THE emphasis continues unabated. The focus is evident. Saudi Arabia wants to get away from oil-based economy! The National Transformation Plan (NTP) released in the early hours of Tuesday in Jeddah, provides the first detailed targets of the ambitious "Vision 2030" launched in April. It once again underlines that in order to propel it into the next phase of prosperity and development, economy managers in Riyadh are seriously endeavoring to wean the Kingdom away from oil. Interestingly with plans to privatize parts of Saudi Aramco and other Saudi assets, so as to set up a $2-3 trillion investment fund - generating a regular income stream, other than oil, for the Kingdom in the longer run - Saudi energy assets are set to play a central and crucial role in the transition. But what made Saudi Arabia disregard oil as the engine of economic growth and prosperity? There are reasons. Put simply, Saudi Arabia doesn't want to tie itself down to a business that is at best, cyclical. Crude market prices continue to make wild swings and for a country dependent upon oil income, it becomes very difficult to delineate a sustainable growth chart for itself. The wild swings have been a cause of pain and for long. The current scenario is no better. Despite the recent firming up of the markets, the future of oil business continues to remain murky. As per the consulting house McKinsey, global oil demand could peak by the end of the next decade even as global economic growth climbs. Giving out the details in its Energy Insights, McKinsey stressed that oil demand growth is beginning to stutter. It brought down the forecast for growth in crude demand to 0.8pc a year to 2040, "well below mainstream base case perspectives", including its own estimate of 1.1pc made last year. Demand for oil is expected to grow even more slowly beyond 2025, with the research pointing to a possible peak of 100m barrels a day by 2030, from current levels of 94 million bpd, it added. The Telegraph quoted McKinsey's Occo Roelofsen as underlining that despite an expected increase in global population, and a doubling in the global gross domestic product (GDP), shifting energy sector dynamics are set to depress energy demand. "This change is driven by three factors: first, overall GDP growth is structurally lower as the population ages; second, the global economy is shifting away from energy-intense industry towards services; and third, energy efficiency continues to improve significantly," he said. "Peak oil demand could be reached around 2030." Peak demand is a reality - and not far off. And oil-based economies are faced with stark choices. They need to get away from oil to prosper and grow. This latest downward revision, from McKinsey, could also leave major new investments in the sector uneconomic as demand for energy fails to meet expectations. Riyadh is clear-headed. In the emerging global energy order, Saudi Arabia has no option but to wean away from depending solely on oil. The 110-page NTP document thus envisages taking Saudi Arabia away from this dependence on oil income. It aims to balance the budget by 2020, with debt rising to 30 per cent of GDP by 2020 from 7.7 per cent currently. The IMF forecasts a budget deficit of 14 percent this year. Non-oil revenues are projected in the NTP to go up to SR530bn by 2020 from a meager SR163.5bn in 2015. This is to be achieved via an increase in government fees and taxes, including a sales tax, income taxes on non-Saudi residents and "sin taxes" on harmful products such as tobacco. But this does not mean, that Saudi Arabia is pulling itself out of the oil business altogether. No, not at all. Riyadh now intends to maintain its dominance of the energy world – without depending on it. As per the NTP, Saudi oil capacity will be kept at 12.5 million bpd. Though it would not be jacked up further - at this point. This is in sharp contrast to the recent past when Saudi Arabia has been insisting on jacking up output, so as to meet all the incremental requirements. Riyadh now has already clarified, at the top most level, that it has no intention to flood the oil markets. It definitely wants to maintain its share, yes, but no real ramping is in the pipeline. Recent steps manifest that. As reported by Reuters, Saudi Arabia's crude oil production rose by only 10,000 barrels per day - to 10.3 million bpd in May 2016 - compared to the previous month. The Kingdom is currently completing the expansion work in Shaybah oilfield. This project to be completed by June 2016, will help increase the Saudi output from 0.75 million bpd to one million bpd, aiding the Kingdom maintain its crude production capacity of 12.5 million bpd until 2020. The International Monetary Fund expects that Saudi Arabia's oil production will average 10.3 million bpd in 2017- compared to 10.2 million bpd in 2016. No significant output increase thus seem on the cards. Emphasis on forms of energy, other than oil, is also growing. As per the NTP, the Kingdom planned to raise gas output capacity to 17.8 billion standard cubic feet a day from the current 12 billion cft, and raise its refining capacity to 3.3 million bpd from the current 2.9 million bpd. With alternatives taking on the global energy scene in a big way, Saudi Arabia is also aiming to install 3.5 gigawatts of renewable power capacity by 2020 and spend 300 million riyals on identifying locations for nuclear energy plants while preparing them for their construction. Energy, Industry, and Mineral Resources Minister Khaled Al-Falih further added that under the plan Saudi Arabia will be "a very strong competitor in renewable energy," and will implement "massive" projects to produce more natural gas. Renewables are definitely the new energy frontier. With emphasis growing on environmental issues, and people talking all around on alternatives, the renewables push would aid Saudi Arabia maintain its lead position in the energy world. Despite weaning away, Saudi Arabia seems determined to continue leading the energy world in the years and decades to come. In fact, lack of gas has been impacting Saudi growth adversely in recent years. Saudi Arabia needed gas, yet the domestic price structure, until recently, didn't help the cause either. Lack of gas as a feedstock to the petrochemical industry has already slowed down the rapidly growing petrochemical industry in the Kingdom. Further, with galloping domestic crude consumption, more gas would help Riyadh keep its precious crude resource for export markets. Gas is thus part of the long-term growth strategy of the Kingdom. The government has also unveiled plans to accelerate the privatization plan. As per NTP, the Energy Ministry aimed to transfer all its power generation to "strategic partners" by 2020. Riyadh also intended to privatize SWCC, the water desalination agency, the NTP emphasized. The deck is now clear for the new push. Saudi Arabia is entering untested waters. Implementing the NTP remains the core to success. The task in hand is not an easy one. For the sake of posterity, hindrances could and should not be allowed to slow down or alter the route – adopted by the oil Kingdom of the world.
