Saudi Arabia Fears a Peak in Oil Demand -- And It's Going Green, Sort Of

Last Updated Feb 17, 2010 2:34 PM EST

Concerns over peak oil -- that moment when oil demand exceeds global oil supply -- has produced little more than a disdainful eye roll from Saudi Arabia. After all, the largest oil producer in the world has far more pressing problems -- like peak demand, for example.

In fact, Saudi leaders are so worried that demand for oil could peak in the next decade they've done the unexpected -- and slightly ironic -- by calling for an economy that includes renewable energy. It's an interesting reversal coming from a country that has poo-pooed investments in renewable energy in the past.

Let's not forget Saudi Arabia -- along with OPEC, the oil cartel it's a member of -- was a major opponent of greenhouse-gas reduction proposals during the climate summit in Copenhagen last year. At the time, OPEC's chief said oil-producing countries should be compensated for lost revenues if any agreement coming out of Copenhagen leads to cuts in the use of oil. No, really.

Earlier this month, OPEC producers had the gall to ask the world to give them more clarity and certainty about long-term oil demand in order to justify additional investment in new production capacity, according to the Petroleum Economist. As Robert Rapier over at R-Squared notes, that's simply not the way the world works. The best any business can do is try and estimate where demand will end up and then make decisions from there.

Now, the renewable energy that so worried Saudi Arabia before has suddenly become a worthy investment. The country is starting its first carbon-capture project and is investing in other industries including aluminum and steel in an effort to diversify its heavily crude-focused economy, according to a Bloomberg report. Mohammad al-Sabban, oil minister adviser and the lead negotiator at the climate talks, said the country is working to become the top exporter of energy, including alternative forms such as solar power.

The challenges facing Saudi Arabia are huge: we need to develop Saudis in order to be innovative, creative, to catch up with the rest of the world, al-Sabban said this week at the Jeddah Economic Forum.
Demand in developed countries including Europe and the U.S. has peaked and will never return to 2006 and 2007 levels because of the greater use of alternative energy and increases in fuel efficiency, the chief economist of the International Energy Agency said last month. Which leaves Saudi Arabia's crude-based economy counting on increases in demand from China, India and other developing countries.

That being said, as China and India's thirst for energy increases -- as I expect it will -- the urgency in Saudi Arabia to develop other energy resources including solar will take a dive.

Photo of solar panels by Flickr user Abi Skipps, CC 2.0