Gas to rule new Saudi energy economy

12 June 2016

Energy minister Khalid al-Falih is defining a new strategy for the world’s leading oil exporter

Saudi Arabia’s Energy, Industry and Mineral Resources Minister Khalid al-Falih has said the share of gas in the kingdom’s domestic energy will rise to 70 per cent in 2030, from 50 per cent today.

This will entail doubling production to about 18 billion cubic feet a day and, possibly, importing gas.

At a stroke, the minister, who is also chairman of state oil firm Saudi Aramco, laid the foundations for something the kingdom has lacked since oil was discovered in 1938: a coherent energy strategy.

Everyone knows Saudi Arabia has an oil policy. This sets production and price objectives and was, until the end of 2014, driven by tactical considerations.

But the world’s leading energy exporter had no energy strategy. Instead there was a confection of policies with multiple objectives that lifted growth and living standards, but did little to optimise the increasing of domestic oil and gas consumption.

The kingdom’s National Transformation Plan (NTP), approved in June, suggests the energy improvisations are over. In January, domestic fuel, electricity and water prices were increased. Further price rises are expected in the years to 2020.

The announcement that gas will become by far the principal fuel supporting the Saudi economy in 2030 is a more significant development. Al-Falih said at a June press conference about the NTP that Saudi Arabia could import gas to meet demand. Conceding that possibility is a turning point in the kingdom’s energy policy thinking.

A domestic energy strategy is being defined. It is a work in progress. How Saudi Arabia will double gas output in less than 15 years has yet to be defined. The country has plentiful reserves. UK-based BP estimates reserves at 8.2 trillion cubic metres, enough to sustain production at present rates for 75 years.

The NTP also calls for 3.6GW of renewable energy output by 2020. The 2030 target is 9.6GW, about 8 per cent of forecast demand that year. The fall in solar power generation costs could lead to that target being revised higher.

Saudi Arabia had plans for 17GW of nuclear capacity by 2032. The NTP, however, sets no targets in this regard. It is likely nuclear power will play a smaller role in the kingdom’s long-term plans than renewables.

The balancing item will be oil burnt to produce about 40 per cent of the country’s electricity requirements. The decision to prioritise gas coupled with Riyadh’s oil market-share maintenance policy indicates that reducing oil use in power stations is a priority.

The final element is energy efficiency. All thermal power stations are being converted to combined-cycle. Action is being taken to cut air-conditioning demand. The kingdom could reduce the projected power demand in 2030 by as much as a quarter.

As the June meeting of oil producers’ group Opec showed, Saudi Arabia’s crude policy is settled. In the kingdom’s new energy economy, gas will rule.

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