Top Oil Exporter Saudi Arabia, Led By The Crown Prince And New Prime Minister, Is Greening Up.


Big oil statistics.

With oil production at 11 million bpd (barrels per day) Saudi Arabia is the second top oil producer – a country of population only 35 million. The US is the top producer at over 12 million bpd and a population of 350 million. Russia comes in third. But Saudi Arabia is the top oil exporter.

Aramco is the state-owned oil and gas company of Saudi Arabia. Before the Dow-Jones index recently jumped by 1200 points in a single day, Aramco was the most valuable company in the world. Now it’s the second most valuable company behind Apple
AAPL
with a market cap of approximately $2.3 trillion.

Last year, Aramco made profits of $110 billion compared with $95 billion by Apple. Exxon made $23.0 billion and bp made $7.6 billion. For context, bp spent $56 billion total damage and cleanup fees after the blowout and gigantic oil spill of the Deepwater Horizon rig in the Gulf of Mexico in 2010.

Since 1930s, when oil was discovered, Saudi Arabia has produced 267 billion barrel (bbl) which is 15% of the world’s total. These days, they pump 11 million barrels per day (bpd) which is about a tenth of the world’s supply, and they sell 7 million bpd to customers around the world.

Mohammed bin Salman (MBS) is the crown prince of Saudi Arabia, and was this week named Prime Minister. At just 37 years old, MBS is the de facto leader of the country.

He is chairman of the Public Investment Fund, or PIF, which is a sovereign wealth fund. In February, MBS transferred $80 billion from Aramco to PIF, so the oil giant is supporting many other country projects. The fund’s assets, now at $620 billion, also shot up after purchasing stocks in companies beaten down by the pandemic – stocks such as Netflix
NFLX
, Carnival Cruises, Marriott hotels, and Lucid Motors.

Climate concerns.

There are climate concerns inside and outside Saudi Arabia. For starters, one of the hottest countries in the world has average daily maxima of 104-114 degrees F in June, July and August. A lot of energy is spent cooling homes and this shoots up with every degree of temperature rise.

With oil production at 11 million bpd, there is an enormous release of greenhouse gases (GHG) whether the oil is burned in-country or sold to other countries. The unavoidable consequence is that oil and gas cause about 50% of GHG emissions, so both Saudi Arabia and the US, as well as Russia, are in the crosshairs.

Stated another way, Saudi Arabia has been responsible for 4% of global GHG since 1965. When other countries declared their intention to achieve net-zero emissions by 2050, the Saudis struggled along with China and India but for different reasons. They all settled for net-zero by 2060 instead of 2050.

China and India have such huge populations that it will take longer to adapt to net-zero, especially with a large fraction of their populations yearning for higher quality of living.

Saudi Arabia is at the other bookend. With a population of only 35 million, they have tremendous country wealth to lift their population to a higher living standard, but all the wealth comes from fossil fuel and its demon emissions. It’s hard to turn off the wealth taps.

In fact the Saudis, as de facto leaders of the OPEC cartel, recently pushed through a cut in production, presumably so their oil production and sales will last longer.

Energy transitions:

Yet the Saudis are not doing nothing about transitioning to renewable energies. Saudi Arabia and UAE
UAE
have been producing liquid hydrogen and shipping it to Japan. Egypt and Saudi Arabia have commissioned wind farms of 400 MW and 1.7 GW.

With Egypt they have plans for a grid-scale 1 GW battery that is bigger than the best ones in current operation (about 300 MW).

Saudi Arabia are planning to plant 50 billion new trees in the region – and 50 billion is a number so large that it’s hard to comprehend.

Less energy waste: Saudi Arabia and UAE are driving energy efficiency to higher levels using sophisticated business models.

A powerful demotivation for energy transition is that Middle-Eastern countries like Saudi Arabia have the lowest cost of household electricity in the world at 5 c/kWh compared with the US cost of 16c/kWh.

Eco-city in the desert.

Saudi Arabia has launched a vision for a new climate city in a desolate stretch of desert between the Red Sea and the country of Jordan. MBS is the drive behind this, as part of his vision to green Saudi Arabia.

The city called Neom is a $500 billion project that will be a green city that is built in a straight line for 110 miles, with no cars, but with a hyper-speed rail.

A huge expanse of solar panels will provide endless energy, as the city is to be totally powered by renewable energies. NEOM will trial whether green hydrogen from electrolysis can supply all the electricity needs – the first green hydrogen plant will cost $5billion.

Saudi Arabia has the money to pull this off, and progress at Neom will help decide whether this is just a token climate enterprise, or a real deal alternative to reduce the country’s dependence on oil and gas.

Recent progress.

KAPSARC is a petroleum research and development enterprise in Riyadh. Some of their R&D plans are focused on climate:

· Developing a network of EV charging stations.

· Constructing 33 solar and wind projects.

· Upgrading homes and offices with green electricity plus other energy efficiencies.

· Capture methane emissions from oil and gas fields plus pipeline transport to a plant 50 miles away to convert to petrochemicals.

· How to transport blue hydrogen from methane to southeast Asia and Europe. The Saudis delivered blue ammonia to Japan starting in 2020, and have deal with Germany to produce green hydrogen.

· Synthetic fuel from captured carbon and hydrogen will cut pollution from cars by 80% to market in 2025.

· The city of NEOM – see above.

One overarching goal for a green Saudi Arabia is to cut its own consumption by 1 million bpd and sell it overseas for $100 million per day. This will help justify the cost of getting to net-zero by 2060.

But critics note that their green transition scenario omits Scope 3 emissions which are probably 80% of oil production (Scope 3 are emissions caused by products a company makes and sells to other buyers). This is called greenwashing by some because it lacks credibility, and also because the Saudis’ goal is to increase oil production to 13 million bpd.

Takeaways.

The Saudis emphasize the vital need for oil and gas that will last for many decades across the world – a position expected because oil and gas are the country’s primary industry. But also, fossil energy is so cheap that there is no economic incentive to begin a transition to renewable energies.

The reality for Saudi Arabia’s energy transition is they don’t want to cut production of oil but they do want to cut carbon emissions in production operations. This is similar to the goal of many oil companies operating in the US, but lies in contrast to climate scientists who argue it is necessary to cut oil and gas production and switch to renewable energies.

To carry out their strategy, the Saudis are implementing AI in one of their NASA-like control rooms to monitor oil operations using 60 drones and a fleet of robots in hundreds of different oil fields, amounting to 5 billion data points collected in real time. Numbers and graphs displayed on a wrap-around wall are designed to reduce emissions while continuing to produce oil.

The bottom line as far as climate is concerned: just a year ago MBS announced at COP 26 in Glasgow that Saudi Arabia would be net-zero by 2060. Beyond 2050, they reason the world will still need lots of oil and gas, but also the world will be more adaptable to climate change by then.

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