As the ruler of a country that sits atop 300 billion barrels of oil, Saudi Arabia’s late King Abdullah was no fan of proposals to limit the burning of fossil fuels. During most of his reign, the king’s chief envoy to climate talks was a global-warming sceptic who boasted of his success at scuttling climate treaties.
But it was in the monarch’s final months that Saudi officials hit upon a more effective way to knock the clean-energy movement off its tracks: cheap gas.
Since King Abdullah’s death, Saudi officials have recommitted themselves to recent policies that have helped drive oil prices to their lowest levels in a decade. The kingdom’s efforts to manipulate oil markets are wreaking havoc with Saudi Arabia’s chief oil rivals, from Iran and Russia to the tar-sands mines of western Canada. Now energy experts are seeing evidence that the oil bust is helping Saudi Arabia achieve another long-term goal: undermining global efforts to reduce dependence on fossil fuels.
Lower oil prices already have spurred demand for gas-guzzling sport utility vehicles (SUVs) and a spike in miles driven by American consumers. Whether intentionally or not, the continued slump in prices could hurt sales of low-emissions vehicles and cool enthusiasm for renewable energy in the developing world — objectives Saudi officials have long pursued through other means, analysts say.
“If a period of low prices gets consumers hooked on cheap gas and inefficient cars, that sustains their market,” said Durwood Zaelke, an expert on international environmental law and veteran participant in climate-change negotiations. He described Saudi Arabia’s fight against the zero-carbon movement as “a cage-match in which only one victor will emerge”.
Saudi officials insist they are not fundamentally opposed to policies that reduce carbon emissions, pointing to increased investment in solar and wind power to meet the country’s own energy needs. But analysts say the kingdom’s efforts to engineer a shake-up of global energy markets appears driven by fears about long-term threats to Saudi preeminence as an oil superpower.
The threats include traditional geopolitical rivals and the recent surge in oil production by non-OPEC rivals in North America and Eurasia. But more ominous in the long term is the threat of a global shift to renewable energy sources as countries seek to combat climate change. A senior Saudi oil official in 2009 described climate change as “one of the biggest threats we are facing” — not because of warmer temperatures or rising sea level, but because of the economic losses that would result if countries break their dependence on fossil fuels.
Saudi oil officials have acknowledged that the country stands to benefit over the long term from a global shake-out in energy markets.
“You need to allow prices to go as low as possible to see those marginal producers move out of the market,” long-time Saudi oil adviser Mohammad Al Sabban said in an interview broadcast by Britain’s BBC. Sabban, who served as the kingdom’s chief climate negotiator before stepping down two years ago, said Saudi Arabia could survive low oil prices better than its rivals because of its production costs and massive cash reserves.
“Saudi Arabia can sustain these low oil prices for at least eight years,” he said.
The outlook for other energy producers is not nearly so rosy. Companies with greater overhead already have been forced to cut output as prices drop below production costs.
Years of research confirms a strong correlation between gasoline prices and consumer choices on everything from daily driving habits to automobile purchases. US sales of SUVs spiked by 10 per cent in the last quarter of 2014 compared to the same period the previous year, and American motorists increased their driving by nearly 3 per cent, according to the International Energy Agency.
While sales of electric vehicles have remained steady so far, some drivers and car-fleet managers will think twice about paying for zero-emissions vehicles “because the cost-savings will be lower,” said Alan Krupnick, co-director of the Centre for Energy and Climate Economics at Resources for the Future. “Lower oil prices are going to make it more difficult to achieve climate-change goals. In the short term, people will drive more. In the longer term, it can affect investment decisions.”
The impact on other kinds of clean-energy technology may not be apparent for months or even years. That’s because infrastructure decisions on solar and wind power are often made far in advance, and reflect government policies that are influenced by a multitude of factors in addition to price, analysts say. In the developed world, wildly fluctuating oil prices could actually reinforce commitments to invest in wind and solar, which have relatively low operating costs after the initial capital investments are made, some experts say.
Far less certain, analysts say, is how low-oil prices will effect energy choices in the developing world. Rapidly growing economies are facing increasingly tougher choices in deciding whether to invest in clean-energy alternatives such as solar and wind, or sticking with traditional fossil-fuel sources such as oil, gas and coal in building power plants.
“There is no illusion that this is going to change the dynamics [favouring renewables] for the US and the Europeans,” said David Goldwyn, president of the Washington consulting group Goldwyn Global Strategies. “But the question is: Does this change the dynamics in Asia?”
At the minimum, Goldwyn said, the price drop allows the Saudis to reassert their influence after years of losing market share to the US and other suppliers. “People were saying that Opec was dead, irrelevant,” Goldwyn said. “Now the Saudis are asserting that they do matter. If they’re not relevant for oil, what are they relevant for?”
Saudi attempts to squeeze out rivals in global energy markets follows years of diplomatic efforts to slow the advance of climate-friendly policies. Saudi officials have repeatedly drawn environmentalists’ ire in recent years with maneuvers intended to block or stall a global agreement on scaling back production of hydrofluorocarbons, or HFCs, a widely used refrigerant that is also a powerful greenhouse gas, with hundreds of times more heat-trapping potency that carbon dioxide.
The stated objection to the ban: The Saudis needed assurance that HFC substitutes would work in the kingdom’s hot climate.
At the same time, Saudi officials have taken on the role of spoiler in international negotiations for a climate treaty, joining with other major petroleum producers in demanding politically untenable conditions. One such proposal was for billion-dollar compensation packages for oil exporters to help their economies adjust.
“Oil producers are going to face huge liabilities,” explained Saudi diplomat Khalif Abu Leif in suggesting payments for “vulnerable” countries during climate talks in Peru last month.
While acknowledging that his country was “in a race with time” Abu Leif asserted confidently that UN goals for quickly shifting to a “zero net-carbon” economy would never be met. “With a concept like zero emissions and ‘let’s knock fossil fuels out of the picture’ without clear technology diffusion and international cooperation, you’re really not helping the process,” he said.
