Saudi Arabia is turning to its biggest crude oil customer, China, for help in developing domestic nuclear and renewable power as the oil-rich kingdom seeks to diversify its own energy base.

 

Saudi Arabia may spend up to $US80 billion on nuclear power plants and $US100 billion on solar power projects between now and 2032, making the country’s energy sector one of the biggest investment opportunities in the world.

 

Under an agreement signed in Beijing two weeks ago, state-owned Chinese National Nuclear Corporation (CNNC) and Saudi Arabia’s energy research centre, known as the King Abdullah City for Atomic and Renewable Energy (K. A. CARE) agreed to cooperate on developing and producing nuclear and renewable energy to meet Saudi domestic demand.

 

The arrangement will build on a nuclear cooperation agreement reached by the two countries in 2012.

 

Saudi Arabia is the Middle East’s biggest consumer of hydrocarbons, with most of its transport, industry and power needs now met from its vast domestic oil and gas supplies. About a quarter of all the oil and natural gas liquids Saudi Arabia produces is used domestically. But it wants to change that equation and free up more oil and gas for the lucrative global export market.

 

As its economy grows, the Saudi government estimates that electricity demand alone will require more than 120 gigawatts (GW) of capacity by 2032, and has set a goal that half of that should be generated from non-fossil fuels such as nuclear, solar, wind, waste and geothermal. It wants solar energy, for example, to provide up to 41 GW by 2032, or almost 30 per cent of the total capacity, with nuclear providing 17 GW and wind 9 GW.

 

To that end, it is looking to partner with China, which is the world’s biggest energy consumer and a leader in the manufacture of solar photovoltaic (PV) panels through companies such as Yingli, Trina and ReneSola. China also has strong capability in wind power through turbine makers Goldwind, Guodian and Ming Yang.

 

In nuclear power, K. A. CARE’s energy road map proposes that the country’s first nuclear reactor be connected to the Saudi power grid in 2022, with another 11 reactors connected by 2032. In this sector, CNNC and two other state-owned entities, State Nuclear Power Technology and China General Nuclear Power Corp are looking for opportunities to build nuclear plants outside China.

 

But they face competition from a host of international suppliers, all eager for a piece of what will be one of the biggest new nuclear markets in the world. Saudi Arabia has existing nuclear power cooperation agreements with France, South Korea and Argentina, while Russia, Japan, the US and the UK are other contenders.

 

For China, it helps that it is already Saudi Arabia’s biggest trading partner, buying more than one million barrels of crude oil a day and assorted petrochemical products.

 

Total two-way trade last year was $US73 billion, with China exporting mostly food, electronics and textiles to Saudi Arabia. Chinese companies have invested in large industrial and infrastructure projects in Saudi Arabia, including in the aluminium and rail sectors, while Saudi Arabia’s SABIC and Saudi Aramco are investors in China’s petrochemical sector.

 

Along with renewable energy projects, seawater desalination is seen as another prospective sector for Chinese companies in Saudi Arabia.

 

According to K.A. CARE, unless Saudi Arabia implements alternative energy and energy conservation measures, “overall demand for fossil fuels for power, industry, transportation and desalination is estimated to grow from 3.4 million barrels of oil equivalent per day in 2010 to 8.3 million barrels of oil equivalent per day in 2028.”

 

In its evaluation, K. A. CARE says hydrocarbons will remain “a prime element” in Saudi Arabia’s likely energy mix in 2032, meeting a little under half the total energy requirement. It recommends the energy capacity proportions should be hydrocarbons 60 GW, nuclear 17.6 GW, solar 41 GW, made up 16 GW from PV cells and 25 GW from concentrated solar power, wind 9 GW, waste-to-energy 3 GW, and geothermal 1 GW.

 

“In this scenario,” says K. A. CARE, “nuclear, geothermal and waste-to-energy will provide the base load up to night-time demand during winter; photovoltaic energy will meet total daytime demand year round; concentrated solar power, with storage, will meet the maximum demand difference between photovoltaic and base load technologies; and hydrocarbons will meet the remaining demand.”

 

Another of Saudi Arabia’s research hubs, the King Abdulaziz City for Science and Technology (K.A. CST), estimates electricity consumption is growing at 6.4 per cent a year. It says that more power generation plants need to be built, and the country’s distribution and transmission systems need to be strengthened. While it says renewable energy sources “show potential,” their high cost and technological difficulties “still have to be addressed.”

 

The cost of solar power will be one of the key themes at next month’s Desert Solar Saudi Arabia conference to be held in Riyadh on September 17-18. One of the keynote speakers, Thierry Lepercq of French solar power plant developer Solairedirect, believes parts of Saudi Arabia can offer a low levelised cost of solar energy because of their elevation and high irradiation levels.

 

In remarks ahead of the conference, Lepercq said that for plants above 10 MW, it was now possible to generate solar power at between $US70 and $US100/MWh — or less than a quarter of 2009 prices.

 

The quest for a more diverse energy base comes as Saudi Arabia continues to register solid economic growth, particular in the non-oil sector. Last month, the International Monetary Fund (IMF) said it expected the Saudi economy to grow 4.6 per cent this year — up from 4.0 per cent last year — with a strong showing in the private sector. It said large scale infrastructure projects and spending on housing would continue to support the non-oil sector, which constitutes about half of Saudi Arabia’s $750 billion economy.

 

Earlier this month, Riyadh-based financial services firm Jadwa Investment said oil revenues this year would be higher than it previously predicted. “This will enable the Kingdom to maintain a large current account surplus, while elevated government spending will reduce the budget surplus,” it said in an August 13 report.

 

It said there had been a faster than expected upturn in the U.S. economy, resulting in higher demand for Saudi crude, and higher year-on-year domestic Saudi consumption. “We have therefore revised our forecasts for Saudi crude production to 9.7 million barrels a day in 2014, up from 9.4 million barrels a day previously.”

 

 

PHOTO: An official of the Saudi oil company Aramco watches progress at a rig at the al-Howta oil field near Howta, Saudi Arabia. Source: AP