In 1974, energy policy analyst Amory Lovins described in his essay ‘Energy Strategy: The Road Not Taken?’, the two paths that the US may take in terms of its energy policy. In his essay he suggested that the US, as a first option, could rely on ‘hard’ energy sources; for example, fossil fuels and nuclear fission. As a second path, Lovins proposed benign renewable energy sources; such as solar power and wind power[1]. Whereas in 2010, energy data in the US shows that the 85% of energy consumption is of ‘hard’ energy sources, only 8% are of renewable energy sources; ‘soft energy’.[2] In an international level, the US is also the world’s number one consumer of oil[3]. This shows that the US decided to embark on Lovins first path of energy policy and neglect the second. Having said this, a rentier state relates a resource-dependent country in which all or a substantial sum of national revenue is generated from the export of oil and/or gas. Whilst Saudi Arabia is currently the world’s number one producer and exporter of oil[4], experts seem to have given it a rentier status. Given its high growth in population and energy consumption, the Kingdom has showed interested in tapping into a new market of renewable energies. Thus, maximizing its energy mix and undertaking what Lovins classifies as a soft energy path. This essay will analyse Saudi Arabia’s status as a rentier state, highlight renewable energy potentials and argue that it should embark on a shift from a rentier state to Lovins’ second path of energy soft power.
Hazem Beblawi in his influential ‘the Rentier State and The Arab World’ highlights four characteristics that could determine a rentier state: first, the notion of the rent predominating in the economy of a state; when oil and gas imports account for most of gross domestic product. Second, the state would rely completely on external rent; this leads a sate to rely on a strong domestic productive sector. Third, Beblawi asserts, in rentier states only a few in the population are involved with the generation of rent; masses are left to distribute and utilize it. Fourth, ‘the government is the principal recipient of the external rent in the economy’[5]. It is vital to compare the characteristics of a rentier state underlined by Beblawi to Saudi – whether or not it is applicable. According to OPEC, Saudi Arabia has 18% of the world’s oil reserves and is the number one ranked oil producer and exporter. In addition to this, the petroleum sector in Saudi accounts for 75% of budget reserves.[6] This, therefore, highlights that Saudi Arabia’s petroleum sector is the dominant, which is one element in Beblawi’s rentier theory. Since the 1973/74, economic growth has been rapid in the Kingdom and led to an anticipated population growth from six million in 1973 to almost 28 million in 2010.[7] Population growth reinforces the rentier state theory, as a large majority of Saudi’s population are not participants in the oil sector and a staggering 11% are unemployed (not including females).[8] Moreover, 95% of Saudi oil is produced on behalf of the government is by the large state-owned firm Saudi ARAMCO[9]. Saudi Arabia, thus, seems to fit the theory of a resource-dependent state and can be classified as a rentier state.
Having said this, Amory Lovins’s essay illustrates the two paths that the United States may take in the case of its energy policy. Saudi Arabia’s case is dissimilar to the US, as it is not short of energy reserves, it is the number one supplier of oil, it also has large cash reserves generated from oil imports, the private sector only employs 20% of Saudis. A transition from oil dependency seems like a positive prospect to Saudi Arabia, especially in terms of its economy. Domestic consumption of oil in Saudi Arabia has been growing rapidly in the past 40 years; averaging 5.7% annually, consuming approximately 3 million barrels per day[10]. According to a study conducted by the Oxford Institute of Energy Studies that sheds light on energy subsides in Saudi Arabia: Gasoline is heavily subsidized, even below production price (at 0.75$)[11]. Low gasoline prices will, therefore, play as an incentive for domestic consumption. In the 1980s when the population was low, it seems that there was substantial spare capacity of Saudi’s oil products. In 2012, the population has rapidly grown and utilities remain subsidized. Also given the tight international market; the rise of the BRIC states and their high demand of oil products. It appears that Saudi Arabia’s subsidized utilities may lead to a loss of revenue. Creating an energy mix may be helpful in order to keep Saudi Arabia on top of the exporters ranking. In addition to that, it is important to note that Saudi Arabia consumes domestically more oil than Germany (2.4mbd[12]); a country which has an almost three times larger population (over 80 million[13]). This means that if Saudi Arabia installs alternative energy for domestic consumption it can take advantage of oil hungry international market. Experts have expressed their concern for the quickly growing demand for electricity in the countries of the Gulf Cooperation Council (GCC); region’s total electricity consumption rising nearly tenfold since 1980[14]. For example, Laura El-Katiri, a specialist on Middle Eastern energy policy at the Oxford Institute for Energy Studies, asserts that:
Policy choices made in the coming years by all six GCC members will be critical to raising the level of security the grid can provide, and for the development of a fully integrated, commercial regional electricity market.[15]
El-Katiri further highlights that GCC fuel base for electricity is far from being diverse; oil and natural gas are the most dominate[16]. Several states in the GCC have expressed their willingness to alternative energy sources Most notably, the United Arab Emirates (UAE), which is in process of building Masdar City; a city that relies exclusively on alternative energies. UAE’s example encourages the idea for Saudi to undertake the transition to diversifying its energy sector and becoming closer to what Lovins described as ‘energy soft power’.
Saudi Arabia, like other states in the GCC, seeks diversification not when the prices of oil are low, but interestingly when they are arguably at their peak. Dr. N. Janardhan, a research Analyst at the UAE, provides explanation for this. He believes, first, it is a long-standing pressure from international financial institutions to develop a non-oil economy. Second, the notion that oil cannot sustain a state forever. Third, since oil prices are likely to remain high it makes sense to conserve and prolong its longevity and value of the GCC’s hydrocarbon reserves. Fourth, create a non-oil economy, and, thus, declassify its rentier status. Fifth, it will create jobs and, hence, be a solution to unemployment problems[17]. It appears that a transition to soft powers is necessary for Saudi Arabia to meet the domestic demands of energy, yet maintain high supplies of oil.
Having said that, in order for Saudi Arabia to maximize its potential in the international oil market, as this essay has shown, it must embark on alternative energies; such as solar energy, wind energy or hybrid system. First, Saudi Arabia’s solar potentials: the sun should be recognized as a major natural resource; (2200 thermal kilowatt hours (kWh) per square meter)[18], in other estimates it is the energy equivalence of 10 billion barrels each day.[19] In addition to this, Klaus Friedl, the general manager of Phoenix Solar, believes that there is a huge potential for solar power plants in Saudi Arabia.[20] This view is further argued by Saleh Alawaji, from King Abdulaziz City for Science and Technology, who gives three reasons why solar energy is a resource Saudi Arabia should tap into. First, given that Saudi Arabia has an area of roughly 2 million km2, renewable energy applications can generate power to many remote villages and settlements. Second, similar to Friedl’s view, the Kingdom has substantial potential for exploiting solar energy, but adds that if application were successful it can take a leading position in solar energy producing/exporting. Third, solar energy can be utilized as an addition to the existing marketing scheme, currently dominated by oil, and emphasize longevity of hydrocarbon resources for export revenues and for petro-chemical use.[21] Whilst the prospects of solar energy seems promising, it is still undergoing research & development and has not fully been applied completely efficiently. On the The Report: Saudi Arabia 2010, the author highlights several drawbacks regarding solar energy; ‘…its [solar power] relative inefficiency in power generated per dollar invested compared to other fuel sources’[22]. The author seems to look at it economically, however, even if one were to look at its functionality it may be hindered by the dust effect; in which dust covers the solar plants. Although some firms have come up with panels that self-clean, it shows that the product is still developing and it may be argued that solar panels will be highly considered in the future, not only in terms of Saudi, but also internationally.
In a research study conducted at the King Fahd University of Petroleum & Minerals, wind energy data were generated and analysed in order to determine whether it can be applied in the Kingdom. The study shows that areas that generate good wind are mostly located in distant locations far from urban cities in which demand for electricity exists. In addition to that, the study asserts that wind power would be positively and preferably used for local and minimal-volume applications[23]. Wind energy, even though is utilized in developed countries, appears to be very promising but further research must be complete in order to analyse rigorously the feasibility of this type of soft energy.
As explored in this essay, Saudi Arabia, until today, is the world’s leading exporter of oil and is in the midst of rapid growth in terms of its population, energy consumption and unemployment rate. Although soft power path suggest by Amory Lovins described in his essay ‘Energy Strategy: The Road Not Taken?’, is costly in terms of feasibility tests as well as research and development, Saudi declassify itself from being a rentier state. The rise of BRIC counties provides great potential for its oil exporting, however its current domestic growth shows that if Saudi remain as they are there will be considerable loss of revenue. Some analysts maintain that Saudi Arabia is at peak in terms of oil; who claim that the estimates of the oil reserves in Saudi are exaggerated and is actually about to run out[24]. This essay has not shed light on ‘peak oil’, which would have provided additional ground to the argument for a transition to ‘soft power’ energies. In addition to that, nuclear energy was not addressed; this can be seen as limitation for the scope of analysis as it appears to be considered as a solution for the high electricity demand in the countries of the Gulf Cooperation Council. However, as nuclear energy is classified as ‘hard energy’ according to Amoy Lovins, it was not taken into perspective in terms of the transition. It will provide an additional element to the energy mix of Saudi, and thus, the rentier status will be eliminated. This essay’s conclusion goes hand in hand with a research report led by Yasser Al-Saleh, from, Tyndall Centre for Climate Change Research, concludes in a study conducted that analyses several renewable energies in Saudi Arabia:
Saudi Arabia, despite being a key oil producer should not be seen as an exception in this regard. It is believed that ‘now’ is the appropriate time to invest in developing capabilities in the field of renewable energy in order to secure the country’s future for a sustainable economy and to address its rapidly-growing energy needs. The drive towards renewable energy in Saudi Arabia should not be regarded as being a luxury but rather a must, as a sign of good governance, concern for the environment and prudence in oil-production policy[25]
Essay written in 2012
Bibliography
- Al-Saleh, Yasser. “Renewable Energy Scenarios for the Kingdom of Saudi Arabia.” Elsevier 41 (2009): 650-662.
- Business Group, Oxford. The Report: Saudi Arabia 2010. Oxford: Oxford Business Group, 2010.
- Alawaji, Saleh. “Evaluation of solar energy research and its applications in Saudi Arabia – 20 years of expierence.” Renewable and Sustainable Energy Reviews 5 (2001): 59-77.
- “Analysis / N. Janardhan: Whither the Gulf? Toward Economic Diversification.”Alarabiya.net-English. http://english.alarabiya.net/articles/2011/05/29/151035.html (accessed January 16, 2012).
- El-Katiri, Laura . “Interlinking the Arab Gulf: Opportunities and Challenges of electricity and market Cooperation.”Oxford Institute for Energy Studies 2 (2011): 22.
- Janin, Hunt, and Margaret Besheer.Saudi Arabia. 2nd ed. New York: Benchmark Books, 2003.
- Lovins, Amory, ‘Energy Strategy: The Road Not Taken?, Foreign Affairs, Tampa, FL: Council on Foreign Relations, October 1974.
- Luciani, Giacomo, and Hazim Beblawi. “The Rentier State in the Arab World.” In The Arab state. Berkeley: University of California Press, 1990. 85-98.
- Said, Sam. “Renewable Energy Potentials in Saudi Arabia.” King Fahd University of Petroleum & Minerals 1 (2010): 1-9.
- “Saudi Arabia.” U.S. Department of State. http://www.state.gov/r/pa/ei/bgn/3584.htm (accessed January 16, 2012).
- “Solar Power Comes to Saudi Arabia in a Big Way as Peak Oil Looms | Fast Company.” FastCompany.com – Where ideas and people meet | Fast Company. http://www.fastcompany.com/1728619/saudi-arabia-looks-to-alternative-energy-as-peak-oil-looms-heavily (accessed January 16, 2012).
- World development indicators. Washington, D.C.: World Bank Publications, 2011.
[1] Lovins, Amory, ‘Energy Strategy: The Road Not Taken?, Foreign Affairs, Tampa, FL: Council on Foreign Relations, October 1974.
[2] U.S. Energy Information Administration, Annual Energy Review 2010, Tables 1.3, 2.1b-2.1f, 10.3, and 10.4, October 19, 2011.
[3] Central Intelligence Agency, The World Factbook: United States. November 17, 2011, Retrieved January 16, 20012, from https://www.cia.gov/library/publications/the-world-factbook/geos/us.html
[4] Organisation of the Petroleum Countries, Annual Statistical Bulletin 2010/2011 Edition: Austria, 2011
[5] Luciani, Giacomo, and Hazim Beblawi. “The Rentier State in the Arab World.” In The Arab state. Berkeley: University of California Press, 1990. 85-98.
[6] Organisation of the Petroleum Countries, Annual Statistical Bulletin 2010/2011 Edition: Austria, 2011
[7] World development indicators. Washington, D.C.: World Bank Publications, 2011
[8] Central Intelligence Agency, The World Factbook: Saudi Arabia. November 10, 2011, Retrieved January 16, 2012, from https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html
[9] “Saudi Arabia.” U.S. Department of State. Retrieved January 16, 2012 http://www.state.gov/r/pa/ei/bgn/3584.htm
[10] Central Intelligence Agency, The World Factbook: Saudi Arabia. November 10, 2011, Retrieved January 16, 2012, from https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html
[11] El-Katiri, Laura . “Interlinking the Arab Gulf: Opportunities and Challenges of electricity and market Cooperation.”, 22
[12] Central Intelligence Agency, The World Factbook: Oil Consumption. November 10, 2011, Retrieved January 16, 2012 https://www.cia.gov/library/publications/the-world-factbook/fields/2174.html
[13] Central Intelligence Agency, The World Factbook: Germany. November 10, 2011, Retrieved January 16, 2012 https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html
[14] El-Katiri, Laura . “Interlinking the Arab Gulf: Opportunities and Challenges of electricity and market Cooperation.”Oxford Institute for Energy Studies, 2011, 3
[15] El-Katiri, Laura . “Interlinking the Arab Gulf: Opportunities and Challenges of electricity and market Cooperation.”, 1
[16] El-Katiri, Laura . “Interlinking the Arab Gulf: Opportunities and Challenges of electricity and market Cooperation.”, 28
[17] Analysis / N. Janardhan: Whither the Gulf? Toward Economic Diversification.” Alarabiya.net English. http://english.alarabiya.net/articles/2011/05/29/151035.html (accessed January 16, 2012)
[18] Said, Sam. “Renewable Energy Potentials in Saudi Arabia.” King Fahd University of Petroleum & Minerals. 2010: 1-9.
[19] Janin, Hunt, and Margaret Besheer.Saudi Arabia. 2nd ed. New York: Benchmark Books, 2003, 51
[20] “Solar Power Comes to Saudi Arabia in a Big Way as Peak Oil Looms | Fast Company.” FastCompany.com – Where ideas and people meet | Fast Company. http://www.fastcompany.com/1728619/saudi-arabia-looks-to-alternative-energy-as-peak-oil-looms-heavily (accessed January 16, 2012).
[21] Alawaji, Saleh. “Evaluation of solar energy research and its applications in Saudi Arabia – 20 years of expierence.” Renewable and Sustainable Energy Reviews 5 (2001): 59-77.
[22]. The Report: Saudi Arabia 2010. Oxford: Oxford Business Group, 2010.
131
[23] Said, Sam. “Renewable Energy Potentials in Saudi Arabia.” King Fahd University of Petroleum & Minerals. 2010: 1-9
[24] Said, Sam. “Renewable Energy Potentials in Saudi Arabia.”
[25] Al-Saleh, Yasser. “Renewable Energy Scenarios for the Kingdom of Saudi Arabia.” Elsevier 41 (2009): 650-662