Saudi Arabia is preparing itself for the end of oil — whether in 20, 50 or 100 years — but in the meantime it wants to steady volatile prices without slashing production, the Saudi foreign minister told.
Diversification is key to the Vision 2030 plan Riyadh unveiled in April, which aims to lure foreign investment into areas ranging from mining to defense, entertainment, and solar power while also modernizing the country by making its government more transparent and creating new jobs for a population of which 70 percent is younger than 30.
That’s a significant shift for the world’s biggest oil exporter and second-largest producer (after the U.S.). Oil and gas generate around 50 percent of Saudi Arabia’s GDP and 85 percent of its export earnings.
But the Kingdom realizes that the energy sector is gradually moving away from fossil fuels. While the global shift is at least partly driven by pressure to tackle climate change, Saudi Arabia’s efforts are more pragmatic.
Vision 2030 lays out a plan to partially privatize the country’s state-owned oil company, Saudi Aramco. Money from the initial public offering, expected by 2018, will go towards expanding Saudi Arabia’s sovereign wealth fund from 600 billion riyal (€145.1 billion) to more than €1.7 trillion.
The country’s economy will look very different by 2030 as a result of the plan, even if only a small part of it is fulfilled. But even if the role of oil and gas diminishes significantly, fossil fuels will be crucial to making sure Saudi Arabia’s transition is smooth, the Oxford Institute for Energy Studies said in a report issued Tuesday.
The country’s efforts to replace oil-fired power generation at home with more renewables and gas — leaving more oil for exports — could be good for its energy sector, giving it a more “holistic approach” to the challenges Saudi Arabia faces, it added.
The economic overhaul is about timing, al-Jubeir said, dismissing the idea that it was triggered by the fall in oil prices from more than $100 per barrel in 2014 to just below $50 now.
“Oil may or may not be around in 20 or 30 or 40 years. So what do you do at that point, if you don’t have an economy that is dynamic and self-sustainable and innovative?” he said. “It could be 100 years, it could be 50. We don’t know what technology or innovation will bring. And if it doesn’t change that’s fine, we’ll just have more income.”
In the meantime, Saudi Arabia’s priority is to stabilize “erratic” shifts in oil prices, he said, noting that political turmoil adds to the swings.
Oil producers in OPEC raised the idea of cutting output earlier this year, as prices hit a 13-year low of $28 per barrel in January. But Saudi Arabia scuttled the plan and kept its output at near all-time highs, around 10 million barrels per day this year.
“We believe that Saudi Arabia should not be the one to assume the lion’s share of cuts and that everybody should step up and take responsibility, or take steps to ensure there is a balance in the market,” al-Jubeir said.
Saudi Arabia was open to a compromise that would put a cap on OPEC’s production, but its members failed to agree on a deal when they last met in early June. Iran, which re-joined the cartel after sanctions were lifted this year, opposed any move to curb the oil it is only just bringing back to the market.
The effect of Iran’s return to OPEC and the international oil market “has not been anything major,” al-Jubeir said, noting that Iran’s oil output is back around the level it was before sanctions were imposed in 2011.
At the same time, even OPEC’s influence on international markets has changed over the decades, he added.
“OPEC’s ability to control the markets is not what it was 40 years ago,” he said.