Saudi Arabia’s Ambassador to the UK, HRH Khalid bin Bandar Al Saud, will brief Asia House Corporate Members on Tuesday 28 February under Asia House’s COP28 Programme. This Asia House Advisory Briefing outlines Saudi Arabia’s energy transition strategy, highlights recent developments in Saudi sustainability, and looks ahead to the role that Saudi Arabia could play at COP28.
As one of the world’s largest oil producers, Saudi Arabia will play a significant role at COP28.
Saudi Arabia has accelerated its drive towards net zero. In October 2021, it became the second Gulf nation to commit to net zero, pledging to reach the target by 2060. This is in line with commitments from Kuwait and Bahrain, but less ambitious than the UAE’s and Oman’s pledges to achieve this goal by 2050.
Renewable energy production coupled with developing a world-leading hydrogen economy underpin the Kingdom’s sustainability vision. By 2030, the Kingdom aims to have 50 per cent of its energy produced using renewables, with solar power being the main tool to achieve this. Cheap land and abundant sunlight mean that Saudi Arabia can produce solar power at the world’s cheapest rates. Saudi Arabia seeks to add 58.7GW of renewable energy capacity by 2030, evidenced by several recently inaugurated key projects. In November 2022, ACWA Power and Badeel signed a joint project to build a 2GW solar plant in Mecca province by 2025, which would become the world’s largest single-site solar plant.
Saudi Arabia’s solar potential has attracted investment from Asia. During Chinese President Xi Jinping’s recent state visit to the Kingdom, nine deals were signed with Saudi Arabia’s ACWA Power to develop renewable and clean energy projects. Since 2009, commercial activity between ACWA Power and Chinese firms has totalled US$43bn.
In terms of hydrogen, Saudi Arabia aims to become a major producer of both blue and green hydrogen. While green hydrogen is produced entirely via renewable energy, blue hydrogen is produced by capturing the CO2 emitted during its production which in Saudi Arabia is reused for enhanced oil recovery and as feedstock for methanol.
The world’s largest oil company Aramco is playing a leading role in developing Saudi Arabia’s hydrogen economy, and it recently announced a target to produce 11 million tonnes of blue ammonia by 2030. Aramco considers Asia a key market for its hydrogen and has signed several Memorandums of Understanding (MoUs) with Asian countries to further develop this technology and ultimately assist Asia’s sustainable transition. Neom – a planned futuristic city in Northwest Saudi Arabia – also aims to build the world’s largest green hydrogen production plant by 2026, with around 4GW of capacity. In December 2022, Neom signed several agreements to finance the project.
The Kingdom is also reducing emissions by making its households, buildings, and infrastructure more energy efficient. The adoption of Electric Vehicles (EVs) is one way to achieve this. Saudi Arabia’s Public Investment Fund (PIF) has acquired a majority stake in US-based EV manufacturer Lucid Group, leading it to start construction of an EV production facility in Jeddah, capable of manufacturing 150,000 vehicles per year. Completion of the facility is expected in either 2025 or 2026. More recently in October 2022, Saudi Arabia launched its own EV company in partnership with Taiwan’s Foxconn, called ‘Ceer’, with ambitions to begin production by 2025.
Saudi Arabia’s work to build a domestic EV industry is complemented by the development of a mining sector as the Kingdom seeks to become a hub for the critical metals and minerals needed for the green transition. In May 2022, the Ministry of Industry and Mineral Resources secured US$2bn in funding to construct an EV battery metals plant, as a part of Saudi Arabia’s plan to attract US$32bn of investment into the mining sector.
More recently, Saudi Arabia has looked to harness capital markets to fund its energy transition. In February 2023, PIF raised US$5.5bn from a green bond issuance. This is PIF’s second green bond issuance. It was six times oversubscribed and sold to various institutional investors, including ones based in Asia. PIF’s inaugural green bond raised US$3bn in October 2022, with the London Stock Exchange Group playing a key role in the issuance.
The Kingdom is also increasingly exploring the role carbon markets could play in encouraging energy transition. During Saudi Arabia’s Future Investment Initiative (FII) in October 2022, PIF conducted a carbon credit auction on behalf of Aramco, which saw 1.4 tonnes of carbon credits purchased by the International Islamic Trade Finance Corporation. This followed the signing of a MoU between Aramco and PIF to launch a regional voluntary carbon market in Saudi Arabia in 2023.
The road to COP28
Saudi Arabia will likely use COP28 to showcase recent developments as evidence of its commitment to a greener future. But the inherent paradox with Saudi Arabia’s shift towards greater environmental sustainability is that initiatives that reduce domestic carbon emissions will free up more oil for foreign export, contributing to CO2 emissions down the supply chain. With oil prices relatively high, Saudi Arabia’s budget stands to benefit from selling oil to international markets rather than subsidising it for domestic customers.
The UAE, as hosts of COP28, have said they want this year’s climate summit to be inclusive, taking into greater account the views of emerging economies, for whom the energy transition is less affordable than for advanced economies. The UAE, as an energy producer itself, will also want to see the views of other energy producers, including Saudi Arabia, reflected during this conference.
Saudi Arabia argues that oil producers will remain vital to prevent energy shortages as global economies gradually transition from fossil fuels to renewables. The Kingdom is also in favour of developing and investing in Carbon Capture Utilisation & Storage (CCUS) to take carbon out of the atmosphere, which in turn can enable the oil industry to continue production with a substantially reduced impact on the environment. Persuading policymakers on the applicability of this vision will be a key goal of Saudi Arabia at COP28.
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