Personally, I’ve always had my doubts about Saudi oil supplies. Sure, there’s some room for strategic ambiguity here. But when someone is playing their cards too close you always have to wonder if they’re just bluffing. The following article would seem to indicate that’s just what the Saudis have been doing.
This morning’s story in the Guardian that US diplomats believed Saudi Arabia to have overstated their oil reserves should ring alarm bells around the energy world.
Every time there is a debate about whether OPEC should raise production to lower oil prices [subscription req’d], many commentators argue it is irrelevant: that the Middle East doesn’t have as much oil as it says and that it can’t raise production enough to bring prices down.
If this is true, it has serious consequences for the oil price. If OPEC doesn’t have the slack to up production and bring prices down, they will have a lot further to go above the $100 barrier.
Simply put, the argument is this: Due to lower oil reserves, Saudi Arabia still has the power to drive oil prices up, but has lost the ability to drive prices down. If this theory holds, it’s rather daunting stuff for the world economy.
So what is Saudi Arabia and the rest of the Gulf planning to do as oil supplies peak? Switching to renewables and natural gas, right? Almost. How about switching to renewables and nuclear power:
Saudi Arabia is moving forward with plans to produce power from nuclear reactors by 2020 in order to meet domestic power needs and to free up oil and natural gas for export and higher-end uses than direct burn for power generation.
In fact, Saudi Arabia is linking up with its neighbors in a regional power grid that will bring nuclear power from the United Arab Emirates to almost the entire Gulf.
Nuclear fits the bill, because unlike renewables nuclear provides baseload energy that emerging economies need to keep growth on track.
Given domestic consumption and the long-term liquefied natural gas (LNG) export contracts, the country has too little feedstock for electricity generation at seasonal peak times. This shortfall has resulted in service interruptions that have slowed industrialization and economic diversification programs, as well as economic growth generally.
And in a great piece, the UAE’s embassy describes why renewables—while part of the solution—are just not enough.
…Deployment of renewable and other alternative energy supplies, while desirable, would be able to supply only 6 to 7 percent of the required electricity generation capacity by 2020.
Oh, and probably somewhere in the back of their mind is that final fact: that uranium will last much longer than oil. Perhaps much, much longer. At least long enough for the Saudis to sell the last drop of oil under the sand.