Saudi Arabia could save some $200 billion over the next ten years by switching from crude oil to natural gas and renewables for electricity production, Reuters reports, citing the Kingdom's Finance Minister.
"Instead of buying fuel from the international markets at $60 and then selling it at $6 for Saudi utilities, or using some of our quota in OPEC to sell at $6, we're going to actually displace at least 1 million barrels a day of oil equivalent in the next 10 years and replace it with gas and renewables," Mohammed al-Jadaan said.
OPEC's largest oil producer and world's largest exporter of crude is on a desperate quest to reduce its dependence on oil revenues by diversifying its economy away from the flagship export stock. Earlier this year, Crown Prince Mohammed, who appears to be the de facto ruler of Saudi Arabia, announced yet another investment program with a view to this diversification that he said would "unlock new local investments valued at SAR 5 Trillion through the end of 2030."
This amount is equal to roughly $1.3 trillion, and its unlocking will be enabled by investments from Saudi Arabia's largest private companies, the Kingdom's Public Investment Fund, and a National Investment Strategy, for which the details have yet to be released. The total investment poured into Saudi Arabia's private sector will amount to some $3.20 trillion (12 trillion riyals).
The Vision 2030 diversification plan that Mohammed launched a few years ago is also very much alive, according to Al-Jadaan. The minister said the Kingdom will be prioritizing fiscal discipline until all the targets of the Vision 2030 plan were achieved.
"Between now and 2025, and possibly until 2030, fiscal sustainability is a priority for us. We believe that until we achieve all the targets that Vision 2030 has set, we need to maintain fiscal sustainability and control government expenditure," Al-Jadaan said.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- The Best Is Yet To Come For The World’s Hottest Oil Play
- Why Iran’s Return To Oil Markets Isn’t A Major Threat
- Oil And Gas Bankruptcies Jump Despite Rise In Crude Prices
A major thrust of Vision 2030 is to replace oil with renewables and nuclear energy for electricity generation and water desalination with some help from natural gas. This could release an estimated 1.5-2.0 million barrels a day (mbd) of crude oil for exports thus earning Saudi Arabia an estimated additional $38-$51 bn a year based on average oil price of $70.
Furthermore, Saudi Arabia should end subsidies for gasoline, water and electricity. This could save the country another $70-$80 bn. In addition to this, the government should charge Saudi utilities the full international price for crude. There could be additional savings estimated at $20 bn a year. All in all, Saudi Arabia could end up saving an estimated $128-$151 bn.
Still, an oil price of $80 a barrel or higher is key to the diversification of the Saudi economy. And with the reconciliation between Saudi Arabia and Qatar, Qatari LNG could play a vital role in Saudi diversification leaving Saudi own reserves of gas for expanding its petrochemical industry to become the world’s largest.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London