ZURICH, Aug 5 (Reuters Breakingviews) – Something funky happened in Naples the other day, which is saying a lot for the magically chaotic city loomed over by tempestuous Mount Vesuvius. No, it had nothing to do with the city’s famous pizza or its notorious Camorra gangsters. Instead, it was a low-key but potentially significant step in the fight against global warming: Saudi Arabia sided with the club of climate crusaders.
Two weeks ago, in the Royal Palace once occupied by the Bourbon kings, energy and environment ministers from the Group of 20 rich nations got together to discuss key climate change commitments. While progress was made, the final communique lacked consensus on two critical points: fixing a deadline for phasing out coal power and pledges to limit global temperature increases to 1.5 degrees Celsius.
For many participants, including the United States, the UK and Italy – which holds the rotating presidency of the wealthy-country club – that risked overshadowing 58 other points of agreement. But look closer, and there are reasons to be hopeful the decarb laggards will eventually come around. For one, China and India were the main holdouts to those provisions, not Saudi, the reigning king of hydrocarbons, with 267 billion barrels of oil reserves.
Moreover, during the negotiations in Naples presided over by Roberto Cingolani, Italy’s minister for ecological transition, alongside U.S. special presidential envoy for climate John Kerry, the Saudis played an uncharacteristic role in trying to bring dawdling polluters on board. In the last hours of horse-trading, Prince Abdulaziz bin Salman, a professed Italophile who is Saudi’s energy minister, proposed a bilateral conversation to break the impasse with his counterparts in New Delhi, whose delegates, like Beijing’s, were linked up remotely by video.
In the end, Abdulaziz, a son of King Salman and half-brother of Crown Prince Mohammed bin Salman, didn’t manage to shift the position of Prime Minister Narendra Modi’s government. And India, the world’s third-largest carbon dioxide emitter, has since failed to attend an important meeting of countries in London in advance of the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change, or COP26, taking place in November in Glasgow. But the gesture by the Saudis to broker the discussions is not to be underestimated.
Indeed, just three years ago the kingdom aligned with Russian President Vladimir Putin and then-U.S. President Donald Trump at COP24 in Katowice, Poland, to pooh-pooh a landmark Intergovernmental Panel on Climate Change report that called for a more rapid response to reducing greenhouse gas emissions. This was the summit Trump tried to upstage by sponsoring a competing event showcasing the wonders of coal.
Saudi’s apparent change of heart is more than an astute pivot to Joe Biden’s administration. Signing press releases in Naples and Glasgow may mend U.S.-Saudi relations. Perhaps it also helps repair the country’s global reputation after the dismemberment of dissident journalist Jamal Khashoggi on the crown prince’s orders. But there has also been a shift of confidence inside the kingdom – or perhaps more accurately aboard whatever yacht bin Salman may be cruising on – over its ability to manage and profit from the global energy transition.
This is based on a few important, and ambitious, premises. First, oil above $70 a barrel is always a mood-enhancer in Riyadh. Especially given the emerging consensus in the West is that supply may not keep up with demand for an extended period, supporting prices. That’s in large part because of increasing pressures on listed oil companies like Exxon Mobil (XOM.N) and Royal Dutch Shell (RDSa.L) from investors, courts and governments to reduce capital spending in preparation for the transition away from hydrocarbons.
Saudi Arabia’s national oil giant Saudi Aramco (2222.SE) is mostly immune to such pressures. The company is controlled by an absolute monarch and listed in Riyadh, where environmental, social and governance concerns are distant from investors in New York or London. Moreover, its oil reserves are the cheapest and cleanest to extract, at about $3 a barrel. As Abdulaziz has vowed, Saudi may well be in the best position to pump every remaining hydrocarbon molecule from beneath its sandy firmament.
The country does, however, have a young population, with some two-thirds of its 33 million subjects under 35, bin Salman’s age. Western executives who have recently visited the kingdom say Saudi officials are keenly aware that this generation of Saudis, like their cohorts elsewhere, is concerned about climate change. Hence the “Saudi Green Initiative”, which forms part of the Vision plan led by the crown prince under which the country aims to generate half its energy from renewables by 2030 and plant 10 billion trees.
That’s not simply hyperbole from a young monarch worried about bored, radicalised and ornery subjects. Saudi is blessed beyond fossil fuels. Riyadh receives over 3,200 hours of sunlight a year (compared to 2,300 in Naples or 1,660 in Paris) and the country has thousands of miles of windswept, empty space. It also has access to water. The country has all the ingredients needed to produce hydrogen through the process of electrolysis, which separates hydrogen and oxygen molecules in water using clean solar and wind energy.
While hydrogen is still an energy of the future, Saudi is at the forefront of its development. It is building a $5 billion plant to produce green hydrogen-based ammonia in NEOM, the new utopia that bin Salman envisions in the northwest corner of the kingdom. The venture with America’s Air Products (APD.N) and ACWA Power, a Saudi power and desalinisation group, will be the largest of its kind in the world, the companies say.
The idea is effectively to replace the export of hydrocarbons with its greener hydrogen equivalent, which in theory can be transported from its place of origin without massive loss of caloric energy. Goldman Sachs reckons the market for hydrogen will increase sevenfold by 2050 to 520 million metric tonnes per year as industries like steel and cement, heavy transportation and large buildings switch from using fossil fuels to renewables. The green gas alone will contribute to a fifth of global decarbonisation, the Wall Street bank estimates.
Whether global demand for hydrogen, much less Saudi’s ability to supply it, will be sufficient to counterbalance the 7 million barrels a day of oil and petroleum products it exports, is impossible to say. But as recent actions in Naples among the climate crusaders of the West suggest, there’s no doubting the kingdom’s confidence that it can make the most of the energy transition.