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DE RUEHRH #0204/01 0491321
ZNR UUUUU ZZH (TAO)
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FM AMEMBASSY RIYADH
TO RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 2504
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RHEHNSC/NSC WASHDC

UNCLAS RIYADH 000204 
 
SENSITIVE 
SIPDIS 
 
DOE FOR SECRETARY CHU, DAVID SANDALOW, JON ELKIND 
DEPARTMENT FOR NEA/ARP 
DEPARTMENT FOR S/CIEA DAVID GOLDWYN 
 
E.O. 12958: N/A 
TAGS: EPET ENRG KGHG EINV ECON PREL SA
SUBJECT: SCENESETTER FOR FEBRUARY 21-23 VISIT OF ENERGY 
SECRETARY CHU TO SAUDI ARABIA 
 
 ¶1. (SBU) Summary and introduction: Saudi officials are very 
excited about your visit, which they expect will build on the 
successful December visit of Deputy Secretary Poneman to 
write a new chapter in our bilateral dialogue on energy and 
Science & Technology Cooperation.  You will arrive at a time 
when the Kingdom of Saudi Arabia is going through multiple 
transitions, from the geopolitical, where its trade and 
energy relations are shifting from west to east, to economic, 
where Saudi leaders feel enormous pressure to diversify the 
economy quickly. While many of these changes present 
opportunities for engagement to advance U.S. interests, some 
are deeply unsettling to a conservative society.  Saudi 
leaders will be keenly interested in your views of what role 
the U.S. sees Saudi Arabia's playing in the U.S. and 
international energy markets in 20 years.  They are concerned 
that the drive to promote non-traditional and green forms of 
energy is likely to restrict the available share of what has 
historically been Saudi Arabia's most politically important 
market.  Saudi Officials, for example, have noted that the 
U.S. consumed more domestically produced ethanol in 2009 than 
it imported Saudi oil.  At the same time, Saudi leaders are 
interested in pursuing cooperation on renewable energy, 
particularly solar, in part to meet booming domestic energy 
demand.  Saudi officials will also encourage greater U.S. 
investment, particularly in key industries in their national 
industrialization strategy, which aims to make better use of 
Saudi Arabia's natural resources to create the 200,000 jobs 
per year over the next decade they need to keep unemployment 
steady.  Saudi officials are also keen to expand our Science 
& Technology dialogue, which they see as a critical driver of 
diversification.  They are very excited to show you the two 
leading S&T facilities, the King Abdullah University for 
Science and Technology (KAUST) in Jeddah, and the King 
Abdulaziz City for Science and Technology (KACST), which is 
the main S&T policy body in Saudi Arabia. 
 
¶2. (SBU) Your visit offers the opportunity to put these 
issues into a coherent framework that underscores the 
strategic importance we place in seeing Saudi Arabia succeed 
in the King's economic vision, particularly in diversifying 
its economy, which will bring with it important social 
changes.  We need their help, however, in better channeling 
our dialogue and establishing clear links between our 
interest in promoting greater U.S. trade and investment, 
science and technology partnerships and broader energy 
policy.  Specifically, it is important to find ways to turn 
our mutual interest in promoting solar and biomass projects 
into a constructive relationship to advance the Copenhagen 
process.  We are hoping that your discussions will alter the 
tone of the dialogue and get us beyond the obstructionist 
positions held by Saudi negotiators in the UNFCCC process. 
End Summary and Introduction. 
 
Schedule: 
- - - - - - 
 
¶3. (SBU) In Riyadh, you will first meet with your host, 
Petroleum Minister Ali Al-Naimi, and his staff, who are 
particularly interested in using your visit to advance our 
bilateral energy dialogue.  You will also meet with the 
Minister of Electricity and the President of the King 
Abdulaziz City for Science and Technology (KACST), before a 
meeting with the King at his desert encampment.  Minister 
Al-Naimi will also host a dinner for you, giving you a chance 
to meet a number of other important government officials and 
businessmen.  We have arranged a public address at the 
International Energy Forum (IEF).  Minister Al-Naimi will 
accompany you and your delegation to Jeddah to visit the King 
Abdullah University for Science and Technology (KAUST), where 
he will arrange for you to meet with the university's top 
scientists pursuing solar and biomass energy projects. 
 
Need for Economic Transformation: 
- - - - - - - - - - - - - - - - - - 
 
¶4. (SBU) Saudi leaders are concerned about the ability to 
provide productive employment for the fifty percent of the 
population that is under 20 years old.  Saudi Arabia is 
convinced that the only sustainable way to do that is to 
develop its human capital, such that Saudis become as 
economically valuable as their oil exports.  This will 
require trillions of dollars in investments to build the 
necessary infrastructure over the next two decades.  Saudi 
leaders are concerned the world will turn away from oil just 
as it embarks on this program.  The King has sketched out an 
 
 
ambitious plan to transform Saudi Arabia's economy away from 
excessive reliance on hydrocarbons and towards a knowledge 
based economy that can provide sustainable development for 
the long-term.  This requires significant changes in the 
education system and several aspects of Saudi society.  Saudi 
leaders are already alarmed by the relative decline in per 
capita income standards, as an increasing population lowers 
average income.  They also are very aware of a long-term 
shift in the international oil market away from the OECD 
towards Asia, which implies political shifts as well.  They 
also are very sensitive to any perceived bias against oil 
versus other forms of energy, such as coal.  Approximately 
45% of GDP is derived from oil, and more than 80% of 
government revenue.  Past Saudi efforts to diversify have 
largely revolved around using cheap natural gas feedstocks to 
support petrochemicals such as plastics and packaging 
materials.  Saudi Arabian officials now regard those 
approaches as insufficient, as they have not created 
significant numbers of jobs for Saudis.  They believe moving 
up the value chain by using feedstocks to foster industry 
here will better assist Saudi Arabia's development. 
 
Concerns about Future Energy Demand: 
- - - - - - - - - - - - - - - - - - - 
 
¶5. (SBU) Saudi Arabia was caught off guard by the strength of 
the Administration's initial statements about its desire to 
move to a post-hydrocarbon economy, and end dependence on 
imported oil, especially from the Persian Gulf.  This comes 
just as Saudi Arabia is completing a $100 billion expansion 
of its production capacity to 12.5 million barrels a day. 
Saudi leaders are concerned that this oil may never be needed 
(the capacity does not last long if shut off), as demand 
falls in the West and countries like Iraq plan to increase 
production by 6 - 7 million barrels over the next five to ten 
years.  Effectively, peak oil arguments have been replaced by 
peak demand.  Saudi Arabia will be interested in your view of 
the energy future, both globally and in the U.S.  They are 
less concerned about price forecasts than our expectations of 
the scope and pace of changes globally  They are also very 
keen to hear what role the U.S. foresees Saudi Arabia playing 
in our domestic market, answering the question whether Saudi 
Arabia will be welcome.  Al-Naimi will present you with their 
future oil outlook and invite a presentation on how the U.S. 
sees the development of energy efficiency, renewables and 
electric cars in the U.S. energy mix. 
 
Portfolio without Minister: 
- - - - - - - - - - - 
 
¶6. (SBU) Your Saudi interlocutors will describe various 
activities to support solar energy, including advanced 
research into materials at KAUST and advanced solar cells in 
KACST.  The Ministry of Electricity will explain their 
pressing need to meet 8-10% annual increases in domestic 
electricity demand, which, if left unchecked, will require it 
to double its electricity generation capacity from 34,000 MW 
to 68,000 MW by 2018.  While there is broad agreement within 
the Saudi Government of the need to develop Saudi Arabia's 
significant potential for solar and other renewable forms of 
energy, no one ministry has yet been placed in charge of this 
portfolio.  Al-Naimi is clearly pushing research into solar, 
but so is KACST, which signed an agreement in 2008 with IBM 
to develop solar nanotechnology and desalination projects 
that are now in the pilot stage.  Both must work with the 
Ministry of Electricity and the Electricity Regulator (ECRA) 
to make it commercially feasible.  You will want to draw them 
out on how they plan to address this issue.  It is also 
worthwhile asking about nuclear energy, as Saudi Arabia is 
considering issuing a request for proposal to advise on how 
to set up a civilian nuclear program.  We understand from a 
number of sources that the Saudi Government believes it needs 
to develop such a program as the only way to get ahead of the 
relentless increases in demand for electricity, and that it 
is beginning careful preparations to create the capacity to 
manage a nuclear program.  Several potential suppliers, like 
Canada, France and Korea, are already pressing their case to 
help design Saudi Arabia's program and supply the plants. 
 
Climate Change: 
- - - - - - - - 
 
¶7. (SBU) CLIMATE CHANGE:  Your visit offers an important 
opportunity to head off a serious clash over climate change. 
Saudi officials are very concerned that a climate change 
 
 
treaty would significantly reduce their income just as they 
face significant costs to diversify their economy.  We want 
to get beyond the obstructionism that Saudi negotiators have 
often shown during the UNFCCC negotiations and persuade 
senior leaders to work with us in a partnership to meet their 
strategic concerns.  We are still analyzing where we think 
the Saudis are, but believe that they are pursuing this 
tactic to stall as a temporary measure until they get a 
better sense of where the negotiations are going and where 
their interests lie.  While being obstructionist in some 
aspects of the UNFCCC, the SAG is keenly interested in 
developing Carbon Capture and Storage projects.  Al-Naimi 
will brief you on Aramco's plans to develop a pilot project. 
He will also brief you on Saudi Arabia's involvement in the 
Carbon Sequestration Leadership Forum, and the 4 Kingdom's 
project (with Netherlands, UK and Norway), which is 
negotiating a framework to support projects to reduce 
emissions.  Saudi Arabia would like to see this framework 
concluded more quickly, and is interested in inviting 
countries like the United States to join as a means of 
accelerating the development of real projects.  To the extent 
that we are willing to work with Saudi Arabia on these kinds 
of projects, we can demonstrate that we understand their 
concerns and our interest in helping meet their long-term 
development goals. 
 
¶8. (SBU) The King is particularly sensitive to avoid Saudi 
Arabia being singled out as the bad actor, particularly on 
environmental issues.  Your conveying the importance the 
President places on working as partners with Saudi Arabia on 
the Copenhagen process will be very important in making this 
dialogue more constructive. 
 
The Importance of Strong U.S. Economic Ties 
- - - - - - - - - - - - - - - - - - - - - - - 
 
¶9. (SBU) Saudi officials have been candid in stressing the 
importance they place on strong ties with the United States 
to help them meet reform challenges, both through increased 
engagement at the government level, including educational 
exchanges and more FDI, particularly in energy, high tech, 
and manufacturing.  The past year has seen several large 
investments by prominent U.S. firms in advanced technology 
areas, and we are working to raise the profile of our trade 
and investment relations, including through a major Saudi 
exposition in Chicago at the end of April.  The Mission has 
also steadily expanded USG engagement in education, public 
health, science and technology, entrepreneurship and civil 
society.  There are now more than 22,000 Saudi students 
studying in the US, exceeding pre-9/11 levels.  Saudi 
officials are also very keen to expand educational ties to 
the U.S., including expanding a scholarship program that has 
already sent thousands of Saudi students to U.S. colleges and 
universities, many in scientific and technical fields. 
Al-Naimi will be interested in your thoughts on how we might 
boost scientific training and educational opportunities for 
Saudis in the U.S.  Al-Naimi will also underscore the 
importance of greater U.S. investment, particularly to 
support the development of the National Industrialization 
Strategy. 
 
S&T Umbrella Agreement: 
- - - - - - - - - - - - 
 
¶10. (SBU) In December 2008, the U.S. and Saudi Arabia signed 
an umbrella Science and Technology Agreement that outlined 
seven areas of interest.  In May 2009, the two sides held a 
follow up meeting in Riyadh, and the first working group, on 
Space, met in Washington December 3-4.  Shortly after this 
working group, Saudi Arabia and NASA signed a cooperative 
lunar research agreement.  Al-Naimi and Minister of 
Electricity and Water Al-Hussayn will be interested in the 
potential for cooperation on a range of issues, such as 
increasing efficiency, demand management, policy and 
regulatory cooperation, new technologies and renewables. 
KACST is particularly interested in expanding cooperation 
between research institutes in the U.S. and Saudi Arabia on 
energy issues, and welcomes the opportunity to sign an MOU to 
do so.  KAUST will brief you on their programs, particularly 
in solar and biomass. 
 
International Energy Forum: 
- - - - - - - - - - - - - 
 
¶11. (SBU) The International Energy Forum (IEF) has provided 
 
 
 
an informal forum for oil producers and consumers to talk 
frankly for more than 20 years.  At the December 2008 London 
energy meeting, the IEF was asked to prepare a report on the 
causes of oil price volatility and potential measures to deal 
with them, which will be considered at the next Energy 
Ministers' ministerial meeting in Cancun in March.  Since 
October, eleven members of a high level steering group, 
including the U.S., have been reviewing that report, which 
also made recommendations on how the IEF could become more 
effective.  On February 6-7, more than 40 participating 
countries indicated support for finding ways to make IEF a 
more effective arena for this informal producer-consumer 
dialogue about oil issues, including developing a charter for 
the organization over the next year.  There was also broad 
consensus that it will be important to regularize financial 
support from participating countries for the IEF.  Saudi 
Arabia is very appreciative of U.S. willingness to play a 
more active, constructive role, and welcomed Deputy Secretary 
Poneman's assurances last December that we would find ways to 
support the work of the experts' group that prepared these 
recommendations.  You will deliver a public address at the 
IEF, joining a list of other international speakers such as 
Australia's Energy Minister and IEA's Chief Economist.  The 
IEF is looking forward to your speech, which will provide a 
tangible demonstration of ongoing U.S. willingness to 
participate in the IEF.  This will be appreciated by Minister 
Al-Naimi and the King, both of whom support the IEF. 
 
Political context: 
- - - - - - - 
 
¶12. (SBU) You will have arrived just after a parade of other 
senior level USG visitors, including NSA General Jones, 
Secretary Clinton and Treasury Deputy Secretary Wolin.  This 
demonstrates the breadth and importance of cooperation on a 
range of issues, from confronting Iranian nuclear 
proliferation to regional security issues in Yemen, Pakistan 
and Afghanistan, countering terror finance and supporting 
Middle East Peace.  While we do not always agree, the Saudis 
greatly value consultations and honest dialogue with us, as 
Saudi Arabia places great value on a strong relationship with 
the U.S.  We have come a long way in tearing down the walls 
both sides erected after 9/11 and building a new 
relationship.  The scope of the improvement in relations 
since 2005 is remarkable, and makes incidents like the 
application of new TSA airline passenger regulations for 
Saudis somewhat jarring.  Saudi officials will be 
particularly pleased to see you, as they want to boost the 
economic aspects of our strategic relationship. 
 
¶13. (SBU) While a lot of attention gets paid to current 
crises, Saudi Arabia is also trying to come to terms with the 
shift in global energy and trade ties towards Asia, which has 
both political and economic consequences.  Bilateral trade 
with China has more than tripled, and China will soon be 
Saudi Arabia's largest importer.  Saudi Arabia has also 
committed significant investments in China, including the $8 
billion Fujian refinery.  Increased trade has also brought 
increased friction, including anti-dumping complaints from 
both sides.  Saudi Arabia is thinking through how best to 
take a leaf from the Chinese playbook and use these expanded 
trade ties to achieve important political goals, including 
cooperation on the issue of countering Iranian nuclear 
proliferation. 
 
A NOTE ABOUT THE KING 
--------------------- 
 
¶14. (SBU) The Custodian of the Two Holy Mosques will offer 
you a traditional Saudi welcome at the desert "encampment" 
outside Riyadh, where he likes to spend his winter vacations. 
  You will find in 86-year old King Abdullah a wry and 
forthright interlocutor.  Reflecting his Bedouin roots, he 
judges his counterparts on the basis of character, honesty, 
and trust.  He expects commitments to be respected and sees 
actions, not words, as the true test of commitment; and he 
expects good-faith consultations, not surprises.  The King's 
warm relations with President Obama have helped navigate 
differences and at times change policies. 
 
SMITH