“Domestic consumption levels are Between 2007 and 2018, we are forecasting an increase in Kuwaiti oil production of 40.9%, with crude volumes rising steadily to 3.70mn b/d by the end of the 10-year forecast period. Oil consumption between 2007 and 2018 is set to increase by 42.4%, with growth slowing to an assumed 4.0% per annum towards the end of the period and the country using 393,000b/d by 2018.”
Assuming a price average of $50 per barrel and oil production is 2.6 million barrels per day at a negligible cost, Kuwait produces oil that is valued at 13.7 billion KD per year. With domestic consumption at a rate of 0.33 million barrels per day, this means that Kuwait consumes 1.7 billion KD worth of its own fuel every year. We consume 12.6% of our total oil production. That seems to me to be a ridiculously high amount for a nation who’s GDP is made up almost entirely out of oil revenues.
The graph shows the relationship between the value of our consumed oil (1.739 billion KD) and our exported oil (12 billion KD). As you can see our domestically consumed oil amounts to around 12.6% of our total oil produced. This is the oil that is refined into petrol domestically and sold to consumers in petrol stations around the country.
This chart shows how Norway (values in USD) consumes less oil at home than we do in Kuwait. The dotted line represents the level of the Kuwaiti consumption. As you can see the Norwegians manage to reduce their percentage of oil consumption to nearly a half of what we do in Kuwait. The extra oil we consume does not give us any increase in our quality of life. All it does is make it easier for us to endlessly drive our cars, clogging the streets up, make parking a nightmare and fill the air with pollutants. The Economy Intelligence Unit’s Quality of Life index shows Norway to be at 8.05/10 compared to Kuwait at 6.171/10.
- What? Restructuring the way wealth is redistributed through fuel subsidies
- Why? Lower fuel costs encourage wasteful driving and discourages transportation alternatives
- How? Abolishing the fuel subsidy and replacing it with a fuel tax rebate for the Kuwaiti workforce.
The oil that is consumed domestically is obviously not given away for free. It is sold back to consumers at a heavily subsidized rate. It is this subsidy that I believe should be restructured in a way that would provide smarter benefits to Kuwaiti citizens. Instead of giving away the oil for practically nothing and allowing people to waste it without not knowing its true value; I propose that the subsidy be abolished and the revenue generated from the domestic oil sales be given back to citizens as a form of energy tax rebate. What this means is that the price of a gallon of petrol would rise to 5 times its current level. A full tank of gas that cost me 5KD would now cost 25KD. This is because I am now paying for the true value of this commodity and the government is not losing any money because it is selling it to me and not Japan. This also means that the government is making 5 times as much money from its domestic sales as it did before. This extra revenue will be given back to all the Kuwaiti workforce as a form of energy rebate. The mechanism is already in place for most citizens working for the public and private sector.
Let’s assume that the average Kuwaiti spent 50KD on petrol per month. Some spent less, and some spent more. At the end of the month, the average monthly energy expenditure for Kuwaiti citizens is calculated and that figure is given back to all Kuwaitis equally. This means that the person that spent 50KD will get 50KD added to his paycheck for that month. A person that spent 10KD for petrol will also get 50KD thereby rewarding him with a 40KD profit for his efficiency. A person that spent 200KD will get 50KD also which means his real energy expenditure was 150KD for the month, a punishing amount that will force anyone to reconsider their driving habits. This mechanism of reward and punishment will force us to behave differently because of our financial self interest, and not out of love for the environment or desire for less congestion, even though that will be the end result.