Why Saudi Arabia is losing its appetite for oil
You know that horror movie trope where the babysitter gradually realises the crazed killer is phoning, not from some distant location, but from inside the house? Something similar is happening in the oil market.
That’s because Saudi Arabia, the world’s biggest net exporter of crude, is using renewables to drastically reduce its petroleum consumption. The threat to the kingdom’s producers isn’t coming from the heartlands of electric vehicle adoption in Shenzhen, Oslo, or San Francisco — it’s right inside the house.
Saudi Arabia’s Mohammed bin Salman. The kingdom is the world’s biggest net exporter of crude.Credit: AP
This is an extraordinary reversal. Since the start of the 21st century, Saudi Arabia’s oil consumption has increased more than any other country barring China and India. It’s doubled to 2.3 million barrels a day, greater than the incremental demand from Africa, Latin America or the former Soviet Union.
Between a quarter and a third of the country’s consumption goes into crude- and fuel oil-fired generators that provide electricity to ride out summer heatwaves. The government wants to replace all of that with renewables, with a target of 130 gigawatts by 2030 – roughly equivalent to all the solar power in India. Such a switch could represent the single largest decline in oil demand over the next five years, according to the International Energy Agency.
It’s not news that the country has such ambitions. One of the cornerstones of Vision 2030, the program announced in 2016 to wean the kingdom’s economy off hydrocarbons, was to switch the grid to an exclusive gas-renewables mix.
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However, such bold pronouncements are typically heavily discounted where Saudi Arabia is concerned. This is a country that’s been working on an unfinished one-kilometre skyscraper since 2013, and recently called in consultants to review the feasibility of The Line – an implausible science fiction city being built to house nine million people inside a 170 kilometre-long tower.
Kpler, a data company that tracks commodities flows, reckons only 11.6 gigawatts of the planned 130 gigawatts will be online by 2030. Such a serious shortfall would be enough to sustain crude in power generation well into the future.
It might be time to start reevaluating whether that scepticism is warranted, however. There’s certainly a huge gap between promise and execution where the kingdom’s megaprojects are involved. Still, when it comes to building humdrum energy infrastructure (as opposed to, say, a cube-shaped hollow tower as tall as the Empire State Building), one of the world’s biggest petroleum producers has a decent track record.
