Last fall, as oil prices crashed, Ali al-Naimi, Saudi Arabia’s
petroleum minister and the world’s de facto energy czar, went mum. He
still popped up, as is his habit, at industry conferences on three
continents. Yet from mid-September to the middle of November, while
benchmark crude prices plunged 21 percent to a four-year low, Naimi
didn’t utter a word in public.
For 20 years, Bloomberg Markets reports
in its May 2015 issue, the world’s $2 trillion oil market has parsed
Naimi’s every syllable for signs of where supply and prices are heading.
Twice during previous routs—amid the Asian financial crisis in 1998 and
again when the global economy melted down 10 years later—Naimi reversed
oil’s free fall by orchestrating production cutbacks among members of
OPEC. This time, he went to ground.
Naimi and other Saudi leaders have worried for years that climate
change and high crude prices will boost energy efficiency, encourage
renewables, and accelerate a switch to alternative fuels such as natural
gas, especially in the emerging markets that they count on for growth.
They see how demand for the commodity that’s created the kingdom’s
enormous wealth—and is still abundant beneath the desert sands—may be
nearing its peak. This isn’t something the petroleum minister discusses
in depth in public, given global concern about carbon emissions and
efforts to reduce reliance on fossil fuels. But Naimi acknowledges the
trend. “Demand will peak way ahead of supply,” he told reporters in
Qatar three years ago. If growth in oil consumption flattens out too
soon, the transition could be wrenching for Saudi Arabia, which gets
almost half its gross domestic product from oil exports.
Last week, in a speech in Riyadh, Naimi said Saudi Arabia would stand
“firmly and resolutely” with others who oppose any attempt to
marginalize oil consumption. “There are those who are trying to reach
international agreements to limit the use of fossil fuel, and that will
damage the interests of oil producers in the long-term,” he said.
U.S. State Department cables released by WikiLeaks show that the
Saudis’ interest in prolonging the world’s dependence on oil dates back
at least a decade. In conversations with colleagues and U.S. diplomats,
Naimi responded to the American fixation on “security of supply” with
the Saudi need for “security of demand,” according to a 2006 embassy
dispatch. “Saudi officials are very concerned that a climate change
treaty would significantly reduce their income,” James Smith, the U.S.
ambassador to Riyadh, wrote in a 2010 memo to U.S. Energy Secretary
Steven Chu. “Effectively, peak oil arguments have been replaced by peak
Before oil prices tanked last year, Saudi officials were bracing for
global demand to level off as soon as 2025, says Mohammed al-Sabban, a
senior economic adviser to the Saudi petroleum minister from 1988 to
2013. By letting prices fall, they may have bought themselves some time.
At $60 to $70 a barrel, peak demand gets pushed back at least five more
years, according to Bank of America Merrill Lynch commodities
researchers. Such a delay would be bad news for renewable energy
companies and for anyone hoping to bend the demand curve lower—slowing
or stopping the relentless rise of global oil consumption that has
transformed the planet since the first commercial deposit was developed
in Pennsylvania in the early 1860s.
Crude prices above $100 a barrel had been bringing a demand peak
closer. “The past four years were a disaster for oil producers in terms
of energy market share,” says Sabban, who was also Saudi Arabia’s chief
international climate negotiator. “Emerging economies are getting more
efficient and diversifying their energy sources. That has definitely
impacted oil consumption.”
Saudi officials were in a state of “near panic” last summer, when
they recognized how quickly demand growth in China was leveling off, in
part because of persistently high crude prices, says Ed Morse,
Citigroup’s head of commodities research. “Naimi saw the era of frantic
fixed-asset investments in China was over,” says Morse, a former deputy
assistant secretary of state for international energy policy, who still
communicates regularly with Gulf Arab officials. “That translates to the
end of rapid urbanization, the end of doing things in unbelievably
Substitution of lower-cost fuels is also taking a toll. Chinese diesel
demand, after rising an average of 8 percent a year for a decade,
actually fell in 2013 and 2014. The International Energy Agency
attributes this partly to the country’s rapidly expanding fleet of
natural gas vehicles. Chinese demand for oil this year is expected to
rise to 10.6 million barrels a day, an increase of 2.6 percent, or half
the average annual growth of the past decade and one-sixth the rate in
2004. China’s oil use is still climbing twice as fast as global
consumption, but the IEA
has in the past year shaved 500,000 barrels from its 2019 China demand
forecast. More efficient autos and factories reduced the overall oil
intensity of China’s economy—oil burned per unit of GDP—by 18 percent
from 2008 to 2014. “If I were in Naimi’s shoes, I’d do exactly what he’s
doing,” Morse says.