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Imagining The City Of The Future

Imagining The City Of The Future

Cohesive populations, proximity to their…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Are Saudi Arabia’s Green Energy Plans Realistic?

If words could create reality, Saudi Arabia would probably be on its way to overtake China as the world’s most ambitious energy transition leader. The desert kingdom that produces a tenth of the world’s oil has been vocal about its renewable energy plans.

Yet, it has also been vocal about its oil production plans, which come down to a solid boost of output while the going is good. Because it’s getting increasingly uncertain just how long the going will be good for oil.

Earlier this year, as oil prices rebounded from the rout the pandemic had caused in 2020, Saudi Arabia hiked its export prices for its biggest—and most valuable—clients: importers in Asia. This caused a reaction from India, which depends on imports for more than three-quarters of its oil consumption, and this reaction indicated that importers may no longer be willing to buy at any price. The reason this was possible was the availability of alternatives.

Ten years ago, Saudi Arabia was the undisputed leader of OPEC and equally undisputed top oil producer. Now, it shares the leadership of OPEC+ with Russia, and it competes in the global oil markets with the United States. Earlier this year, the Saudis felt a new pinch in Asia as importers there opted for cheaper Russian and U.S. crude.

So, on the oil front, Saudi Arabia is having to contend with large and strong competitors, which curb its price-setting power on key export markets. Does this mean it would go the Iraq way and seek to boost production and lower prices in a bid to expand its market share? 

That could be one obvious way forward, but it might not be the best one. Riyadh needs its oil revenues. It needs them not just to keep the economy going but also to advance its low-carbon goals.

The Financial Times reported earlier this week that Saudi Arabia’s renewable energy plans mostly remained on paper, and it was unclear how the Kingdom plans to transfer them from paper to material reality.

The plans are grandiose: the Neon smart city—and clean energy hub—project alone has a price tag of $500 billion. Saudi Arabia also has big hydrogen plans: a $5-billion green hydrogen production site at Neom. And yet, last year, when the Kingdom had said it would commission 1 GW of new solar capacity, it commissioned zero. Why? Because Riyadh tried to renegotiate the price tag of the project with its developer, leaning on dropping solar tariffs in the region.

It is a truism that things tend to be easier said than done, and Saudi Arabia’s renewable energy plans seem to be an illustration of its truthfulness. This reluctance could hurt Saudi Arabia’s competitiveness in the future if those who say oil demand will peak sooner than previously expected turn out to be right. The argument is that now that much of the world has joined the energy transition drive, the actual transition will accelerate.

There is also a counterargument, and it is that, like in Saudi Arabia, there is a lot more talk than action, even in Europe. And this means oil in general and Saudi oil specifically still has quite a long future ahead of it. If this is true, it is important for the Saudis to play their oil hand carefully.

The Kingdom still pumps the lowest-cost oil in the world. This means it could withstand lower prices if it decides to go for the flood-the-market strategy to claw back market share from rivals. Saudi Arabia could also keep a lid on production, but this will only help its rivals expand their own market share.

Whatever the Kingdom chooses to do, it needs to bring down the hype it is building around its green energy plans and go for something more realistic because hype doesn’t build smart cities or plant 10 billion trees; oil money does.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on September 01 2021 said:
    Nature has blessed Saudi Arabia with plentiful crude oil reserves enabling it to become the world’s largest crude oil exporter and extremely influential in the global oil market. If this is the case, why try to transform itself into green energy producer?

    Oil and gas are here to stay throughout the 21st century and probably far beyond. Moreover, Saudi Arabia will be one of very few countries who will be supplying the last barrels of oil to the world. The others are Iraq, Venezuela and Russia.

    Therefore, the talk about greenwashing itself by word or deed is meaningless. Oil will continue to be the backbone of Saudi Arabia’s economy and the economies of the Arab Gulf oil producers well into the future if not for ever.

    Therefore, Saudi Arabia’s contribution to green energy is to replace oil and gas with solar and nuclear energy in electricity generation and water desalination so as to release more oil for export and use the gas to make its petrochemical industry the biggest in the world.

    The Saudis shouldn’t waste their money on hydrogen. Whether green, blue or grey, hydrogen is a non-starter. It is more expensive to produce than natural gas. It needs far more energy to produce than it will eventually provide.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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