Saudi Arabia is looking to diversify its domestic power industry away from its existing reliance on fossil fuels by investing heavily to make renewable energy the Kingdom’s central source of electricity, a move that will extend the life of its oil fields, protect export earnings and pay environmental dividends.
While sitting atop the world’s largest hydrocarbons reserves, Saudi Arabia has earmarked most of its oil and gas for export, sales of which bring in foreign currency that in turn will be invested to broaden the base of the national economy and meet the needs of a growing population. However, that very programme of economic diversification has put increased demands on the country’s fossil fuel reserves.
According to official estimates, Saudi Arabia’s demand for electricity will increase threefold in just over 20 years, while calls on hydrocarbons needed to fire the Kingdom’s turbines would more than double by 2028, with this likely to have a significant effect on export earnings.
More than 8m barrels of oil equivalent (BoE) a day will be required to ensure adequate capacity if the projections for 2028 electricity consumption are accurate, a significant increase on the 3.4m BoE used in 2010. Given that oil production averaged around 8.25m barrels a day in November 2010, production will either need to be hiked dramatically – a move which would cut the life expectancy of local fields – or alternative power sources found.
In late January, Hashim Yamani, former commerce minister and now the head of the country’s effort to develop renewable and atomic energy, warned that the rapid rise in demand for power will require a shift in policy towards alternative resources.
“The demand for electricity is steadily increasing – it was 40 GW in 2010 and is expected to reach 120 GW in 2032,” Yamani told a conference in Riyadh on January 23. “The demand for oil has also been growing at an alarming rate. Over the past four years, the total local demand for oil has grown 27%. We will need to usher in a new energy mix to meet local needs, as well as maintain Saudi Arabia’s leadership role in the changing global energy landscape.”
Saudi Arabia is already moving down that path, having declared its interest in developing a civil nuclear power capacity and ramping up studies into what mix of alternative energy sources will best suit the Kingdom. Meanwhile, foreign firms are lining up to work with local companies in what could be one of the most lucrative energy markets in the coming decades.
French group Areva is just the latest to develop ties in the Kingdom, joining forces with the Saudi Bin Laden Group in January to cooperate on solar and nuclear energy projects. The firm’s chief executive, Anne Lauvergeon, said Saudi Arabia was developing into an important market for solar thermal energy and that Areva wanted to be a long-term partner in what she called “a major energy evolution in the region”.
“The division between fossil fuels and renewables is dead, as is the idea that there will be one energy that is more important than others. The world needs all the energy solutions,” she said while in Riyadh.
The government has already earmarked $80bn for investments to find those solutions and bolster the country’s electricity generation and distribution facilities over the next 10 years. While this will ensure supplies and provide for some excess capacity in the shorter term, the expansion programme will not meet the demands put on the grid in the coming decades.
The next wave of generation capacity will have a far different current, with Saudi officials proposing that investments will focus on renewable sources. Solar and wind energies are set to start making a major contribution to supply within eight to 10 years and nuclear power should also begin to kick in at the beginning of the next decade.
Luckily for Saudi Arabia, it has the time to develop alternatives. Official estimates put its known oil reserves at more than 260bn barrels, enough to sustain current production levels for 80 years or more. With swathes of the country yet to be fully surveyed, it is believed the full potential of the Kingdom’s fields is far higher, possibly enough to keep the wells flowing into the next century.
However, by investing in renewables and planning for a time when oil will not be the driving force of the economy, Saudi Arabia is playing the long game, one it intends to be on the winning side of in the distant and sunny future.