Saudi Aramco to go solo on power

18 November 2010

Plan to build a series of power plants for itself in the kingdom will reduce burden on state utility

Abu Dhabi National Oil Company (Adnoc) has decided that rather than continue to build its own power plants, it will trust the emirate’s power provider to do the job for it.

In sharp contrast, Saudi Aramco has come to the opposite conclusion. It will develop another series of power plants for its use.

In 2010, Saudi Arabia’s oil export revenues are expected to be more than $190bn. This translates into oil export earnings of more than $500m a day. At the same time, the Saudi budget is expected to end 2010 with a deficit of about $2.2bn.

Clearly, the consistency of the kingdom’s oil industry is a major concern not just for Saudi Aramco, which is responsible for oil production, but also for the Saudi government. Any extended period of production cuts because of power issues could result in the loss of millions of dollars of revenue.

Aramco’s decision to develop more power plants illustrates not just the importance of oil, but also a lack of faith in the ability of Saudi Electricity Company (SEC), the state utility, to provide it with the power it needs. Whereas Adnoc trusts Abu Dhabi’s utility provider, Aramco feels safer looking after itself.

Power plant developers should reap the rewards. Six new projects will be tendered with Saudi Arabia’s strongest company as the sponsor. Aramco’s pressing need for more power as it brings more projects on stream means that work will have to progress faster than with other SEC projects, the most recent of which has stalled over problems with the fuel supply for the project.

Although Aramco’s decision not to rely on SEC should be a relief. SEC is struggling to develop power capacity fast enough to meet the demands of the kingdom’s growing population and industrial sector.

The broader economic diversification strategy of the kingdom cannot afford to be held up by a shortage of power, and Aramco is well placed to develop its own energy resources.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications