Saudis eye a future beyond oil


Arrays of solar panels that help power the Jazlah Water Desalination plant, reducing carbon dioxide emissions, in Jubail, Saudi Arabia. The kingdom is trying to juggle its still vital petroleum industry with alternative energy sources like wind and solar as it faces pressure to lower carbon emissions. — ©2024 The New York Times Company

AT a two-hour drive from Riyadh, Saudi Arabia’s capital, rows of solar panels extend to the horizon like waves on an ocean. Despite having almost limitless reserves of oil, the kingdom is embracing solar and wind power, partly in an effort to retain a leading position in the energy industry, which is vitally important to the country but fast changing.

Looking out over 3.3 million panels, covering 36.2sq km of desert, Faisal Al Omari, the CEO of a recently completed solar project called Sudair, said he would tell his children and grandchildren about contributing to Saudi Arabia’s energy transition.

“I’m really proud to be part of it,” he said.

Although petroleum production retains a crucial role in the Saudi economy, the kingdom is putting its chips on other forms of energy.

Sudair, which can light up 185,000 homes, is the first of what could be many giant projects intended to raise output from renewable energy sources including solar and wind to around 50% by 2030. Currently, renewable energy accounts for a negligible amount of Saudi electricity generation.

Analysts say achieving that hugely ambitious goal is unlikely.

“If they get 30%, I would be happy because that would be a good signal,” said Karim Elgendy, a climate analyst at the Middle East Institute, a research organisation in Washington.

Still, the kingdom is planning to build solar farms at a rapid pace.

“The volumes you see here, you don’t see anywhere else, only in China,” said Marco Arcelli, the CEO of Acwa Power, Sudair’s Saudi developer and a growing force in the international electricity and water industries.

The Saudis not only have the money to expand rapidly, but are free of the long permit processes that inhibit such projects in the West.

“They have a lot of investment capital, and they can move quickly and pull the trigger on project development,” said Ben Cahill, a senior fellow at the Centre for Strategic and International Studies, a research institution in Washington.

Even Saudi Aramco, the crown jewel of the Saudi economy and the producer of nearly all its oil, sees a shifting energy landscape.

To gain a foothold in solar, Aramco has taken a 30% stake in Sudair, which cost US$920mil, the first step in a planned 40-gigawatt solar portfolio – more than Britain’s average power demand – intended to meet the bulk of the government’s ambitions for renewable energy.

The company plans to set up a large business of storing greenhouse gases underground. It is also funding efforts to make so-called e-fuels for automobiles from carbon dioxide and hydrogen – notably at a refinery in Bilbao, Spain, owned by Repsol, the Spanish energy company.

Aramco’s computer scientists are also training artificial intelligence models, using nearly 90 years of oil field data, to increase the efficiency of drilling and extraction, thus reducing carbon dioxide emissions.

“Environmental stewardship has always been part of our modus operandi,” said Ashraf Al Ghazzawi, Aramco’s executive vice-president for strategy and corporate development.

Although it insists that petroleum has a long future, Saudi Aramco, the world’s largest oil company, seems to also be trying to signal that it is not locked in a pollution-belching past but is more like a Silicon Valley company focused on innovation.

Recently, the company invited a group of journalists to a presentation during which young Saudis described green practices such as using drones rather than lumbering fleets of trucks when prospecting for oil or restoring mangrove swamps along tropical coastlines to soak up carbon dioxide.

Oil and natural gas will continue to “play a very important role” up till 2050 and beyond, Al Ghazzawi said, arguing that both renewables and oil and gas would be needed to meet growing demand.

“We’ve always felt there has to be a parallel and concurrent investment in new and conventional sources of energy,” he said.

The executives said Aramco was well positioned for the coming decades. The combination of some of the world’s largest fields and careful stewardship, they said, means it can produce oil at very low cost – US$3.19 a barrel on average.

The company is also betting that it can make its oil more attractive by chipping away at the emissions caused by producing it – an attribute that is not rewarded by markets now but could eventually command a premium.

“I think ultimately the market will value low-carbon products and the pricing will become even more profitable,” said Ahmed Al-Khowaiter, Aramco’s executive vice-president for technology and innovation.

Aramco says it will be putting around 10% of its investments into lower-carbon initiatives, but these moves have not shown up much in the financial results.

“I just don’t think it moves the needle,” said Neil Beveridge, an analyst at the research firm Bernstein. “Oil production really accounts for the vast bulk of earnings.”

Some of Aramco’s initiatives are likely to take years to bear fruit, but conditions already look ripe for solar energy.

Saudi Arabia has blazing sun and vast stretches of land that can be populated with solar panels.

Add in a close relationship with China, which is supplying much of the renewable equipment including the panels at Sudair, and “they are building at a very low price,” said Nishant Kumar, a renewable and power analyst at Rystad Energy, a research firm.

Sudair, for instance, will sell its power at about 1.2 cents per kilowatt-hour, a near record low at the time it was agreed.

“They know very well that the economy can only be efficient if they can continue to take advantage of that ever-reducing solar energy cost,” said Paddy Padmanathan, a former CEO of Acwa Power who is now a renewable entrepreneur.

The kingdom is betting that abundant, low-cost electric power could attract energy-intensive industries such as steel. Acwa is helping to build what is likely to be the world’s largest plant for making green hydrogen, with an eye to exporting to Europe and other places with higher costs.

The only problem, analysts say, is Saudi Arabia is not moving as fast as it could be.

Nishant figures that it may achieve only about half of the ambitious 2030 goal for solar installations.

Wind is lagging even more. One reason: the government has not created the conditions that could bring in competing firms that might bolster output, analysts say.

Acwa, for instance, will be heavily relied upon for meeting the ambitious renewable targets.

“We think it is difficult to ignore the operational – and financial risks,” analysts at Citigroup wrote recently. The company is listed on the stock exchange, but 44% is owned by the Public Investment Fund, the key financing vehicle for the initiatives of Crown Prince Mohammed bin Salman.

Still, renewable energy is already creating jobs. Acwa, for instance, has 3,840 employees with about 1,900 in Saudi Arabia. The opportunity to work in cleaner energy businesses appeals to younger Saudis.

Acwa set an example by installing large arrays of solar panels at its Jazlah plant on the Persian Gulf to convert seawater into drinking water.

Desalination requires enormous amounts of electricity and solar energy reduces the need to tap into the power grid and, consequently, cuts emissions. — ©2024 The New York Times Company

Follow us on our official WhatsApp channel for breaking news alerts and key updates!

starextra , stardots

   

Next In Focus

Can Modi win over angry farmers?
A rallying cry that’s also a maths problem
Nepal’s shrinking harvest for honey gatherers
Whale of a rescue mission
Like being put into a meat grinder
Serving up mainland fare in HK
To migrate or not?
Winter misery for Argentina’s poor
Golden visas lose their lustre
Europe frets as economy lags

Others Also Read