As Saudi Arabia moves to diversify its economy and reduce its reliance on oil revenue, the energy sector is set to remain of paramount importance to future development. The Kingdom is positioning itself to increase its oil exports over the coming decade in a move expected to help the country maintain its role as a reliable and versatile global supplier in an increasingly uncertain market. Government-owned energy firm Saudi Aramco is currently working to increase maximum production capacity from 12m barrels per day (bpd) to 13m bpd by 2027.
The Kingdom is also taking steps to increase its natural gas production and renewable generation capacity significantly. The Jafurah gas field is under development, and the Kingdom is gearing up to announce major new renewables tenders in 2022 and 2023. These energy sources are expected to help reduce domestic consumption of oil and free up supply for export, which is seen as a more lucrative use of the Kingdom’s natural resources.
As climate change becomes more central to the international agenda, the Kingdom is positioning itself as a low-carbon-intensity oil producer. This is accompanied by a number of new green initiatives, including the goal of reaching net-zero carbon emissions by 2060 and the launch of the Saudi Green Initiative (SGI). The Kingdom is also preparing to make inroads into the emerging hydrogen energy economy and expand carbon capture and storage (CCS).
Structure & Oversight
The Ministry of Energy oversees all aspects of the Kingdom’s energy ecosystem, including domestic energy demand and energy exports. Prince Abdulaziz bin Salman Al Saud has been the minister of energy since September 2019. He is the first royal to serve in this post.
Saudi Aramco is the national oil company, with headquarters in Dhahran in the country’s east. It is one of the world’s largest integrated energy and chemicals companies, and is responsible for all upstream and downstream oil and gas operations in the Kingdom. Amin Nasser has been the president and CEO of Saudi Aramco since 2015. The company went public in an initial public offering in December 2019, listing around 1.5% of its shares on the Saudi Exchange and raising $26bn. Saudi Arabia is one of the five founding members of the Organisation of the Petroleum Exporting Countries (OPEC) and plays a leading role in the organisation in shaping and coordinating international oil policy.
In the utilities sector, the Ministry of Environment, Water and Agriculture oversees issues related to potable water, wastewater and sewage, and has been led by Abdulrahman bin Abdulmohsen Al Fadhli since 2015. The ministry consists of the Directorate of Water Affairs and the Directorate of Water Services. Both directorates have a broad range of responsibilities, from the management of non-renewable and renewable underground water, to the organisation and management of reused and treated wastewater.
Oil Strategy
As Saudi Arabia rolls out new green initiatives, the Kingdom’s leadership has indicated that oil exports will remain central to the country’s economic development and export portfolio well into the future. Prince Abdulaziz has reportedly said that the Kingdom plans to extract all of its oil resources and believes Saudi Arabia will be the country to pump the world’s last barrel of oil in light of its status as one of the lowest-cost and lowest-carbon-intensity producers. As the world transitions to a low-carbon energy system, Saudi Arabia has stated its intention to maintain a leading role in ensuring the security and stability of global energy markets.
The Kingdom is actively encouraging international investment in fossil fuel energy over the coming decades to meet what it expects to be growing global demand, despite international calls for a rapid reduction in fossil fuel consumption. In a July 2022 address, Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud stressed the importance of continued investment in fossil fuels and warned of the potential for economic instability in its absence.
This comes at a time when a number of European oil companies, such as BP and Shell, have announced plans to make gradual reductions in investment in oil and gas, and move away from the production of fossil fuels. Saudi Arabia, however, expects to meet demand either in a future where appetite for hydrocarbons remains high, or in the transition to a low-carbon energy system. While sharp cuts in global fossil fuel consumption are needed to stymie further climate change, some proportion of international oil demand is expected to remain beyond 2050, even under the most rapid transition scenario.
Saudi Aramco anticipates that hydrocarbons will continue to supply the bulk of the world’s energy well into the future. In August 2022 Nasser said he expected oil demand to continue to grow for the rest of the decade, with Asia being a primary driver.
In the longer term, the country hopes to reduce domestic oil consumption and phase out the use of oil for power generation. This includes an aim to produce 50% of electricity from renewables by 2030, up from 0.3% in 2021, and approximately 50% from natural gas. This is expected to free up around 1m bpd of oil for export by 2030.
The Kingdom is working to increase its natural gas production significantly to meet rising domestic demand. By 2030 Saudi Aramco is aiming to become a natural gas exporter and be among the world’s topthree natural gas producers. At present the Kingdom does not import or export natural gas, as all of the country’s natural gas consumption is met by domestic production. Most of the natural gas produced is used by the power sector and industrial sector, primarily the petrochemicals segment.
In March 2022 Saudi Aramco said it planned to boost production by 50% by 2030. Increased output is expected to power industries that are set to grow rapidly as Saudi Arabia develops its industrial sector and pursues economic diversification (see Industry chapter). The company ultimately aims to develop an integrated global gas portfolio.
Green Initiatives
The year 2021 saw a number of new initiatives and targets focused on clean energy and emissions reductions. This took place against the backdrop of a series of global and regional emissions reduction target announcements in the run-up to the COP26 UN Conference on Climate Change, held in Glasgow, Scotland in late 2021. In October 2021 Saudi Arabia pledged that it would reach net-zero CO emissions by 2060. Accompanying this target was an updated national climate pledge known as a nationally determined contribution (NDC) that feeds into the international UN climate negotiating process. The NDC pledges to more than double the 2015 emissions reduction target, from 130m tonnes of CO equivalent a year to over 278m tonnes by 2030.
This was a major step forwards for one of the largest oil-producing nations, which historically has had a challenging relationship with the climate change issue due to its reliance on revenue from oil and gas exports. Crown Prince Mohammed bin Salman announced in March 2021 that the country would lead the coming green era and recognised its responsibility to fight climate change. The Kingdom is expected to rely on CCS technologies to help it reach net-zero emissions. This will require significant investment in research and development, as CCS technologies currently do not exist at the scale or efficiency required to have a meaningful impact on carbon reduction in the atmosphere.
In recognition of an increasingly competitive and evolving global energy landscape and that a business-as-usual approach can no longer be relied upon, Saudi Arabia launched the SGI in 2021, which includes more than 60 initiatives representing SR700bn ($186.6bn) in investment to contribute to the growth of the country’s green economy. The SGI effectively serves as an umbrella for many of the Kingdom’s new green policies, and three-day conference was held in Riyadh in October 2021 to launch the initiative. Targets include planting 10bn trees in Saudi Arabia over the next two decades and 40bn trees in other Arab countries, which would represent the world’s largest reforestation programme.
In April 2021 Saudi Arabia joined the US, Canada, Norway and Qatar in forming the Net-Zero Producers Forum, a platform for fossil fuel producers to discuss ways to reduce emissions from the production of oil and gas such as using renewable energy to power drilling operations and equipment.
Size & Performance
According to BP’s “Statistical Review of World Energy 2022” report, Saudi Arabia produced 11m bpd of oil in 2021, representing 12.2% of global oil production. This includes the production of crude oil, condensates and natural gas liquids, which totalled 1.6m bpd. Focusing on crude oil alone, OPEC statistics indicate that Saudi Arabia produced a total of 9.1m bpd in 2021, representing 13.1% of global crude oil production.
Total production levels in 2021 were virtually unchanged from 2020 and remained below the Kingdom’s 2019 production of 11.8m bpd, which represented 12.5% of global output in that year. Oil refinery throughput was 2.8m bpd in 2021, and the country’s refining capacity was 2.9m bpd, representing 2.9% of global refining capacity.
In 2021 global oil production increased slightly to 89.9m bpd, up from 88.5m bpd in 2020 but lower than 2019 levels of 94.9m bpd. Saudi Arabia was the second-largest oil producer that year, after the US. The US produced 16.6m bpd that year, representing 18.5% of global production. Meanwhile, Russia ranked third, with nearly the same level of production as Saudi Arabia, producing 10.9m bpd in 2021, or roughly 12.2% of global production.
Saudi Arabia was the eighth-largest natural gas producer in 2021. The top-seven producers were the US, Russia, Iran, China, Qatar, Canada and Australia. The Kingdom’s natural gas production has risen steadily over the past few decades, with production increasing from 47.3bn cu metres in 2000 to 117.3bn cu metres in 2021, or 2.9% of global production. Output in 2021 represented a 4% increase from 2020 levels. This reflected a steady rise: between 2011 and 2021 production grew by 3% per year.
According to BP figures, Saudi Arabia held the world’s second-largest proven oil reserves as of the end of 2020, at 297.5bn barrels, representing 17.2% of global reserves. The country held the eighth-largest proven natural gas reserves in the world, at 6trn cu metres, representing 3.2% of global reserves. If production were to continue at current rates, this would afford around 74 years of oil production and 54 years of natural gas production.
Saudi Arabia is the largest oil producer in OPEC and has the world’s largest crude oil production capacity, at nearly 12m bpd. This includes the world’s largest spare crude oil capacity, which gives Saudi Arabia a key role in global oil markets given its ability to increase or decrease its oil production quickly.
In 2020 oil exports accounted for around 53% of government revenue and nearly 70% of total exports in terms of value. In 2021 Saudi Aramco’s net profit rose by some 124% to $110bn.
Energy Exports
Saudi Arabia exported 7.7m bpd of crude and petroleum products in 2021, making up 11.5% of the global oil export market. The remainder of the Kingdom’s production is used for domestic consumption, which currently represents around 30% of total oil production. The Kingdom’s 2021 oil exports represented a 2.6% decline from the 2020 figure of 7.9m bpd and a continued decline from 2019 export levels of 8.3m bpd. Saudi Arabia ranked third in global oil exports in 2021, behind Russia, at 8.2m bpd, or 12.3% of global exports, and the US, with 7.9m bpd, or 11.8% of the total.
Saudi Arabia exports the vast majority of its oil in the form of crude as opposed to refined petroleum products. Its crude exports are then refined into various petroleum products at the point of destination. Saudi Arabia’s crude oil exports totalled 6.5m bpd in 2021, representing 84% of its oil exports, while exports of petroleum products totalled 1.2m bpd, representing 16% of the total. For comparison, 62% of global oil exports were exported in the form of crude oil in 2021, while 38% were exported as refined petroleum products. Solely in terms of crude oil, Saudi Arabia was the largest exporter in the world, responsible for 16% of the market, followed by Russia, with 13%, and Canada, with 10%.
Markets
Saudi Arabia’s largest oil export market is Asia, which accounted for 72% of oil exports in 2021. Europe was the second largest, at 10%, followed by North America (6%), Africa (6%), the Middle East (4%), and South and Central America (1%). Underscoring the importance of Asian markets, China alone was the destination of 24% of oil exports, followed by Japan (13%) and India (11%). The US, for comparison, comprised just under 6%. US imports of Saudi oil have been declining since 2012 as the US has increased its own oil production and imports from Canada.
Consumption
In 2021 Saudi Arabia was the second-largest energy consumer in the Middle East, behind Iran, and the 11th-largest energy consumer worldwide, responsible for 1.8% of global energy consumption, according to BP. The country is currently reliant on fossil fuels for its domestic energy needs, with oil providing 61% of energy consumed and natural gas 39%. Saudi Arabia consumes around 30% of its domestically produced oil, and in 2021 the Kingdom consumed 3.6m bpd, representing 3.8% of global oil consumption. The vast majority of this was supplied by domestic oil production, with 337,000 bpd coming from imported petroleum products. The country consumed approximately 117.3bn cu metres of natural gas that year, representing 2.9% of global natural gas consumption.
Since 2015 natural gas has been satisfying a growing proportion of the country’s energy demand and gradually replacing oil demand for power generation. Between 2011 and 2021 natural gas consumption increased by an average of 3% per year.
Electricity & Water
Saudi Arabia produced 356.6 TWh of electricity in 2021, up 5.8% from 2020. Roughly 60.5% of this figure was generated from natural gas and 39.2% from oil. The remaining fractional amount was generated from renewables. The share of natural gas in the mix has risen substantially over the past decade, up from 42% of total power generation in 2010. Electricity generation grew by 3.6% overall between 2011 and 2021, and each year electricity demand rises significantly in the hot summer months as air-conditioning usage increases.
In March 2022 Saudi Arabia announced 60 water projects worth $9.3bn, which are expected to secure the country’s position as the world’s largest water desalination market. It relies on desalination for the production of drinking water. “The water sector in Saudi Arabia has rapidly become a mature market. Aided by private sector participation, the Kingdom almost doubled its production capacity between 2018 and 2022. Moving forwards, there is an opportunity for more international lenders and investors to expand the number of independent water producers in Saudi Arabia while contributing to the local content aspect,” Khaled Z Al Qureshi, CEO of the Saudi Water Partnership Company, told OBG.
Renewables
In 2021 the Kingdom generated 800 GWh of electricity from solar energy. This represented a four-fold increase from 200 GWh in 2020 and a significant development from virtually zero solar generation in 2016. These figures are set to rise significantly as several utility-scale projects come on-line over the coming years. In December 2021 Prince Abdulaziz said the Kingdom planned to invest $100bn in renewable energy projects. In particular, remote regions of the country not connected to the natural gas system are set to benefit from renewables as oil usage for power generation is reduced. More recently, in July 2022 the Ministry of Energy announced that a series of renewable energy projects totalling 7.1 GW of new capacity had been tendered and were in various stages of completion, with an additional 15 GW worth of projects expected to be tendered in 2022 and 2023.
This is in line with government plans to install 58.7 GW of solar and wind capacity by 2030. To meet this goal, the government envisions that water and electric firm ACWA Power, Saudi Aramco and the Public Investment Fund – the country’s sovereign wealth fund – will develop 70% of the projects, at a cost of around $30bn. The remaining 30% are to be developed through Ministry of Energy tenders.
This will be supported by recent efforts to boost renewable output. The country’s first utility-scale renewable project, the 300-MW Sakaka solar power plant, was connected to the electric grid in November 2019, and in August 2021 the 400-MW Dumat Al Jandal wind farm, Saudi Arabia’s first commercial wind project, was connected to the grid.
Natural Gas
In November 2021 Saudi Aramco announced the start of development of the Jafurah gas field, the Kingdom’s largest non-associated gas field, awarding contracts for subsurface and engineering, procurement and construction worth $10bn. The move marks a significant milestone for the expansion of the company’s gas portfolio. Production from the field is expected to begin in 2025, with natural gas exports set to start in 2030. Located east of the Ghawar oil field, the Jafurah field is projected to produce 2bn cu feet per day of gas, approximately 630,000 bpd of gas liquids and condensates, and 418m standard cu feet per day of ethane. Saudi Aramco estimates the field will require up to $68bn of investment over the first 10 years of development, and a total of more than $100bn over the field’s entire lifecycle. At peak production, the Jafurah gas development is expected to replace more than 300,000 barrels of crude oil a day. The ultimate goal of the project is to support rising demand for high-value petrochemicals feedstock and Saudi Aramco’s focus on blue hydrogen as a low-carbon alternative energy source (see analysis).
The Kingdom has witnessed rapid development of non-associated gas fields since 2015, which has helped to boost natural gas production. This has also facilitated the decoupling of gas production levels from dependence on oil production. Non-associated gas accounted for less than 20% of the Kingdom’s natural gas production in 2016, whereas it provided almost 50% of total production in 2020.
Hydrogen
In an effort to become a global leader in hydrogen energy production, the Kingdom is in the process of developing a National Hydrogen Strategy that will develop a regulatory framework and a basis for future hydrogen exports. In April 2022 a senior official from the Ministry of Energy said the strategy was targeting $36bn in investment by 2030.
The Kingdom aims to become the world’s biggest supplier of hydrogen, with Saudi Aramco signing an agreement with green hydrogen developer InterContinental Energy for the construction of new green hydrogen and ammonia plant in October 2021. The country targets 2.9m tonnes of hydrogen production per year by 2030 and 4m tonnes per year by 2035.
Hydrogen could help to provide cleaner energy for numerous sectors in the coming decades, including traditionally hydrocarbons-reliant industries such as aviation, shipping, petrochemicals and steel. It is seen as a key pillar of decarbonisation and is expected to facilitate the next stage of the global energy transition, with the technology likely to mature and reach commercial scale by the 2030s.
In 2020 Saudi Aramco made its first shipment of blue ammonia to Japan, a global first, as part of a pilot project to support zero-carbon power generation. Hydrogen can be converted into ammonia, which is easier to ship and store. Ammonia can then be used directly as a fuel or as a vehicle for transporting hydrogen to end users. The Kingdom is developing a $5bn green hydrogen plant at the NEOM smart city, supported by ACWA Power and US-based Air Products. The facility is forecast to come on-line in 2026.
Carbon Capture
At the centre of the Kingdom’s climate change strategy is the Circular Carbon Economy initiative, which was endorsed by the leaders of the G20 at the Riyadh Leader’s Summit in 2020. The initiative aims to boost international support for CCS technologies to combat climate change. In October 2021 Saudi Arabia announced it would set up an investment fund to promote CCS technology as part of a $10bn package unveiled at the inaugural Middle East Green Initiative Summit.
As of mid-2022 Saudi Arabia had two CCS projects in operation. Saudi Aramco’s Uthmaniyah project has the capacity to capture 800,000 tonnes per year of CO from the Hawiyah natural gas liquefaction plant in the country’s east, which is then piped to the Ghawar oil field for enhanced oil recovery. The other project is a CO -to-chemicals plant in Jubail operated by SABIC, the government petrochemicals manufacturing company, which captures 500,000 tonnes of CO a year from an Italian glycol plant for use in the production of methanol, urea and liquefied CO Despite concerns that an over-reliance on the technology could detract from the chief priority of transitioning the global energy system away from fossil fuels, CCS is expected to increase significantly over the coming decades as the world works to address climate change. Under nearly all climate scenarios where global temperature rise is limited to 1.5°C above pre-industrial levels, some level of CCS will be needed. At present, around 40m tonnes of CO is captured per year by 27 CCS facilities around the world. However, to meet global climate targets, this will likely need to scale up to billions of tonnes per year by 2050 across thousands of CCS facilities. The Global CCS Institute estimates that at least a 100-fold increase will be needed by 2050, and the International Energy Agency’s “Net Zero by 2050” report released in 2021 envisages a rapid expansion of CCS between 2025 and 2050, with 4bn tonnes CO captured per year by 2035 and 7.6bn tonnes by 2050.
Outlook
While oil remains central to the Kingdom’s long-term plans, natural gas and renewables are both set to see a major expansion in the coming years. The development of these alternative energy sources will be particularly important in terms of displacing oil in the domestic power mix and freeing more oil up for export. The country’s green targets, which are largely focused on domestic emissions and energy consumption, are likely to see the economy rely on cleaner energy while oil exports grow. As climate change becomes an increasingly global priority and shapes international energy policy, the Kingdom will be able to capitalise on its low-cost and low-carbon-intensity crude oil production to ensure continued prosperity and resource longevity.
