Saudi Arabia: the race between global energy transformations and efforts to change the structure of the economy
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Oil-producing countries called on to diversify their economies
The significance of the concept of peak oil, according to the authors, lies in changing this concept, and what that might mean for the global market and the behavior of producers.
Previously, the concept of “peak oil” referred to the belief that oil reserves would expire at some point and the world would then face a major transportation crisis. But new exploration techniques have revealed that the amount of oil present is far greater than we thought, as well as the possibility of extracting oil from among rocks and sand and from the depths of seas and oceans.
Then he started talking about a peak in demand, not supply or production. And then the peak no longer refers to the fear that the oil will run out, but to the idea that we may not need it anymore. So it is, according to the report, a transition from the (imagined) era of scarcity to the era of abundance, and what this can entail in terms of significant repercussions in the market.
The report explains that the market was not “normal” in the days of scarcity (or imaginary scarcity). In the era of scarcity, the common belief was that the value of oil would increase over time. This is why the low cost producers refrained from producing everything they could produce in order to preserve their resources for the future, and therefore the high cost producers did not leave the market.
In the new age, those who can produce low-cost oil will have an incentive to use this advantage to drive high-cost producers out of the market, as in any competitive market.
Someone might say then that the problem is simple: In a situation like this, the big oil countries like Saudi Arabia and Russia will produce whatever they can produce, and American shale oil and everything. High cost oil will be taken out of the equation.
But the calculation is not so simple, especially for countries which depend on oil for their income, and the livelihood of their citizens is linked to it, and this is the case of the Gulf countries in general and the Saudi Arabia in particular.
The strategy of market dumping will accelerate the fall in prices and then stabilize them downwards, while these countries need to keep prices within certain limits, in order to avoid a deficit in their budgets which could force them to reduce services. social services provided to their citizens in a way that may affect their social and political stability.
The bottom line is that the market in such a scenario will be more concentrated in the hands of countries like Saudi Arabia and Russia after exiting the competition, but these countries will face the dilemma of keeping the price within appropriate limits. , and the policy they adopt in this regard will depend on several factors, including the speed of transformation of their economy away from dependence on oil, as well as the behavior of other countries.
In September 2020, at a surreal time in the midst of the Corona outbreak, and with the memory of oil reaching negative prices fresh to mind, BP, the British oil giant, made the following prediction: The moment of the peak is behind us, as demand for oil may never return to what it was before the epidemic.
And now, two months ago, he is backing down, saying global demand has passed the 100 million barrels per day mark, which is the level we were witnessing before the pandemic.
False expectations in the oil business have a long history, and that’s the first thing Anas Al-Hajji told me when I asked him about the wave of new expectations surrounding peak oil. That is to say the year 1860.
Al-Hajji then listed what he sees as gaps in some forecasters’ view that electric vehicles are on the verge of overthrowing traditional vehicles.
He says these people are exaggerating their numbers and making mistakes in their calculations, and he also points out that metals entering the battery industry are experiencing an increase in their prices, which means that the costs of producing batteries are falling. is not continuous or inevitable, and he adds that these batteries are full of toxic substances, and they do not yet exist. A safe, healthy and inexpensive way to recycle it.
Finally, he says, many countries around the world still cannot or want to rely on electric vehicles because there is not enough electricity even for normal use, let alone the fact that it is available to expand. the transport sector.
Al-Hajji does not deny that electric vehicles will have an impact on the demand for oil, but he believes that this effect will be limited to reducing the growth in demand for black gold, and not to peaking this demand then. decline.
He affirms: “According to the mathematical models on which I work, the growth will continue until the end of the prospective period (for the oil market) 2050”, without necessarily implying that the growth will stop after this date. .