#162 | Freedom from the devil's excrement
Yanbu, Saudi Arabia | How Saudi Arabia is transitioning to an economy beyond oil
In the West, the Middle East is not known for its successful farsighted energy or economic policy. This is in part because of continued catastrophic Western interference in the region. It is also in part because of the "resource curse" (also known as the paradox of plenty), whereby — as noted by The Spectator in 1711 — "It is generally observed, that in countries of the greatest plenty there is the poorest living." There is, of course, a lot of oil in the Middle East.
The curse is neither universal nor inevitable, however. And Saudi Arabia is an example of an exception to the curse. This week, I crossed some five hundred kilometres of thirty-five-degree desert in the northeast of the country from Duba (where I arrived by ferry from Egypt) to Yanbu. I write in Yanbu, on the Red Sea, at the end of three oil pipelines from the eastern deserts. The port town feeds oil to Europe (via the Suez Canal) and Africa; it is home to three oil refineries and a series of plastics and petrochemical plants. Yanbu, perhaps better than anywhere else, represents Saudi Arabia's petro-economy. Even so, the region I've ridden is home to perhaps the largest and most ambitious renewable energy transition ever envisaged by humanity. It's called NEOM. This week, I'd like to explore the NEOM and its global implications.
Saudi Arabia is renowned for its wealth, and its wealth is reliant on oil. The IMF defines 51 countries as "resource-rich", where at least 20% of the government's revenue comes from non-renewable resources. In Saudi Arabia, historically, 85% of income has come from oil (today, this is lower). By comparison, 99.3% of Angola's government revenue comes from oil and diamonds; in the UK, it's less than 0.5%. This oil wealth, however, poses a problem for Saudi Arabia.
First, the world will eventually wean itself from oil. We will soon pass 'peak oil' when global oil production reaches its maximum rate. In reaction to the climate crisis and to Cold War 2 (as expressed in Ukraine), countries are accelerating a transition to renewable energy (nuclear, solar, wind). Peak oil is expected in the next couple of decades. After that, demand will begin to dry.
Second, the oil in Saudi will eventually run out. While the country has more extensive oil reserves than any other country besides Venezuela, its 297 billion barrels would be consumed in eight years if it were the sole provider (the world uses 101 million barrels daily). In fact, the world's oil reserves will run out relatively soon anyway: it's forecast to happen within fifty years. After that, gas, coal and renewables will be our only options.
Apart from longer-term considerations, being over-reliant on any one market-based commodity is volatile. Governments need consistent revenue, and revenue tied to oil prices is inconsistent; as oil prices fall, so does income. As the Venezuelan oil minister warned in 1976: "Ten years from now, twenty years from now, you will see, oil will bring us ruin... It is the devil's excrement." This was, of course, prescient. When oil prices are high, it's easy to borrow money. When prices are low, it's quickly impossible to repay. This delta is worsened by mismanagement and undermines the economy.
We must change to a more sustainable, less fossil-fuel-reliant world. Saudi Arabia had this insight, which is both surprising and unsurprising for an economy so reliant on oil. It is surprising because of the resource curse, which suggests that economies fortunate to be built on natural resources are cursed with near-sighted policy and extractive governance; it's unsurprising because Saudi Arabia will feel the brunt of our transition from oil and from the inevitable (albeit overdue) transition to renewable energies.
This leads us to Vision 2030. Vision 2030 is the strategic framework launched in 2016 that will guide the transition of Saudi Arabia from an oil-dominated economy into tourism and commerce. The vision will cost $3.3 trillion (nearly four times the country's GDP), including social and cultural reforms, privatising government services, and building a new low-carbon city. This city is called NEOM, and I just cycled through it.
What did I see? Sand. NEOM is essentially one very large construction site. It is not yet open, but it promises to convert an area the size of Albania — 10,200 square miles — into 100,000 residential units, 9,000 hotel rooms, 1.4 million square metres of offices and nearly a million square metres of retail. A new airport will be built, as will a linear city-within-a-city called The Line. The Line will be 170 kilometres long and a couple hundred metres wide: a million people will call it home, and amenities will be a short walk from every apartment. Residents will have an autonomous high-speed rail crossing the city in 20 minutes. It will be entirely powered renewably and will be a true leap ahead in the designs of cities, especially in inhospitable areas.
We pulled off the main road in one wild camping spot and walked our bikes on flat, soft sand for three kilometres towards the sea. As the sun set, the moon brightened the flat sands stretching to the horizon upon which — to the south — the bright lights of perhaps a hundred cranes shone. The scale of the development — and that was just one small part of it — was vast.
NEOM will cost $500 billion to deliver. By comparison, a new nuclear power plant in the UK costs ~$25 billion. Projects are not envisaged nor developed on this scale outside of China in the twenty-first century. Even High Speed 2 is perhaps only one-fifth of the cost of NEOM (and just 3% of Vision 2030); remember, HS2 is/was Europe's largest mega project.
A city, however, is an organic human achievement; the most liveable cities have grown over centuries. The quality of life in Barcelona or Oxford is incomparably better than that of Milton Keynes. There is something about the accident of city development that gives a city its character; more money can mean more problems (ref. San Francisco). The risk of "top-down" design is that cities are over-curated; they lack soul and are consequently uninhabitable. They can become — as so many are — lifeless. What makes a good city? It's hard to say. When Supreme Court Justice Potter Stewart was asked to describe his test for pornography in 1964, he responded: "I know it when I see it." I think the same is true of a highly liveable city.
I also worry that such ambitious projects can only be grown slowly; speed at executing some fixed plan might lead to disaster. Moltke the Elder, the Prussian field marshal, wrote, "No plan of operations extends with certainty beyond the first encounter with the enemy's main strength." Many in construction and infrastructure would agree, and, as we have seen with the near-doubling of the cost forecast for HS2, the delivery of an entire city might slip beyond the salvageable.
Limits To Growth by Donella Meadows argued that without a sustainable energy transition, we would blast right through the natural limits of our environment and set off a series of catastrophic spiralling disasters. Meadows' limits are population, agricultural production, natural resources, industrial production and pollution. One such example is that CO2 emissions act as a greenhouse gas, consequently causing the world to warm. The permafrost melts across northern Russia, releasing methane, a much more potent greenhouse gas that warms the atmosphere; a warmer atmosphere melts the ice caps, which are white and today serve to reflect radiation: without the ice caps, more warming occurs. There is a line (a 'limit to growth') somewhere just before the permafrost melts, which, if crossed, will cause a catastrophe to ensue. There are known and unknown limits, and even for the known limits, we won't know until after we've crossed them.
Because of these invisible limits, which we may or may not have already crossed, we need to transition to a sustainable future rapidly. As we all are acutely aware, no country has yet transitioned meaningfully from being heavily oil-dependent to highly renewable, and therefore, Saudi's success is the world's success. It will demonstrate the feasibility and the sensibility of rushing (no matter the cost) to a sustainable way of living. So I can't wait to cycle through a completed NEOM and stay in the five-star Turtle Bay hotel or take an Airbnb in The Line when both open before the end of the decade. Because when that happens, we'll know our dependence on oil was a fleeting, transitory phase of human evolution.
There is one more critical point. We should never cease dreaming of, or for that matter inventing, new ways to live. The sheer ambition of Vision 2030 should be an example to the small-c conservative politicians who sell us incremental changes that lack imagination and solve nothing.
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Live well,
Hector