Could Saudi Arabia go oil-free?
Prince Mohammed bin Salman is the deputy crown prince of Saudi Arabia — second in line behind the crown prince, and his father, King Salman. Before his father ascended the throne a year ago, Prince Mohammed began to quietly plan for his kingdom’s future with the encouragement of the late King Abdullah, according to Bloomberg. Kings and princes frequently plan for the future, but this time the House of Saud wants to be able to thrive in a low-carbon economy.
It wants to be able to survive without oil in four years.
In his first press conference with foreign journalists on Monday, 31-year-old Prince Mohammed announced the ambitious “Vision 2030” plan, which the cabinet approved the same day.
“We have developed an oil addiction in the kingdom of Saudi Arabia, among everyone,” Prince Mohammed said Monday. “That is dangerous, and that is what has hampered the development of many different sectors in recent years.”
The government set the goal of generating 9.5 gigawatts of electricity from renewable energy by 2030 as part of the plan.
“Even though we have an impressive natural potential for solar and wind power, and our local energy consumption will increase threefold by 2030, we still lack a competitive renewable sector at present,” the plan reads, before setting the 2030 goal. A few years ago the government set the goal of producing 17 gigawatts of electricity form nuclear energy by 2032, and 41 gigawatts from solar. That would mean a grid fueled by one-third solar energy. This will all cost money.
To raise capital, the government would sell less than 5 percent of Aramco, the state-owned oil giant, in what would be the largest initial public offering in the world. A small part of that sale would establish a sovereign wealth fund. The goal is to increase the current public investment fund from $160 billion to $2 trillion, and to use that investment power to transition to an investment-based economy rather than an oil-based economy.
“I think by 2020, if oil stops we can survive. We need it, we need it, but I think in 2020 we can live without oil,” he said.
In the past, the kingdom relied on oil revenue for 90 percent of the government’s budget and half its GDP. Recently the price of oil has plummeted, largely due to the continued strong production supply from OPEC countries, led by Saudi Arabia (they are betting they can win an oil price war with producers outside of OPEC, notably the United States). This has led to lower revenue and an almost $200 billion Saudi budget shortfall and other signs of economic turmoil. With few good options, it’s no wonder the kingdom wants to become free of the “addiction” of oil export revenue.
“We will not allow our country ever to be at the mercy of commodity price volatility or external markets,” Prince Mohammed said on Monday.
I think by 2020, if oil stops we can survive.
The government’s task of replacing oil revenue with this investment plan will be incredibly difficult, and potentially impossible.
In addition to the economic and energy-focused reforms, the plan also called for some social reforms, such as more women in the workplace, green cards for ex-pats for the first time, and the development of historic tourist sites.
Saudi Arabia’s government once questioned the reality of climate change, but has changed in recent years.
In 2009, the oil-rich kingdom’s lead climate negotiator in the Copenhagen U.N. climate talks thought that the hacked email “scandal,” dubbed “Climategate” by critics, meant “that there is no relationship whatsoever between human activities and climate change.” The scientists in question, and their emails, were subjected to many investigations, all of which cleared them of all impropriety.
A few years later, the nation’s oil minister Ali Al-Naimi lauded energy efficiency and solar as important investments, said that global warming is “real” and “pressing,” and explained that drilling for oil “does not create many jobs.”
“Greenhouse gas emissions and global warming are among humanity’s most pressing concerns,” Al-Naimi said in 2012. “Societal expectations on climate change are real, and our industry is expected to take a leadership role.”