Saudi Arabia’s decision in 2006 to fuel all its future coastal power plants with oil was intended to free up the country’s much smaller gas reserves for export.
It did not go down well at the time, and recent flip-flopping on the fuel for a power project at Qurayyah has led to questions about the government’s continued commitment to the oil-only policy.
The kingdom has a privileged position in global oil markets. The same cannot be said of its gas reserves. The world’s largest oil reserves, at 264 billion barrels, sit alongside much smaller pockets of gas. Natural gas deposits only account for 1.7 per cent of the world’s reserves.
The Qurayyah scheme, originally launched as an oil-fired project, was retendered as a gas project earlier this year. It may now go back to being oil-fired.
The decision has led to speculation that cracks are emerging in the oil-only policy.
The government showed no signs of reneging on the policy until recently. The Ras al-Zour power project was initially launched as an oil-fired scheme, before it was merged with another power project and the fuel switched to gas. In this case, the second scheme had a gas allocation in place, so it made sense to use gas.
However, changes to the Qurayyah project suggest Riyadh is reconsidering its oil-fired generation policy. Its final decision on the fuel for the project is likely to determine the kingdom’s energy mix in the long-term.