the politics of energy policy in the gulf arab states ... · cambridge eprg presentation. june 11,...

www.electricitypolicy.org.uk

The Politics of Energy Policy in the Gulf Arab States: Shortage and Reform in the

World’s Storehouse of Energy

Jim KraneCambridge EPRG presentation

June 11, 2012

www.eprg.group.cam.ac.uk 2

Contents

• Motivation and Overview

• Gulf Energy Consumption Dynamics

• Theory

• Research Plan

• Preliminary Results


The six Gulf Cooperation Council (GCC) states

3

4

Section 1

MOTIVATION and OVERVIEW


Overview

• GCC is expected to supply the world with hydrocarbons• Regional consumption threatens that assumption• Consumption is exacerbated by government subsidies• Five of the six states are short of natural gas

– Three are importing now. Four soon. Five possible.

• Theory is pessimistic about reform – So are prevailing opinions

• I want to ask: Why have the Gulf monarchies been unable to reform energy subsidies, even as rising domestic consumption threatens their exports?

Section 2

GULF ENERGY CONSUMPTION DYNAMICS

6


Saudi Arabia Depletion profile

www.electricitypolicy.org.uk

Kuwaitis pay 5% of electricity cost

0

5

10

15

20

25

30

35

40

2004 2005 2006 2007 2008 2009 2010 2011

fils pe

r kW

h

Kuwait Electricity: Government's Cost vs. Consumer Price 2004‐2011 (MEW)

Cost of electricity Price of electricity

9

GCC countries rank high among global subsidizers

10

$0

$10

$20

$30

$40

$50

$60

$70

Iran

Saud

i Arabia

Russia

India

China

Egypt

Vene

zuela

Indo

nesia

UAE

Uzbekistan

Iraq

Kuwait

Pakistan

Argen

tina

Ukraine

Algeria

Malaysia

Thailand

Banglade

shMexico

Turkmen

istan

South Africa

Qatar

Subsidy value (US$ bn)

Fossil Fuel Subsidies by country and type, 2009 (IEA 2010)

Oil Gas Coal Electricity

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Kuwait

UAE

Qatar

Saud

i Arabia

Iran

Turkmen

istan

Vene

zuela

Libya

Uzbekistan

Iraq

Algeria

Russia

Kazakhstan

Ecuado

rEgypt

Malaysia

Ukraine

Argen

tina

Thailand

Azerbaijan

Per capita fossil fuel subsidies in USD 2009 (IEA)

Section 3

THEORY

11


Rentier State Theory (RST)

• RST is the chief construct used to examine GCC regime behavior and state-society relations– Useful macro-level explanation that remains surprisingly resilient– Rents substitute for democracy in the social contract– State unable to tax or “extract” from citizens (without triggering

democracy quandary)– “Social contract won’t allow it” is frequent refrain in the Gulf

• Subsidies difficult to reform in autocratic no-tax context– Theory and popular opinion (conveyed in survey results) holds that

cheap energy is a “right”

• Legitimacy-versus-sustainability dilemma

13

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

0

10

20

30

40

50

60

70

80

90

GDP pe

r capita (U

SD)

% oil rents in GDP

Oil rents in GDP vs GDP per capita (World Bank)

Oil rents % of GDP (LEFT scale) GDP per capita (US$) (RIGHT scale)

High oil rent in GDP High GDP per capita

Low oil rent in GDP High GDP per capita

High oil rent in GDP Low GDP per capita

Low oil rent in GDP Low GDP per capita

14

Section 4

RESEARCH PLAN


Research objective

• Document evidence (or likelihood) of subsidy reform, especially on electricity delivered to citizens, in a way that confronts domestic energy demand– Frame the results in terms of RST and expected regime (and

citizen) behavior– Contrast behavior of Gulf monarchies with that of other

hydrocarbon exporters (including those facing depletion)

• This serves two purposes:– To document attempts to preserve HC-export economic models– To test Rentier State Theory


Datasets

1. Statistical Data: National and international sources2. YouGov Public Survey: 800+ respondents

- Status: Collection complete

3. Expert Elicitation 1: Predictions of energy policy- Status: Collection complete in Summer 2012; 82 responses

4. Expert Elicitation 2: UAE policymakers’ predictions- Status: Collection complete; 35 responses

5. Interview Data: Several dozen subjects in key sectors; four countries- Complete in Summer/Fall 2012

6. Focus Group Data: In-depth public attitudes in Kuwait and UAE- Two complete. A third may be attempted

Section 5

PRELIMINARY RESULTS

17

Expert Elicitation demographics*

18

Bahrain54%

Kuwait2016%

Oman1310%

Qatar2218%

Saudi Arabia2621%

UAE3831%

124 Responses by Country; 79 Respondents who chose 1‐6

countries

*As of May 2012. EE is ongoing.

Bankers 6

Academics 11

Journalists 9

Consultants 8

Economists 4

Government/Ministry 6

Regulator 1

Minister 1

Government (research) 2

IPPs 4

IOCs 3

NOCs 6

Analysts (Think Tank) 4

NGOs 4

Utility operators 4

Expert Elicitation demographics II

19

0% 10% 20% 30% 40% 50% 60% 70% 80%

Yes

No

Are you a GCC citizen?

Bahrain00%

Kuwait4

17%

Oman6

26%

Qatar29%

Saudi Arabia3

13%

UAE8

35%

Citizenship of 23 GCC respondents


EE results: Tariff hike by 2020?

3.25

4.29 4.27

4.80

3.19 3.11

3.82

1

2

3

4

5

6

7

Bahrain Kuwait Oman Qatar KSA UAE GCC

1=Virtually certain; 7=excep

tion

ally unlikely

Will rising consumption trigger residential electricity tariff hike?

(lower score=more likely)

2.75

3.94

2.92

3.45

2.712.45

3.04

1

2

3

4

5

6

7


1=Virtually certain; 7=Excep

tion

ally unlikely

Will rising consumption trigger comm'l/industrial electricity tariff hike? (lower score=more likely)


EE results: Economic threat and oil price

3.00

2.56 2.62

4.35

2.18

2.84 2.92

1

2

3

4

5

6

7


1=Strongly agree; 7=Stron

gly disagree

Does energy consumption growth threaten the economy? (lower

score=stronger threat)Expert Oil price 2020

Ed Morse (Citibank) $51 - $100

Mehdi Asali (OPEC) $101 - $150

Mustafa Babiker (ARAMCO) $101 - $150

Mike Wood (Kuwait MEW) $101 - $150

Mohammed al-Rumhy (Oman Minister of Oil and Gas) $101 - $150

Simon Williams (HSBC) $101 - $150Caroline Bain (EIU CommoditiesEditor) $101 - $150John Cunneen (ElectricityRegulator, Oman) $151 - $200Bruce Smith (Abu Dhabi Water and Electricity Authority) $151 - $200

Badr Jafar (Crescent Petroleum) $251 or more


Public Survey: Demographics

0

5

10

15

20

25

30

0

100

200

300

400

500

600

700

popu

latio

n (m

)

Num

ber o

f res

pons

es

Public survey responses by country/ population

Respondents by country population (m)

0%

10%

20%

30%

40%

GCC Bahrain Kuwait Oman Qatar KSA UAE

Public survey responses by age

18-24

25-29

30-34

35-39

40+

0%5%

10%15%20%25%30%35%

Income of public survey respondents (YouGov only)

Bahrain

Kuwait

Oman

Qatar

KSA

UAE

GCC

Perspectives on subsidy rationale: Experts vs. the public

23

0%

10%

20%

30%

40%

50%

60%

70%

80%

Why did the government pay a portion of your electricity bill?

GCC citizens

Experts

0%

10%

20%

30%

40%

50%

60%

70%

80%

Why did the government pay a portion of your electricity bill (UAE)?

UAE citizens

UAE policymakers

Willingness to pay more for electricity (scenario 1, no explanation)

24

0%

10%

20%

30%

40%

50%

60%

Very willing

Quite willing

Neither willing nor

opposed

Quite opposed

Very opposed

Don’t know

How willing are GCC citizens to paying full electricity cost (EE and

public survey)

GCC citizens

Experts

0%

10%

20%

30%

40%

50%

60%

Very willing

Quite willing

Neither willing nor

opposed

Quite opposed

Very opposed

Don’t know

How willing are UAE citizens to paying full electricity cost (UAE policymakers and public survey)

UAE citizens

UAE policymakers

Public Survey: Combined results

25

0%

5%

10%

15%

20%

25%

30%

Strongly support

Tend to support

Neither support nor

oppose

Tend to oppose

Strongly oppose

Willingness to pay cost‐reflective tariffs under all three scenarios

(GCC)

Full cost only

Full cost with explanation

Full cost with compensation

2.30

2.40

2.50

2.60

2.70

2.80

2.90

3.00

3.10

0%

5%

10%

15%

20%

25%

30%

Willingness to pay cost‐reflective tariffs under all three scenarios

(GCC)

Strongly support

Tend to support

Neither support nor oppose

Tend to oppose

Strongly oppose

mean

Arab Spring effects and sensitivity to citizen opinion on tariffs in UAE

Text response: “Frankly, much, much, more sensitive and less willing to raise prices or antagonize anybody, anywhere ,at any time.”

26

1

9

15

More willing to raise electricity and water prices

Neither more nor less willing to raise electricity and water prices

Less willing to raise electricity and water prices

Have the recent events of the Arab Spring made the UAE government ... (25 responses)

6

15

5

0

0

Extremely sensitive

Very sensitive

Neither sensitive nor insensitive

Very insensitive

Not at all sensitive (government pays no attention to citizen opinion)

From a policymaking perspective, how sensitive is the UAE government to citizen opinion on these issues? (26 responses)

Future orientation of the public vs. implications of current gov’t spending

27

0%

10%

20%

30%

40%

50%

60%

70%

Spend all now

Spend most now, save little for future

Spend half, save half

Spend little now, save most

Save all for future

Saudi citizen spending priorities versus experts' assessment of

government spending

Saudi public Saudi experts (EE)

0%

10%

20%

30%

40%

50%

60%

Spend all now




Save all for future

UAE citizen spending priorities versus experts' assessment of

government spending

UAE public UAE experts (EE) UAE policymakers

Expert assessments of government spending and citizen preferences for government spending do not match

28

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Bahrain Kuwait Oman Qatar KSA UAE

Future orientation: Citizen preferences vs expert

assessment (lower score=spending focused on current consumption)

citizen mean experts mean

0%

10%

20%

30%

40%

50%

60%

Spend all now




Save all for future

Omani citizen spending priorities versus experts' assessment of

government spending

Omani public Oman experts (EE)

Includes Oman's energy minister

Conclusion: Findings → Theory

• RST is holding in GCC– Arab Spring is buttressing it – Governments more beholden than citizens– Cracks are showing below the macro level– The UAE most likely to reform (Dubai already started)– Wide divergence among countries expected to act in unison

• The big question: Will the theory lose explanatory power before the demise of the Gulf rentier economies themselves?– Upended by government reforms?– Or by the end of the Gulf monarchies?

THANK YOU!QUESTIONS?

30


Rising oil price needed to balance gov’t budgets

$0

$20

$40

$60

$80

$100

$120

BAHRAIN KUWAIT OMAN QATAR KSA UAE

GCC 2012 breakeven oil prices (IIF)

$0

$20

$40

$60

$80

$100

$120

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

KSA Breakeven Oil Price 2005‐15 (IIF)


SUMMARY → Quick Hits

1. Citizens believe cheap electricity is their share of the national resource

2. Experts: UAE most likely to reform tariffs by 2020 (Qatar least)

3. Experts say Saudi Arabia faces direst economic threat

4. Experts more pessimistic about public acceptance of tariff increases than the public itself

5. Citizens more willing to pay cost-reflective tariffs when given an explanation

6. Arab Spring effects – increased gov’t caution

7. Citizens more future-oriented than experts’ assessment of government policy (albeit less likely to support CR tariffs)

Willingness to pay more (scenario 2: to preserve resources for export)

34

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Strongly support Tend to support Neither support nor oppose

Tend to oppose Strongly oppose Don’t know

Public Survey result: Willingness to pay full cost of electricity to conserve energy for export

Kuwait

Oman

Qatar

KSA

UAE

GCC

Support rises

Strong opposition

drops

Future orientation

35

2.00

2.20

2.40

2.60

2.80

3.00

3.20

3.40

3.60

0%

10%

20%

30%

40%

50%

60%


How best to distribute resource benefits? (public survey)

Spend it all now Spend most now, save a little for future generations

Spend half, save half Spend a little now, save most for future generations

Save it all for future generations Mean (RH scale; higher = more future orientation)

the politics of energy policy in the gulf arab states ... · cambridge eprg presentation. june 11,...

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