Saudi Arabia Energy Transition

Saudi Arabia faces an economic and energy dilemma due to the oil prices and demand decreasing globally and the significant increase in the internal energy demands. This challenge is considered as the main motivation for the region's and Saudi Arabia's energy shift. If alternate energy sources are not developed, Saudi Arabia's rapid internal energy demands increase might consume nearly all fossil resources slated for export by 2030. In the Saudi National Vision, it is stated that the “local energy consumption will increase threefold by 2030”. Even with the recently announced target, renewables would only account for 5% of the nation's electricity consumption as demand is expected to increase. At the end of 2015, the country had a 25 MW of installed renewable energy generation capacity, the majority of which was solar photovoltaic. For the foreseeable future, oil- and gas-fired power plants will be primarily responsible for supplying the rise in electricity demand. The limited supply of gas for use in the power sector and infrastructure challenges have led to a continued reliance on liquid fuels for power generation, which has led to an increase in domestic demand for oil. The transition away from fossil fuels towards clean energy is complicated and the world needs to be flexible to avoid sacrificing energy security. Currently there is a doubt in the success of the green energy policy and initiatives in the world today. It has been proving such policy can fail easily. The effects of the ongoing energy transition are highly significant for the MENA area in terms of changing present fossil-fuel reliant economies, especially in light of Saudi influence and economic dominance. The energy transition in the GCC region is influenced by a number of geopolitical and non-economic variables. The extrinsic values of sustainable energy in the region provides non-economic justifications such as prestige and modernity images attached to the development of large-scale renewable energy projects and the nuclear power.?

What is the Future of the Oil & Gas Sector?

The Saudi energy sector (and in particular the oil and gas sector) is still essential for a smooth transition to the envisioned dynamic economy and will continue to be crucial to the future of the nation. Yet, there are several strategies the government should implement to optimize and sustain its conventional energy resources. The main one is to acquire feasible technologies to convert Crude-to-Products directly. Saudi Arabia main driver to invest more in the downstream is to increase the refining capacity which is currently being outstripped by the local demand and to avoid importing expensive petroleum products. In addition, the government continues to view investment in refining as a crucial first step in adding value by turning crude oil into refined goods and building a connection between the upstream industry and petrochemicals. This in turn creates potential for downstream integration into the entire value chain and diversification, including the emergence of new sectors. On the other hand, Saudi Arabia has been urging its petrochemical businesses to switch from using ethane as their primary feedstock to using refined products like naphtha, butane, and propane. The usage of refined products opens up options to create more complex petrochemical products that are required to extend the value chain and create jobs, in addition to boosting the supply of feedstock.

Saudi Arabia’s Energy Transition Journey

Significant Expansion in the Gas Exploration

Saudi Arabia has advanced significantly in recent years in terms of key energy transition criteria. Above all, the share of natural gas in power generation has increased significantly, now accounting for more than half of total generation. The additional gas came from the increased raw production of natural gas by the national oil company Saudi Aramco, which is expected to reach an annual production of around 238 billion cubic meters by 2030, although this increase would need to be supplemented by gas imports in the future (e.g. LNG).?

The increased gas production is an important factor for the decrease in the carbon-intensity of the Saudi economy. Other indicators have also improved, e.g., the decrease in residential electricity due to the subsidy reforms.

Renewable Energy

Regarding the generation of renewable energy, the installed capacity of all forms of power generation was approximately 76 GW in 2017; in 2018, the share of renewable energy in the total electricity capacity was around 0.2%.?

Above charts provide an overview of the renewable’s projects in Saudi Arabia. However, the bulk of the projects is still under construction. In 2021, Saudi Arabia has announced 7 new projects, with the tender of 600 MW Shuaibah project drawing the world record low price of $0.0104/kWh. It also declared a new and quite ambitious renewable energy target of 50% of power generation through renewables by 2030. 0 200 400 600 800 1000 1200 1400 1600 Sakaka Dumat Al Jandal Waad Al Shamal Sudair Shuaibah Rabigh Jeddah Qurayyat Renewable’s Projects in Saudi Arabia total MW Generated Solar PV Wind CSP

Government Subsidy Reforms

Following the decline in oil prices in 2014, energy subsidy changes were put into place in all GCC governments. They covered the tariffs for fuel, electricity, and water. Saudi Arabia's energy subsidy reforms have resulted in huge budgetary savings and a significantly lower subsidization rate. Along with advantages for the environment including reduced carbon emissions due to decreased consumption

The subsidy reforms constitute a key factor facilitating other aspects of the energy transition. First, the reforms will generate hundreds of billions of dollars of saved fiscal revenues in the upcoming years (Table 4 shows ca. 40$ billion of saved spending in 2019 in comparison to the subsidization spending of 2014). These revenues can be reinvested in direct welfare benefits or in renewables’ projects.

Focus More on Efficiency

The majority of newly planned urban developments in the GCC region, including the $500 billion NEOM city project currently under construction, are located in Saudi Arabia. While many newly planned cities have energy efficiency features like building certifications, very few (primarily yet-to-be-built) cities are implementing a thorough low-carbon development strategy. In 2021, as a part of the Neom project, Saudi Arabia announced a futuristic city called “The Line”, which should have no cars, an underground clean transport system and zero carbon emissions. The Line is supposed to extend for 170 kilometers, cost between 100 and 200$ billion and to start construction already in 2021. For other new projects, Saudi Arabia has sought to extend the number of building certifications. There are about 159 projects with LEED certifications and the benefits of using the Saudi Mostadam building certification system (developed in 2019). Saudi Arabia is investing around 1.2$ billion in green buildings, and it is retrofitting around 90 thousand mosques Saudi Arabia recently boosted its investments in public transportation by building a metro system in Riyadh (another metro system in Mecca is planned), light rail transit (LRT) between major cities, and bus rapid transit (BRT) systems in major urban areas.

Global Leadership in Circular Carbon Economy (CCE)

Saudi Arabia is putting the circular carbon economy (CCE) framework at the center of its climate change policy in recognition of the difficulty in achieving "net-zero" emissions. The CCE served as the main focus of Saudi Arabia's 2020 G20 presidency and received support from G20 leaders. It gives nations the ability to control their carbon emissions in accordance with their own national economic and social conditions and at their own speed. The CCE is based on four pillars: reduce, reuse, recycle and remove carbon emissions. In October 2021, Saudi Arabia held its own regional environmental conference, the Saudi Green Initiative (“SGI”) conference. SGI oversees all the Kingdom’s work to combat climate change. Asa bold goal of SGI, Saudi Arabia announced in the SGI conference a "net-zero" greenhouse gas emissions plan by 2060. SGI brings together environmental protection, energy transformation and sustainability programs to work towards three goals:

1. reduce carbon emissions by more than 4% of global contributions,
2. plant 10 billion trees across Saudi Arabia, and
3. raise protected areas to more than 30% of total marine and land area.

All of these efforts have led to noticeable improvements in the Saudi’s Energy Transformation Index issued by the World Economic Forum (WEF) which reinforces the evidence of ongoing transition in Saudi Arabia. Saudi Arabia has advanced its ranking from 98th in 2019 to be ranked 81st out of 115 nations in the 2021 report of this index, which evaluates a number of factors connected to the performance of the energy system and the environment that promotes the energy transition.?

Saudi Arabia Energy Transition Approach

The strategy of the energy transition in Saudi Arabia is a top-down transition through renewables spending, public–private partnerships, megaprojects and regulatory reforms. The reasons for this delivery form of sustainable energy in the GCC region are largely political economic reasons, e.g. maintaining state control, providing public jobs and maintaining the rentier state mentality (i.e. states ensuring political support through the provision of generous benefits to citizens via public jobs and some direct or indirect subsidization) In other nations (such as the European Union), distributed energy systems, energy communities, and decentralization are widespread, but not in Saudi Arabia. However, megaprojects, such as nuclear and renewable power plants, and planned cities with energy-efficient architecture make up the majority of how the Gulf is implementing its energy transformation. In fact, megaprojects in the GCC are used to render powerful symbols of modernity and primacy. While this approach offers certain cost advantages over scattered generating (economies of scale), there are additional non-economic drivers at play. The ability to maintain central control and quickly meet the renewable target compliance requirements without onerous restrictions or participation requirements is one rationale. All the extrinsic factors combined indicate that the energy transition in the Gulf is domesticated (e.g., interpreted through policies and strategies that suit the political reality in the region) and it is important to investigate all the variables influencing the Gulf's energy transition. GCC governments are eager to keep the rentier states alive through new rent distribution methods while also showing modernity and (regional) dominance. These tools pertain to how new players operating in statedominated markets are differentiating the energy sectors. The continuation of centralized control and covert subsidies could threaten the energy transition's foundational principles of economic diversity.