Global Policy Forum

Helping a Neighbor Ease its Oil Use


The renewable energy firm Masdar backed by the Abu Dhabi government is looking into diversifying the energy mix in neighboring Saudi Arabia. With rising oil-consumption in Saudi Arabia owing to extravagant lifestyles, analysts speculate that “demand will grow threefold in the next 20 years, with supply unlikely to keep up.” When one of the biggest global oil producers is investing in energy diversification with future consumption rates in mind, there really is little excuse for other big energy consuming countries not to do the same. While diversification does not address energy overconsumption, it could be the first step towards a more sustainable model.

By Sara Hamdan

October 1, 2012

Masdar, the Abu Dhabi government-backed renewable energy firm with investments all over the world, is looking into investing in neighboring Saudi Arabia for the first time.

“We are always looking for interesting opportunities locally or internationally, so long as they make sense,” Sultan Al Jaber, the chief executive of Masdar, said by telephone. “Like we have been doing the past few years in the U.A.E., they have realized now in Saudi that by including renewable energy in their portfolio, it will save energy and impact exporting capacities.”

Masdar has made diversified investments in places like Spain and the Pacific island of Tonga, but now it has its eyes on a neighbor that is eager to add alternative sources to its energy mix.

Oil consumption in Saudi Arabia has almost doubled in the past 10 years to support lifestyles that often include big homes, fast cars and big shopping malls relying on low-cost energy. Analysts say demand will grow threefold in the next 20 years, with supply unlikely to keep up.

Oil consumption in Saudi Arabia is now running at about 2.9 million barrels a day, which is close to one third of the 10 million barrels produced daily. This domestic use of oil ultimately limits the export capabilities of the kingdom, the biggest oil producer in the Organization of the Petroleum Exporting Countries.

In 2010, the Saudi government addressed the issue by following in the footsteps of Masdar and establishing the King Abdullah City for Atomic and Renewable Energy, known as K.A.Care, to look into alternative energy sources. While Masdar focuses exclusively on renewable energy, K.A.Care adds atomic energy initiatives to its mandate.

Mr. Al Jaber declined to give details on the likely timeline or size of any possible investment in Saudi Arabia. But other Masdar executives said that Masdar and K.A.Care were looking into setting up a partnership to develop joint projects that would help to build a truly diversified energy sector in the kingdom.

Saudi Arabia’s electric power generating capacity today totals less than 50 gigawatts, easily enough to meet current demand. But that demand is set to triple in the next 20 years, according to Khalid Al Sulaiman, vice president of renewable energy for K.A.Care. By 2032, he said, projections show that there is likely to be demand for 120 gigawatts of power, resulting in a projected shortfall in the energy supply of more than 60 gigawatts if the economy continues to rely completely on hydrocarbons for power generation, and energy consumption patterns remain unchanged.

K.A.Care’s answer to this challenge is to put financial and technical support behind the development of alternative energy resources, including an ambitious target of generating up to 41 gigawatts of energy, or one third of future supply, from solar plants by 2032.

“We need to provide encouragement and investment behind these new initiatives,” Hashim Yamani, president of K.A.Care, said in an e-mailed statement. “In Saudi Arabia, we are taking big steps in the areas of renewable and atomic energy for these reasons.”

K.A.Care’s plan to harness sunshine to generate the same amount of energy in 20 years as is produced today through traditional methods is a pricey undertaking that will cost more than $100 billion. Yet on Sept. 17, the kingdom announced plans to spend $109 billion in thesolar energy sector alone, proving that oil producing economies in the Gulf are taking renewable energy very seriously.

“Some entities bad-mouth renewable energy and say that it’s too expensive,” Bill Richardson, the former U.S. energy secretary, said in an e-mail comment last month. “But oil production is finite and susceptible to volatile pricing in a way that makes it even more important to add alternative sources to an existing energy mix, the way Masdar has done quite effectively.”

Since its inception in 2006, Masdar has been a pioneer in the field, investing heavily in projects aimed at diversifying the U.A.E.’s economy away from oil dependence.

Local projects include the 100-megawatt Shams One solar plant in the Emirates, while global initiatives include a solar plant in Tonga, a clean-energy initiative in Afghanistan that will provide 600 households in eight isolated villages with solar power and, in Spain, the world’s first power plant capable of generating 24 hours of uninterrupted solar power.

These investments are all part of an effort by Abu Dhabi to reach a goal of having 7 percent of energy use derived from alternative sources by 2020, according to analysts.

Now, it seems, Saudi Arabia is looking to do the same.

“The energy mix approach that Masdar encouraged from the start is very important for the sustainable development of the region, especially as our economies and populations grow,” said Mr. Al Jaber of Masdar. “The Saudi initiatives now will have a spillover impact, not just on their economy, but on the regional economy as well as the industry itself.”


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