The idea that Saudi Arabia could become an oil importer by 2030 is laughable. But that’s the scenario outlined in a report this week by Citigroup analyst Heidy Rehman. Looking at the Kingdom’s growth in power demand (much of which is generated by burning oil), Saudi Arabia’s domestic demand is on track to suck up ever more of its oil production to the point that there’s nothing left for export.
That sounds hard to believe given that the Kingdom produced 9.9 million bpd last month, the most in the world, and more than 10% of global demand. But developing countries usually grow electricity demand faster than population growth, and in Saudi Arabia air conditioning is not an option. Compounding the problem, writes Rehman is that Saudi power generators only pay $5 to $15 per barrel for the oil they burn.
To assuage civic unrest in the wake of the Arab Spring, Saudi King Abdullah has granted his 30 million subjects a host of new social handouts. He’s not about to yank subsidized electricity or gasoline now — but eventually it will probably have to happen.
It’s unlikely that by the time the Saudis need to import oil that there would be enough available on global markets to meet their needs. What’s more, considering that the $600 billion Saudi economy is based almost entirely on energy exports, if the Kingdom were to be able to afford to buy oil from the rest of the world it would have to sufficiently diversify to the point that it made enough other products for export that it could offset its oil import bill. This is highly unlikely for a country with no tradition of entrepreneurship, few rights for women and a reliance on indentured laborers brought in from the likes of Sri Lanka and Malaysia to do any kind of manual labor.
Rather if the Saudis are going to be able to make their energy ends meet in the decades to come they will have to rely on gleaning a different kind of energy out of the desert: solar power.
Earlier this year the Kingdom announced its intention to unleash $109 billion in capital spending over two decades to build out 41,000 megawatts of solar capacity, and has founded the King Abdullah City for Atomic and Renewable Energy to back the plan. Other Gulf nations have followed suit.
The benefits of solar are manifold. Electricity generated by solar will offset power generated with subsidized oil, freeing up barrels for the Kingdom to export. And given enough demand for solar panels, manufacturers could be incentivized to set up factories in Saudi Arabia, helping to diversify the economy. Plus, solar power can be highly complementary to the operation of old oil fields.
Last year I wrote about Glasspoint Solar, a solar power upstart that builds glass houses containing flimsy foil solar collectors that concentrate their heat onto water-filled tubes to create steam. The steam is then collected by oil companies (first Berry Petroleum in California’s Kern County oil fields, and now Shell Oil operating in Oman) then injected underneath oil reservoirs to flush out more heavy, stubborn oil.
The traditional way to make steam for this enhanced oil recovery process is to heat water by burning natural gas or oil. In this way, Saudi Arabia conducts the biggest steam flooding operations in the world.
We can only hope that the Saudis, driven by necessity, unlock the secrets to making millions of solar panels blooms across their deserts. Maybe if they’re truly successful they’ll unlock new solar technology that they can export instead… and put their little oil business out of business.