How Saudi Arabia develops in a world beyond oil

Before the discovery of oil, it did not exist as a nation. Standard Oil Co. in California was subsidized by its founding emperor Ibn Saud in 1933, just months after he was proclaimed king of the Unified Earth in 1,000 years.

Ellen Wald, a colleague at the Atlantic Council and a state historian, said that those subsidized payments and subsequent oil revenues allowed Ibn Saud to consolidate his control by encouraging vast tribal groups on the peninsula. The same great concept lives on in the tomb welfare state from the ys of the modern nation.

“This concession legitimized him as the ruler of Saudi Arabia,” Wald said. “It is very difficult to conceive an oil-free Saudi kingdom.”

After nearly five years of efforts to raise more money from petroleum than from crude, oil and government spending, it now accounts for two-thirds of GDP. The idea that the kingdom can survive in an oil-free world is as inaccessible as Switzerland’s in a world without banks.

That pessimistic view may not be the right one. The country’s natural asset endowment – all of which are not hydrocarbon-based – can fuel new industries and sustain existing ones as carbon emissions fall to zero. Reserves of phosphates, copper and gold are world-class, but thanks to the fact that the raw masses are out of the rest. At the same time, the kingdom’s solar potential is one of the richest in the world, giving Saudi Arabia the opportunity to become a hub for the green-hydrogen sector in the future, as it did in the petroleum trade of the last century.

It teaches lessons to a host of oil-exporting countries that will see the coming decades with understandable trepidation. The end of fossil fuels does not mean the end of them for developed countries.

What is net zero Saudi Arabia like?

One thing to keep in mind is that even rapid energy conversion will completely eliminate petroleum consumption on this side by 2050. The 2019 report from the Intergovernmental Panel on Climate Change devised ways to warm up to 1.5 degrees Celsius. In 2050 the crude fell daily from 11 million to 57 million, compared to Saudi Arabia’s current day of 8 million barrels. With a record low production cost of just $ 2.80, the kingdom is still one of the last producers in the game.

On top of that, it is worth remembering that not all oil is used for energy. 10% of the world’s petroleum production – 10 million barrels per day – goes into non-combustible products such as plastics, bitumen, lubricants, chemicals and fertilizers. Although hydrocarbon fuels release carbon dioxide as an inevitable side effect of their combustion, non-combustible products can keep their carbon atoms indefinitely, without locking them in their chemical matrices. (1) Such products are the most difficult to replace. With non-fossil equivalents in the coming decades. BP PLC expects demand to grow by 0.5% per year, even as the world warms to less than 2 degrees.

If oil demand falls and the world removes significant amounts of carbon from the atmosphere, Saudi Arabia has another potential role to play. Carbon capture and storage, or CCS, have so far failed to live up to its promise and are largely questionable feasibility demonstration projects. However, if technology can work, it will give new life to the kingdom’s oil fields. CCS, which is closest to commercial use in the world, is now in better oil recovery, where it can pump gas into older wells and help it go to a more crude surface. One of the largest such sites currently in operation is in Saudi Arabia’s largest Ghawar field.

The potential of the kingdom for this has not yet been well researched. According to a 2016 study by the Global CCS Institute, it could store 5 billion to 30 billion metric tons of CO2 underground, which is less than the value of current emissions. However, it may be due to not seeing. Major oil producers who conducted more detailed assessments made very large estimates: for example, the US alone could lock 21.2 trillion tons.

The most ambitious vision for the future is not to expect to manage oil depletion, but to look beyond it. Surprisingly, Saudi Arabia has advantages here as well. Some parts of the world gain the intensity and stability of sunlight that falls on the Arabian Peninsula.

Abu Dhabi Power Corporation last year signed an agreement to build a solar plant that will generate electricity at a cost of 1.35 cents per kilowatt-hour – the lowest price ever accepted for solar generation, and one-fourth of those who receive the heavily subsidized private sector electricity consumers in Saudi Arabia. Although progress has slowed to the best so far, Riyadh has plans to generate 50% of grid power from renewable sources by 2030.

Countries with similar capabilities, such as Chile and Australia, are already planning to develop an energy export sector that could one day come to rival and overtake oil – hydrogen.

We recently wrote that hydrogen has many benefits, such as petroleum, as a chemical fuel and as a substance in industrial processes. Unlike petroleum, if renewable energy is used to break down water molecules it becomes zero-carbon. Energy will be the biggest determinant of the production costs of such green hydrogen, so Saudi Arabia has ambitions to become the largest exporter of the gaseous element.

On paper, the possibility of Saudi Arabia re-establishing its role as one of the most important energy centers in the world in the post-fossil fuel world is significant. The problem is how to get there.

A country with wealth and identity on crude has always struggled with oil shortages. Every day, hundreds of millions of dollars flow into the kingdom’s coffers thanks to black gold exports. The temptation to continue doing the same thing seems irresistible.

Saudi Arabia was as absolute a monarchy as it was during the time of Ibn Saud. The raw material, and the money flowing from it, is central to the nutrition and employment networks that hold the state together.

The February report of the energy conversion think tank carbon tracker found that long before oil production fell to zero, Saudi Arabia would face a 44% shortfall in government revenue from declining consumption over the coming decades. You can try to diversify the economy by producing plastics or aluminum or hydrogen, as the Gulf monarchies have begun to do in recent decades – but there are no other industries that have the special benefits that Saudi Arabia does in oil.

According to Wald, it risks constitutional changes rather than economic ones. “It can lead to a different relationship between the rulers and the people,” she said. “They may work very hard to prevent political change, as a result of which the monarchy will have no control.”

About 45% of Saudi nationals with jobs are employed, and foreign workers – one-third of the workforce – are there only because of oil and the wealth it brings. Although Dubai’s economic entry suggests a model for how the Gulf state would develop in the absence of oil, it is not clear that a similar idea could be repeated in Saudi Arabia, which is ten times more populous and more culturally very traditional.

However, if anything happens, it’s time to make the shift. If the world succeeds in reducing its carbon emissions, there are still many years left for the business that has sustained this country for eight decades. If the power transition fails, parts of the Persian Gulf will become deadly heat waves routine by the end of this century. Either way, in order for a country to survive beyond its first 100 years, Saudi Arabia must take action.

Andrew Grant, a senior analyst with Carbon Tracker, said: “No one thinks this will be an easy transition. It’s a matter of when, rather than when. “

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