Peak demand for oil is alarming says Saudi Arabia

Saudi Arabia must be very serious about any possible peak in oil demand, which is an alarm for OPEC’s biggest oil exporter to diversify its economy, a Saudi Oil Ministry adviser said.

Saudi Arabia is making a push into renewable energy and is starting its first carbon capture project, Oil Ministry adviser Mohammad al-Sabban said today at the Jeddah Economic Forum. The country will start injecting carbon dioxide into Ghawar, the world’s largest oilfield, in 2012, he said.

“Talk of oil demand peaking is an alarm to speed up the economic diversification process,” al-Sabban said. “The challenges facing Saudi Arabia are huge: we need to develop Saudis in order to be innovative, creative, to catch up with the rest of the world.”

The world’s largest oil producer is investing in new industries such as aluminum and steel and pushing for more science and technology in education as it seeks to diversify away from dependence on income from exporting crude oil. More than 25 percent of the kingdom’s youth are unemployed.

Meanwhile, rating agency Moody’s on Monday upgraded Saudi Arabia to its second highest level as oil earnings and a recovering economy push the government’s budget back into the black this year.

Moody’s Investors Service hiked Saudi government foreign and local currency debt to Aa3 from the previous rating of A1 even as Riyadh powers ahead with its massive state spending programme on schools, infrastructure and the military. “The upgrade was prompted by the continued strong state of government finances, which have largely withstood oil price volatility and the global economic crisis,” Moody’s said in a statement.

Oil demand in some developed industrialised nations is contracting, partly as a result of the economic slowdown. Those concerns are different from “peak oil” theorists who say oil production has already reached maximum levels and will inevitably decline.

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