IEEJ: January 2011

Special Bulletin
July 15, 2010
A Japanese Perspective on the International Energy Landscape (3)Saudi Arabia, France to Conclude Nuclear Cooperation PactKen Koyama, PhD
Director
Strategy and Industry Research Unit
Institute of Energy Economics, JapanOn July 5, 2010, the Saudi Press Agency reported that Saudi Arabia approved its
conclusion of an agreement with France on cooperation in the peaceful use of nuclear energy. On thenuclear cooperation agreement, French President Nicolas Sarkozy first made a proposal to Saudi
King Abdullah in June 2007. A draft agreement was presented for consideration when President
Sarkozy visited Riyadh in January 2008. The SPA report fell short of discussing details of theagreement or giving any specific schedule for the conclusion. No follow-up report has come out. The
two countries are expected to iron out details of the pact from now on. Saudi Arabia’s growinginterest in nuclear power generation has been well known among energy experts in the world. Saudi
Arabia’s planned agreement with France follows its nuclear cooperation pact with the United States
signed in May 2008.
It may be needless to say that Saudi Arabia has the world’s largest oil resources (proven at
264.6 billion barrels accounting for 20% of the global total as of 2009) and is one of the world’slargest oil producers (Saudi oil output at 9.71 million barrels per day in 2009), although Russia
replaced Saudi Arabia as the largest oil producer due to the OPEC nations’ coordinated production
cuts in 2009. It is also the dominantly top oil exporter (with net exports at 7.1 million bpd in 2009).
Why is such country introducing nuclear power generation?
The largest reasons are fast-increasing oil demand in Saudi Arabia and a fear of a relevant
drop in its oil export capacity. Saudi oil consumption expanded 9.8% from the previous year to 2.61
million bpd in 2009 after growing at an average annual pace of 6.8% over five years from 2004,
indicating a rapid increase in oil demand. Factors behind the growing oil demand include (1)vigorous economic growth supported by oil exports, (2) robust population growth (population
increased from 22 million in 2003 to 25 million in 2008), and (3) subsidies to limit petroleum
products and energy prices to low levels (the average gasoline price in 2008 stood at $0.14/liter). Allof these are structural problems to which no easy solution can be found.
A simple computation indicates that if oil consumption in Saudi Arabia grows from the2009 level at the same annual pace of about 7% for the past five years, its consumption will reach to1

IEEJ: January 2011a level of 10 million bpd around 2030. If Saudi Arabia maintains its oil output at the present level, its
oil export capacity then may fall to zero. Such phenomenon indicated by a simple computation may
not actually occur. Nevertheless, fast-increasing oil consumption in Saudi Arabia is well expected togravely affect its oil exports, the core of the Saudi economy, over a medium to long term. When I
exchanged views with a large number of experts during my recent trip to Saudi Arabia, I really feltthat concerns about the possibility were actually present and growing more serious.
Therefore, Saudi Arabia is seriously trying to hold down oil (and natural gas) consumption
and introduce alternative energy sources. It has great interests in energy conservation measures andexperiences in Japan as a forerunner in energy conservation. Sufficient conditions exist for Japan’scooperation with Saudi Arabia in energy conservation. Saudi Arabia also has growing expectations
on and interests in nuclear, solar and other renewable energy sources as alternatives to oil. As
demand for oil (including crude oil) as fuel for thermal power generation has been substantially
increasing to meet expanding electricity demand in Saudi Arabia, nuclear energy is considered as ameans to reduce and replace oil demand. We may also have to pay attention to Saudi Arabia’s
long-term efforts to diversify and advance its economic and energy structures, as well as its rivalry
with the United Arab Emirates that has taken a lead over Saudi Arabia in introducing nuclear energy
by deciding to place a $40 billion order with a South Korean consortium for four nuclear reactors inlate 2009.
Saudi Arabia’s move to sign a nuclear cooperation agreement with France following asimilar pact with the United States indicates that the oil-rich kingdom is deepening cooperative
relations with forerunners in nuclear power generation and developing systems to introduce nuclear
power generation. The move is consistent with Saudi Arabia’s announcement in April 2010 on thecreation of the King Abdullah City for Nuclear and Renewable Energies, a new organization toundertake research and development of nuclear and renewable energies.
Meanwhile, discussions on and interests in the international nuclear power generation
business have been growing in Japan. On July 12, Toshiba Corp. announced its agreement with U.S.
power generator Exelon Nuclear Partners and the Shaw Group, a U.S. construction engineering giant,
to make a joint nuclear program proposal for Saudi Arabia. This typically indicates a quick businessaction in the private sector. But private sector companies’ expansion into Saudi Arabia and othercountries planning to introduce nuclear power generation may be accompanied by various problems
and risks, indicating that national efforts may become important for promoting nuclear technology
and equipment sales to these countries. As part of such efforts, electric power companies and nuclear
plant makers in Japan are preparing for founding International Nuclear Energy Development ofJapan Co. in the autumn of 2010. Expectations have grown on its roles and functions. In an approachto important resource-rich countries like Saudi Arabia that must be based on comprehensive energy
strategies and resources diplomacy, the government can play an important role. Japan may berequired to understand needs in business target countries (like Saudi Arabia) and to take advantage

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IEEJ: January 2011of its superiorities to build win-win relationships with these countries from comprehensive
viewpoints.

Contact: report@tky.ieej.or.jp

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