Negotiating your own demise
Is Saudi Arabia and Saudi Aramco's shift towards sustainable development forced or voluntary?
Saudi Aramco’s Path towards Sustainability
“How does a country negotiate its own perceived demise?”[1] This question posed by journalist Antonia Juhasz in a 2015 Newsweek report relating to the UN’s 21st Conference of Parties is one worth considering when thinking about Saudi Arabia’s role leading up to the climate change discussions.
Until recent years, leaders of oil-dependent economies have focused on reaping the economic and social benefits of their limited natural resources to drive growth and prosperity. Like a double edged sword, the path towards development has also paved the way towards long-term impacts on energy sustainability and the environment. For many countries and companies, finding the balance between long-term growth and sustainability has proved difficult.
Threats and Opportunities in Combating Climate Change
Deploying renewable power and targeting energy efficiency strongly depends on oil revenues. Saudi Arabia controls 16% of the world’s proven oil reserves with the oil sector accounting for roughly 80% of budget revenues, 45% of GDP, and 90% of export earnings.[2]
The country embarked on a National Transformation Program (‘NTP’)[3] aimed at preserving natural resources and diversifying the economy by channeling oil earnings into lower emission sectors ranging from financial services and tourism to renewable energy and efficiency technology to enhance growth[4]. Plans to diversify the energy mix would lead to co-benefits in pursuing economic diversification from oil, while contributing to greenhouse emission (‘GHG’) mitigation and adaptation to climate change. Today, the key issue for Saudi Arabia and its national oil company Aramco is around accountability and commitments to limit warming below 1.5°C [5].
Mitigation and Adaptation Measures
During the Oil & Gas Climate Initiative, ten member companies including Aramco, BP and Shell agreed to increase their investment to combat climate change. The program committed to significant investments in natural gas, carbon capture and storage (‘CCS’), renewable energy, as well as low-GHG research and development.
- Gas flaring – total flared gas is industry-leading at less than 1%.
- Zero discharge technology – in 2014 recovered 415,000 barrels of oil by deploying technology at well sites to enhance recovery
- Fuel efficiency – a range of advanced R&D projects including the development engine efficiency to increase the mileage efficiency of vehicles and reduce pollutant emissions of future engines
- CCS –launched its first CO2 Enhanced Oil Recovery pilot in 2015. Also invested in technology start-ups, including Novomer[7], which develops catalysts capable of efficiently and profitably converting CO2 into valuable products.
- Renewables –targeted renewable capacity of 54GW and 17 GW of nuclear energy by 2032.[8]
Delivering on the Promise
Climate Change Tracker reported that Saudi Arabia failed to honor its commitment to holding warming below 1.5°C. According to the report, “if most countries followed this approach, global warming would exceed 3–4°C. To contribute with a minimum effort, Saudi Arabia would need to at least triple its proposed abatement and overall ambition” [9]. Planned policies aimed at diversifying the energy mix, have recently been downscaled following an initial delay of eight years. In the NTP the renewable power plans are lowered to 9.5 GW in 2023 and nuclear power is no longer mentioned.[10]
Additional Mitigation Measures
Aramco should use the Energy Management Program to implement measures that will support mitigation actions and promote energy efficiency on a national level. Focus should be on the industry, building and transportation sectors that collectively account for over 90% of local the energy demand[11]. Support initiatives should be set with the increase of efficiency standards within these sectors. It should improve the efficiency of facilities, by replacing lower efficiency power plants with higher technology and efficiency plants thus helping drive significant fuel savings in the utility sector.
Finally, Saudi Arabia and Aramco should re-shift their focus to invest in necessary infrastructure and implement ambitious programs for the increased contribution of renewable energy to the mix.
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[1] Antonia Juhasz, “Suicidal Tendencies: Saudi Arabia Could Derail COP21,” Newsweek, December 09, 2015. http://tinyurl.com/h2b5p6p, accessed November 01, 2016.
[2] “Saudi Arabia,” Forbes, December 2015. http://www.forbes.com/places/saudi-arabia/, accessed November 02, 2016.
[3] National Transformation Program 2020, report, January 2016.
[4] The Intended Nationally Determined Contribution of the Kingdom of Saudi Arabia under the UNFCCC, report, UNFCCC.
[5] IPCC Secretariat. Forty Forth session of the IPCC. Technical paper. Intergovernmental Panel on Climate Change. IPCC-XLIV/L-2 (20.10.2016).
[6] “Saudi Aramco Makes Joint Collaborative Declaration on Climate Change with Oil and Gas Industry CEOs.” Saudi Aramco. October 16, 2015. http://www.saudiaramco.com/en/home/news-media/news/COP21.html, accessed November 02, 2016.
[7] “Saudi Aramco Energy Ventures LLC Announces an Equity Investment into Novomer Inc.” Transforming Pollution into Sustainable Polymers & Chemicals. December 10, 2013. http://tinyurl.com/ztctnft, accessed November 03, 2016.
[8] Saudi Arabia’s Renewable Energy Strategy and Solar Energy Deployment Roadmap. Report. King Abdulaziz Center for Atomic and Renewable Energy. 23
[9] Tracker, Climate Action. “Saudi Arabia.” – Climate Action Tracker. November 02, 2016. http://climateactiontracker.org/countries/saudiarabia.html , accessed November 03, 2016.
[10] Borgmann, Moritz. “Potentially Game-changing Saudi Arabian Government …” May 9, 2016. http://tinyurl.com/zqeeo2p, accessed November 4, 2016.
[11] World Energy Outlook. Report. International Energy Agency. 2015 ed.
Interesting post! I would note that among Saudi Arabia’s major roadblocks to limiting emissions is the lack of capabilities. Developing and operating energy-efficient and renewable technologies requires specialized skills and know-how that are scarce in the hydrocarbon-focused Saudi economy. One way of acquiring these capabilities is through partnerships with leading international players in the sustainability space. An example is Mubadala (Abu Dhabi Sovereign Wealth Fund) and its Shams 1 project, a 100MW Concentrated Solar Power plant in Abu Dhabi built and operated as a partnership between Mubadala (60%), Total (20%), and Abengoa (20%). Through this partnership, Mubadala can leverage Total and Abengoa’s capabilities to diversify Abu Dhabi’s energy matrix.
I really enjoyed this post’s introduction, as it highlights the importance of a private companies working alongside public entities to create and strive for the goal of a sustainable future. Setting the close ties between public and private entities in Saudi Arabia, one can still discern the important of such a coalition.
Oil companies are in a unique position, as they chief revenue source becomes more scarce. In reality, the world will not actually run dry of oil. Supply and demand theory shows that the cost of oil will become so prohibitively high that consumer demand will drop and companies will consolidate or fold. This is forcing oil-focused companies to hedge their portfolios with natural gas and other sources of energy.
After reading your post, I found myself asking a few other questions about the topic. To what extent, if any, has Saudi Aramco diversified their portfolio of energy sources? This would, in collaboration with the government, help achieve the goals stated in the Oil & Gas Climate Initiative. Also, is Saudi Arabia simply in denial of the implication of slowing worldwide demand for oil does the country simply have confidence in a steady demand?
Thank you RM, this was very interesting to read. I would say that the relationship between Saudi Arabia and Saudi Aramco is one of the strongest private-public relationships in modern days and I believe that as Saudi Arabia begin reforms in terms of how to better utilize its mineral resources to create a welfare state, I also believe the role of Saudi Aramco will be renewed. And a drastic change in terms of energy profile is very unlikely due to the importance of oil to Saudi Arabia’s economy as you mentioned and would be irresponsible since the technology is still very concentrated in a few countries and as its efficiency is still to be scaled up.
I think the other commenters have done a nice job of laying out the tough problem Saudi Arabia and Aramco have to deal with, which is the balancing of much needed short-term revenue with long-term sustainability. What is most interesting to me, however, is the note from your post, “the oil sector [accounts] for roughly 80% of budget revenues, 45% of GDP, and 90% of export earnings.” The 2014-present drop in oil prices from ~$105/bbl to its current price of $44/bbl has caused severe economic distress in Saudi Arabia (http://www.alternet.org/world/why-saudi-arabia-suddenly-serious-trouble). In my view, Saudi Arabia must innovate in energy efficiency and decouple its economy as a whole from oil & gas dependency. Otherwise, Saudi Arabia will continue to see short-term volatility and long-term economic decline as the world moves away from hydrocarbons over decades-long time frames.
Great article ! I think this article is very well documented and gives some very useful context points, complementing what we can read in the news these days around how the Saudi government is investing the proceeds of oil to other “greener” or more promising industries. I am stronglt convinced that the Saudi government should leverage the revenues generated by oil to invest in R&D and become the next powerhouse for green and sustainable energy. After all, Saudi Arabia could become a leading country in Solar Power. While this would not pay off immediately, that would provide them with more sustainable sources of revenue in the future.