Saudi Arabia’s fuel U-turn

06 September 2010

The kingdom has awarded contracts on the gas-fired power and desalination plant at Ras al-Zour. Riyadh had decided in 2006 to use oil for its power and water schemes

In 2006, Saudi Arabia’s Council of Ministers decreed that all future coastal power and desalination projects will use oil instead of gas.

Then in June 2009, Saline Water Conversion Corporation’s (SWCC) Ras al-Zour power and water project merged with Saudi Arabian Mining Company’s (Maaden) power plant at its aluminium complex. 

The merger led to the first change in the country’s oil-fired strategy as Ras al-Zour was converted to a gas-fired project. This was because the Maaden power scheme had already secured a gas allocation from the government for its plans to build an aluminium smelter on the site.

[Riyadh] was keen to use precious gas resources for export-driven industry, rather than power and water production

Now that contracts to build the combined project, which will feature power generation and water desalination, have been awarded, attention is turning to upcoming schemes to see if Saudi Arabia will hold firm on its commitment to its oil-fired policy.

The 2006 policy marked a significant departure for the kingdom: the western and southern regions had long been using liquid fuel for generation, but the Eastern Province and central region were firmly aligned with gas.

The kingdom’s power and water providers lobbied hard for the decision to be reversed, arguing that heavy fuel oil would lead to increased capital costs and higher tariffs being charged by developers.

But the government stated that the decision would not be overturned as it was keen to use precious gas resources for export-driven industry, rather than heavily subsidised domestic electricity and water production.

If the government’s priorities remain unchanged, it will need to work hard to ensure that it enforces the policy with its upcoming projects, including independent projects and facilities constructed on an engineering, procurement and construction basis like Ras al-Zour.

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