SAUDI ARABIA'S DOMESTIC CRUDE OIL PRODUCTION REQUIREMENTS: A PHYSICAL AND MONETARY APPROACH

The primary objective of this work is to analyze the interdependency between the oil sector and domestic physical and monetary requirements in the Saudi Arabian economy. Economic literature on crude oil production in particular and on non-renewable resources in general has introduced a variety of models and analyses regarding optimal extraction and depletion policies. These models are based on costs of production, the tradeoff between current and future generations, absorptive capacity and required revenues, or other factors. This study examines the domestic demand for oil which determines current and future production and extraction strategies. From the physical standpoint, domestic demand by households, desalination plants, and the petrochemical industry requires specific production levels to secure domestic energy requirements. From the monetary side, domestic demand for oil revenues also requires a specific production level to allow the government to continue its development plan and enhance current and future social well-being for the Saudi population. These two factors must be coordinated in order for the Saudi economy to continue its economic growth and development.;The lower oil production and price levels of 1983 have seriously affected both physical and monetary factors. The study suggests that raising energy prices in order to rationalize domestic energy consumption will help to fulfill both energy and revenue requirements and achieve a more efficient domestic energy consumption.;A VISICALC computer program is used to estimate Saudi Arabia's future energy and revenue requirements based on current estimates and projections of world crude oil demand and prices; Saudi Arabia's water, electricity, and crude oil production and consumption; and government revenues and expenditures. The results shown by the VISICALC program indicate that domestic energy policies must be initiated in order to raise the government's earnings from both oil and non-oil revenue and secure future physical requirements for other sectors.