Saudi Arabia is the second-largest crude oil producer – sitting just ahead of Russia, and below the US – with the desert nation extracting almost 12.5 million barrels of oil a day (mbbl/d) from its vast proven reserve of around 267,192mbbl.
The kingdom was also the world’s top oil exporter in 2022, selling well over $230 billion barrels, or around 16% of global oil exports.
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As a founding member of the Organization of the Petroleum Exporting Countries (OPEC) and a key player in the OPEC+ alliance, the nation retains roughly 82% of the shares of state-owned Aramco, one of the largest companies in the world by revenue. Its sovereign wealth fund, the Public Investment Fund (PIF), holds an additional 16%.
Because of its substantial spare capacity, estimated at 2mbbl/d, Saudi Arabia has long acted as the so-called swing producer in global oil markets, essentially letting its production fluctuate with changes in demand.
However, the nation is now looking to boost non-oil energy sources and diversify its energy mix as part of its VISION 2030 plan, an extensive and “ambitious road map for economic diversification, global engagement and enhanced quality of life”.
It has a target to reach 130GW of renewable power capacity by 2030.
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By GlobalDataPat Thaker, editorial director (Middle East and Africa) at the Economist Intelligence Unit (EIU), the research division of the Economist Group, tells Offshore Technology that “VISION 2030 aims to reduce the kingdom’s heavy economic dependence on oil. This task has been given added urgency by the global focus on tackling climate change and pressure for a shift away from fossil fuels.”
The plan forms part of the Saudi Green Initiative (SGI), described by the government as a “whole-of-society climate action driving long-term change”.
Three overarching targets guide the SGI’s work: emissions reduction, afforestation and land regeneration, and land and sea protection. Since its launch 2021, it has overseen the launch of more than 80 initiatives.
Saudi Arabia’s renewable goals
GlobaData’s research indicates that Saudi Arabia is working hard towards producing substantial amounts of power from renewable sources, as well as playing an active role in developing clean technologies. The country aims to reduce its domestic consumption of fossil fuels and utilise greener resources for export, which it is sure will also benefit the economy.
According to Nicolas Daher, the EIU’s lead energy analyst, Saudi Arabia “currently generates almost all of its electricity from fossil fuels, of which 60% comes from natural gas and about 40% from oil”.
By 2030, it aims to achieve a true energy mix for electricity production, with renewable energy contributing around 50%. This mix is expected to displace roughly 1mbbl of liquid fuel.
However, the EIU “believes this goal will be missed, as meeting it would require heavy investment from the state coffers in generation, grid and storage infrastructure”. Nonetheless, EIU analysts anticipate a rapid expansion of renewable energy projects in Saudi Arabia during the coming decade.
Daher argues that “installed renewable capacity (solar and wind combined) will surge to about 27GW in 2030, from around 1.6GW in 2023, and from only 0.1GW in 2020, pushing up renewable generation from just 0.7% of the total in 2023 to about 10% of the total in 2030”.
According to the analyst, this falls some way short of the nation’s goal but still represents a major step forward considering how little renewable energy is currently on the Saudi grid.
A SGI statement from late 2023 revealed that since 2022, an additional 2,100MW of renewable energy has been connected to Saudi Arabian power grid, bringing the total capacity of installed renewable energy to 2.8GW. This generates enough energy to power more than 520,000 homes.
The statement added that this “marks a 300% increase in installed capacity, demonstrating the pace at which Saudi Arabia is accelerating its energy transition”.
The kingdom is also focusing on the development of green hydrogen. The National Hydrogen Strategy aims for a $36bn (SR135bn) investment by 2030 to establish the country as the world’s leading hydrogen producer and supplier.
NEOM, a vast urban living area being built near Tabuk, northern Saudi Arabia, exemplifies this vision with plans for a $5bn green hydrogen plant by 2026, powered by around 4GW of solar and wind power.
According to GlobalData, which monitors more than 170,000 power plants worldwide, the project is currently under construction and will be completed in a single phase, with commissioning expected in 2026.
As part of its renewable efforts, the National Renewable Energy Programme was also introduced in 2019 to boost Saudi Arabia’s renewable energy production share, achieve a balanced energy mix, and fulfil carbon dioxide emission reduction commitments.
Impact on the Saudi Arabian economy
Saudi Arabia has two distinct advantages when it comes to large infrastructure or energy projects: extensive financial resources, and the freedom from lengthy bureaucratic processes and prolonged decision-making.
Saudi Aramco is likely to be a key element in the Saudi energy transition plans and the subsequent plans to increase green energy revenue. In line with the VISION 2030 economic strategy, the Saudi Government plans to conduct a multibillion-dollar share sale for Aramco, building on stock market moves that started several years ago.
Aramco, the primary company involved in oil exploration and production in Saudi Arabia, went public in 2019, selling 1.5% of its shares on the local stock exchange at $8.53 per share, as per GlobalData, with shares trading at around $7.50 in August 2024.
Aramco currently holds second place among the world’s largest companies based on market capitalisation. In 2023, its revenues reached $440bn, and it has a current market capitalisation of more than $1.7trn, just over half that of technology giant Microsoft. Aramco’s revenues currently account for around 40% of Saudi Arabia’s entire gross domestic product (GDP).
The profits support hundreds of billions of dollars in Saudi investments globally through the PIF, which plays a crucial role in supporting economic diversification and is aiming to channel $40bn (or around 5% of GDP) a year into domestic investment.
By the end of 2023, for the first time ever, non-oil activities in Saudi Arabia accounted for 50% of its GDP, according to the latest report from the kingdom’s National Industrial Development and Logistics Programme.
Political influence and greenwashing
Several reports indicate concerns about potential greenwashing within the SGI.
And as per the European Centre for Democracy and Human Rights, a thorough examination of Saudi Aramco’s Sustainability Report reveals significant differences between what is said and what is done.
Even though the company has committed to achieving net-zero emissions by 2050, its goals do not fully align with the objectives of the Paris Agreement. The absence of end-use emissions and the reliance on carbon offsets raise doubts about the genuineness of Aramco’s environmental pledges.
Coexistence of renewables and fossil fuels
According to the EIU editorial director, the Saudi economy’s reliance on oil is emphasised because petroleum products comprised almost two-thirds of the country’s energy mix in 2022, contributing to nearly 80% of export earnings and 68% of government income.
“The oil sector will remain the major driver of real GDP growth over the forecast period, despite the government’s plans for economic diversification and a shift towards the greater use of natural gas and, especially, renewables,” Thaker says.
In any scenario, it would not be feasible to envision a period when large areas of the Middle East do not produce and supply oil; any change in dependence on oil would likely occur gradually, possibly very gradually. The EIU experts noted that ceasing oil and gas production completely is extremely unlikely.
