As interest in clean energy grows, Saudi Arabia looks to a future beyond oil

A two-hour drive from Riyadh, the capital of Saudi Arabia, rows of solar panels stretch to the horizon like waves on an ocean. Despite having nearly limitless oil reserves, the kingdom is embracing solar and wind energy, partly in an effort to maintain a leadership position in the energy sector, which is vital to the country but rapidly evolving.

Gazing at more than 3.3 million panels, covering 14 square miles of desert, Faisal Al Omari, CEO of a recently completed solar project called Sudair, said he would tell his children and grandchildren to contribute to Saudi's energy transition Saudi. “I'm really proud to be a part of it,” he said.

While oil production remains a crucial role in the Saudi economy, the kingdom is turning to other forms of energy. Sudair, which can light 185,000 homes, is the first of what could be many giant projects aimed at increasing production from renewable energy sources such as solar and wind to around 50% by 2030. Currently, renewable energy represents a negligible amount of Saudi electricity. generation.

Analysts say achieving this highly ambitious goal is unlikely. “If they got 30%, I would be happy because it would be a good sign,” said Karim Elgendy, a climate analyst at the Middle East Institute, a Washington research body.

However, the kingdom is planning to build solar parks at a rapid pace.

“The volumes you see here, you don't see anywhere else, only in China,” said Marco Arcelli, chief executive of Acwa Power, Sudair's Saudi real estate venture and a growing force in the international electricity and electricity sectors. of water.

The Saudis not only have the money to expand rapidly, but are free from the lengthy permitting procedures that inhibit such projects in the West. “They have a lot of investment capital and can move quickly and kickstart project development,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, a research institute in Washington.

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

To gain a foothold in solar, Aramco acquired a 30% stake in Sudair, which cost $920 million, the first step in a planned 40 gigawatt solar portfolio – more than Britain's average energy demand – intended to meet most of the government's ambitions. for renewable energy.

The company plans to start a large underground greenhouse gas storage operation. It is also funding efforts to produce so-called e-fuels for cars from carbon dioxide and hydrogen, notably at a refinery in Bilbao, Spain, owned by Repsol, the Spanish energy company.

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

“Protecting the environment has always been part of our modus operandi,” said Ashraf Al Ghazzawi, Aramco’s executive vice president for strategy and business development.

However, pressure to accelerate the energy transition could increase in Saudi Arabia and elsewhere in the Middle East and North Africa, a region that has young, environmentally conscious populations and which could be particularly vulnerable to climate change.

“Countries in the MENA region, including Saudi Arabia, will face the impacts of climate change, extreme temperatures and water scarcity,” said Shady Khalil, principal campaigner for Greenpeace Middle East and North Africa, an environmental group .

While it insists that oil has a long future, Saudi Aramco, the world's largest oil company, also appears to be trying to signal that it is not stuck in a polluting 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 instead of bulky fleets of trucks when prospecting for oil or restoring mangrove swamps along the coasts tropical plants to absorb carbon dioxide.

Over the past two years, Saudi Arabia has instructed Aramco to drastically reduce oil production to nine million barrels a day, in line with the OPEC Plus group's agreements. In January, Aramco announced that the Saudi government had told it to stop efforts to increase the amount of oil it could produce.

According to Aramco, these decisions are not a harbinger of a decline in fossil fuel consumption. Executives insist that the company will continue to invest in oil and, at the same time, dramatically increase natural gas production.

These fuels will continue to “play a very important role” until 2050 and beyond, Al Ghazzawi said, arguing that both renewable energy and oil and gas will be needed to meet growing demand. “We always thought there should be parallel and simultaneous investment in new and conventional energy sources,” she said.

Executives said Aramco is well positioned for the coming decades. The combination of some of the world's largest fields and careful management, they said, means it can produce oil at a very low cost – on average $3.19 a barrel. The company is also betting that it can make its oil more attractive by reducing the emissions caused by its production – an attribute that is not currently rewarded by markets but which could eventually carry a premium.

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

It's easy to understand why Aramco and the Saudi government would be wary of damaging a company that dates back to 1938. Aramco continues to be one of the most profitable companies in the world: in the first quarter of this year it earned $27.3 billion and he has declared. would pay $31.1 billion in dividends, mostly to its main owner, the Saudi government.

It follows, however, that if Aramco reduced its investments in oil, it would be able to pay even higher dividends to the government that could be used in a wide range of efforts to diversify the economy.

Aramco says it will allocate about 10% of its investments to low-carbon initiatives, but these moves have not had much effect on financial results. “I really don't think it moves the needle,” said Neil Beveridge, an analyst at research firm Bernstein. “Oil production really accounts for the majority of earnings.”

Some of Aramco's initiatives are likely to take years to bear fruit, but conditions already appear ripe for solar power. Saudi Arabia has a scorching sun and vast expanses of land that can be populated with solar panels. Add in the close relationship with China, which supplies much of the renewable equipment, including Sudair's panels, and you get that “they are building very cheaply,” said Nishant Kumar, energy and renewables analyst at Rystad Energy, a research company. .

Sudair, for example, will sell its power for about 1.2 cents per kilowatt hour, a record low at the time of the deal.

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

The Kingdom is betting that abundant, low-cost electricity could attract energy-intensive industries such as steel. Acwa is helping to build what is likely to be the world's largest plant to produce green hydrogen, with the aim of exporting it to Europe and other higher-cost places.

The only problem, analysts say, is that Saudi Arabia is not moving as quickly as it could. Kumar believes it could only reach about half of the ambitious 2030 target for solar installations. The wind slows even more. One reason: The government hasn't created conditions that could lead competing companies to bolster production, analysts say.

Acwa, for example, will be strongly relied on to achieve ambitious renewable targets. “We believe it is difficult to ignore operational and financial risks,” Citigroup analysts wrote recently. The company is listed on the stock exchange, but is 44% owned by the Public Investment Fund, the main financial vehicle for the initiatives of Crown Prince Mohammed bin Salman.

However, renewable energy is already creating jobs. Acwa, for example, has 3,840 employees of which approximately 1,900 are in Saudi Arabia. The opportunity to work in companies that produce cleaner energy is attractive to young Saudis.

Acwa led by example by installing large arrays of solar panels at a recently built plant in the Persian Gulf to convert seawater into drinking water. Desalination requires enormous amounts of electricity; Solar energy reduces the need to rely on the electricity grid and, consequently, reduces emissions.

Developers of two adjacent plants are following suit. “Using this technology is very important,” said Nawaf Al-Osimy, technical director of the plant known as Jazlah. “The more you use, the more sustainable it is.”

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