By Daniel Fineren
DUBAI (Reuters) - Saudi Arabia may be starting to overcome a long addiction to generating electricity from its own oil, easing a nagging concern for a global market reliant on free-flowing crude exports from the kingdom.
Over the summer months this year, the country reversed a trend of burning ever increasing amounts of its oil output for domestic power production, thanks to more gas supplies, greater energy efficiency and some cooler weather.
Saudi Arabia's growing reliance on liquid fuels to meet summer surges in demand for air conditioning prompted the International Energy Agency (IEA) to warn in 2011 that its oil exports may shrink in years to come.
However, government figures showed the volume of oil burned for power production in the world's leading crude exporter fell to 689,750 barrels per day (bpd) from June to September this year. That compared with a record 763,250 bpd in the same period of 2012, according to the figures issued through the Joint Oil Data Initiative (JODI) on Sunday.
"That's very good news and it is going to continue declining... We expect next summer to be less than this year," a senior industry source in Saudi Arabia said.
Saudi Arabia is by far the largest user of crude oil for power generation, with most other countries having abandoned oil-fired power plants long ago in favor of gas, nuclear and renewable energy.
Officials had hoped to cut back on oil-fired power production in 2012 using output from the new Karan gas field but an abnormally hot summer meant the decline was pushed back to this year.
"There are three reasons for the decline. One is the weather, the second is the start of the efficiency program and the third is the increasing use of natural gas for electricity," said the senior industry source.
"You are going to see domestic consumption going down or at least stabilizing," the source said, while noting that economic growth - which tends to push up power use - is strong.
As about half Saudi Arabia's gas supplies come from its vast oilfields, a rise in crude output to an average of 9.997 million bpd this summer - the highest over a four-month period since JODI records began in 2002 - also boosted gas supply.
OPEC's most powerful oil producer has increased crude production by around 2 million bpd since summer 2010 to make up for lost supplies from Libya, Syria and Yemen due to war or unrest, and from Iran because of international sanctions.
The most subdued summer oil burning season on JODI records dating back to 2009 helped to boost Saudi crude oil exports to an average of 7.606 million bpd from June-September, the highest four-month average since the winter of 2005/06.
A sharp drop in domestic demand in September 2012 helped to drive Saudi crude exports up to 7.844 million bpd, the highest level since November 2005, despite the kingdom producing less crude than in August.
Although production averaged just 9.482 million bpd from November 2005 to February 2006, exports hit 7.648 million bpd because Saudi domestic use slumps in the cooler winter months.
DEMAND TO WANE?
Demand for Saudi crude might wane in the next few years, leading to lower gas output and supply problems.
A possible reason for this is a return of large volumes of Iranian oil to the global market if talks between Tehran and world powers on its nuclear program lead to an easing of the sanctions, while demand for imported crude falls in North America due to rising shale oil production there.
Saudi Arabia has ambitious plans to build nuclear and solar power plants because every barrel of crude saved is worth over $100 on the export market, but those programs have made sluggish progress.
Until those plants start production, Riyadh needs to keep up its efficiency drive and keep pumping crude at near record high levels to avoid a rebound in oil burning in power plants in summers to come.
Saudi electricity use has risen by about 6 percent annually over the last decade, with summer peak demand more than doubling from 2002 to over 48 gigawatts in 2011, according to the national electricity regulator.
(Editing by David Stamp)