− Heidy Rehman, Citigroup3 A looming energy crisis threatens to undermine Saudi Arabia’s position as a key oil producer and strategic U.S. ally. The country’s growing population and expanding industry, combined with energy and water subsidies, have led to waste and overconsumption, threatening oil revenues and internal stability. Reports by Jadwa Investments, Chatham House, and Citigroup all agree that, without change, the Kingdom will become a net oil importer in the 2030s (see figure 1).4

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Figure 1: Saudi Arabia’s Energy Future5

Saudi Arabia’s Internal Energy Consumption is Increasing Exponentially Saudi energy needs are met principally by oil and natural gas. The Kingdom currently consumes around one quarter of its domestically produced oil and all of its domestically produced natural gas. With annual demand growing by 7 percent, Saudi generating capacity will need to increase from 45 gigawatts (GW) to 70 GW by the end of this decade.6

Figure 2: Saudi Arabia’s Growing Energy Needs

• Growing Saudi population. Saudi Arabia’s population has doubled over the past 20 years, currently exceeding 28 million, and is projected to reach approximately 40 million in the 2030s.7 Consequently, 60 percent of the total Saudi population is 20 years old or

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younger.8

• Expansion of Saudi industry. The Kingdom’s attempts to diversity its oil-based economy has led to massive growth in its industrial sectors. 9 Most notably, high energy consumption industries, such as the petrochemical industry, have expanded rapidly.10 Industry consumes an increasing proportion of Saudi energy, currently just under one fifth of total oil and gas demand. The most important alternative industry in Saudi Arabia is the petrochemical industry. According to the state-owned oil company, Saudi Aramco, “by 2015 the Kingdom’s petrochemical production is projected to increase from today’s levels of about 60 million tons per year to more than 80 million tons per year.”11 These high-energy industries are important to government diversification plans; however, they will further exacerbate Saudi Arabia’s energy consumption problem.

• Increased water consumption. Saudi Arabia is the largest producer of desalinated water

in the world, manufacturing 3 million cubic meters of water daily, with demand expected to increase.12 Projections for water demand are forecasted to grow to 10 million cubic meters per day by 2025.13 Furthermore, water required for industrial uses will increase threefold by that time.14 Desalination is an energy intensive practice. For example, Saudi Arabia uses 1.5 million barrels of crude oil per day (mb/d) to desalinate water.15 As water consumption rises, larger quantities of oil will be used to power water desalination plants. Government subsidies encourage excessive water consumption. In the spring of 2010, Saudis paid less than $0.03 per cubic meter of water, only one percent of the water’s true cost.16 This subsidy allows for continued waste as “municipal development and mega projects receive government approval without consideration of energy use or water footprint.”17 Saudi citizens consume more energy and water than the United States and almost double that of Japan.18 As the Saudi population continues to grow, energy and water consumption will increase rapidly.

• Effect of Saudi energy subsidies. The highly subsidized energy sector has increased the

need for energy-generating capacity. Most residential consumers are billed 0.12 Saudi Riyals per kilowatt-hour, or about $0.03, which falls far below its true cost.19 It has been reported that “[t]he Kingdom pays around 70% to 75% of the actual bill of energy prices…” and that these subsidies correlate with an increase in internal consumption.20 These price differentials also apply to gasoline prices, with Saudi consumers paying well below market price. Low energy prices inevitably decrease energy efficiency. For example, the average efficiency of air conditioners in Saudi Arabia is “estimated to be eighteen percent below the current global average” while buildings in the Kingdom continue to be built without proper insulation.21 Subsidies have encouraged high energy use per capita, increasing domestic consumption of oil and natural gas.22

• Growing Saudi demand for natural gas. Saudi Arabia’s internal natural gas demand is

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expected to double by 2030, which is alarming for a country that has banned natural gas imports.23 Forecasts by Saudi Aramco have projected an annual 3 percent increase in natural gas demand from the year 2007 to 2030 with internal demand reaching 111.6 billion cubic meters (bcm) by 2020 and 150 bcm by 2030.24 Comparatively, the International Energy Agency (IEA) projects annual gas production will increase to 125 bcm by 2030, leaving a shortfall of around 25 bcm in 2030.25 As demand growth outpaces natural gas production towards the end of this decade, the Kingdom will increasingly turn to crude oil to satisfy internal energy needs.

These five factors—population growth, industry expansion, energy subsidies, water consumption, and a heightened demand for natural gas—are not the only ones affecting Saudi oil consumption. The lack of energy efficiency standards and the absence of significant public transportation are also responsible. Without change, these factors will cause Saudi Arabia to become a net oil importer in the 2030s, threatening the country’s internal stability. Saudi Arabia’s Emerging Oil Crisis Threatens Internal Stability Saudi Arabia’s petroleum sector accounts for 80 percent of budget revenues, 45 percent of GDP, and 90 percent of export earnings.26 According to Chatham House, “with the country’s high dependence on oil revenues the economy would collapse before [Saudi Arabia becomes a net oil importer].”27 If so, Saudi Arabia will be vulnerable to economic and social crises.28 This trend is medium term, which means that Saudi Arabia is approximately 20 years away from an energy crisis. As oil exports fall, Saudi Arabia will see the decrease and eventual loss of its lucrative oil income. The country’s economy will not be able to cope with this devastating loss. A growing population and expected energy and water subsidies will complicate the government’s abilities to provide for its people, increasing the probability of unrest.29

Figure 3: Energy Consumption and Domestic Unrest

The ripple effects from internal Saudi instability could spread to other energy producers in the region, notably member states of the Gulf Cooperation Council (GCC). An unstable Saudi Arabia also would threaten U.S. interests in the Middle East and the stability of global oil markets.

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An Unstable Saudi Arabia Threatens U.S. National Interests

Saudi Arabia's unique role in the Arab and Islamic worlds, its possession of the world's largest reserves of oil, and its strategic location make its friendship important to the United States.

− U.S. Department of State30

Saudi Arabia is a strategic U.S. ally and global oil producer. The Kingdom maintains the largest spare oil production capacity in the world, meaning that it holds a significant amount of potential oil production in reserve.31 These reserves allow Saudi Arabia to compensate for oil supply shortfalls that could cause volatility in energy prices. The Kingdom also plays an important role in preserving regional Middle East stability and is a key U.S. partner in regional military and counterterror affairs. An Unstable Saudi Arabia Threatens Oil Market Stability

Saudi Arabia has a total oil production capacity of 12.5 million barrels of crude oil per day (mb/d), the maximum amount of oil that can be produced with current infrastructure.32 While the Kingdom can produce 12.5 mb/d, it currently produces around 10 mb/d, leaving 2.5 mb/d in spare production capacity, which Saudi Arabia uses to stabilize prices in oil markets.33

• Growing importance in oil markets. One-fourth of global crude oil sales originate in Saudi Arabia.34 With demand growing from developing countries, the IEA and the Energy Information Administration (EIA), among others, project that Gulf producers, most notably Saudi Arabia and Iraq, will need to meet an increasing share of the world’s demand for oil.35

• Leader in stabilizing oil markets. With the world’s largest spare production capacity, the Kingdom can increase oil production in response to supply shortfalls, stabilizing price volatility.36 In a recent example, Saudi Arabia increased its oil production to compensate for a loss of crude oil output during Libya’s civil war in 2011.37 The news of Saudi Arabia’s intervention returned oil prices to $111 per barrel following a two and a half year high of $119 per barrel.38 Without Saudi Arabia’s ability to offset supply shocks, oil supply disruptions would be damaging to global markets.39

Saudi Arabia’s position as the largest producer of oil, coupled with its ability to stabilize oil markets, makes the Kingdom a vital contributor to energy market security.40 Instability in such an important energy producing country would increase volatility in energy markets, directly affecting the United States.41

An Unstable Saudi Arabia Threatens Middle East Stability and Regional U.S. Policy Saudi Arabia has been a key regional ally of the United States. The Saudi Foreign Minister, Prince Saud al-Faisal, has stated that Saudi Arabia and the United States differ over few policy

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objectives, enabling extensive cooperation on Middle East affairs.42

• Regional stability and financial aid. The Kingdom is a senior player in the Arab world, having the capacity to influence many issues important to U.S. interests and maintain regional stability.43 Saudi Arabia’s financial aid to struggling Arab economies has assisted countries in the aftermath of Arab Spring uprisings.44 For instance, the Kingdom recently pledged $4 billion to the Egypt, which suffered a significant loss of tourism and investment due to its political upheaval.45 Saudi Arabia also has given $3 billion to the Lebanese military and supports pro-Western factions in the country.46

• Balancing Iran. Saudi Arabia acts as “as a bulwark against Iranian expansion.”47 Saudi

Arabia’s ability, for example, to compensate for the loss of Iranian oil reduced the effect of sanctions on the international community.48

• Strong U.S.-Saudi military relations. Military relations between Saudi Arabia and the

United States remain strong with the Kingdom being a major purchaser of American military technology.49 Furthermore, during the Iraq War, the Saudis allowed U.S. forces to coordinate air strikes out of Prince Sultan airbase, granted overflight rights to U.S. planes and missiles, and staged areas for U.S. Special Operations forces to mount assaults into western Iraq.50 Additionally, the United States operates a drone base in Saudi territory, used to strike targets in Yemen.51

In an increasingly volatile Middle East, Saudi Arabia continues to be an indispensable stabilizing force and strategic American ally. An Unstable Saudi Arabia Threatens Counterterrorism Efforts Saudi Arabian counterterrorism efforts and cooperation with U.S. intelligence agencies have been immensely valuable.52 Recent reports from the Department of State recognize the Kingdom for maintaining “a robust counterterrorism relationship with the United States.”53 These efforts have yielded joint task forces to pursue leads on terrorist networks and financing operations.54 Since 2008, the establishment of a U.S.-Saudi interagency program has expanded counterterrorism efforts and helped the Kingdom safeguard critical infrastructure.55 Additionally, the Saudi government treats Al-Qaeda as a direct threat to national security, making “serious and effective efforts” to combat the transfer of funds to extremists.56 The Kingdom’s extensive counterterrorism operations have resulted in a significant number of arrests. 57 Given the persistence of terrorism threats, continued U.S. cooperation with Saudi Arabia is essential. Saudi Arabia’s influence on energy markets, regional stabilization, and willingness to cooperate on shared security threats makes the Kingdom an important strategic U.S. ally. Such ties “would be difficult for [the United States] to fully…replace.”58 An unstable Saudi Arabia following an oil crisis will weaken its role as an effective U.S. partner and oil price stabilizer, threatening American national interests.

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The Limitations of Saudi Arabia’s Current Response

If your nuclear program is behind schedule, your solar development is still experimental, and you haven’t found natural gas, what fuel are you going to use?

− Thomas Lippman, Senior Fellow, Middle East Institute59 Saudi Arabia is exploring alternative energy sources to ensure future oil exports and satisfy increased internal demand. Currently, the Kingdom meets its energy needs solely through natural gas and oil. As internal energy demand increases, the Kingdom intends to grow its energy production capacity from 55 gigawatts (GW) to 120 GW by 2020, requiring more natural gas and oil.60 In response to its impending energy crisis, Saudi Arabia is attempting to diversify and increase energy efficiency. Natural Gas Saudi Arabia has increased investment in exploration, production, and processing of natural gas resources, which is essential to minimize its reliance on oil.61 Saudi Arabia’s Minister of Petroleum and Mineral Resources Ali Al-Naimi has stated that the Kingdom intends to increase natural gas processing capacity to more than 15.5 billion cubic feet per day by 2015.62 Additionally, Al-Naimi has indicated a 27 percent increase in natural gas reserves and a 60 percent increase in production between 2000 and 2009.63 Placing the burden of internal consumption on natural gas is intended to secure Saudi Arabia’s energy future and oil exports. Saudi Arabia has encountered several problems in its efforts to increase natural gas production. Historically, natural gas was extracted simultaneously with crude oil.64 Therefore, subsidized costs for natural gas within the country were justified on the basis that natural gas was a by-product of oil extraction. If Saudi Arabia wishes to increase natural gas production, it has to produce more oil or develop costly non-associated natural gas fields. In April 2013, Al-Naimi announced that the Kingdom did not plan to boost oil production capacity for the next 30 years due to energy market conditions.65 Thus, the Kingdom’s only option is the development of costly non-associated fields. However, recent explorations have not been promising.66 Consequently, due to the high cost of developing non-associated gas fields and disappointing exploration results, natural gas production is not a practical option to mitigate future energy demands. Nuclear Power In 2006, the Saudis jointly announced plans with their GCC partners to pursue nuclear energy. The government plans to construct 16 nuclear plants by 2032, intended to meet one-sixth of the Kingdom’s electricity needs.67 The overall goal is for nuclear power to constitute 20 percent of energy production.68 However, the year 2032 puts the completion of this project within range of when Saudi Arabia is expected to become a net oil importer. Major problems hinder Saudi Arabia’s move towards nuclear power, such as:

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• Plant safety. The Gulf coast is a seismically active area; any nuclear plant would have to be placed inland, most likely between Riyadh and Jeddah.69 The location of these nuclear power plants would thus require seawater to be pumped 30 miles from the coast, which would make cooling reactors in the Saudi desert difficult, raising safety concerns.70

• Government division. The decision on whether to develop nuclear power has divided the Saudi government. In particular, the oil ministry does not favor a nuclear program.71

• Lack of available expertise. For 25 years, the Saudis have neglected their nuclear program. As a result, there is currently a “lack of available nuclear power experts” in the Kingdom.72

Most recently, in September 2013, Westinghouse Electric Company, Toshiba Corporation and Exelon Nuclear Partners signed a memorandum of understanding with the Kingdom to create a joint proposal for the construction of nuclear power plants.73 While Saudi Arabia has developed plans to advance its nuclear program, these plans do not address the time constraints imposed by increasing energy consumption within the country. Concerns regarding plant safety, lack of available expertise, and government division hamper progress towards developing nuclear power. Solar Power Saudi efforts to diversify into solar power are in the planning stages. Currently, the Kingdom’s overall plan is to generate 54 gigawatts of solar energy by 2032 at a cost of $109 billion.74 As a result, the government is expected to release its first plans to build solar panels, intended to generate 500 to 800 Megawatts of power. This project, if completed, would constitute only around 1 percent of current consumption.75 There are still technical issues to solve with regards to the use of solar energy in the Kingdom.76 Blowing sand can interfere with solar generation, while plans for the efficient use of solar energy are lacking. Furthermore, internal divisions on which entity in the country should own the rights of solar power generation have caused problems.77 These divisions have impeded coordination, stymied the opening of the solar industry to the private sector, and reduced the competitiveness of solar power in the Saudi energy market. Simultaneously, the projected completion of the Kingdom’s solar energy projects coincides with its impending energy crisis. Energy Efficiency Movement towards higher efficiency standards also is an option for the Kingdom. For instance, proper insulation would save 30 to 40 percent of villa power consumption.78 Experts also have highlighted the importance of improved industrial, appliance and transportation energy efficiency standards for reducing energy consumption.79 To achieve any progress on efficiency standards, Saudi Arabia must reevaluate domestic energy

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consumption. While the government has experimented with initiatives, such as sending text messages to remind people to turn off the air conditioning when they go out, greater government efforts are required.80 The current culture of energy waste is a large contributor to the energy problems that Saudi Arabia faces. Saudi Arabia’s current energy strategy will not meet its needs by 2030. Thus, the Kingdom must seek alternative solutions, which will offer the Riyadh time to implement necessary structural and diversification plans. Policy Recommendation: Broker a Regional Natural Gas Deal

To manage the challenges of the emerging new energy order, and to leverage the opportunities presented by surging U.S. unconventional energy resources, the United States will need to be a fully engaged participant in the relationships, institutions and foreign policy that are important to promoting well-supplied global markets. Playing a strong international leadership role is essential…to promote global oil market stability.

− Elizabeth Rosenberg, Senior Fellow, Center for a New American Security 81 Saudi Arabia’s impending need for natural gas and current inability to find an economical means to extract its natural gas reserves places the Kingdom in a position where it must find alternative ways to meet increased energy demand. Importing natural gas as a permanent or temporary component of the Saudi energy strategy offers a timely, cost-effective approach to alleviating the Kingdom’s medium-term energy challenges.82 The United States can assist Saudi Arabia by facilitating natural gas export deals between regional natural gas producers and the Kingdom. A recent energy deal brokered by the U.S. Department of State between Israel and Jordan demonstrates the role the United States can play in regional energy security issues.83 Washington may also consider offering natural gas exports to Saudi Arabia or guaranteeing exports as a means of facilitating deals with regional suppliers. Broker a Saudi-Qatari Natural Gas Export Deal Importing natural gas from Qatar to Saudi Arabia is a promising choice, considering Qatar’s proximity and status as a natural gas rich neighbor. Qatar shares a land border with Saudi Arabia, is the largest exporter of liquefied natural gas (LNG) in the world, and holds the third largest natural gas reserves.84 While politics has stifled regional natural gas deals in the past, the United States can serve as a regional facilitator. With U.S. mediation, a natural gas deal between Saudi Arabia and Qatar is possible.

• Saudi-Qatari natural gas pipeline. Qatar’s proximity to Saudi Arabia makes the construction of a natural gas pipeline directly linking the two countries the most cost-effective option. Since natural gas is less expensive than crude oil, natural gas imports to Saudi Arabia would allow the Kingdom to use less crude oil for internal energy consumption.85 Additionally, selling oil on the global market generates more profit than

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selling it internally at subsidized prices. Qatari natural gas production is expected to reach 240 bcm/year by 2015.86 According to the World Bank, this would lead to a surplus of 34 bcm/year, a portion of which could be exported to Saudi Arabia.87 Due to Qatar’s proximity to the Kingdom, “pipeline gas trade is clearly the more economic option and should be pursued.”88

• Potential stumbling blocks. Imports from Qatar, however, face geopolitical problems. Discussion of a natural gas pipeline, which would connect Qatari natural gas to other GCC countries—including Saudi Arabia, Bahrain, Oman, and the United Arab Emirates (UAE)—has been under negotiation since the 1980s.89 A limited pipeline between Qatar, the UAE, and Oman does exist.90 With the capacity to export 20 bcm/year of natural gas, this is the only pipeline in existence that connects Qatari natural gas exports to other GCC member states.91 For several reasons, however, Qatar has been reluctant to sell more natural gas to GCC partner states.92 Furthermore, the long-standing regional power struggle between Qatar and Saudi Arabia means that any deal must ease Saudi fears of energy dependence on Qatar.93

• U.S. energy diplomacy. A deal to export natural gas from Qatar to Saudi Arabia might

seem improbable, but it is not impossible, even in the current geopolitical climate. The United States has shown an interest in aiding Saudi energy diversification plans. For example, the Kingdom currently works with the U.S. Department of Energy to develop energy efficiency strategies and holds an annual Bilateral Energy Dialogue to “explore broader energy cooperation.”94

Concurrent with this cooperation, the U.S. Department of State should broker a natural gas export deal between Qatar and Saudi Arabia, facilitating imports of Qatari natural gas through a pipeline to the Kingdom. The Department of State has already displayed its ability to mediate a Middle East natural gas deal between two contentious partners. In December 2013, the Wall Street Journal reported that Israel and Jordan were negotiating a sale of Israeli natural gas to Jordan, whose energy sector has been strained by natural gas disruptions from Egypt. The Journal further noted that “[a]ny agreement that could appear to make Jordan reliant on Israel would likely face domestic and Arab-world scrutiny” and asserted that “any gas supply deal could be especially fraught.”95 However, in February 2014 Israel and Jordan signed a natural gas export deal brokered by the United States.96 This deal demonstrates the role that Washington can play in addressing regional energy challenges.

The United States should work to broker a natural gas export deal between Qatar and Saudi Arabia. To make the deal more palatable to the Saudis, the United States can guarantee LNG exports to Saudi Arabia in the event that Qatar cuts off supplies. In addition to its ability to facilitate energy deals, the rise of the United States as a major natural gas producer offers Washington greater leverage.

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Leveraging Expanding U.S. Natural Gas Production to Broker a Deal

We, it turns out, are the Saudi Arabia of natural gas, we’ve got a lot of it. − President Barack Obama97

The United States has emerged as a prominent natural gas producer. According to a 2012 Citigroup report, the upswing in natural gas production has placed North America in the “enviable position as a gas export hub” due to: (1) an abundance of natural gas reserves, and (2) an enviable location in proximity to Asia, Europe, and South America. The report asserts that “North America could act as the swing supplier” for natural gas in the world market.98 U.S. natural gas production is estimated to rise by around 40 percent between 2005 and 2050.99 In addition, it has been reported that the United States holds a future gas supply of around 2,100 trillion cubic feet which “is sufficient to meet domestic market needs for around 100 years at current levels of consumption.”100 All of these factors put the United States in a position to influence the supply of natural gas in global markets, while allowing for sizeable future exports.101 The United States should “leverage the new and unique energy, economic and political circumstances to advance security interests.”102 With the rise in U.S. natural gas production, exports, or the promise of exports, can and should be used as policy tools.

• Low-cost U.S. natural gas. Advances in U.S. drilling technology have allowed for extraction of new natural gas resources, making U.S. prices relatively cheaper than competitors.103 Unlike the oil market, the natural gas market is not global and thus does not operate on a singular price. For example, natural gas prices in Asia, and to a lesser extent Europe, are indexed to oil, while U.S. natural gas is largely priced on supply and demand fundamentals (or “Henry Hub” pricing).104 According to a report by Deloitte Consulting, one of the main attractions of U.S. natural gas is its availability under prices not indexed to the cost of oil.105 Since oil is substantially more expensive than natural gas in many markets, buyers can access natural gas in the United States, which is not linked to high oil prices.106 Domestic natural gas prices in the United States are therefore highly competitive compared to other exporters.107

• Using LNG exports as a policy lever/method of last resort. The energy boom in North America has created an opportunity for the United States to use its increasing natural gas production as a policy tool. For example, when negotiating the proposed natural gas deal between Saudi Arabia and Qatar, the United States could guarantee exports of LNG to the Kingdom in the event of a Qatari supply disruption to assuage Saudi fears of dependence.108 LNG exports can provide timely relief in the event of supply disruptions, assuaging any Saudi energy security concerns.109 Current U.S. law prohibits the import or export of natural gas, including LNG, from the United States without the prior approval of the Department of Energy.110 The U.S. government should implement the appropriate procedures to accelerate approval of LNG exports to the Kingdom, which would signal Washington’s commitment to Saudi energy security. If the United States is unable to negotiate a deal between Saudi Arabia and a regional energy supplier, the United States itself could then move to sell natural gas to the Kingdom. With U.S. natural gas production growing at a rate of 4.3 percent per year, British Petroleum projects that U.S. LNG exports will overtake Qatar by 2030.111

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• Possible Saudi LNG imports and low-cost infrastructure. The development of natural gas export links between the United States and Saudi Arabia is conceivable considering regional energy developments. Notably, the UAE has publically stated that it is looking into natural gas imports from the United States due to competitive prices.112 Furthermore, LNG reception, storage, and regasification facilities have become “less expensive than before.”113 Instead of building permanent LNG import facilities, Saudi Arabia has temporary lower cost options, such as floating facilities and chartered (leased) facilities, to process LNG imports.114 Kuwait currently operates a floating LNG terminal to process its energy imports, providing import flexibility.115 Thus, Saudi Arabia can resort to LNG imports “with relative ease.”116

This white paper proposes that the United States use its natural gas as a tool to facilitate regional energy cooperation and, if necessary, export natural gas to Saudi Arabia in the event that regional producers are unable to export it themselves. The purchase of natural gas from a foreign provider may be unpopular in the Kingdom, signaling that the Saudis are unable to provide for all of their energy needs. However, the current state of energy consumption in the country makes it increasingly likely that the Saudis will need to import natural gas, much like the UAE and Kuwait. Consuming imported natural gas would allow Saudi Arabia to export more expensive crude oil, altering its medium-term oil consumption path and allowing the Kingdom time to implement its diversification plans. Conclusion An unstable Saudi Arabia would constitute a serious threat to U.S. national interests due to the Kingdom’s significant role in oil markets, regional stability, and counterterrorism efforts. Increased internal oil consumption threatens to undermine the most important facet of the Saudi economy, oil exports. If nothing changes before the 2030s, a loss of critical oil revenue will throw the Kingdom into crisis. Current Saudi efforts to diversify energy consumption are unlikely to address this emerging trend in the needed timeframe. Subsidies are a major factor driving overconsumption and their contribution should not be underrated. Saudi government stability currently rests on a basic social contract of subsidies as a bargain between the rulers and the ruled. Phasing out subsidies is accordingly a sensitive topic, entailing risks that have thus far stifled necessary internal reform—especially in the aftermath of the Arab Spring. A rapidly growing population makes the subsidy problem imperative for the Saudi government to address. Reform must happen over time if the Kingdom is to avert internal instability. However, the medium-term nature of Saudi Arabia’s emerging energy crisis could force abrupt action that threatens social stability. To avert a Saudi crisis, the United States should mediate a natural gas import deal between the Kingdom and its natural gas rich neighbor, Qatar. Furthermore, the U.S. should use its natural gas resources as a policy lever if regional actors cannot or will not supply natural gas to Saudi Arabia. The proposed plan is not a long-term solution. By taking these actions, however, the Kingdom will gain time to achieve energy diversification and implement structural reforms.

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1 Christopher M. Blanchard, Saudi Arabia: Background and U.S. Relations, report no. RL33533, February 12, 2014, http://www.fas.org/sgp/crs/mideast/RL33533.pdf. 2 This author acknowledges that there are other problems, both political and economic, plaguing Saudi Arabia and Saudi stability. However, assessing these problems will be beyond the scope of this white paper. Consequently, this white paper will only seek to analyze Saudi Arabia’s impending energy crisis. 3 Heidy Rehman, Saudi Petrochemicals: The End of the Magic Porridge Pot?, report (Citigroup Global Markets, 2012), pg. #1. 4 See Brad Bourland and Paul Gamble, Saudi Arabia’s Coming Oil and Fiscal Challenge, report (Riyadh: Jadwa Investment, 2011), pg. #22, http://www.jadwa.com/en/researchsection/research/economic-research; Glada Lahn and Paul Stevens, Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia, report (London: Royal Institute of International Affairs, 2011), pg. #2, http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1211pr_lahn_stevens.pdf; Heidy Rehman, Saudi Petrochemicals: The End of the Magic Porridge Pot?, report (Citigroup Global Markets, 2012), pg. #1. 5 Glada Lahn and Paul Stevens, "Saudi Arabia’s Oil Balance on a Business-as-usual Trajectory," in Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia (London: Royal Institute of International Affairs, 2011), pg. #2, http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1211pr_lahn_stevens.pdf. 6 Thomas W. Lippman, Saudi Arabia on the Edge: The Uncertain Future of an American Ally, First ed. (Washington: Potomac Books, 2012), pg. #62. 7 "Saudi Arabia in 2030: The 40+ Will Drive Population Growth," Euromonitor International, July 9, 2013, http://blog.euromonitor.com/2013/07/saudi-arabia-in-2030-the-40-will-drive-population-growth.html. 8 Karen E. House, On Saudi Arabia: Its People, Past, Religion, Fault Lines - and Future, First ed. (New York: Random House, 2012), pg. #141. 9 The Kingdom of Saudi Arabia, Ministry of Economy & Planning, Ninth Development Plan, http://www.mep.gov.sa/themes/GoldenCarpet/index.jsp#1396821869639. 10 Saudi Petrochemical Sector, report (Research Department Aljazira Capital), pg. #14. 11 Ali I. Al-Naimi, "The Petrochemical Industry: Strengthening the Saudi and Gulf Economies" (speech, Gulf Petrochemicals and Chemicals Association Forum, United Arab Emirates, Dubai, December 12, 2009), http://www.saudiaramco.com/en/home/news/speeches/the-petrochemical-industry--strengthening-the-saudi-and-gulf-eco.html#news%257C%252Fen%252Fhome%252Fnews%252Fspeeches%252Fthe-petrochemical-industry--strengthening-the-saudi-and-gulf-eco.baseajax.html. 12 "Water Resources," Royal Embassy of Saudi Arabia, Washington, D.C., accessed March 2014, http://www.saudiembassy.net/about/country-information/agriculture_water/Water_Resources.aspx. 13 Thomas W. Lippman, Saudi Arabia on the Edge: The Uncertain Future of an American Ally, First ed. (Washington: Potomac Books, 2012), pg. #75. 14 Thomas W. Lippman, Saudi Arabia on the Edge: The Uncertain Future of an American Ally, First ed. (Washington: Potomac Books, 2012), pg. #80. 15 Renewable Energy Desalination: An Emerging Solution to Close the Water Gap in the Middle East and North Africa, report (Washington: World Bank, 2012), pgs. #11-12, http://water.worldbank.org/sites/water.worldbank.org/files/publication/water-wpp-Sun-Powered-Desal-Gateway-Meeting-MENAs-Water-Needs_2.pdf. 16 Christopher Gasson, "Protecting Saudi Arabia’s Petrochemical Birthright," Global Water Intelligence, October 7, 2010, http://www.globalwaterintel.com/insight/protecting-saudi-arabias-petrochemical-birthright.html. 17 Glada Lahn, Paul Stevens, and Felix Preston, Saving Oil and Gas in the Gulf, report (London: Royal Institute of International Affairs, 2013), pg. #20, http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/0813r_gulfoilandgas.pdf. 18 Glada Lahn and Paul Stevens, Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia, report (London: Royal Institute of International Affairs, 2011), pg. #5, http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1211pr_lahn_stevens.pdf 19 Thomas W. Lippman, Saudi Arabia on the Edge: The Uncertain Future of an American Ally, First ed. (Washington: Potomac Books, 2012), pg. #62.

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!20 Saad Ben Ali Alshahrani, "Saudi Arabia Reassesses Energy Subsidies," Al-Monitor, December 11, 2013, http://www.al-monitor.com/pulse/business/2013/12/saudi-arabia-energy-subsidies-assessment.html#%23ixzz2wMGW50Y5. 21 Insulation maximizes the effectiveness of air conditioning systems; See Glada Lahn, Paul Stevens, and Felix Preston, Saving Oil and Gas in the Gulf, report (London: Royal Institute of International Affairs, 2013), pgs. #16 and 23, http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/0813r_gulfoilandgas.pdf. 22 Eckart Woertz, The Domestic Challenges in the Saudi Energy Market and Their Regional and Geopolitical Implications, report, November 2013, pg. #1, http://www.peacebuilding.no/var/ezflow_site/storage/original/application/05a485f202440778052158eb7ef9808b.pdf 23 Charles Kennedy, "Saudi Arabia to Use Shale Gas for Domestic Power Generation," Oil Price, October 14, 2013, http://oilprice.com/Latest-Energy-News/World-News/Saudi-Arabia-to-Use-Shale-Gas-for-Domestic-Power-Generation.html. 24 Regional Gas Trade Projects in Arab Countries, report, vol. 2 (Washington DC: World Bank, 2013), pg. #72, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 25 Regional Gas Trade Projects in Arab Countries, report, vol. 2 (Washington DC: World Bank, 2013), pg. #72, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 26 United States of America, Central Intelligence Agency, The World Factbook: Saudi Arabia, Economy, accessed March 2014, https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html. 27 Glada Lahn and Paul Stevens, Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia, report (London: Royal Institute of International Affairs, 2011), pg. #2, http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/1211pr_lahn_stevens.pdf 28 Thomas W. Lippman, Saudi Arabia on the Edge: The Uncertain Future of an American Ally, First ed. (Washington: Potomac Books, 2012), pg. #63. 29 The loss/inadequate appropriation of government services have led to rare Saudi protests in the past. In 2008 hundreds of citizens in the Saudi town of Qubba protested in front of the state-owned electricity company in response to power cuts; See "Saudi Arabia: Journalist Sentenced to Public Lashing," Human Rights Watch, November 15, 2010, http://www.hrw.org/de/news/2010/11/15/saudi-arabia-journalist-sentenced-public-lashing-0; In 2011 the inadequate response of Saudi authorities to a flood in Jeddah led to street protests; see "Dozens Detained in Saudi Arabia over Flood Protests," Thomson Reuters Foundation, January 28, 2011, http://www.trust.org/item/?map=dozens-detained-in-saudi-arabia-over-flood-protests. 30 United States of America, US Department of State, Bureau of Near Eastern Affairs, U.S. Relations With Saudi Arabia, August 23, 2013, http://www.state.gov/r/pa/ei/bgn/3584.htm. 31 For more information on spare capacity, see Summer Said, “The Mystery of Saudi’s Spare Oil Production Capacity”, The Wall Street Journal: Middle East, September 18, 2013, http://blogs.wsj.com/middleeast/2013/09/18/the-mystery-of-saudis-spare-oil-production-capacity/. 32 The EIA defines spare capacity as the volume of oil which can be brought into production within 30 days and can be sustained for at least 90 days; See "Supply: OPEC," U.S. Energy Information Administration, accessed March 2013, http://www.eia.gov/finance/markets/supply-opec.cfm. 33 Ali I. Al-Naimi, "An Enduring Legacy" (speech, Center for Strategic & International Studies, Washington, DC, April 30, 2013), http://csis.org/files/attachments/130430_Ali_al-Naimi_speech.pdf. 34 Karen E. House, On Saudi Arabia: Its People, Past, Religion, Fault Lines - and Future, First ed. (New York: Random House, 2012), pg. #158. 35 World Energy Outlook 2012 - Executive Summary, report (Paris: International Energy Agency, 2012), pg. #4, http://www.iea.org/publications/freepublications/publication/name,33339,en.html. 36 Rachel Bronson, "The United States and Saudi Arabia: Challenges Ahead," Middle East Institute, October 1, 2009, http://www.mei.edu/content/united-states-and-saudi-arabia-challenges-ahead. 37 Ajay Makan, "Record Saudi Arabia Oil Output Fills Supply Gap," Financial Times, September 16, 2013, http://www.ft.com/cms/s/0/3f9318c8-1eb7-11e3-9636-00144feab7de.html#axzz2xZDrIFOu. 38 Rowena Mason, "Saudi Arabia Increases Oil Production to Cover Libya Loss," The Telegraph, February 25, 2011, http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8348629/Saudi-Arabia-increases-oil-production-

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!to-cover-Libya-loss.html. 39 “That Saudi Arabia, which has always been the one country that could maintain substantial spare production capacity, might no longer function as the world’s producer of last resort wreaks havoc on world oil markets. Without Saudi Arabia to act as a kind of ‘Central Bank of Oil’ to cover supply shortfalls anywhere else in the world on short notice, prices are certain to become even more volatile.” Conclusion from a sophisticated scenario exercise developed by Securing America’s Future Energy (SAFE) and the National Commission on Energy Policy (NCEP) to examine the implications of a global oil shortfall and to explore possible responses to, and protections against, such a crisis. See Oil Shockwave: Oil Crisis Executive Simulation, report (Securing America's Future Energy, 2005), http://bipartisanpolicy.org/library/report/oil-shockwave-%E2%80%93-oil-crisis-executive-simulation. 40 Nourah AlYousef, "The Dominant Role of Saudi Arabia in the Oil Market from 1997-2010," The Journal of Energy and Development 36, no. 1 (Autumn 2010). 41 Daniel J. Graeber, "Only Energy Isolation Equates to Energy Security," Oil Price, September 20, 2013, http://oilprice.com/Energy/Energy-General/Only-Energy-Isolation-Equates-to-Energy-Security.html. 42 Christopher M. Blanchard, Saudi Arabia: Background and U.S. Relations, report no. RL33533, February 12, 2014, pg. #7, http://www.fas.org/sgp/crs/mideast/RL33533.pdf. 43 “The Saudis are very, very important to all of these things. The Saudis are really the sort of senior player, if you will, within the Arab world, together with Egypt. Egypt is in more of a transition, so Saudi Arabia’s role is that much more important. And the Saudis have an ability to be able to influence a lot of the things that we also care about and we work together on. And we’re working together particularly on the Middle East peace process, on Syria, on Egypt, and on Iran. Iran will not get a nuclear weapon. We are determined. President Obama has made that absolutely clear. And we need to work with our Saudi friends in an effort to try to deal with all of these issues.” –Comments made by Secretary Kerry in remarks to U.S. Mission Staff in Riyadh, November 4, 2013; See John Kerry (address, Meeting With Mission Saudi Arabia Staff, Saudi Arabia, Riyadh, November 4, 2013), http://www.state.gov/secretary/remarks/2013/11/216225.htm; Also see Matthew Lee, "Kerry Lauds Saudi Role in Mideast Stability," The Times of Israel, November 4, 2013, http://www.timesofisrael.com/kerry-lauds-saudi-role-in-mideast-stability/. 44 Furthermore, Saudi Arabia was the key player in successfully negotiating a transfer of power from President Ali Abdullah Saleh in Yemen while also facilitating aid packages in order to stabilize the struggling Yemeni economy and military forces; See F. Gregory Gause, III, Saudi Arabia in the New Middle East, report no. 63 (New York: Council on Foreign Relations, 2011), pg. #3, http://www.cfr.org/saudi-arabia/saudi-arabia-new-middle-east/p26663?cid=rss-middleeast-saudi_arabia_in_the_new_middle-120211; Also See Mohammed Mukhashaf and Angus McDowal, "Yemeni Troops Advance; Donors Pledge $4 Bln Aid," Reuters, May 23, 2012, http://www.reuters.com/article/2012/05/23/us-yemen-idUSBRE84M13020120523. 45 "Saudi Arabia to Give Egypt up to $4 Billion More Aid: Report," Reuters, January 30, 2014, http://www.reuters.com/article/2014/01/30/us-egypt-saudi-idUSBREA0T0C920140130. 46 "Saudi Arabia 'to Give Lebanon Army $3bn Grant'" BBC News, December 29, 2013, http://www.bbc.com/news/world-middle-east-25544352. 47 Rachel Bronson, Thicker than Oil: America's Uneasy Partnership with Saudi Arabia (New York: Oxford University Press, 2006), pg. #25. 48 "Iran Warns Gulf Countries Not to Replace Its Oil," Reuters, January 15, 2012, http://www.reuters.com/article/2012/01/15/iran-oil-khatibi-idAFL6E8CF02620120115. 49 The most recent worth a record $60 billion over 20 years, ensuring U.S. commitment to both the supplying and training of Saudi security forces; See Adam Levine, "U.S. Plans $60B, 20-year Arms Deal with Saudi Arabia," CNN, October 21, 2010, http://edition.cnn.com/2010/US/10/20/us.saudi.arms.deal/. 50 These are only a few examples of U.S.-Saudi military cooperation; Also see Sharon Otterman, "Saudi Arabia: Withdrawl of U.S. Forces," Council on Foreign Relations, May 2, 2003, pg. #6, http://www.cfr.org/saudi-arabia/saudi-arabia-withdrawl-us-forces/p7739. 51 It is notable that the first time the C.I.A. used this base was to kill known terrorist Anwar Al-Awlaki; See Robert F. Worth, Mark Mazzetti, and Scott Shane, "Drone Strikes’ Risks to Get Rare Moment in the Public Eye," The New York Times, February 5, 2013, http://www.nytimes.com/2013/02/06/world/middleeast/with-brennan-pick-a-light-on-drone-strikes-hazards.html?pagewanted=all&_r=2&. 52 F. Gregory Gause III, Council on Foreign Relations: Center for Preventative Action, Saudi Arabia in the New Middle East, council report no. 63, December 2011, pg. #22. 53 United States of America, US Department of State, Office of the Coordinator for Counterterrorism, Chapter 2. Country Reports: Middle East and North Africa Overview, May 30, 2013, Saudi Arabia,

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!http://www.state.gov/j/ct/rls/crt/2012/209982.htm. 54 The Kingdom of Saudi Arabia, Royal Embassy of Saudi Arabia, Initiatives and Actions to Combat Terrorism, November 2012, pg. #3, http://www.saudiembassy.net/affairs/reports/default.aspx. 55 This program has embedded U.S. advisors in crucial industrial, maritime, energy, and cyber security offices throughout Saudi Arabia; See Christopher M. Blanchard, Saudi Arabia: Background and U.S. Relations, report no. RL33533, February 12, 2014, pg. #6, http://www.fas.org/sgp/crs/mideast/RL33533.pdf. 56 United States of America, US Department of State, Bureau for International Narcotics and Law Enforcement Affairs, Money Laundering and Financial Crimes Country Database, June 2013, pg. #335, http://www.state.gov/documents/organization/211396.pdf. 57 United States of America, US Department of State, Bureau for International Narcotics and Law Enforcement Affairs, Money Laundering and Financial Crimes Country Database, June 2013, pg. #337, http://www.state.gov/documents/organization/211396.pdf. 58 Christopher M. Blanchard, Saudi Arabia: Background and U.S. Relations, report no. RL33533, February 12, 2014, pg. #10, http://www.fas.org/sgp/crs/mideast/RL33533.pdf. 59 Thomas W. Lippman, telephone interview by author, January 30, 2014. 60 U.S. Energy Information Administration, issue brief. Saudi Arabia, February 26, 2013, Electricity, http://www.eia.gov/countries/cab.cfm?fips=SA. 61 U.S. Energy Information Administration, issue brief. Saudi Arabia, February 26, 2013, Natural Gas, http://www.eia.gov/countries/cab.cfm?fips=SA. 62 "UPDATE 1-Saudi Crude Capacity Comfortable to 2020-report," Reuters, June 10, 2010, http://uk.reuters.com/article/2010/06/10/saudi-naimi-idUKLDE6592B820100610. 63 Increased production “has led to a 27 percent increase in reserves and a 60 percent increase in production from 5.3 to 8.5 billion cubic feet per day between 2000 and 2009. Today more than half our gas production is non-associated and with the completion of the Karan, Manifa and Arabiah and Hasbah fields [the industry’s] processing capacity will be more than 15.5 billion cubic feet per day by 2015”; See Ali I. Al-Naimi, "The Role of Oil in Saudi Arabia’s Economy and Its Global and U.S. Relations" (address, U.S. Saudi Business Opportunities Forum, Chicago, April 28, 2010), http://www.saudiembassy.net/announcement/announcement04281001.aspx. 63 Ali I. Al-Naimi, "The Role of Oil in Saudi Arabia’s Economy and Its Global and U.S. Relations" (address, U.S. Saudi Business Opportunities Forum, Chicago, April 28, 2010), http://www.saudiembassy.net/announcement/announcement04281001.aspx. 64 U.S. Energy Information Administration, issue brief. Saudi Arabia, February 26, 2013, Natural Gas, http://www.eia.gov/countries/cab.cfm?fips=SA. 65 See Ali I. Al-Naimi, "An Enduring Legacy" (speech, Center for Strategic & International Studies, Washington, DC, April 30, 2013), http://csis.org/files/attachments/130430_Ali_al-Naimi_speech.pdf; Also see Adam Rasmi, "When the Desert Runs Dry," Carnegie Endowment for International Peace, March 28, 2013, http://carnegieendowment.org/sada/2013/05/28/when-desert-runs-dry-why-saudi-arabia-s-oil-addiction-could-spell-major-trouble/g6tu. 66 “To date, these ventures have not made significant commercial discoveries, in part because development costs would be far higher than Saudi Arabia's official domestic gas price”; See U.S. Energy Information Administration, issue brief. Saudi Arabia, February 26, 2013, Natural Gas, http://www.eia.gov/countries/cab.cfm?fips=SA. 67 Or 17 GW out of the intended 120 GW; See Glada Lahn, Paul Stevens, and Felix Preston, Saving Oil and Gas in the Gulf, report (London: Royal Institute of International Affairs, 2013), pg. #21. 68 "16 Nuclear Reactors to Be Ready by 2030," Arab News, August 25, 2013, http://www.arabnews.com/news/462415. 69 Thomas W. Lippman, Saudi Arabia on the Edge: The Uncertain Future of an American Ally, First ed. (Washington: Potomac Books, 2012), pg. #61. 70 Heidy Rehman, Saudi Petrochemicals: The End of the Magic Porridge Pot?, report (Citigroup Global Markets, 2012), pg. #6. 71 Ajay Makan and Anna Fifield, "Saudi Oil Capacity to Remain Constant," Financial Times, April 30, 2013, http://www.ft.com/intl/cms/s/0/d1a6c206-b1a1-11e2-9315-00144feabdc0.html#axzz2sc9MQ8pP. 72 Heidy Rehman, Saudi Petrochemicals: The End of the Magic Porridge Pot?, report (Citigroup Global Markets, 2012), pg. #6. 73 See "Westinghouse, Toshiba and Exelon Nuclear Partners to Collaborate on Nuclear Project in Saudi Arabia," PRWeb, September 9, 2013, http://www.prweb.com/releases/2013/9/prweb11102147.htm.

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!74 Adam Rasmi, "When the Desert Runs Dry," Carnegie Endowment for International Peace, March 28, 2013, http://carnegieendowment.org/sada/2013/05/28/when-desert-runs-dry-why-saudi-arabia-s-oil-addiction-could-spell-major-trouble/g6tu. 75 Florian Neuhof, "Momentum Builds for Solar Drive with Masdar to Invest in British Energy Projects," The National, May 2, 2013, http://www.thenational.ae/business/industry-insights/energy/momentum-builds-for-solar-drive-with-masdar-to-invest-in-british-energy-projects. 76 Geert De Clercq, "Saudi Arabia Hopes to Export Solar Electricity to Europe," Reuters, April 11, 2013, http://www.reuters.com/article/2013/04/11/saudi-solar-europe-idUSL5N0CY2SX20130411. 77 Shamsiah Ali-Oettinger, “The solar catalyst,” PV-Magazine, Issue 4, 2014, http://www.pv-magazine.com/archive/articles/beitrag/the-solar-catalyst-_100010771/572/#axzz2yEfEXUMV. 78 Glada Lahn, Paul Stevens, and Felix Preston, Saving Oil and Gas in the Gulf, report (London: Royal Institute of International Affairs, 2013), pg. #30. 79 Industrial Efficiency. Policy for industrial efficiency is largely absent. With the majority of industry being in energy-intensive fields, any change in industrial energy use would have to come from economic diversification. Appliance Efficiency. The Saudi Energy Efficiency Center, working with the standards authority, has introduced a mandatory labeling code for a range of appliances combining this with a minimum efficiency standard. It now plans to raise the minimum efficiency performance standard (MEPS) for air-conditioning units allowed onto the market by about 25% to the current global average in 2013, and to increase this minimum steadily to international best-practice standards by 2015. Transportation Efficiency. There are no targets on vehicle efficiency in Saudi Arabia and no plan to tackle the fuel demand from the transportation sector. In the last couple of years, plans for public transport have developed rapidly yet many projects are behind schedule; See Glada Lahn, Paul Stevens, and Felix Preston, Saving Oil and Gas in the Gulf, report (London: Royal Institute of International Affairs, 2013), pgs. #14-15. 80 Reuters Staff, "Gulf Tinkers with Energy Waste, Neglects Basic Causes," Chicago Tribune, April 10, 2013, http://articles.chicagotribune.com/2013-04-10/news/sns-rt-gulf-energywastel5n0cv1tt-20130410_1_energy-efficiency-energy-studies-united-arab-emirates. 81 Elizabeth Rosenberg, Energy Rush: Shale Production and U.S. National Security,report, February 6, 2014, pgs. #6-7, http://www.cnas.org/energy-rush#.U0H8MvldX5A. 82 Senior Gazprom officials projected in 2011 that as natural gas consumption quickly outweighs production, Saudi Arabia will be required to import natural gas by 2020; See Kate Dourian and Tamsin Carlisle, "Saudis May Import Gas Due to Rocketing Mideast Demand: Gazprom," Platts, October 4, 2011, http://www.platts.com/latest-news/natural-gas/dubai/saudis-may-import-gas-due-to-rocketing-mideast-8417326. 83 Times of Israel Staff and Yifa Yaakov, "Israel-Jordan Sign $500 Million Natural Gas Deal," Times of Israel, February 19, 2014, http://www.timesofisrael.com/israel-jordan-sign-500-million-natural-gas-deal/. 84 U.S. Energy Information Administration, issue brief. Qatar, January 30, 2014, http://www.eia.gov/countries/cab.cfm?fips=QA. 85 U.S. Energy Information Administration, Annual Energy Outlook 2013 with Projection to 2040, report, April 2013, pg. #77, http://www.eia.gov/forecasts/aeo/pdf/0383(2013).pdf. 86 Alex Forbes, "New Qatari Emir Is Good News for Gas," Gastech News, July 4, 2013, http://www.gastechnews.com/lng/new-qatari-emir-is-good-news-for-gas/. 87 Regional Gas Trade Projects in Arab Countries, report, vol. 2 (Washington DC: World Bank, 2013), pg. #67, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 88 Regional Gas Trade Projects in Arab Countries, report, vol. 1 (Washington DC: World Bank, 2013), pg. #xiv, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 89 The construction of a natural gas export network between GCC member states has stalled due to border disputes and diplomatic tensions; See Regional Gas Trade Projects in Arab Countries, report, vol. 1 (Washington DC: World Bank, 2013), pg. #43, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 90 It was pursued by Dolphin Energy Ltd in 1999 91 "Operations," Dolphin Energy, http://www.dolphinenergy.com/en/13/operations/qatar-operations. 92 Qatar currently sells natural gas to the United Arab Emirates and Oman at highly subsidized prices. For instance, the delivered price of Qatari gas through the Dolphin pipeline is $1.30-$1.40 while market prices are substantially higher. Thus, any energy deal between Saudi Arabia and Qatar will have to incorporate discussions on price. See Energy Tribune, "Qatar: The World’s Biggest LNG Producer Holding onto Its Gas," Oil Price, June 2, 2010,

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!http://oilprice.com/Energy/Natural-Gas/Qatar-The-Worlds-Biggest-LNG-Producer-Holding-Onto-Its-Gas.html. 93 Amy M. Jaffe, Jareer Elass, and Keily Miller, The Geopolitics of Natural Gas The Gulf Cooperation Council Natural Gas Conundrum: Geopolitics Drive Shortages Amid Plenty, report, October 23, 2013, pg. #19, http://bakerinstitute.org/media/files/Research/1896866c/CES-pub-GeoGasGCC-102513-5.pdf. 94 “Energy Cooperation: As U.S. oil and gas production increases, and as Saudi Arabia works to diversify its energy mix and improve energy efficiency, our longstanding bilateral cooperation on energy issues is getting stronger, not just on conventional energy market issues, but also energy efficiency, renewable and other alternative energy sources, and science and technology research. For example, Saudi Arabia is working with the Department of Energy’s National Renewable Energy Laboratory on measuring its solar energy resources. The Saudis are also working with the Department of Energy, the Environmental Protection Agency, and others on developing energy efficiency for the Kingdom, including automotive fuel economy standards. The United States and Saudi Arabia hold an annual Bilateral Energy Dialogue to explore broader energy cooperation, including potential cooperation on advanced geothermal research and other issues relating to alternative energies”; See The White House, Office of the Press Secretary, "FACT SHEET: United States-Saudi Arabia Bilateral Relationship," news release, March 28, 2014, The White House, http://www.whitehouse.gov/the-press-office/2014/03/28/fact-sheet-united-states-saudi-arabia-bilateral-relationship. 95 Joshua Mitnick, Summer Said, and Sarah Kent, "Energy Firms Near Deal to Sell Israeli Gas into Jordan," The Wall Street Journal, December 13, 2013, http://online.wsj.com/news/articles/SB10001424052702303932504579256352641300102. 96 Times of Israel Staff and Yifa Yaakov, "Israel-Jordan Sign $500 Million Natural Gas Deal," Times of Israel, February 19, 2014, http://www.timesofisrael.com/israel-jordan-sign-500-million-natural-gas-deal/. 97 Barack Obama, "Presidential Remarks on Energy Policy and Jobs" (speech, UPS Facility, Las Vegas, January 26, 2012), http://www.c-span.org/video/?c4480465/saudi-arabia-natural-gas. 98 Edward L. Morse et al., Energy 2020: North America, the New Middle East?,report, March 20, 2012, pg. #44, https://www.citivelocity.com/citigps/ReportSeries.action?recordId=6. 99 An Interdisciplinary MIT Study, The Future of Natural Gas, report, June 6, 2011, pg. #56, https://mitei.mit.edu/system/files/NaturalGas_Report.pdf. 100 Aaron Kraus, "North American LNG & Asian Energy Security," Journal of Energy Security, December 14, 2011, http://www.ensec.org/index.php?option=com_content&id=336:north-american-lng-aamp-asian-energy-security&catid=121:contentenergysecurity1111&Itemid=386. 101 Aaron Kraus, "North American LNG & Asian Energy Security," Journal of Energy Security, December 14, 2011, http://www.ensec.org/index.php?option=com_content&id=336:north-american-lng-aamp-asian-energy-security&catid=121:contentenergysecurity1111&Itemid=386. 102 Elizabeth Rosenberg, Energy Rush: Shale Production and U.S. National Security, report, February 6, 2014, pg. #29, http://www.cnas.org/energy-rush#.U0H8MvldX5A. 103 "Can the U.S. Sustain Its Natural Gas Boom?," Bloomberg News, February 20, 2013, Low Price of U.S. Natural Gas Presents Possible Export Opportunities, http://www.bloomberg.com/infographics/2014-02-20/can-the-u-s-sustain-its-natural-gas-boom.html. 104 In the past, natural gas was mostly produced as a by-product of oil exploration, therefore, prices of natural gas have historically tracked oil prices; See Nick Cunningham, The Geopolitical Implications of U.S. Natural Gas Exports, report, March 2013, pg. #4, http://americansecurityproject.org/featured-items/2013/the-geopolitical-implications-of-u-s-natural-gas-exports/. 105 Tom Choi and Peter J. Robertson, Exporting the American Renaissance: Global Impacts of LNG Exports from the United States, report (Deloitte Development LLC., 2013), pg. #6, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Energy_us_er/us_er_GlobalImpactUSLNGExports_AmericanRenaissance_Jan2013.pdf. 106 Global LNG: Will New Demand and New Supply Mean New Pricing?, report (EYGM Limited, 2013), pg. #15, http://www.ey.com/Publication/vwLUAssets/Global_LNG_New_pricing_ahead/$FILE/Global_LNG_New_pricing_ahead_DW0240.pdf. 107 Peter Galuszka, "U.S. Gears Up to Be a Prime Gas Exporter," The New York Times, September 30, 2013, http://www.nytimes.com/2013/10/01/business/energy-environment/us-gears-up-to-be-a-prime-gas-exporter.html?pagewanted=1&_r=0. 108 Liquefied natural gas is simply natural gas which has been cooled down to its liquid state. “This makes it feasible and economical to transport over long distances in specially designed ocean tankers. Once received, the LNG goes into storage tanks, is regassified, and delivered to markets”; See Canada, Government of Canada, Natural Resources

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!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Canada, Liquefied Natural Gas, December 18, 2013, What is LNG?, http://www.nrcan.gc.ca/energy/natural-gas/5679. 109 Regional Gas Trade Projects in Arab Countries, report, vol. 1 (Washington DC: World Bank, 2013), pg. #59, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 110 Section 3 of the Natural Gas Act (NGA) (15 U.S.C. § 717b); See United States of America, Department of Energy, Office of Fossil Energy, How to Obtain Authorization to Import And/or Export Natural Gas and LNG, accessed March 2013, http://energy.gov/fe/services/natural-gas-regulation/how-obtain-authorization-import-andor-export-natural-gas-and-lng. 111 BP Energy Outlook 2035, report, January 2014, pg. #63, http://www.bp.com/content/dam/bp/pdf/Energy-economics/Energy-Outlook/Energy_Outlook_2035_booklet.pdf. 112 "OPEC Producer UAE Considers Importing North American Gas," Reuters, January 27, 2014, http://www.reuters.com/article/2014/01/27/uae-gas-idUSL5N0L12UA20140127. 113 Regional Gas Trade Projects in Arab Countries, report, vol. 1 (Washington DC: World Bank, 2013), pg. #49, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 114 Regional Gas Trade Projects in Arab Countries, report, vol. 1 (Washington DC: World Bank, 2013), pg. #49, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report. 115 U.S. Energy Information Administration, issue brief. Kuwait, July 8, 2013, Consumption and imports, http://www.eia.gov/countries/cab.cfm?fips=KU. 116 Regional Gas Trade Projects in Arab Countries, report, vol. 1 (Washington DC: World Bank, 2013), pg. #55, http://documents.worldbank.org/curated/en/2013/02/19062510/regional-gas-trade-projects-arab-countries-vol-1-2-main-report.