Saudi turns to alternatives to prop up oil power
DUBAI/KHOBAR, Saudi Arabia
DUBAI/KHOBAR, Saudi Arabia (Reuters) - For oil colossus Saudi Arabia, a shift to renewable energy is as much about preserving its international influence and maximizing its revenues as saving the planet.
The world's leading oil exporter and custodian of more than 260 billion recoverable barrels -- around a fifth of the world's stock -- Saudi Arabia has long held sway over markets and governments with its ability to add or subtract crude at a turn of the spigots.
It has repeatedly said the world will for decades to come need the fossil fuels that in the short term are by far the most profitable.
Adding renewables to the mix, however, is both inevitable and pragmatic, analysts say, as soaring domestic energy use will burn huge amounts of fuel oil unless alternatives, such as solar power, can be used instead.
"It's really a preservation decision using solar for domestic consumption and keeping your oil for more lucrative export markets," said Vahid Fotuhi, director, Middle East, of BP division BP Solar.
Industry officials have predicted a tripling in Saudi power consumption to around 120 gigawatts by 2032 from around 40 gigawatts last year.
That rate of expansion could consume all of the roughly 8 million barrels per day (bpd) Saudi Arabia produces.
"Right now, out of the 8 million barrels per day they produce, over 3 million barrels per day are consumed domestically, mainly for power generation. That figure is growing 8 percent per annum," said Fotuhi.
Unless it can develop renewables, Saudi Arabia could find itself with nothing to finance the national budget and with no spare capacity to be the world's supplier of last resort -- a role that has long cemented its relationship with the biggest oil user the United States.
Back in September 2009, Saudi Oil Minister Ali al-Naimi had already set the highly ambitious goal of matching oil output with solar power. Around 8 million barrels of oil equivalent per day in solar energy would make it the world's leading solar power.
"In the same way we are an oil exporter, we can also be an exporter of power," Naimi said at the time King Abdullah University of Science and Technology (KAUST) was inaugurated in the Red Sea port of Jeddah.
The university in the kingdom's most liberal and outward-looking city symbolizes Saudi Arabia's plans to diversify not just into alternative energy, but into a knowledge-based economy.
In Dhahran, a major administrative center for the Saudi oil industry and home to state oil company Saudi Aramco, the King Fahd University of Petroleum and Minerals (KFUPM) is also working away at similar problems.
Its enthusiastic students see the kingdom making leaps forward, even though there are technological problems to overcome.
"I think Saudi is moving fast toward being a leader in solar energy," said Majed Lenjawi, an engineering student at KFUPM.
"Saudi Arabia is the world's largest oil exporter and it has to become the leading exporter of solar energy," said fellow engineering student Ammar Madani. "Oil has good yields and the cost of production is low, but it is not a renewable source of energy."
OIL STILL THE EASIEST MONEY
For Saudi Arabia, the yields for oil are spectacular.
Analysts have estimated the total cost for extracting Saudi crude, including capital expenditure, is around $5 a barrel, the cheapest in the world.
The industry's most expensive extraction costs for non-conventional oil, such as Canadian tar sands, are pegged at around $50 a barrel and higher -- still below current market prices of roughly $100 for Brent crude futures.
As well as providing billions to invest back into the oil industry, Saudi Arabia's huge profits leave it well placed to come up with the capital needed for alternative energy forms.
In theory, gas is an easy, short-term answer. Accordingly, Saudi Arabia has invited foreign partners to help as it expands its gas capacity, although so far finds have been disappointing.
Without allowing any foreign involvement into its sacrosanct upstream sector, Saudi Arabia has already expanded its oil capacity to 12.5 million bpd. That leaves it with roughly 4 million bpd of spare capacity should the need arise.
It has no plans to increase capacity for now, saying it is enough for the foreseeable future as it looks to Asia as the biggest source of demand to come while western oil consumption stagnates.
As an evolving technology still in its infancy, solar is a much longer term option than gas. Saudi so far has only small-scale and pilot projects.
"Due to the high electricity demand domestically and the very high demand growth rate, it is unlikely there would be any excess electricity for export, at least not for the next 10 years," an industry source said.
One of the more ironic problems for a desert nation, such as Saudi Arabia with even more sun than oil, is that sand can be a problem if it accumulates on solar panels and there is no water to wash it away.
"Solar may cover part of the needs but not all of them depending on subsidies. The main factor will be cost," Abdullah al-Shehri, governor of Saudi Arabia's Electricity and Co-generation Regulatory Authority told Reuters.
He said the technology was in place, but Saudi Arabia would not be able to match its oil production with solar in the foreseeable futures and nuclear would have "a bigger role."
So far, Saudi has made only tentative moves toward nuclear power, but they have included signing international protocols.
That should ensure its nuclear ambitions would be far less controversial than those of its neighbor across the Gulf Iran, although they could be just as strategic.
"There is a sense that if Iran is taking these steps, Saudi Arabia doesn't want to be far behind," said Samuel Ciszuk, senior Middle East and North Africa Energy analyst at IHS Global Insight.
(additional reporting by Simon Webb in Singapore)