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C O N F I D E N T I A L RIYADH 000213 
 
SIPDIS 
 
DEPARTMENT FOR NEA/ARP, EEB/ESC/IEC (MONOSSON), S/CIEA 
(GOLDWYN, SULLIVAN), S/SECC (STERN, PERSHING, ROCHBERG) 
DEPT PASS TO DOE FOR JONATHAN ELKIND, JAMES HART 
 
E.O. 12958: DECL: 03/01/2020 
TAGS: EPET ECON ENRG KGHG PGOV PREL SA
SUBJECT: WHAT CONCERNS SAUDI ARABIA ABOUT THE FUTURE OF 
ENERGY AND CLIMATE CHANGE 
 
REF: A. 09 RIYADH 1302 
     ¶B. 09 RIYADH 1492 
     ¶C. RIYADH 178 
     ¶D. RIYADH 184 
 
Classified By: Ambassador James B. Smith, reasons 1.4 (b and d). 
 
¶1. (C) Summary: The Assistant Petroleum Minister, and senior 
Royal Family Member in MinPet, recently summarized Saudi 
concerns about the long-term outlook for international energy 
markets.  Saudi Arabia is concerned by the lack of clarity 
for the outlook, as forecasts have ranged from many 
prognosticating a year or two ago that oil production had 
peaked, to a growing consensus that perhaps demand has 
peaked, at least in developed countries.  Uncertainties over 
what policies will be adopted to address issues like climate 
change play a big role in that uncertainty.  Saudi leaders 
are particularly concerned what role the U.S. envisions Saudi 
Arabia playing in our domestic energy market over the next 
twenty years, based in part on concerns raised by calls to 
end dependence on all imported oil.  The current generation 
of Saudi leaders still values maintaining a significant share 
of the U.S. oil market, although they are aware that China 
has become a larger importer of Saudi crude, which will bring 
with it changes in Saudi Arabia's international interests. 
Our increased engagement with Saudi Arabia on energy issues 
offers us an important opportunity to help shape their 
thinking on what we would like them to see as a common 
future.  End Summary. 
 
¶2. (C) On February 6, Assistant Petroleum Minister Prince 
Abdulaziz Bin Salman provided a snapshot of Saudi Arabia's 
concerns about energy issues and climate change.  He 
explained that Saudi Arabia is concerned about the lack of 
clarity in the direction of energy markets.  Supply and 
demand scenarios have rarely been less clear, as evidenced 
from the continued debate about whether the world's oil 
production capacity, or demand, has peaked.  Saudi officials 
complain that international energy forecasts have varied 
wildly over the last decade so much that it has undermined 
the Kingdom's ability to make logical investment decisions to 
develop further its production and refining capacity.  The 
track record of international agencies on forecasting raises 
questions in their minds whether the current forecasts of 
future demand will be seen as just as far off as oil demand 
forecasts a decade ago.  In that regard, they wonder if 
today's concern about climate change and how to address it 
will prove to be more reliable than previous predictions. As 
Prince Abdulaziz made clear, this is not an idle intellectual 
discussion, but one that will impact the ability of the Saudi 
government to put in place the right policies to meet its 
pressing development goals. 
 
¶3. (C) Saudi Arabia has just completed a $100 billion 
investment program to expand its oil production from 8 
million barrels a day (MBD) to 12.5 MBD, and is concerned 
that the world may not need this production (as shut in 
capacity does not last forever).  Saudi officials are keenly 
aware that they got stuck with a similar situation in the 
1980's, in which a smaller increase in production capacity 
ended up largely going to waste, at considerable cost to 
Aramco.  Saudi Arabia is also watching other producers, like 
Iraq, announce significant expansion programs, which raises 
questions about what the effect will be on worldwide prices. 
Saudi Arabia has also invested significant sums in refining 
capacity, and plans another $120 billion over the next five 
years to meet forecast demand. 
 
U.S. Market Shape 
- - - - - - - - - 
 
¶4. (C) Saudi Arabia is trying to puzzle through what 
international markets will look like over the next twenty 
years.  The size of the total market is important, but 
equally important is its composition.  Saudi Arabia places 
enormous importance politically on maintaining a share of the 
U.S. market.  Saudi Arabia is aware that the U.S. probably 
passed its peak demand for gasoline in 2007, prompting Prince 
Abdulaziz to question the wisdom of Aramco's recent expansion 
of the Motiva refinery in Texas.  Prince Abdulaziz said it is 
important for Saudi Arabia to think through whether the 
United States is becoming a mature market, like Europe 
("which has been dead for years" as an energy market).  It is 
also unclear what role the USG will create for biofuels; 
Prince Abdulaziz noted that in 2009, the U.S. for the first 
time consumed more ethanol domestically than Saudi oil. 
Saudi officials watched the ethanol debate with great 
interest, and are not surprised that the original enthusiasm 
has faded into a more balanced understanding of the larger, 
more nuanced economics.  They wonder how other biofuel 
programs will be treated in the coming years, and what effect 
that will have on the overall U.S. market. 
 
¶5. (C) Prince Abdulaziz said that Saudi Arabia needs to know 
what role the U.S. will be willing to have Saudi Arabia play. 
 He asked, in effect, if we will "green" Saudi Arabia out of 
the U.S. market.  Abdulaziz asked if there is any chance to 
refit Saudi production to make Saudi oil more welcome, or 
more green for the U.S. market, or will the U.S. decide it 
must replace all imported oil? 
 
What Role for Asia? 
- - - - - - - - - - 
 
¶6. (C) Depending on the answer to that question, and the 
scope for international demand, Saudi Arabia will have to 
think what kind of shift will be required in terms of finding 
other markets, namely in Asia.  Prince Abdulaziz made clear 
that, as the oil markets shift, so do the politics. 
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. 
 
¶7. (C) Saudi Arabia is thinking through a lot of these issues 
domestically as well.  It is very aware of the importance of 
developing solar and other renewable energy capacity in terms 
of meeting relentless increases in domestic energy demand 
(growing 8-10% per year, primarily in power generation, which 
is likely to double the requirement for electricity 
generation capacity from 34,000 MW today to 68,000 MW in 
2018).  Absent some change, the need to supply power 
generation will significantly lower Saudi oil export levels 
by 2035, which threatens its ability to generate the 
trillions of dollars necessary to diversify its economy. 
 
Lower Emissions not Necessarily Greener Pastures 
- - - - - - - - - - - - - - - - - - - - - - - - - 
 
¶8. (C) Saudi Arabia wants to join the greener world, but will 
not be comfortable doing so until it feels it is welcome as a 
partner, instead of the country expected to pay the bill.  It 
has already dedicated significant effort to a number of 
international clean energy initiatives, such as the Carbon 
Sequestration Leadership Forum, which Prince Abdulaziz said 
Saudi Arabia had to push its way into.  The Prince is pleased 
that Saudi Arabia is making good progress in persuading 
countries that it has something to contribute to this forum. 
Aramco is also exploring the development of a carbon capture 
and sequestration project (CCS), and Saudi Arabia is actively 
participating in the 4 Kingdoms project to develop CCS and 
other projects to lower emissions.  The Prince said he is 
very frustrated by the slow progress in getting beyond 
negotiating MOU's and wants to include other countries like 
the U.S., Australia, Canada and Japan, to impel greater 
progress.  Saudi Arabia is interested in pursuing projects 
which would not only capture, but also make use of CO2, even 
though at this time there would be no credits under the clean 
development mechanism (CDM).  Prince Abdulaziz hopes that 
Saudi Arabia can persuade countries to announce some real 
progress on these projects by the March Cancun IEF energy 
ministerial. 
 
Looking for U.S. Help 
- - - - - - - - - - - 
 
¶9. (C) Saudi Arabia very much wants greater U.S. investment 
in its core industrialization projects, which would be yet 
another area to deepen and broaden our strategic cooperation. 
 This kind of investment would help Saudi Arabia move up the 
value chain and end the practice of exporting feedstock only 
to import products made from Saudi hydrocarbons. 
 
Comment 
 
- - - - 
 
¶10. (C) The Prince provided a clear and authoritative look 
into what concerns both the senior Saudi officials in charge 
of the economy and the Royal Family.  Saudi Arabia is quite 
concerned that the direction of events in the world will 
leave it no room to sell its primary crop, which in turn will 
mean that the government and royal family cannot assure the 
future success of the large number of Saudi youth just 
entering school.  The King has called for diversifying the 
economy over the next 20 years.  To call the goal ambitious 
is an understatement, as it will take hundreds of billions in 
investment, and involve a veritable social revolution in work 
habits, education and the participation of women in the 
workforce.  Saudi officials feel incredible pressure to make 
this vision succeed not so much because the King has called 
for it, but because they truly believe that they have a few 
short years to guide the diversification of the Saudi economy 
to avoid some of the problems countries like Yemen are 
experiencing. 
 
¶11. (C) In this regard, it may be worth considering 
recalibrating our approach to the Saudis on energy and 
climate change issues.  Appealing to them primarily on the 
basis that the science calls for urgent action does not 
address their core economic and social concerns.  Saudi 
leaders fear that some people pursuing calls for a green 
economy would happily solve the problem by shutting down all 
Saudi oil exports.  Engaging the Saudis in a discussion that 
stresses that it is in our core strategic interest to see 
them succeed will help, particularly if backed up by greater 
partnership on investments.  Sharing scenarios of where we 
see the world's energy economy going over the next 30-50 
years will also help, in part by driving the point home that 
the transition is both inevitable and going to take a long 
time.  We should couple that with a clear message on our 
willingness to help them develop their own renewable sources 
of energy (what better solution than to have Saudi Arabia 
become the Saudi Arabia of solar energy), while also making 
it clear the terms on which we would welcome continued Saudi 
participation in the U.S. energy market.  Projects like IBM's 
cooperation with KACST on nanotechnology applications related 
to solar energy offer a good example of what we can promote 
as a useful common road forward.  Persuading the Saudis we 
are serious will not be easy, but there is a real desire to 
find a way to re-establish a partnership with the U.S. on its 
core economic interests.  To the extent that we can calibrate 
our approaches on a range of energy issues (e.g., climate 
change, investments, fuel subsidies) with the Saudis to reach 
this end, we will be more successful at making the Saudis 
real partners for the next 20 years in new areas. 
 
 
SMITH