JEDDAH, 28 February 2007 — A Saudi oil expert yesterday called for insulating the Kingdom from oil-price fluctuations, as this would enable diversification and developing the energy sector.
“We must draw the right lessons from the previous booms. We must have economic reform independent of oil revenues. This is required if the Kingdom has to meet the challenge of developing the energy sector,” Majid Al-Moneef, Saudi Arabia governor to OPEC, told the morning session of Jeddah Economic Forum 2007.
“Such a shift from the oil dependence to the energy sector will also lead to the participation and investment of the private sector,” he said speaking under the title “Changing the Global Energy Paradigm.”
Al-Moneef gave an overview of the global energy landscape with changing demand patterns, and the Kingdom’s challenges and opportunities. He also dealt with the role of national oil companies and changes in the energy market dynamics.
However, fossil fuels will remain the main source of supply of primary energy until at least the middle of the century. Oil in particular will continue to fuel socio-economic development of all regions of the world. The EU and OPEC consider that it is both realistic and beneficial to promote cleaner fossil fuel technologies. In particular, technologies that capture and store carbon dioxide, especially in geologic formations, are considered a vital means to reduce or limit net carbon dioxide emissions. They also provide a powerful illustration of actions that could result in dual benefits — reduce carbon dioxide emissions into the atmosphere while enhancing oil recovery. In addition, their application is compatible with current energy infrastructures and would not lead to costly and disruptive changes.
Amadeo Di Lodovico, who has worked on energy related issues with some world’s leading players in oil and gas as well as multinationals and individual oil companies, said as a partner in the McKinsey & Company’s head office in the Middle East, he was deeply involved in economic policy recommendations.
He focused on the challenge for Saudi Arabia of going from oil leadership to energy leadership. The Kingdom has potential for significant job creations as 60 percent of its population is below 30 years, which is 20 times any part of Europe.
Some 3.5 million jobs will need to be created in 15 years, which is a daunting task, he said. “Today, Saudi employment is 3.5 million. So you need to create an equal number of jobs in future. To create new jobs, the economy has to grow faster — 9 to 11 percent per year in the next 10 to 15 years,” he said, adding that this is a massive increase, with the Kingdom’s economy marking an annual growth of 4.5 percent in the past years. Very few countries have grown like this in a sustained manner continuously for 10 to 15 years, he said.
Sixty percent of the Kingdom’s GDP comes from the government (oil) sector. So the private non-oil sector has to fuel the growth. The Kingdom has great opportunity to develop its energy related industries like aluminum, petrochemicals, fertilizer and steel with cost advantage, Lodovico said.
He suggested that downstream industries, such as packaging, dashboard, tires, engine blocks and plastics could be developed. Beyond downstream industries the services sector can be developed.
“Every job you create in an upstream sector, you have two to three jobs in the downstream sectors and six to eight others in services,” he said. “In fact, 15 to 20 jobs can be created in the services sector. And surely such developments can take care of future employment.”
Lodovico said the Kingdom could become the most efficient producer of energy. “If you don’t become energy efficient, you may not be able to compete internationally. The challenge has a solution. Offer incentives and the private sector will be ready to seize the opportunity, especially in the post-oil world.”
Rachad Itani, executive partner of Xenel-Balderrie, a Saudi-Canadian joint venture which specializes in green house gas reduction policies, technology and finance, spoke how the worldwide concern for global warming would affect demand and whether this posed a threat.
He narrated the tale of two ice cubes — an ice cube and an oil cube.
“Both represent different aspects of global warming. They are integral part of the same formula which touches upon the role of Saudi Arabia — changing the global energy paradigm and indeed the role of changing paradigm in Saudi Arabia,”
One year ago, Sweden announced that it would take the biggest energy step by trying to wean itself completely of oil within the next 15 years without developing a single power generation station. “Could this represent the beginning of a global trend that may pose a threat to the future demand for oil and the future price of oil,” Itani asked.
A week ago, due to climate change European countries have announced a cut of 20 percent in global emissions and to press for a reduction of 30 percent if other countries would join. This shows how global warming is posing a great thereat. “Business as usual is no longer an option,” he said.
“Global warming has already started happening and becomes part of the corporate social responsibility. In fact, it should be a collective social responsibility,” Itani said.
Zeger Degraeve, professor at London Business School, also spoke at the session, which was moderated by broadcaster and presenter Sue MacGregor.
