January 25, 2010 – Original Source: Planet Ark
RIYADH – United Nations climate talks are a bigger threat to top oil exporter Saudi Arabia than increased oil supplies from rival producers, its lead climate negotiator said on Sunday.
Saudi Arabia’s economy depends on oil exports so stands to be one of the biggest losers in any pact that curbs oil demand by penalizing carbon emissions.
“It’s one of the biggest threats that we are facing,” said Muhammed al-Sabban, head of the Saudi delegation to U.N. talks on climate change and a senior economic adviser to the Saudi oil ministry.
“We are worried about future demand … oil is being singled out. We are heavily dependent on one commodity.”
Saudi depends on oil income for nearly 90 percent of state revenue and exports make up 60 percent of its gross domestic product.
Rival producers such as Iraq and Brazil have plans for significant increases in output, with Baghdad agreeing deals that could raise its capacity to around 12 million barrels per day and threaten Saudi market dominance. The kingdom has a production capacity of 12.5 million barrels per day.
Climate talks posed a bigger threat, Sabban said, and subsidies for the development of renewable energy were distorting market economics in the sector, he said.
Subsidies for other energy sources such as coal made little sense, he said.
“We all know that oil is already heavily taxed while coal is enjoying subsidies … (but) coal is producing more pollution than oil,” he said. “If we are sincere about protecting the climate we need to adjust that … Whenever we talk about carbon tax it simply results in a simple gasoline tax and that adds burden on oil and adds on uncertainties on future demand for oil.”
The possibility that oil demand might peak this decade was a “serious problem” for Saudi Arabia, Sabban said. The kingdom had looked at the assumptions behind studies that pointed to demand peaking in 2016 and saw “some truth in it,” Sabban said.
The kingdom was watching future demand projections closely and would match any future investment in capacity expansion with demand, Sabban said.
“We will continue keeping the same spare capacity but no more,” he said.
Saudi had plenty of spare capacity to increase output if global demand warrants, Sabban said. Demand should grow this year with the economic recovery, he added.
The kingdom completed a program to boost its capacity last year, coinciding with the global contraction in oil demand due to the economic recession, and led record OPEC output cuts, leaving it with more than double the spare capacity it targets.
The kingdom has around 4.5 million bpd of spare capacity while having a policy of holding 1.5 million to 2.0 million bpd to deal with any surprise outage in the global oil supply system. The kingdom is producing around 8 million bpd.
Meanwhile Saud Arabia plans to invest heavily in solar energy technology, Sabban said, and hopes to begin exporting power from solar energy by 2020.
Saudi Oil Minister Ali al-Naimi has said the kingdom aims to make solar a major contributor to energy supply in the next five to 10 years.