Saudi crown prince Muhammad bin Salman announced Friday that Saudi Arabia would use its oil assets to back a $2 trillion sovereign wealth fund. The move suggested to many observers that the kingdom is preparing for a likely end of the petroleum business and transitioning to being primarily an investor. While it is true that the money for the sovereign wealth fund is expected to come from petroleum sales, it also seems clear that the kingdom recognizes that it has a stranded asset that won’t be nearly as valuable in a decade or two as it is now. It could even end up, like coal, being regulated out of existence in many countries.
Here are 3 reasons Saudi Arabia is likely making this massive change in economic strategy:
1. Climate change denial, which the Saudis pushed and helped fund, has failed. A majority of Americans now accepts that humans burning fossil fuels is causing global warming. And that’s in anti-science, capitalist-ridden America. Everywhere else in the world it goes without saying. Since the impact of global warming will become increasingly apparent in the coming decades, likely pressure to abandon burning fossil fuels will grow. Already, most new investment in power plants is in renewables, not coal and gas.
2. Another fossil fuel, coal, is being quickly phased out and will likely be illegal in fifteen or twenty years. It is being phased out by the Environmental Protection Agency because it puts out pollutants, including CO2. The writing is on the wall for coal and petroleum.
3. More affordable, longer-range electric cars are now coming on the market, with the Chevy Bolt due next December and Tesla 3 the following year. Most petroleum is used for transportation, so electric vehicles are deadly to that market. The new generation of electric cars is less than $30,000 in the US after tax rebates. And it typically can go 200 miles on a charge. Tesla is putting fast recharging stations everywhere it can, and people have already gone across the country in a Tesla. Battery costs are falling and batteries are becoming more efficient, so the writing is on the wall for the combustion engine. Consumers are combining electric cars with solar panels on their houses, getting free fuel. Low gasoline prices won’t impede solar car sales because prices would have to fall another dollar US before EVs would not be worth it.
In as little as fifteen to twenty years, petroleum may be illegal in some places; and will be in retreat everywhere. Saudi oil is a stranded asset. So they are attempting to create a revenue stream from investments. As for fossil fuels, their business model is under severe pressure.
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2 Comments
electric cars – really. not mass transit – so 72 million cars sold in 2015 and 300,000 were electric. what world are you living in – exactly. i doubt the saudis are stupid enough to think the world will be selling 70 million electric cars anytime soon – self driving i imagine!
The fact that “a majority of Americans now accepts that humans burning fossil fuels is causing global warming” is no indicator that climate change denial has failed.
The fact is that climate change denial has been so successful that, 24 years after the Earth Summit in Rio, CO2 emissions are actually higher than any worse-case, business-as-usual scenario envisioned then or since.
And with US hegemony still contingent on the continued exponential growth in the quantity of petrodollars in circulation, thus dictating an ever increasing global usage of fossil fuels priced in dollars, what has Saudi Arabia’s sovereign wealth fund got to do with global warming – particularly if that wealth fund is denominated in dollars?
Isn’t this all just more hot air obfuscating the real driver of CO2 levels and contributing, even more, to global warming.
Tesla cars! What world are you living in? How many people will ever be able to afford one no matter how cheap they become? Every US citizen could afford to go vegan right now. If they did, the US could halve its CO2 emissions overnight. But that would mean actually doing something rather than just spouting hot air.