At the heart of an oil-rich kingdom pumping millions of crude oil per day is an ambitious vision to slash emissions and transition towards clean energy.
Interestingly, the kingdom is injecting money in both.
Saudi Arabia is transitioning to bridging solutions and shifting towards cleaner gas-burning instead of oil for its energy production, using gas turbine technologies that can later be used for hydrogen. A strong supporter of the Paris climate agreement, the kingdom intends to generate half its electricity from renewables by 2030. The kingdom also aims to plant 10 billion trees in the coming decades, and is building NEOM, a futuristic carbon-free city that features speedy public transit, vertical farms, and a ski resort.
Last year, Saudi Arabia joined the US, Canada, Norway, and Qatar on a plan to further reduce drilling emissions. Saudi Arabia’s state-owned energy giant Saudi Aramco announced aroud the same time that it would reach “net zero” by 2050, essentially pledging to stop adding greenhouse gases to the atmosphere from oil extraction and production.
Experts from Riyadh-headquartered King Abdullah Petroleum Studies and Research Centre (KAPSARC) say Saudi Arabia’s energy transition performance is “nothing short of impressive,” adding that the kingdom is poised to become a major participant in leading the way towards a more sustainable energy future.
They noted that among oil-producing countries, Saudi Arabia ranks among the top 8 for low-carbon performance. Within the indicators used for this ranking, many of the planned upgrades in the coming years should push the rank even higher, particularly in relation to the enablers of regulations, technology, and finance, according to KAPSARC.
Meeting net-zero targets for oil and gas in Saudi Arabia is largely centred around efficiency improvements on the demand side, and CCUS applications on the supply side.
“For local demand, large strides have already been taken in the form of regulations for efficiency, along with market-based improvements in response to reformed pricing of energy products in the domestic market and shifting electricity production towards more gas and renewables instead of liquids,” KAPSARC noted.
Low-carbon projects
Saudi Arabia already has several projects either operating or under development for CCUS. For instance, CO2-EOR (enhanced oil recovery) in Uthmaniya injects CO2 into depleted sections of one of oil-bearing reservoirs to stimulate oil production, and results in a lower carbon footprint of the final products because there is CO2 that remains in the formation.
Other projects underway are largely associated with petrochemical or industrial processes on the east and west coasts of the country, with the CO2 destined for use in various industries like food, agriculture, cement production, desalination, or subsurface storage as part of oil and gas.
Saudi Arabia’s ambitions were recently quoted by HRH Prince Abdulaziz bin Salman Alsaud, Saudi Minister of Energy, as reaching 44 million tons per annum by 2035, but this could easily be increased if the economics are favourable because there is a large capacity for storage in the kingdom’s geologic formations and for use in the growing non-energy sectors. In addition to this, there are many other efforts including large-scale tree planting that will help reduce emissions, KAPSARC experts note.
The country’s hydrogen plans are also ambitious. Saudi Arabia plans to be a global leader in decarbonised hydrogen production and export. This is possible due to the generous natural resources in the kingdom in both gas for blue, and renewable for green production. An earlier announcement by the Saudi Energy Minister indicated that the kingdom intends to produce 4 million tons of hydrogen annually by 2030. However, this figure will likely grow along with global demand due to the resources, cost advantages, engineering expertise, and central geographic location of the kingdom to the end markets.
Under development, Saudi Arabia has 11.4 GW of renewable energy capacity to be added to the grid. Furthermore, and from the perspective of operation and execution, the Principal Buyer has been separated from the national utility (i.e., SEC). This separation allows more entities to participate in the development of projects, attract investors, and focus on different scopes for implementation. By clearly identifying mandates and roles while collaborating across the kingdom’s stakeholders, the journey to reach the target becomes more effective.
Underlying strategy
Despite the progress, climate experts remain sceptical that the kingdom will meet its promises, having watched previous announcements about renewables come and go with little, if any, traction on the ground.
As global economies look to wean themselves off fossil fuels, some experts argue that in Saudi Arabia the shift is just about freeing up more crude oil for export. The less the kingdom burns for domestic use, the more it will be able to export at global prices to help finance the government’s ambitious plans to diversify the economy.
“It’s a triple-win situation,” energy minister Prince Abdulaziz bin Salman told Financial Times in an interview last year.
“We wish we had the means to do it in one year, but because we need to expand our gas master system it will have to be in a phased approach,” he added.
The energy minister estimates that the kingdom could make a net saving of $130 billion in the years to 2030 by introducing more gas and renewables into the energy mix and freeing up oil to export.
Currently, just under half of Saudi Arabia’s electricity is fired by oil and related liquids, with the kingdom burning an average of 1 million barrels of crude and related liquids a day to keep the lights, air conditioners and desalination plants on. The remainder relies on gas.
Pumping oil
Despite pushing the renewable transition, Saudi officials make no apologies for insisting oil will remain core to their plans.
Also, Saudi officials say that a rapid transition to renewables would bring economic chaos, a view they say has been validated by the recent turmoil in the global energy market amid a supply shortfall and surging prices.
So even though the country has massive clean energy ambitions, Saudi Arabia continues doing what it does best—producing oil. Additionally, Saudi officials have repeatedly stressed that a rapid transition to renewables and to cleaner electric vehicles would bring economic chaos, a view they say has been supported by the recent turmoil in the global energy market amid a supply shortfall and surging prices.
“Adopting unrealistic policies to reduce emissions by excluding main sources of energy will lead in coming years to unprecedented inflation and an increase in energy prices, and rising unemployment and a worsening of serious social and security problems,” said Saudi Arabia’s crown prince, Mohammed bin Salman, at a United States-Arab summit in Jeddah last year.
In line with this view, Saudi Arabia’s state-owned energy giant Aramco announced plans to significantly ramp up its upstream investments. The world’s largest oil-exporting company said in a statement that it plans to continue to raise spending “until around the middle of the decade.”
The company recently announced its capital expenditure for 2023 at about $55 billion in its largest spending exercise to date as it looks to increase its maximum sustained output capacity to 13 million b/d by 2027, more than 1 million barrels more than the current stated values.
The additional capacity will be realized from incremental projects in the Zuluf, Berri, and Marjan oilfields. The timeline for this growth has been cited as evenly distributed per-year from 2025 to 2027 at about 300 kb/d.
“Aramco has embarked on the largest capital spending program in its history,” CEO Amin Nasser said in a statement earlier this year. “Given that we anticipate oil and gas will remain essential for the foreseeable future, the risks of underinvestment in our industry are real — including contributing to higher energy prices.”
Since most of Saudi Arabia’s super-giant fields are mature and have been in production for several decades, the kingdom knows it must continue to invest heavily in new capacity and exploration if it wants to scale up output.
For gas, KAPSARC experts note that Saudi Arabia has been a leader in efficient monetisation of what is often considered a by-product of oil production. Since the 1970’s, with the implementation of the Master Gas System, constant improvements have cut flaring and venting to less than 1%, with a goal of 0% routine flaring by 2030.
The benefits of this system, along with growing development of non-associated gas resources means that gas can be used to cut emissions in the power sector, grow industrialization in the non-energy portions of the economy, and feed into national plans for hydrogen, petrochemicals, and other high-value exports.
Overall, the Saudi energy transition is underway, and it holds significant and necessary adjustments to the most important economy in the Middle East region. Reforming the large carbon economy of Saudi Arabia towards more sustainability and environmental responsibility can have positive spillovers and powerful messages about the future of carbon-fuel exporting states.
