Bread and Circuses, Saudi Edition
A modest proposal on the way to investigating some mega-project financing
Any faculty member or graduate student can tell you that the best way to boost attendance at your seminar or workshop is to offer free food. While the saying “bread and circuses” is usually invoked as a corrective for papering over difficulties by distracting the population, a government that provides entertainment and sustenance could be doing worse even if it is failing at more complex aspects of governance.
Cristiano Ronaldo does not eat a lot of bread, even though he earns a lot of dough (sorry, not sorry, I wrote that on Father’s Day). Aging football players have long grabbed cash on their way out of the profession, but the scale of Ronaldo’s grab is immense. Last year he signed a three year deal to play with a team in the Saudi Arabian league for $75 million / year. With endorsements and other incentives, it could total up to $200 million per year. The economics of his playing do not make sense in any traditional narrow accounting framework. No ratings, ticket sales, jerseys, or even team valuations would justify such an immense expenditure.1 His team, Al Nassr, offered a broader vision of his value: the deal “will not only inspire our club to achieve even greater success but inspire our league, our children, our nation and future generations, boys and girls to be the best version of themselves.”2
Of course, as much as Al Nassr might want to inspire the boys and girls of Saudi Arabia, it earns very little money on such wishes. On the other hand, the government of Saudi Arabia, who ultimately pays the bills of Al Nassr and the rest of the league, has a strong incentive to improve its own reputation, domestically and abroad.
That reputation, of course, had been tarnished by—among others—the assassination of the journalist Jamal Khashoggi at the Saudi consulate in Istanbul. The brutality of that killing including bone saws was recorded by Turkish intelligence and subsequently released. As a candidate, Joe Biden promised that there would be consequences and began to implement some once president. From a new FT Big Read on the US-Saudi relationship:
[Biden] had vowed on the campaign trail to reassess ties with the world’s top oil-exporter and promised to make Riyadh “pay the price” for the killing of Khashoggi. Biden also accused the kingdom of “murdering children’‘ in an apparent reference to Saudi Arabia’s war in Yemen.
Once in office, he began to act on his threats. A week after his inauguration, he suspended offensive arms sales to the kingdom. A month later, Biden released a classified intelligence report that concluded that Prince Mohammed, the kingdom’s de facto leader, approved a mission to “capture or kill” Khashoggi.
But we’ll get back to Biden.
It isn’t just soccer stars. The Saudi government is lavishing incredible amounts of money building, and advertising the building of, Neom. The centerpiece was referred to as “the line,” a 105 mile long linear urban space placed in a harsh desert environment. The cost numbers are unclear, but $800 billion and $1.5 trillion were thrown around. Real money was spent, but it’s a fanciful urban mega project without any expectation of success.
![A rendering from an internal “style catalog” for the planned high-tech region of Neom that was seen by Bloomberg Businessweek. A rendering from an internal “style catalog” for the planned high-tech region of Neom that was seen by Bloomberg Businessweek.](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F752f2e9b-aad9-49fa-a35b-27938af6d679_640x426.jpeg)
That plan has already been scaled back, about 99%, to 1.5 miles as the bankers started looking a bit more closely at what it was they were funding. In fact, for all of the Neom propaganda on its youtube channel, there’s very little discussion of what has been described as the actual “main success” of Neom — a planned green hydrogen facility. The project is described by Bloomberg as a
more than $8 billion project to build solar and wind farms that will be used to create so-called green hydrogen. The kingdom hopes that it can become one of the world’s biggest producers of such fuel as it looks to reduce its reliance on oil sales.
And this gets to the point. The Saudi regime is reliant on oil and has been for generations. It is now, belatedly, realizing that diversification is critical, especially in a time period when others around the world believe that your principal export is destroying the planet’s habitability. Saudi Arabia fell behind its fellow Gulf state, the UAE, in diversification terms when the young nation built up Dubai and now Abu Dhabi as financial and trading destinations.
The pressure to diversify away from oil and soon is clear. Not just because the world needs to do so to save the atmosphere, but because the trends suggest that the end is near for rising oil demand. The IEA says that oil demand should peak by 2029, and suggests that planned expansion of oil production could leave the world with excess capacity of 8 million barrels a day. Now, to be clear the shape of the oil demand peak is much more of a plateau than something more vertiginous.
The principal cause of this turn is, as you probably have already guessed, the rise of electric vehicles. Despite all of the bad vibes, EVs continue to increase their share of the passenger vehicle market, rapidly.
![Image Image](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F4376138e-871b-4c9b-ad41-697ebeef55d3_680x375.png)
That being said, it’s important to remember that light duty road transport is only about half of oil demand — there are trucks and planes and ships in the transport category but also plastics and petrochemicals and industry and even burning it for electricity.
Electricity? Really? Yes.
Just two decades ago 19% of Florida’s electricity came from burning oil.
Ok, but if even Florida could move away from burning oil for electricity, then it must just be left for island nations or other remote locales without their own resources. Well, yes, mostly, Our World in Data has oil’s global share of electricity production in 1985 as 11.24% but that dropped to just 2.67% by 2023. On the other hand, Saudi Arabia’s data look a little different.
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In summer 2023, Saudi Arabia burned approximately 582,000 barrels of oil per day for electricity. Daily consumption across the year looks like about 400,000 barrels per day. Take that number times 365 days, and you have 146 million barrels. At $80/barrel, that’s $11.68 billion dollars.
That price has become a fascinating discussion itself. The world has three mega-producers of oil: the US, Russia, and Saudi Arabia, but both the United States and Russia consume a good deal of their ample production, so Saudi Arabia is the world’s key exporter. And as such has some ability to manage prices, along with some of its OPEC+ friends.
On the other hand, there is another power out there managing to tamp down prices and volatility.
MSNBC went with the more dramatic framing: How Joe Biden Broke OPEC.
With massive production in the US and flexing a willingness to use the strategic petroleum reserve to respond to economic (and not just military) threats, Biden has kept commodity speculators in check and prices for barrels and ultimately for gasoline at the pump under some control. But despite holding a relatively strong hand economically and the ethical high ground, Biden blinked, allowing interpretations of geopolitics to pull the US closer to Saudi Arabia — the fist bump replaced the Orb as the defining picture of the bilateral relationship.
What does this all amount to? My humble proposal would be to take advantage of natural resources that Saudi Arabia has in abundance — not under the ground — but its sun and wind. And while one can see why there might be some appeal to become a world leader in green hydrogen, there is a more basic need. Saudi Arabia needs to stop burning oil for electricity by deploying solar and wind turbines. (The hydrogen economy and its limits will be an item discussed further at a later date, but suffice it to say that I’m far from a booster here and tend to align with Michael Liebreich.)
I’m not really shocking anyone with this recommendation. The government already claimed to be embarking on such a massive transformation a dozen years ago. Back in 2012, a $109 billion plan was mooted.
The world’s largest crude oil exporter aims to have 41,000 megawatts of solar capacity within two decades, said Maher al-Odan, a consultant at the King Abdullah City for Atomic and Renewable Energy.
As is clear in the generation mix chart above, the past decade does not suggest that much — any? — progress has been met towards this goal.
The incredible Global Energy Monitor lists 9 operating solar facilities in Saudi Arabia currently, totaling less than 800 MW.
But another 24 facilities have been either announced or are already in construction / pre-construction. And, if built, these 15 GW of projects would massively cut down on the need to burn oil to keep the lights on. Saudi Arabia has ramped up its imports of solar panels from China. Over the past 16 months, Ember’s data tracking tallies over 12.5 GW of panels coming into the country. Paired with batteries and wind, these facilities would clean up the country’s electricity, reducing emissions and keeping oil in the ground (or for export).
The Neom Green Hydrogen facility is on the construction list, with 2000 GW (not 4000), and an expectation that 2026 it could start. At $8 billion, including $6 billion in loans, revenues of at least $300 million would be needed to cover interest costs, not to mention the years before start up that would have to be paid for…. And despite a surfeit of press releases, announcement videos, and other assorted propaganda that suggest that production would already be started by now, there’s little record of actual green hydrogen being made. Google Maps has 2024 imagery of the area with zero solar installed that I can see.
This post has already grown unwieldy, so I’ll cut it off here. But I’ll let you know where I’d like to dive deeper. What do the economic, political, and logistical aspects of building renewable megaprojects look like on the ground in practice? I’m, of course, mostly interested in this in the Chinese case, but this seemed like a situation where I could start with a lighter version as an appetizer, as it were. Thanks for reading and more soon.
The only broadcast revenue estimate I could find was $500,000 for 1 year to show games in UK, Germany, and Austria. Yikes!
One also might be a bit concerned about what children might pick up from a player known for gesticulating around his genitals.