Saudi Arabia Planning For Transition To Renewables

If Saudi Arabia, king of oil producers, sees an eventual end to fossil fuels, the world should pay attention.

Climate negotiators are gearing up for a major summit in Paris at the end of 2015 in an effort to seal a deal on carbon emissions. Germany and France issued statements recently calling for an end to fossil fuels by the end of the century. The US and China forged a bilateral pact late last year that called for a peak, followed by a decline in their emissions, albeit on different timetables. The deal was seen as a good omen for the prospects of international cooperation in Paris.

There are signs across the globe that progress is underway in decarbonizing electric power grids. Renewable energy, led by solar and wind, are growing at a lightning fast clip, though from low levels. Particularly in the US and Europe, flat demand for electricity, coupled with stiffening environmental regulations and falling costs for renewables, the electric power sector is cleaning up. In the decades to come, it is not hard to imagine a grid powered by the winds and the sun. Related: Why Oil's Rally Is Over

Transportation is another matter. The hundreds of millions of cars, trucks, ships, and planes around the world are all run on various forms of fuel, almost entirely derived from oil. Finding alternatives to oil in moving people and goods around is a bit trickier than electricity. Few predict a quick transition to electric vehicles.

But a top Saudi official recently made headlines when he said that his country was seeking to move beyond oil. Saudi Arabia's oil minister, Ali al-Naimi, spoke at a recent conference in Paris in which he suggested that Saudi Arabia would eventually generate and export clean energy rather than oil. "In Saudi Arabia, we recognize that eventually, one of these days, we are not going to need fossil fuels. I don't know when, in 2040, 2050 or thereafter," al-Naimi said. "Hopefully, one of these days, instead of exporting fossil fuels, we will be exporting gigawatts of electric power," he went on to add. Related: Clock Running Out For Struggling Oil Companies

For the world's most important oil producer - a country whose economy, and even its very identity, are heavily linked to its oil fields - to contemplate a transition away from oil is no small thing.

But part of the motivation to look at wind and solar is for immediate budgetary reasons. Saudi Arabia consumes more than a quarter of its oil production. In 2013 it burned through 2.9 million barrels per day, a figure that is set to rise quickly in the coming years. And unlike much of the world, especially outside of the Middle East, Saudi Arabia uses that oil for electricity. In the hot summer months, that leads to a spike in consumption. For every barrel burned for electricity that is a barrel not exported, it means less revenue for government coffers.

That led to the announcement of a major initiative into solar power, a long-term project to reduce oil consumption. By 2032, Saudi Arabia would generate one-third of its electricity from solar. For a Kingdom bathed in sunlight, the goal should be eminently obtainable. But it delayed the $109 billion initiative this past January. Questions were raised about whether or not the government was reevaluating its goal in the face of low oil prices. Related: New Silk Road Could Change Global Economics Forever

But al-Naimi's recent comments suggest Saudi Arabia is still pursuing renewable energy over the long-term. "I believe solar will be even more economic than fossil fuels," he said in Paris.

To be sure, it will take many decades before Saudi Arabia moves beyond oil. Al-Naimi's comments alone are not enough to indicate that the country is serious about transitioning to cleaner sources of energy.

Nevertheless, the fact that Saudi Arabia - the world's most important oil producer - is eyeing a future without fossil fuels is significant. Not until very recently was a world without oil considered to be even a remote possibility. Al-Naimi's comments will not only add momentum in the run up to the Paris meeting in December, but they are also evidence that a new era for energy may be coming quicker than many anticipated.

By Nick Cunningham of Oilprice.com

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