Saudi Arabia has made some headway in reducing the volumes of oil it burns to generate electricity — a practice that it hopes to eliminate by 2030. The Kingdom’s decarbonization strategy aims for a 50:50 split between renewables and natural gas for power generation by the end of the decade.
According to the latest figures submitted to the Joint Organisations Data Initiative (JODI), the amount of oil (crude oil and other liquids) burned directly to generate electricity declined year-on-year in the first half of 2024 for the first time since 2018. Saudi Arabia burned 1.006 million barrels per day (bpd) of oil from January to June 2024 compared with 1.014 million bpd during the corresponding period of 2023. However, the annual average could be higher with direct burn in June spiking to 1.42 million bpd, the highest monthly record.
The fact that the incremental drop in direct oil burn in the first half came despite the surge in electricity demand is promising. Whether the JODI figures point to a trend remains unknown, as the demand for electricity for air conditioning and desalination is at its highest during summer. The second-half data will provide a more accurate picture.
Economic diversification and energy demand
Total oil burn, including fuel oil, averaged 1.01 million bpd in May — the lowest figure for the month since 2020. But the volume rose by more than 40 percent in June, the highest since June 2022, when Saudi Arabia burned 1.48 million bpd of oil. Saudi Arabia’s electricity generation surged by 6 percent in the first half of the year. Yet, oil burn is down against 2023 levels thanks to higher gas availability and the growing share of renewables.
Although Saudi Arabia has implemented energy subsidy reforms and energy efficiency measures in an effort to tame high consumption, the Vision 2030 economic diversification plan has been driving electricity demand because of electrification and a focus on industrialization. Saudi Arabia’s non-oil economy has been growing at 4 to 5 percent annually as a result of economic diversification, though higher taxation has also contributed.
According to the International Monetary Fund in a June Article IV report, Saudi Arabia’s real non-oil growth decelerated from 5.3 percent in 2022 “to a still robust 3.8 percent in 2023, driven mostly by private consumption and non-oil investment, with the latter tapering off to 11.5 percent (down from an exceptional 32 percent growth in 2022).”
This growth in the non-oil sector, coupled with increased electrification of large parts of the economy, is likely to lead to higher demand in the years ahead. The key question is whether this will be driven by natural gas or renewables.
Expanding gas production and renewables
Saudi Aramco recently awarded contracts worth $25 billion for gas production and expansion of the country’s Master Gas System. It plans to start the first phase of the Jafurah unconventional gas project, with a capacity of 200 million cubic feet per day (cfd), after awarding contracts for phase 2. The second phase will increase capacity to 2 billion cfd by 2030.
Other gains will also come from the Tanajib gas processing plant, which will add 2.6 billion cfd to capacity and is due for completion next year, according to a report by specialist publication MEES.
Aramco said it is targeting sales gas production growth of more than 60 percent by 2030, compared to 2021 levels.
In the renewables sector, new solar capacity is being added at a rapid pace though Saudi Arabia’s renewables capacity remains marginal. As new projects come online, renewable energy capacity could nearly triple to 12.7 gigawatts next year.
Saudi Minister of Energy Prince Abdulaziz bin Salman has said that starting in 2024, the Kingdom plans to award new renewable energy projects with a capacity of 20 gigawatts annually. The goal is to reach 100 to 130 gigawatts of renewable capacity by 2030.
Tapping into nuclear energy
Riyadh also has long-standing plans to add nuclear power to its energy mix. However, discussions with the United States are tied to a resolution of the war in Gaza. One sticking point in the past has been Riyadh’s insistence on enriching uranium. A recent report suggests there has been some progress. Bloomberg stated on June 14 that U.S. National Security Council officials briefed members of Congress on a proposed nuclear technology-sharing deal with Saudi Arabia. It quoted a senior US official as saying the deal includes non-proliferation elements.
Adnan Shihab-Eldin, a nuclear expert who previously served as acting secretary general of OPEC, said in a recent interview that in the Gulf Arab countries nuclear power “can play a crucial role in decarbonizing domestic energy sources and providing economic incentives.”
In a discussion in July with Sciences Po, the venerable French research institution, he said the focus of the decarbonization effort by the Gulf Arab countries so far has been on renewable energy as the cheap option. However, solar and wind power are intermittent. He said that nuclear power would provide a clean and reliable base load source of fuel.
“In the medium to long term, a mix of renewables supported by nuclear power plants will provide emission-free power generation, even reducing emissions from the transportation sector,” Shihab Eldin said. Nuclear power could also be used for water desalination instead of gas. “So you can combine nuclear to run desalination plants when the demand for nuclear power is low because the sun is shining and renewable power is abundant.”
Read: ‘Virtual’ oil barrels dwarf trade in physical oil
UAE’s successful peaceful nuclear power program
Of the Gulf Arab states, only the UAE has implemented a successful peaceful nuclear power program, which Shihab Eldin says is the “gold standard.” He was referring to the Barakah nuclear power plant outside Abu Dhabi. It accounted for 32 percent of total power generation in the UAE last year, leading to a sharp drop in gas consumption.
Shihab Eldin said that the Saudi program is taking longer due to the complexities of technology transfer and the commitments to the Nuclear Non-Proliferation Treaty (NPT). Saudi Arabia wants to retain their right, under NPT, to enrich its domestic uranium, while the UAE gave up this right in an agreement with the US. He explained that the Saudis want a different agreement, in part, because they have large domestic uranium deposits.
“Second is their desire to retain parity with Iran — the Iranians have achieved the capacity to enrich uranium to near weapons grade. The Iranians claim their enrichment program is peaceful. But of course, there is always a dual purpose [to uranium enrichment]. And the Saudis do not want to give up their right even as they currently have only peaceful intentions. This geopolitical factor must be addressed,” according to Shihab Eldin.
About Kate Dourian
Kate Dourian is a non-resident fellow at the Arab Gulf States Institute in Washington. She is also a fellow at the Energy Institute. Previously, she was the regional manager for the Middle East and Gulf states at the World Energy Council. Dourian joined the IEA from the Middle East Economic Survey where she was a senior editor. She was also responsible for compiling the monthly OPEC survey for MEES. From 2000-13, Dourian was the editor-in-chief for the Middle East for oil price reporting agency Platts.
Dourian has been a speaker and moderator at international conferences and has made many radio and television appearances, discussing energy and geopolitics on several platforms in English, Arabic, and French.
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