Modeling the Saudi Energy Economy and Its Administered Components: The KAPSARC Energy Model

This paper describes the KAPSARC energy model, which we developed to take an integrated view of the energy issues faced by Saudi Arabia. These issues result from growing internal energy demand that is cutting into the country’s ability to export oil, constrained supplies of natural gas that affect the ability of the country to use gas as an economic development tool, and a domestic energy economy that largely operates with prices set by the government and not markets. The model is formulated as a mixed complementarity problem (MCP) that allows us to capture the non-market features resulting in prices that are different from marginal costs. The model is novel in two ways: (i) it is the first integrated, equilibrium, energy model of Saudi Arabia and it captures government interventions that permeate economies outside the OECD; (ii) its design and component organization solve critical model management issues. In addition to the detailed description of the model, the paper provides an overview of the Saudi energy economy, discusses issues in designing a multi-sector energy model, and covers how the model is organized from a model management perspective.