Saudi oil desire is dwindling amid renewables push
Saudi Arabia, recognized as the world’s largest net exporter of crude oil, is turning to renewable energy sources to significantly cut down on its petroleum consumption. The challenge facing the kingdom’s producers does not stem from the electric vehicle hubs of Shenzhen, Oslo, or San Francisco; rather, it originates from within their own territory. This marks an extraordinary reversal. Since the dawn of the 21st century, Saudi Arabia has seen its oil consumption rise more significantly than any other nation, with the exception of China and India. The figure has surged to 2.3 million barrels per day, surpassing the additional demand from regions such as Africa, Latin America, or the former Soviet Union.
According to reports, between a quarter and a third of the country’s consumption is directed towards crude- and fuel oil-fired generators, which are essential for providing electricity during the sweltering summer heatwaves. The government aims to transition entirely to renewable energy, setting an ambitious target of 130 gigawatts by 2030, which is approximately equal to the total solar power capacity in India. The International Energy Agency suggests that such a switch could signify the most significant drop in oil demand in the coming five years. The country’s ambitions are well-documented and widely recognized. Vision 2030, a program unveiled in 2016 aimed at reducing the kingdom’s reliance on hydrocarbons, identified a key objective: transitioning the grid to a dedicated gas-renewables mix.
However, such bold pronouncements are often met with skepticism when it comes to Saudi Arabia. This country has been engaged in the construction of an unfinished one-kilometer (0.62 mile) skyscraper since 2013. Recently, it sought the expertise of consultants to assess the feasibility of The Line — a seemingly implausible science fiction city designed to accommodate nine million residents within a 170 kilometer-long tower. Kpler, a data company specializing in tracking commodities flows, estimates that merely 11.6 GW of the anticipated 130 GW will be operational by 2030. A significant shortfall could ensure that crude remains a viable option for power generation for the foreseeable future.
It may be necessary to begin reassessing the validity of that skepticism, though. A significant disparity exists between the promises made and the actual execution concerning the kingdom’s megaprojects. Despite the challenges, one of the world’s largest petroleum producers has demonstrated a commendable history in constructing routine energy infrastructure, in contrast to more ambitious projects like a cube-shaped hollow tower reaching the height of the Empire State Building. The impact is now evident not only in wells and export facilities but also in the renewable sector. Following years during which the sole significant solar project connected was a relatively modest 0.3 GW plant situated in the deserts between Jordan and Iraq, there has been a noticeable acceleration in the pace at which generators are now being plugged in.
Since the beginning of 2024, ACWA Power Co., recognized as the largest electricity and water developer in the country, has commenced commercial operations at four solar facilities, which collectively generate approximately 4.9 GW. The company recently informed investors that approximately the same amount is set to commence by the end of next year, following the successful completion of a 7.125 billion riyal ($1.9 billion) capital raising. In a significant development last month, agreements were reached with Saudi Arabia’s primary utility to construct an additional 15 GW, with completion expected by mid-2028. ACWA aims to achieve a significant milestone, targeting 78 GW by 2030. This capacity would be enough to cover all the electricity that Saudi Arabia produced from oil in the previous year. There is significantly more on the horizon from various developers.
As ACWA provides investors with comprehensive timelines for upcoming completion dates, the responsibility now shifts to skeptics to justify why the recent trend of successful project execution might falter. Saudi solar plants are capitalizing on the region’s abundant sunlight, enabling them to provide electricity at less than half the cost of traditional grid sources. In engineering terms, arrays of panels are considerably simpler compared to the complex processes involved in petroleum extraction, transport, and refining, areas in which the kingdom has historically excelled. The construction of renewable energy sources is essential for the nation’s primary focus: its standing in the oil market. Saudi Arabian Oil Co. President Amin Nasser provided a rationale for the decision to reduce maximum output capacity last year, stating that “removing crude from the domestic grid would boost exports as effectively as drilling extra wells.”
During a recent meeting with Aramco investors, he confirmed that the plans to eliminate oil from the grid by 2030 are still “on track.” Competitors of Saudi Aramco may wish to consider that point. Nasser believes that the country’s transition justifies a reduction in investments aimed at addressing potential future demand. The kingdom’s grid consumes more oil than the combined total of all cars and scooters in India. If a significant consumer of the world’s crude is set to exit by the end of the decade, the already oversupplied market may face an even deeper glut.
