Saudi oil adviser says kingdom preparing for peak in oil demand by diversifying economic base

Saudi Arabia preparing for oil demand to peak

JEDDAH, Saudi Arabia — A top Saudi energy official expressed serious concern Monday that world oil demand could peak in the next decade and said his country was preparing for that eventuality by diversifying its economic base.

Mohammed al-Sabban, lead climate talks negotiator, said the country with the world’s largest proven reserves of conventional crude is working to become the top exporter of energy, including alternative forms such as solar power.

Saudi Arabia was among the most vocal opponents of proposals during the climate change talks in Copenhagen. And al-Sabban criticized what he described as efforts by developed nations to adopt policies biased against oil producers through the imposition of taxes on refined petroleum products while offering huge subsidies for coal — a key industry for the United States.

Al-Sabban said the potential that world oil demand had peaked, or would peak soon, was an “alarm that we need to take more seriously” as Saudi charts a course for greater economic diversification.

“We cannot stay put and say ‘well, this is something that will happen anyway,” al-Sabban said at the Jeddah Economic Forum. The “world cannot wait for us before we are forced to adapt to the reality of lower and lower oil revenues,” he added later.

Some experts have argued that demand for oil, the chief export for Saudi Arabia and the vast majority of other Gulf Arab nations, has already peaked. Others say consumption will plateau soon, particularly in developed nations that are pushing for greater reliance on renewable energy sources.

With oil demand only now starting to pick up after it was pummeled by the global recession, some analysts say consumers may have learned to live permanently with a lower level of consumption.

The Organization of the Petroleum Exporting Countries, as well as other international energy organizations, is forecasting a slight rise in oil demand this year, based mainly on increased consumption in Asia after last year’s sharp hit.

Either peak oil scenario presents grave challenges for the Gulf region and OPEC, whose countries rely on oil sales for as much as 90 percent of their budgets.

Al-Sabban, who also serves as the chief economic adviser to Saudi Oil Minister Ali Naimi, said an oil demand peak would be “very serious” for the country.

Saudi has about 264 billion barrels of crude reserves and currently produces about 8 million barrels per day out of its overall output capacity of around 12 million barrels per day.

The kingdom, widely seen as the de facto leader of the 12-member OPEC, has embraced an ambitious expenditure program aimed not only at further developing its oil base but also expanding and diversifying its economic base.

Its expansionary policies came even as other nations were tightening purse strings in response to the world’s worst financial crisis in over six decades. The outlays included billions of dollars for a new research university that opened last year, as well as major ventures such as the construction of new economic cities and other infrastructure.

Oil’s pre-recession price boom also helped pad Saudi Arabia’s foreign reserves, now in excess of $400 billion, and have helped the government weather the worst of the global crisis.

International ratings agency Moody’s, in a reflection of the country’s macroeconomic position, on Monday upgraded Saudi Arabia’s foreign and local currency government ratings to Aa3 from A1 citing “the continued solid state of government finances which have largely withstood oil price volatility and the global economic crisis.”

Al-Sabban said that along with investing in education and economic diversification, Saudi must ensure that it become the top energy exporter, including in solar power, to keep moving forward.

The country recently launched its first solar-powered desalination plant and al-Sabban said oil giant Saudi Aramco was working on a pilot project to inject carbon emissions back into wells to help boost output. The carbon sequestration project, which he said would be operational by 2012, was a sign of Saudi Arabia’s commitment to environmentally sound energy development.

The push for cleaner technology is pivotal for the oil rich kingdom,