Saudi Arabia's Energy Transition Ramps Up

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Top oil exporter Saudi Arabia is pressing ahead with a range of initiatives aimed at helping it meet its 2060 net zero emissions target set in October last year. Progress is being made on landmark projects such as the pioneering Neom green hydrogen plant and large-scale renewables developments, while the introduction of nuclear power to the energy mix remains on the agenda.

At the same time, the Opec member has committed to further developing its massive hydrocarbon resources, which thanks to their low-cost, low-carbon characteristics are considered to be advantaged versus higher-cost, higher emission resources in a world that's moving away from fossil fuels. These resources will also be needed if future energy crises are to be avoided and world energy requirements are to be met and remain affordable, Saudi Arabia argues — along with other oil and gas producers such as the United Arab Emirates.

Given a lack of investment in the upstream sector, global spare capacity is being eroded at a high pace, especially as demand for oil continues to grow. In response, Saudi Arabia has moved to expand oil production capacity to 13 million barrels per day from 12 million b/d by 2027. Implementing renewable energy plans and boosting gas output for domestic use are set to help free up another 1 million b/d of hydrocarbon liquids for export — demand for which Riyadh and other oil producers believe will continue for decades to come.

The president of Saudi Arabia's King Abdullah Petroleum Studies and Research Center (Kapsarc), Fahd al-Ajlan, recently told Energy Intelligence in an interview that overall global investment in the energy sector, whether in renewables or upstream, had been lagging and contributed to the energy crisis the world is facing today. “We need investment in all forms of energy as we transition into a decarbonized world and achieve the net zero emissions goal,” he said.

At home, Saudi Arabia currently generates 49% of its electricity from gas and 51% from petroleum liquids, including crude oil, according to sources familiar with the matter. By 2030, it plans to generate 45%-50% of its electricity from renewable resources and 50%-55% from gas, the sources add. With gas viewed as a transition fuel, this is part of the country's long-term goal of achieving carbon neutrality by 2060.

Renewable Energy Drive

Part of the renewable energy push in Saudi Arabia includes the construction of 70 renewable parks and $100 billion worth of investments, according to industry sources familiar with the matter. So far, the kingdom has invested an estimated $15 billion and has 15 projects with a power generation capacity of 7.1GW, the sources added.

“The targets are large and have to be done quickly … and this is a challenge in terms of organization,” Robin Mills, CEO of consultancy Qamar Energy told Energy Intelligence, adding that it was a matter of making sure the plans stay on track. Saudi Arabia "is capable; what they struggle with is getting the tenders out and executing them in time. As they do, they will get better at it. I don’t see a challenge in grid integration yet, but this will become one with time.”

With an eye on economic diversification, the kingdom’s leadership hopes that — beyond producing cleaner energies — renewable projects will also help create much-needed jobs in the non-oil sector, which is in line with the economic reform “Vision 2030", that was conceived by de-facto ruler Crown Prince Mohammed bin Salman.

One obvious area of interest for Mideast Gulf states is investing in solar power. Last year, the Sudair Solar PV project was announced, which is poised to become one of the largest single-contracted solar PV plants in the world with an installed capacity of 1,500 MW. The project is part of the renewable energy program backed by the Public Investment Fund (PIF), the kingdom's sovereign wealth fund, and is being managed by a PIF-backed consortium, led by Saudi-based Acwa Power.

Integrating Oil With Transition

With a view to keeping its hydrocarbon industry relevant, the kingdom is putting a greater focus on developing a circular carbon economy (CCE), which essentially seeks to reduce, reuse, recycle and remove carbon.

State-controlled Saudi Aramco has also set its own net zero target for 2050, a decade ahead of the state. Aramco recently published its inaugural sustainability report, outlining ways the company plans to achieve Scopes 1 and 2 greenhouse gas emission cut across wholly owned operated assets by 2050. These include the capturing, utilizing and storing of 11 million metric tons of CO2 equivalent annually by 2035, the generation of 12 GW of solar and wind power by 2030, and reducing upstream carbon intensity by at least 15% by 2035. The company also aims to produce 11 million tons of blue ammonia annually by 2030.

Work is also ongoing on the country's sole green hydrogen and ammonia project at Neom, which is being viewed as a future benchmark for the region and beyond given its scale and built-in offtake. Execution of the $54 billion scheme is proceeding with financial close due by year end.

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