lessons for saudi arabia as britain says goodbye to ‘king’ coal
Last Updated : GMT 05:21:58
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Arab Today, arab today
Last Updated : GMT 05:21:58
Arab Today, arab today

Lessons for Saudi Arabia as Britain says goodbye to ‘king’ coal

Arab Today, arab today

lessons for saudi arabia as britain says goodbye to ‘king’ coal

Frank Kane

Britain was once described as “an island of coal,” so the news last week that the country had — for the first time since the latter days of the Industrial Revolution — gone a whole day without using the king of fossil fuels for electricity generation was seen as a milestone of historic proportions.
Since 1882, when the first coal-powered generator was used in London, not a day has passed without somebody shoveling coal into a furnace to burn for power to transmit to the grid — until last Friday when the last coal-fired plant went offline.

The environmentalists were quick to hail it as a symbolic transition to a fossil-free world, but they should bear in mind that it took Britain 135 years, and several technology breakthroughs, to wean itself off coal. Also, the country will still generate about 30 percent of its power from other carbon-based fuel, gas, along with another 21 percent from nuclear (which most green lobbyists distrust) and only about 25 percent from renewable sources like wind, wave and hydro (which they love).
The path to environmental correctness is a long and difficult one. But unless you are in the dwindling number of climate-change deniers, it is also an essential one.
Kingdom’s green-energy drive
Saudi Arabia’s Energy Minister Khalid Al-Falih reasserted the Kingdom’s commitment to developing alternative energy sources last week at the Renewable Energy Investment Forum (REIF) in Riyadh.
Renewable sources — solar, wind and, as classified by Saudi Arabia, nuclear — will form 10 percent of the Kingdom’s energy mix by 2023, in place of crude oil and derivatives, which are currently the dominant fuels for power. That initiative requires investment estimated at between $30 billion and $50 billion.
If the British experience is anything to go by, it will be the start of a long journey. It is difficult to sell a policy that appears almost perverse: Deliberately limiting use of the fuel that is most abundant — coal for Britain, oil for Saudi Arabia.
The British and Saudi motives are not identical, however. British coal was being undercut in the international markets well before it was deemed to be so environmentally unfriendly; Saudi oil is still relatively inexpensive to produce in international terms.
The Saudi dilemma is that energy revenue is still by far the biggest component of the national budget. The British may have used their access to cheap local fuel sources to fund their Industrial Revolution and global trade domination, but it was never a big item of the exchequer.
Oil will be around as a valuable fuel source for many decades to come, and technology can make it more environmentally friendly, which is why Saudi policy is to make optimal use of it as a revenue earner via sales on the global market, rather than burning it in electricity generation.
Prudent management of oil revenues is at the heart of the Vision 2030 strategy that aims to transform the Saudi economy and, ultimately, reduce dependence on it as the main government earner. That is why policymakers have to keep one eye always on the price of crude on the international markets.
Oil prices fall once again
They would not have liked what they saw last week. Crude suffered its biggest weekly drop in a month, with the US benchmark West Texas Intermediate (WTI) down 7 percent to below the crucial $50 level at which this year’s Saudi budget calculations were made; Brent, a better indicator of Gulf prices, fell by a similar amount to $51.75.
What spooked oil prices once again was the apparent continued resilience of the US shale oil industry. It looked like shale producers would go out of business at much below $60, but figures showed that the number of shale rigs had increased for the 14th week in succession.
Whether this is a sustained reassertion of shale’s power is still being debated. Other factors also came into view: Technicalities of supply, doubts about Asian demand, and a reversal by some hedge-fund investors of a previous policy of betting on higher prices.
But Al-Falih obviously decided this was not the time to signal an imminent re-opening of full Saudi — or the Organization of the Petroleum Exporting Countries (OPEC) — capacity. He hinted at another gathering in Abu Dhabi later in the week that he might consider a three-month extension to the cap on production levels that runs out in June.
That is surely the right stance for the time being. The evidence is that, on a macro-economic level, the current balance of price with supply is having the desired effect in Saudi Arabia. The improvement in the non-oil economy continues apace, boosting the economy by 1.2 percent in the final quarter of the last year. As long as that trend continues, the Saudi policy is vindicated at the strategic level.
Nonetheless, ending oil dependency will be a long and challenging process. After all, it took the British 135 years to kick the coal habit.

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lessons for saudi arabia as britain says goodbye to ‘king’ coal lessons for saudi arabia as britain says goodbye to ‘king’ coal


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