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CGES: Saudi government nets $81.6 billion in 2011

With a surge in the OPEC basket price to an all-time high of $107/bbl, the government of Saudi Arabia in 2011 realized a budget surplus of almost $82 billion, according to a report from the Centre for Global Energy Studies (CGES).

This surplus, Saudi Arabia’s second-highest ever in nominal terms, occurred in spite of a $59 billion increase in Saudi fiscal spending resulting from the government’s largesse to attempt to acquiesce its citizens after popular uprisings elsewhere in the Arab world.

CGES said it had predicted a surplus of $55 billion for Saudi Arabia because it was convinced the government’s assumed oil price of $58/bbl for 2011 was far too conservative. CGES instead assumed $100/bbl but was surprised when the OPEC basket price averaged $107/bbl.

Also, the London-based analysts had assumed that Saudi oil production would average 9.13 million b/d last year, whereas the outcome was 9.36 million b/d because of the kingdom’s belated output increase to compensate for the loss of Libyan production.

Revenues from oil and natural gas liquids in 2011 in Saudi Arabia totaled $273.2 billion, according to estimates. The kingdom’s revenues from nonoil activities and investment income were $22.8 billion, resulting in $152 billion in excess of its own annual budgeted revenues.

Outlook for 2012 budget

In each year when the actual oil price has exceeded the target and the Saudi government earned more than it had bargained for, the kingdom responded to this good fortune by boosting its spending, which in turn required higher revenues and higher prices the next time round. This year is unlikely to deviate from this pattern, CGES said.

“Saudi expenditures are set to rise once again, and the target price will therefore be even higher. Although the world economy would benefit from lower oil prices at present, for the Saudis to engineer a fall in the price via an output boost means that they would either have to live with a much-reduced fiscal surplus, or persuade their fellow members in OPEC to cut their production. Since neither of these options seems feasible, oil prices are set to remain well above $100/bbl,” the report said.

Saudi Arabia has budgeted for a $3.2 billion surplus in 2012 based on a 30% increase in revenues over last year’s budgeted amount and a 19% increase in expenditures from planned spending in 2011.

But CGES says that both revenues and expenditures this year are expected to be down from actual 2011 outcomes by very large amounts. Budgeted 2012 revenues are $109 billion less than last year’s revenues, and planned expenditures are forecast to fall $30 billion short of last year’s.

However, Saudi expenditures have not registered a year-on-year decline since 2002, CGES said, but instead rose each year since then by 14% on average. Why should the Saudi government be expected to rein in its spending this year, particularly when there is rising tension in the Gulf over Iran’s nuclear ambitions and continuing civil unrest in Syria, Iraq and Egypt, the report asked.

Oil price target

In a tight market exemplified by low levels of stock cover, CGES expects the OPEC basket price to climb from last year, averaging $112/bbl in 2012, but the analysts also expect Saudi production to average at least 9.2 million b/d this year. This should keep Saudi oil and NGL revenues at $280 billion or more, resulting in a 2012 budget surplus of $60 billion.

By CGES calculations Saudi Arabia requires an OPEC basket price of $69/bbl this year to cover its currently planned spending. This assumes the Kingdom’s oil production averages 9.25 million b/d and its NGL exports rise to 760,000 b/d.

If Saudi Arabia added another $55 billion of capital spending plus $2 billion of debt interest, it would need a basket price of $90/bbl.


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