Ep51: Yousef Alshammari 'Saudi Arabia's net zero conundrum'

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Michael Liebreich: Before we start, if you're enjoying these conversations, please make sure that you like or subscribe to Cleaning Up. It really helps other people to find us. Cleaning Up is brought to you by the Liebreich Foundation and the Gilardini Foundation. Hello, I'm Michael Liebreich and this is Cleaning Up. My guest today is Yousef Alshammari. Yousef is the founder and CEO of CMarkits, an oil analysis company. He splits his time between London, Paris and Riyadh. He was an energy economics analyst at OPEC, and he's a graduate of the Energy Futures Lab at Imperial College London. Please welcome Yousef Alshammari to Cleaning Up. So, Yousef, welcome to Cleaning Up.

Yousef Alshammari: Thanks for having me, Michael.

ML: It's a great, great pleasure. I was trying to remember how long ago it was when we first met here in London.

YA: Well, that's just very inspiring to me. I remember we met in winter 2012. At an energy CEO forum at Imperial College. I was a PhD student at that time, and I was super excited to attend all energy events organized by the College. And one unique thing of being an Imperial is that it's it brings students or research students into contact with current energy leaders. And I was very lucky to attend that event where you were speaking along with the CEO of Shell, Ofgem and leading companies, I remember I asked the question about energy security via dialogue. And because there was a lot of talks about energy security at that time, prices of oil were above $100. And perhaps my question was, somehow was quite kind of interesting. And then you asked me ‘where are you from?’ And then when I said Saudi Arabia, then we had a very interesting discussion after the event. So I just I just can't imagine how this all developed until I am meeting you today.

ML: Well, no, I recall the event. And I recall, you know, meeting and chatting with you afterwards. And you were very thoughtful. And it was just really refreshing to get a view of energy security, and perhaps some of these kinds of trends in clean energy or in the energy markets overall, from somebody who, from Saudi Arabia, obviously, it's a very different energy environment. And it was a perspective that I had not come across them. In fact, that's why you know, fast forward to today. I'm hoping we can reprise part of those conversations. But at the time, you were a PhD student. And now you run your own business, now you are an energy or an energy information CEO. Tell us what it is that you do today.

YA: Currently, after finishing my PhD, I've done five years postdoctoral research in energy economics. So I started at the International Atomic Energy Agency, where I worked on assessment of clean hydrogen production via cogeneration of nuclear power. So that is combined generation of hydrogen and electricity via steam electrolysis for refinery applications, then, I found myself very interested in that field because I came from Imperial College, having done chemical engineering, so it was my, my study was all experimental-based on clean hydrogen production from underground gasification. Then I've pursued further research in energy systems analysis where it looked at the decarbonisation of Saudi electricity system, looking into CCS, renewables, nuclear, and how we can meet Paris targets by 2030. Looking at not just the Saudi electricity sector, but also the industrial sector and the transport sector. After that, having done five years of research in energy economics, I had very much interest in oil markets and how we can relate between what's going on in the energy transition sector and what would be the effect of the oil market business on that transition. So I while doing my postdoctoral research, I was a fellow, a research fellow at OPEC for half a year, where we looked at the impact of fuel fuel oil review regulation because you know, there are some strange regulations on the sulfur on fuel oil, and how would that affect the demand on fuel oil and the shipping sector? So that has also as a while also doing all that research, I was a regular visit attendee to OPEC ministerial meeting since 2013. And this has given me I would believe, a confident experience to start giving consultancy. Of course, before starting my own consultancy, I was an individual consultant to many, I would say companies were, in the UK and in Saudi Arabia. And then I decided that it is now time to start doing our own, let's say oil demand outlooks and looking into how the oil demand will affect on energy <inaudible>, and where could prices be all for the let's say, two years, or five years from now. So at CMarkits the main target that we're looking at as how we can help clients or traders, whether they are in the financial sector or the physical traders sector, navigate through the complexity of the oil markets, and these factors can be macroeconomic, geopolitical, technical, in fact, there's the oil market, I would say it's a multifaceted field that requires all types of disciplines, that there's not just economics, perhaps someone would look at it as only an economist but in fact, it's a multifaceted sector. And there’s where I try to advise traders in the in the that particular market, whether they're oil companies, banks, governments on well, could the market look like in the months or years ahead? And how can they manage the risk?

ML: Okay, so But if I summarize that, that's thank you for that was that was actually great to catch up. Those last, you know, the kind of the arc of your career. But if I summarize it, you started by looking at hydrogen from nuclear, which is they'd call this pink hydrogen. If you look at the kind of color chart of hydrogen, there's the blue hydrogen, grey hydrogen, the way we do it now with unabated fossil fuels. Then there's blue hydrogen, we'll talk about that perhaps, in the context of NEOM, where there's a big blue hydrogen, I think it's from NEOM

YA: Green! 

ML: Green, yes. And NEOM which is hydrogen through electrolysis from renewables and pink hydrogen, which is hydrogen from nuclear. So you started with the, the low carbon hydrogen, and then you talked about investigating the economics of CCS and of renewables. But you've moved all the way over to oil? I mean, does everybody who is serving, you know, I'm not sure what your client base is, but does everybody who's serving a largely Saudi client base end up doing oil analysis rather than, than anything else?

YL: Well, to me, the oil sector, those working in the oil and oil research would come from different backgrounds, even if you look at those working, for example, at Thomson Reuters or IHS or any of these leading consulting firms, they would bring people from engineering, from economics, or even at Bloomberg New Energy Finance. So I would say it's a multidisciplinary field and as long as, because you if you wouldn't be able to understand the oil markets, if you don't understand the supply chain, rough starting,

ML: Yousef, if I can just restate the question. You could have become, you know, Saudi’s leading clean energy analyst or company, but you have had to, you've had to or you've decided to do oil markets

YA: That's, well, to me, I haven't been away from oil anyway, because my PhD was on focused on let's say, conversion of heavy oil to hydrogen with captured CO2. So I've been in the oil business since my PhD, but during my after my PhD, my postdoctoral research was focused on energy transition. So I but even the energy transition that I was looking at was focused on clean hydrocarbon technologies. And this was a big this is a big field that Imperial College because there's a big theme at Imperial now saying clean fossil fuels. And this is a major reason why I was looking at the role of CCS, carbon capture from air, thermolysis, all these new technologies that enable the clever use of fossil fuels.

ML: Okay, but if I could ask you now to talk about the transition. Can I ask you to summarise what it what is the sort of overall Saudi position or view on the clean energy transition that I've spent, you know, nearly 20 years talking about. Is it that don't be silly, it's not happening? It's happening, but it's slow? Is it being embraced? Is it being resisted? You know, what is it because you're speaking to somebody who has never been to Saudi Arabia and I suspect many of the audience won't have been either. So how is it seen in Saudi?

YA: Well, after the talk, I would like to facilitate an invitation to you to visit Saudi Arabia and see the great change. But for now, you mentioned that 20 years. So this is the starting from about 2001. And 2001 we, I don't think in Saudi Arabia, we have thought about energy transition at all. There was minor initiatives on solar energy, but it was very on a very limited scale. Now the starting the energy transition in Saudi Arabia, in fact, it started with energy efficiency. So the Energy Efficiency Centre was established by the current energy minister Prince Abdulaziz in order to reduce our crude oil consumption in power generation and in water desalination. So let's say for example, non-transport your applications in order to leave more oil for exports, because you know, the country runs on the GDP of the country is mainly composed of crude oil exports, until now. So that was the major targets. And then we have so a lot of non-transport applications of where oil was actually a major, a major feedstock where oil was replaced by natural gas. And currently, natural gas natural gas makes up more than 50% of local power generation in Saudi Arabia. So of course, it means that the carbon footprint of our generation in Saudi Arabia has been massively reduced compared to, let's say, to the year 2000, and before and also from the desalination sector - also, natural gas is also being used to a large extent. And it's currently with after Paris Agreement in 2015. Well, and Saudi Arabia is, of course, has signed that agreement has pledged something like 130 million tonne reduction by the year 2030. Of course, all these pledges, of course, subject to revision and changes, as we, of course, with the new with the new COPs coming into in the in the coming years. So I believe now there is a target to have at least 10 gigawatts of renewables in the electricity sector by the year 2025. And the target is to take off all the oil that is still being used in power generation, and the power generation will only be composed of natural gas and supplemented by renewables. And renewables I'm talking about solar and wind. So we'll have at least, let's say 10 gigawatts of capacity from renewables in the power generation sector. We're also interested in renewables for water desalination. But that is still at the early stage of development that depends really on the technology.

ML: Okay, but let me let me let me push on. Let's come back to the kind of the climate negotiations and so on. But, you know, I go back to 2011 50% of electricity was based on oil, right? That's this kind of the start of that journey that you've just described 50% of domestic electricity. And, of course, because of all the air conditioning, and the population growth, and people becoming wealthier, that was just going up and up. And there was even a I think there was a Citygroup, somebody forecasted that Saudi would become an importer of oil in order to fuel which was a kind of ridiculous, ridiculous report, because there would be nothing to pay for those imports with, but that's the situation 50% of electricity was oil. And I actually wrote a piece with Standard Chartered, saying, hey, if you use solar, solar power, you could save the oil for exports, and it would have a positive net present value. And it was very interesting because the report sank without trace. Nobody, no Saudi engaged, we got no comment. Nobody said anything. But in May of 2012, there was announced that there would be 41 gigawatts of solar capacity by 2030. So I don't know whether anybody was listening. The problem is that there's just been sort of announcement after announcement after announcement after announcement after announcement to be honest since then, and I don't know what the solar power is now currently within Saudi, but it's it's what? Maybe you have the figures, but it's kind of one or two gigawatts, isn't it? It's still very, very small considering the scale of the economy in the country and the resource.

YA: And well, I would say the most ambitious, renewable, renewable energy projects kicked off just recently after 2015. And I would say here, since the our current energy minister, Prince Abdulaziz took office, we've seen much acceleration in terms of the speed of implementing renewable energy projects, I agree with you, yes. In the past when fact, the pace at which solar and renewable energy projects were to be implemented was very, very slow. And that is because just looking at let's look at the economics, crude oil was trading at a higher price. And there was no push towards climate change agreements. So I think that could be a, let's say, an economic justification into why the implementation of certain renewable energy projects wasn't as fast as it is taking place now. Now, with the as you know, because there's expectation of oil demand can peak within 10 to 20 years. Big uncertainty, some companies are even expecting by 2025. So that's a major reason why the speed has been much much accelerated, when they have this smart city announced by the Crown Prince of Saudi Arabia. And the world's largest hydrogen, green hydrogen project was announced, which is more than 600 tonne of hydrogen to be produced just directly from solar energy. So that is, so that clean hydrogen is expected to be exported, to be used as a fuel for various applications, as you know. So I believe

ML: Yousef, let me come back to ‘it's always announced’. Right, so there's, you know, there was this big announcement in 2018, with Softbank, that there would be 200 gigawatts of solar power before the year 2030. The fact is, last year in 2020, no solar power was installed. So for all the acceleration, it's 300 megawatts here, and it's a few hundred there, and it's a few gigawatts overall, but it's still, you know, if it's going to be these very substantial figures, you know, doesn't there have to be a lot more acceleration than we're really seeing?

YA: Well, I think the speed at which it is taking places is just significant, because it's not just that, by the way, in instalments, because even now, there has been a deregulation on solar panels. So now, we don't just need to install solar panels and supply it to consumers. But now consumers can actually install solar PV just at on their roofs. And this has been a major, let's say, reform in the electricity sector and Saudi Arabia. And I believe that will also accelerate the speed at which renewables are taking place. And if you go now to the northwest of the kingdom, you will also see not just solar, but even wind turbines, giant wind turbines are already being installed, and supplying clean electricity for the local region. They I believe there's something like more than 10,000 houses already to be supplied from wind energy, just in the northwest of the Kingdom of Saudi Arabia. So…

ML: I think I guess, you know, I'm probing because you understand from where I sit and from where I think most of the audience sets, the question is, you know, you see this stream of announcements you see relatively small, it's not nothing, but you do see relatively small numbers of projects being delivered. And you see this enormous focus on having the cheapest, the single cheapest project. And the question is, is Saudi Arabia ever really going to become a kind of renewable superpower, as I call it, where you got the cheap solar, you got the cheap wind, but you've got to have tens of gigawatts to move the needle. If it's just, you know, if it's just small numbers of projects, then that doesn't, that's not going to kind of change the energy flows in the world. But you're optimistic, you remain optimistic or?

YA: Well, I am I am an optimist, absolutely. But I don't think that we, we will be like okay, I’d love that we become an energy superpower and renewable energy superpower over the 10 periods. But certainly this speed has to take place in a, let's say, in a consistent manner. Still oil as the major source of or let's say the dominant, let's say energy player on the global energy mix, expected to be by 10 to 20 years. So Saudi Arabia doesn't want to move away from oil, it wants to make use of all energy resources available within the Kingdom. And this the, let's say the targets they are, if you have seen the 2030 vision, the targets that have been announced by the vision are extremely ambitious. So if we look at where we have been just five years before now, and today, the speed at which these projects have been implemented, and the reforms that have been happening are just incredible. So that makes me ambitious, that we should actually be able to achieve our renewable energy targets by the year 2050. And hopefully become energy, net CO2 neutral by the year 2050, as we've seen, for example, in nearby GCC countries,

ML: Right, but the target right now is 50% renewable electricity by 2030. Is that realistic? I mean, you know, at some point, isn't there a credibility issue?

YA:  Well, you can't base all your all your power generation on renewables, can you?

ML: No, but the target, the official target is 50%.

YA: Okay, so I would think that's a realistic target to have 50% of your electricity coming from renewables. Isn't that?

ML: I mean, it is realistic, from a sort of engineering perspective. I mean, you've got this fabulous solar resource, and you've got the wind resource. It's really it's realistic from a finance perspective, because, you know, I think that that the low cost resources, even in 2011, when I calculated it, the NPV, yes, it was, the NPV at that time was driven to a certain extent by high oil prices, maybe $100, I think we calculated on $60. So the NPV, the value of those projects is driven by freeing up more oil to sell at the time, there was a kind of constraints on production, oil output, on oil production. So the idea was, don't burn it, sell it, and then reinvest that money in solar, but even then the NPV was positive. So there's no finance reason not to do it. There's no technological reason, no resource reason, and I guess what I'm probing at is, is there a, is there a social reason? Or is there… Why is it? Why has it taken so long? For momentum really to be established in this sector in Saudi, is it because it is fundamentally threatening? This shift to clean energy is in some way fundamentally threatening to the economy? And therefore, you know, there's a sort of hanging back, a kind of a resistance?

YA: Well, I don't think it's, there's any political reasons behind it. But if we think about the energy sector as a whole, I don't think any country would, would base all of its energy, for security reasons, all its energy mix on only renewables. No country would do that, for example, look at the UK, they're still having perhaps even natural gas as a part of the mix for electricity generation, but certainly clean natural gas, even though they were, they would have interesting when the resource is coming from the North Sea.

ML: So, look, the UK is the UK has got nuclear, which, you know, Saudi is also you know, pushing into its mix, but the UK now, I mean, net zero 2050 would be no natural gas unabated in the generating mix. Germany most certainly wants neither nuclear nor natural gas nor coal. But that's not the issue. The issue is really the translation of the announcements and the targets, even 50% target. I wouldn't I don't argue with the targets. I'm just questioning the momentum. But let's get on to the NEOM and the hydrogen plans, because in a sense, that's even more core to the Saudi business model, isn't it? Because it's, it will be selling a fuel, ammonia or hydrogen around the world. Where do those plans currently sit? How are they coming along?

YA: Well, the markets for hydrogen, we've seen the first shipment of blue ammonia going to Japan by Saudi Aramco. So I believe we're going to see green hydrogen coming in from NEOM going to markets where hydrogen is being used as already as a fuel that I believe Asia would take a major, would be a major target for that, cause they already have some interesting infrastructure there is already a market relationships developed between Saudi Arabia and Asia. So I believe there we can start. Certainly there is a target even to export to Europe. And we have seen a visit by John Kerry, just a couple of weeks ago to the Kingdom. And one of the most important topics discussed with the Saudi Crown Prince was the green hydrogen project. So well, so essentially, the US wants to look at Saudi Arabia as a hub for green hydrogen generation to be exported globally.

ML Right. But you're an economist, you're an energy economist, have you looked at the cost of generating power in Japan from the blue ammonia from Saudi, or the green hydrogen from Saudi, because I look at that, and I'm very happy, look, I love. I love pilot projects. I love engineers. I love innovative stuff. But I'm not seeing it, just in terms of the transport costs, the production costs for green hydrogen, and the transport costs. I mean, when I've looked at hydrogen and ammonia, the only way that you can transport it in a cost effective way, this isn't oil. This isn't just, you know, room temperature in a ship. This is really complicated stuff to move around. And you know, it has to be chilled, and it has to be compressed and so on. And it adds I mean, it doubles, triples and quadruples the cost. So how… Have you looked at the economics of that has? Is this a realistic plan, do you think?

YA: Well, I certainly I think yes, it is a realistic plan. Because if Saudi Arabia can be I think it is the world's lowest producer of the green hydrogen coming from solar power. So the solar energy that can be generated from Saudi Arabia can be at a record low. I believe it's something like less than 10 cents per kilowatt hour.

ML: So we will be one… Yes it could. It could be at less than $10... Well, it's pushing at the margins of $10 per megawatt hour, so one cent, one cent per kilowatt hour.

YA: So that's solar generation. If we want to factor in now, the cost of green hydrogen production, I believe it's going to be certainly below $2 per kilogramme of hydrogen. So that's

ML: In Saudi surely, Yousef? Yes, I agree with that. You can get $2, $2 green hydrogen in Saudi. But the moment you can export it by anything other than a pipeline, you're going to add two, three, four dollars per kilo to that price.

YA: Well, we'll be produced as, sent as ammonia. Ammonia is kind of a cheaper way of storing hydrogen. Certainly it wouldn't be sent as pure hydrogen that would be converted to ammonia, and then shipped. So that makes it cheaper to transport.

ML: Yes, I guess I'm still I'm still grappling for the economics of that because well, the ammonia that's currently made in Saudi you're making ammonia, you’re making fertiliser? That would be using hydrogen at $1 per kilo. Possibly even a bit lower than that, because you have a lot of gas. So now you're talking $2? And then when you export it, let's call it $3. You know, I push you hard and I apologize, but this is the challenges everybody faces around the world.

YA: I agree. I agree with you, but I don't think it's gonna reach to $3 from let's say, from Saudi Arabia to reach Japan, for example. I think the cost will be slightly less. Looking at the project that has already being, the experiment that is already done between Aramco and Japan. I'm sure they've sold it at a much competitive price.

ML: I'm sure they have, but I'm sure they've also made a loss.

YA: Well, I wouldn't, I wouldn't, I wouldn't think they would go for it if there is no economic gain.

ML: Okay, well, I perhaps would differ because there's a tremendous PR, you know, be selling the first blue hydrogen and the blue, blue hydrogen, you know, the premium, or blue ammonia, rather, you know, the premium for that is probably not enormous. It's probably not absolutely huge. But somebody has absorbed the cost of removing the carbon and presumably, storing it underground. That wasn't free. So almost by definition, there's been a loss because that cost has been absorbed by somebody.

YA: And I think what Aramco is doing, so it's a demonstration project, of course, they did not say it's say like super large scale project, but all the CO2 that has been captured. Aramco now owns SABIC, so they can easily send that to SABIC to convert it to something else. There is already a demonstration project to convert CO2 to urea. So I believe because the amount of CO2 that has been captured is not so large, so they can deal with that, and can make it into some useful products. Right?

ML: You know that then of course, if you do that, then it still ends up in the atmosphere, and you still got the global warming. So let's get, let's come back to the, your, you know, the question that I started and you kind of dodged very nicely, you dodged, I was asking, what is the attitudes to the transition, the clean energy shift overall, I mean, you dodged to talk about these marvelous things that Saudi is doing, planning, announcing and or doing. But I'm going to remind you of a tweet, which somebody sent out in January. And you retweeted it. Therefore, by definition, you now become responsible for this tweet, because you retweeted it. You have to, I apologize in advance, but it said the top five stories in oil and gas in, this was in January 2020. So this chap Sami Alnuaim, you might have done yeah. And he said, in my opinion, the top five stories in the oil and gas industry in 2020, were number one COVID-19 energy demand drop, two historical crude negative prices. That was in April last year, when crude prices went negative. Three, the natural gas price, which fell to the lowest price, lowest level in 20 years. Four the OPEC plus agreement and five approval and the global start of COVID-19 vaccines. Now the reason I found that so fascinating is this is 2020. The top stories of 2020. I think he was summarizing at the end of the year, not one of them related to climate change to emissions to any sorts of strategic shifts in the global energy mix, not electric vehicles, not the shift from coal to natural gas, which could be a positive, these are all sort of didn't even make the top five.

YA: Well, I believe the person who tweeted that Dr. Sami Alnuaim was a former president of the Society of Petroleum Engineers. So perhaps they look at that as something that possibly for the petroleum industry. And they also look at things that has a direct impact on the oil markets. And I believe these are the things that perhaps have had a major impact on driving oil prices, COVID-19, vaccines, the negative prices of WTI. So, I would agree with that as major drivers for the oil markets. But if we want to talk about the oil industry in general, certainly, I would agree with you that climate change will be on the agenda. But we have not really seen a major climate initiatives or major decisions made on climate change in the year 2020. So the when we had the COVID-19 pandemic hitting the economy, everybody, but everybody was busy on how to deal with the pandemic. So people also were worried about the well, which there was also I remember there was an massive increase in crude oil production back in between March and April, crude oil prices went down. So investors were worried about the Wall Street, S&P, all these financial indices were all going down. So I believe that has a bit that made people worried about the finance.

YA: But if you go to your analysis, you say you try and give people kind of this forward view, the strategic view over you talked about three years, five years, and I think beyond. In 2020, we also saw electric vehicles in Europe reaching, I think it was 14% of new car sales. This was very interesting, because in the last crisis, in the financial crash, all of the clean stuff, kind of I don’t want to say it stopped dead, but it definitely suffered. So people sort of said, right, I'm avoiding risk, I won't do clean energy, I won't do electric cars. Whereas in 2020, what we actually saw is an acceleration of the shift towards clean energy and clean transportation. And I think globally, we're at something like 4% of car sales, but in Europe, it's really racing ahead. I mean, electric cars had a breakthrough year in 2020. And it's only going on from there. Is that a big factor that you consider in your forward view? Or, or are people just so don't want to, you know, your clients kind of, so they don't want to hear it, so you don't tell them it?

YA: No, no, absolutely. I have to be honest and neutral about the way the industry would be going forward, we’ll take into account when we're looking at forecasting oil demand one year after another, the first the state of the global economy, the growth in the GDP or the holistic global, let's say outlook and also a regional outlook. So we look into when we come to look at a country or a regional level, certainly the penetration of EVs in Europe will certainly have a dramatic impact on fuel demand. And we have to factor that in. And that's why we are not seeing a significant rise in oil demand in the OECD countries compared to the non-OECD countries. So most of the amount when we look at is may, let's say, 50% is coming from China, followed by India and other developing countries, including, of course, Brazil, partly some in Africa and these emerging economies. But certainly the I would say the OECD countries, including Europe, is nearly peaking.

ML: Does that mean that you're still forecasting oil demand growth from the non-OECD? For how long?

YA: Well, I would say, mainly, we're going to see growth coming from China and India, mainly in the upcoming, let's say 10 years time, and that is due to mainly population, we still in India, population of between 1 billion and 1.5 billion and at least half of them are under the poverty line. So with people becoming richer, they would certainly need to own new cars and travel.

ML: But what happens if the you know, the trends in battery prices would suggest that some time already now on a total cost of ownership basis, electric vehicles are cheaper. So electric buses, anything in urban transportation, it's cheaper to own if you take the purchase price and the running cost. And by about 2025, it will then be sticker price, you walk into a showroom, the cheapest car will be the electric car. So why would the developing world not flip much more dramatically. Maybe not in the next three years or five years, but within the next, you know, 10 and 15 years? Because cost will be such a factor there. And these vehicles simply become cheaper? And we've already seen it with two wheelers. We've seen it with buses. And aren't we going to see the same thing with cars, delivery vans, vehicles that you know, just going heavier and heavier vehicles?

YA: That I agree with you but the rates for EVs to take over the share of conventional vehicles. I don't think it's, we're currently we're seeing something like between five to ten million EVs already on the street compared to 1.2 billion conventional vehicles. So even if we have something like let's say, a high penetration of EVS, at will mainly be on the light duty vehicles, we still have to have the technology to electrify trucks is still at an early stage of development. And that is where most oil demand is actually is concentrated on diesel. So I believe this will, there will still be demand on diesel, there will still be demand on jet fuel, and even the rate of at which light duty vehicles are being electrified. I don't think we can see that. Of course, you might argue with me that it could be as an exponential rate. But still, I believe that there is a room for conventional vehicles to be. And by the way here one thing I'm worried about in oil demand and the electric sector more than the electrification is actually the digitalization. So currently, after COVID-19 people perhaps would need to travel less. Maybe people won't come back to do business travel as much as before. Even they don't need to travel within the city as much as before with to go to work and come back because with more flexible work options. So I believe that could affect oil demand on much more than the even the rate of electrification over the short term. And over the long term. Certainly what will also be worried about is not just the rate of at which electrification is happening but actually the oil price is a bit due to the shortage of investment in the oil industry. Currently we are seeing your prices more than $75 and that is mainly due because we were in a recovery period in 2020. Now we are between 2020 and 2021 there has there's a high demand to travel and the OPEC plus is keeping the tap not open, not fully open yet with all between five and six million barrels of supplies off the market. And we see even just yesterday with there's a deadlock agreement between Saudi Arabia and Emirates, and that has sent the oil price over $77. So I believe that will that will be reflected on fuel prices. And as a result, what can that mean, that possibly would mean more shift towards electric mobility. Nobody wants to pay more than $3 for their conventional cars, because at the end of the day, they will end up paying more for the fuel than if they think about owning an electric vehicle, especially with reduced mobility options after COVID-19. So I believe these factors will have a higher role to play and moving towards electric mobility in the coming 10 years.

ML: I think that's right. And I you know, the I think the underinvestment at the moment in the oil space is quite worrying, we will, I think we will see a period of a few years of quite high prices, they will, you know, help to shift the demand. I mean, it could be the kind of last, the last tango, the last I don't know, the last hurrah. I suspect not I suspect we'll see multiple hurrahs in terms of prices bouncing around. But I guess I would, you know, I'm not here to give, you know, advice to anybody. But I would be very careful about assuming that all these transitions are slow. Because there are tipping points where things actually we've seen, you know, in in terms of coal coming off the system in the UK, or the growth of electric vehicles, first in Norway, and now it's happening in Europe, LED light bulbs, you know, once things become cheaper, boom, a lot of people flip quite quickly. And then of course, cars have got a long life and vehicles, have got a long life. So I think, you know what, we'll keep track of this. And you can come you can come back and we'll kind of we'll revisit this discussion in in coming years and see who was right where it kind of went faster than you thought or slower than I thought and that'd be a good

YA: I totally agree. Well, I thought that it would be very interesting to see how this energy mix will transform over the next five and 10 years.

ML: I want to just finish with by looking at COP 26, the climate negotiations and get your sense of Saudi’s role and position? Because it feels to me like there's a changing gear, the world is now talking about net zero. Net zero means threatening the export markets for the product, which is the lifeblood of the Saudi economy. It's not the same as saying well, you know, we ought to cap emissions, we ought to reduce them. This is net zero. And it's arrived on the scene very rapidly. You know, Paris, you could argue kicked it off. Paris... Certainly we heard from Christiana Figueres in one of the early episodes. Paris led to, because there was this focus in Paris on under two degrees, Paris led to the report by the IPCC on one and a half degrees. And then that shocked everyone. So now everybody is focused on net zero, not reducing carbon, but net zero, and that becomes much more threatening for Saudi, what is Saudis negotiating strategy likely to look like?

YA: Well, Saudi Arabia is focusing on circular carbon. So whereby, I believe, as I hear from the statements of the Saudi energy ministers and various reports being published, even at Davos 2020, there was an important statement from the Saudi energy minister on what are the solutions being made from Saudi Arabia to tackle climate change and these solutions would focus on circular carbon whereby the world uses oil and that oil, CO2 are being captured from that oil being used for high value products. And so the circular carbon economy is now very much being well invested in in the Kingdom and I believe that will be the key strategy to negotiate in COP26. So I believe the Kingdom will exhibit its initiatives in circular carbon. And even the research that is being done at KAUST, the Saudi Arabia, let's say best research institution, and also solutions being done in NEOM in a green hydrogen on CO2 capture for enhanced oil recovery. So I believe they would exhibt that as the solution that would enable the world to move on without an economic hurdle of, let's say an unrealistic, fast speed of a transition, that could possibly threaten energy security.

ML: But let's let's let's look at the circular carbon. I mean, if you're looking at oil use in transport, how do you make that circular? How do you how do you take the CO2 out of the tailpipe emissions of a truck or bus, a car, you know, or any other vehicle? So I understand for the oil you use in plastics or for the oil as you and that's a different challenge. But what about transport?

YA: Well, the technology is at the early stage of development. So now there are two types of research being done on decarbonizing transport sector. The first one would be to use hydrogen just and Saudi Aramco has already established a hydrogen fueling station just near its facilities in Dhahran. So they are interested in hydrogen as a transport fuel. That's one perhaps, you may not agree with me on hydrogen because the EV sector people they think, alright, hydrogen may be important more important for fertilizers, but I think it will still find the market on the transport sector. That's one, the other target is making conventional vehicles more efficient by reducing the amount of CO2 and using less fuel, for example, driving at 100 kilometres for only a few litres of gasoline. So let's say reducing the amount of gasoline being used for a given amount of distance. So that's two. And the third target is combusting CO2, combusting the fuel and capturing the CO2 onboard but this technology is very new. It's been demonstrated at Saudi Aramco. And whereby the person using the fuel and all the CO2 generated from the, from the car engine itself as stored onboard, and the person goes to, to the station where they, let's say, unfill, CO2 storage and refill with, let's say, gasoline, and in this way, they make the car CO2 free.

ML: Okay, so and, you know, certainly from an engineering perspective, that's feasible. That's, you know, that's a very early stage. And of course, it will have costs it will have absolutely there'll be an enormous parasitic load on the car, on the engine in order to separate back out the CO2. But I tell you why I think this is just so important. And I'm, I'm really sort of looking for any signs reading the tea leaves about Saudi, Saudi Arabia's positions in COP 26 and beyond. And because it does feel like it's so threatening to the economic model, and I look at, I follow Mohamed Al-Sabban the former chief negotiator to the to the IPCC, from Saudi Arabia. He's a former adviser to the Minister of Petroleum. He's a professor or was a professor of economics at King Abdulaziz University. But you know, this is the chief negotiator for many years for Saudi Arabia. And this is what he's saying about climate change. “Nonsense, you have based the whole argument on the assumption that the change in climate is human induced, and not natural, happening over millions of years, nonsense. The level of proof that the climate change we're seeing is human caused is the same level of question…”, I'm gonna. Wait a minute, let me read another one, a better one. “The US and IEA and the West are fighting against oil investments, and this is the price they have to pay. They are excluding coal, and claiming fighting climate change, the biggest ever lie in today's world”. Now, this is somebody who has detached himself from all of the science, and is essentially saying climate change is he calls it ‘the biggest ever lie’. And that's the former negotiator for Saudi Arabia. So you can understand it gives me quite a lot of concern as to whether there's going to be a kind of positive engagement, which we saw in Paris, and we're still seeing in the climate negotiations. But is there a point where Saudi Arabia says, you know what, this thing threatens our economy, and we're going to slow walk, we're going to make it difficult. We're going to try and you know, not be good and positive actor. Am I right to be concerned?

YA: Well, well, that's very interesting because Dr. Mohamed Al-Sabban. Yes, I agree with you. He was the chief negotiator for climate change for the Kingdom back in before I believe, as the period you mentioned before COP 25. And since then there has been so much developments even in the clean energy and sustainable energy sector in the Kingdom. But let's see what our energy minister Prince Abdulaziz has mentioned. And that really reflects the views of the country because Prince Abdulaziz has always said that we, we don't want to be a part of the problem we want to be, we want to create the solution for climate change. So in a way, I see that the country is certainly going ahead with its climate driven development agenda. And that is not just by the way, because we want to use solar or we want to cut our CO2 emissions, but also because we are concerned about the environment, the whole environment within the Kingdom itself, just the Crown Prince announced a green initiative that is very, I would say, very ambitious and should yield very good results, the vegetation, 10 billion trees to be planted in the kingdom, and the Green Middle East initiative, so the kingdom is working with its neighbors within the GCC or in the other Arab world to plant 40 billion of 50 billion trees. So 10 billion in the kingdom and 40 billion in the Middle East. So bringing a total of 50 billion trees. So all of that suggests to me that the kingdom policy currently is certainly moving ahead and sustainable development and meeting its climate targets. But what I believe even the signing of the COP25 certainly shows you that the Kingdom is certainly serious about cutting its CO2. So I believe we don't need to be worried about the position of the country from my own perspective, because for me, even as an oil analyst, I always want to, if I I just don't consider climate change, I don't think even I can, let's say because I also teach at a university in Saudi Arabia. And if I tell my students that climate change isn't happening, they <inaudible> wouldn’t believe me, and most of these students are Saudis. So I believe there is even a cultural perception among the Saudi people that climate changes are in our reality, and even the Saudi youth which makes up at least 50% of the population. And all these young people, they all have ambitions to work on clean energy, and support the sustainable development of the kingdom, which will all tap into meeting its climate targets. So this is I think, what you should be optimistic about our position at COP 26.

ML: Okay, good. Look, I'm much I'm much reassured, because as you can imagine, you know, for somebody who's not an expert on the Kingdom, to see such a senior person taking such an outspoken and negative approach, it gives rise to concern. And I know that I'm not the only one who has those concerns. But I'm much reassured. And I'm, I'm much reassured that it is you, Yousef who is teaching those young Saudis, the next generation of energy executives, and so on, who will be running the energy companies and helping to lead the country in the future, that is certainly a source of, a source of comfort. And on that note, sadly, we are out of time, I hope, I can apologize you because I've pushed you quite hard. I've, I've postulated sort of the difficult, I posed the difficult questions to you. You've answered them magnificently. And it's been an enormous pleasure. So with that, I'd like to thank you for sharing your time, and coming on Cleaning Up and allowing yourself to be grilled by me, but I think you've acquitted yourself absolutely marvelously. And I really enjoyed it.

YA: Well, I am very much pleased to join you clean up. And I always cherish this moment. I will. I will certainly, all the key learning points that I have learned from our <inaudible> conversation will certainly be reflected on my future research and consulting activities. So certainly, I very much like the all the types of work that you're doing on EVs on, let's say, meeting climate targets. And I believe that's where all need to focus on achieving clean energy that makes the whole world a better place. So thank you so much for having me.

ML: Yousef, thank you very much. It's always an enormous pleasure talking to you. So that was Yousef Alshammari, the CEO of CMarkits, an energy analyst, giving us his view of the ins and outs of the energy transition from a Saudi perspective. Next week, we have a special episode of Cleaning Up. I'll be reading by Bloomberg New Energy Finance blog on trade and climate called ‘It's the trade stupid!’ And after that, we go into a short summer break and then we'll back in September, but please join me next week for the final episode of this season of Cleaning Up.