The impact of oil price volatility on welfare in the kingdom of saudi arabia: Implications for public investment decision-making

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  • The impact of oil price volatility on welfare in the kingdom of saudi arabia: Implications for public investment decision-making
  • Initiative -
  • Type KAPSARC journal article
  • Date 1 April 2014
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Abstract

Since real oil price is positively correlated with real consumption and domesticincome in Saudi Arabia, a risk premium needs to be considered when assessingthe net present value of oil-related public investment projects. For projects generatingadditional oil exports, this risk premium quantifies the cost of increaseddependence on oil revenues. For projects transforming oil into products whoseprices are less correlated with the Saudi economy, it quantifies the benefit fromreducing the aggregate risk. The value of this risk premium depends on expectationsabout future consumption and oil price. By considering alternative assumptions,we show that over a one-year horizon this risk premium could rangebetween 1.3% and 5% of the expected oil-related cash flow, with higher premiafor longer planning horizons. We discuss the implications of these calculationsfor energy-related public projects in Saudi Arabia and, more generally, for publicdecision-making in resource-rich countries. © 2014 by the IAEE. All rights reserved.

https://www.researchgate.net/publication/249801211_The_Impact_of_Oil_Price_Volatility_on_Welfare_in_the_Kingdom_of_Saudi_Arabia_Implications_for_Public_Investment_Decision-Making

Energy Journal

Authors

Axel Pierru

Axel Pierru

Program Director Axel is the director of KAPSARC’s Energy and Macroeconomics program. From October 2018 to March 2019, he was KAPSARC’s interim… Axel is the director of KAPSARC's Energy and Macroeconomics program. From October 2018 to March 2019, he was KAPSARC's interim vice president of research. Axel joined KAPSARC in 2011, after spending 15 years at IFP Energies Nouvelles in France, where he led research, consulting and training projects. Axel received his Ph.D. in economics from the Pantheon-Sorbonne University in Paris. He undertakes applied research that combines methodological innovation with practical relevance for policymaking. His research is focused on energy economics, policy, finance, oil pricing, and energy-exporting economies. Axel has been published extensively, with over 40 peer-reviewed journal papers to his name.

Expertise

  • Energy modelling
  • Energy economics
  • Energy policy
  • Oil pricing and finance

Publications See all Axel Pierru’s publications

Walid Matar

Walid Matar

Research Fellow Walid works on modeling energy systems. He is developing or has developed the following components of the KAPSARC Energy Model… Walid works on modeling energy systems. He is developing or has developed the following components of the KAPSARC Energy Model (KEM): electric power generation, oil refining, petrochemicals and fertilizers, cement production, and iron and steel. He is also working on a bottom-up residential electricity use framework that merges microeconomics with the physical laws governing electricity use.

Expertise

  • Energy Systems Modeling
  • Optimization
  • Electricity Prices
  • Energy Efficiency and the Interdisciplinary Connection Between Energy Economics and Engineering

Publications See all Walid Matar’s publications

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