SaudiArabiaanditsExpandingEconomy

TylerB.Franzen

May20th2015

1Introduction

SaudiArabia’seconomyislargelybasedoffitsoilproductionandexportation.Saudi

Arabiaistheworld’sleadingoilexporterandhasthesecondlargestoilreservesinthe

world(Pierru2014).AccordingtotheSaudiArabiangovernmentthereareprojectedtobe

260billionbarrels(36400MTOE)ofprovenoilreservestotalingonequarteroftheworld’s

totalreservesinSaudiArabia(Pierru2014).MuchofSaudiArabia’soilisnearthesurface,

whichmeansthatlessworkisrequiredtoextracttheoil.Thisallowsforcheaper

productionandmoreprofitsintheoilsector.SaudiArabiahasaveryhighpercentageof

lightcrudeoilthatsellsforahigherpriceonthemarket.Thepetroleumsectoraccounts

forroughly92.5%ofSaudiArabia’sbudgetrevenues,90%ofexportearnings,and55%of

itstotalgrossdomesticproduct(GDP)(Pierru2014).Another40%oftheGDPcomesfrom

theprivatesector.Anestimated7.5millionforeignersworklegallyinSaudiaccordingto

2013figures,playingacrucialroleintheSaudieconomy,especiallyintheoilandservice

sectors(Rajhi20013).SaudiArabiahasaGDPof$748.4billionwithanaveragegrowthof

theirGDPatanastonishingsevenpercentperyear(Alshehry2015).SaudiArabia’sGDP

percapitais$53,780.GDPbysectorisasfollows:agriculture:3.2%;industry:60.4%;

services:36.4%(Rajhi2003).

ThelaborforceinSaudiArabiaisabout7.63million,accordingtoa2009estimate.

Interestingly,80%ofthelaborforceisnon-national(Rajhi2003).Thelaborforceby

occupationisasfollows:agriculture:6.7%;industry:21.4%;services:71.9%withan

unemploymenttotalat5.7%(Rajhi2003).Thecountryissodependentonoilproduction

thatthegrossdomesticproductofSaudiArabiafluctuatesdramaticallyaccordingtothe

globalpriceofoil(Pierru2014).However,SaudiArabiadoeshavemanyfutureendeavors

2andiscontinuallytryingtosourcemorerenewableandefficientpowersources.Theyhave

committedtocreatingnuclearpowerplants,solarpowereddesalinizationplantsandnew

“economiccities”thatwillhelpdiversifytheirportfolioawayfromtheoildependency.

SaudiArabiahasplannedacitysolelybasedonrenewablepowerplannedforthenear

future(Parajuli2015).SaudiArabiahasdevelopedsignificantplansfortheproductionof

energy,muchofwhichisintherenewableenergysector.

CountryContext

SaudiArabiaisoneofthefoundingmembersoftheOrganizationofPetroleum

ExportingCountries(OPEC)aswellasaprominentmemberoftheOrganizationofMuslim

PetroleumExportingCountries(OMPEC)(Pierru2014).OPEClimitsitsmembers'oil

productionbasedontheir"provenreserves"(Pierru2014).SaudiArabia'spublished

reserveshaveshownlittlechangesince1980,withthemainexceptionbeinganincreaseof

about100billionbarrels(1.6×1010m3)between1987and1988(Pierru2014).Matthew

Simmons,whoservedasanenergyadvisertoU.S.PresidentGeorgeW.Bush,andwasa

memberoftheNationalPetroleumCouncilandtheCouncilonForeignRelations,has

suggestedthatSaudiArabiaisgreatlyexaggeratingitsreservesandmaysoonshow

productiondeclines(Simmons2006).

SaudiArabiaisinanariddesert,whichattributestoitbeingagreatareaforoil

drilling.ThecountryisinthemiddleoftheMiddleEastwithalargecoastline,whichgives

thecountryanadvantageinportaccessandtrading.SaudiArabia’slargelandmassand

accesstotheoceanmeansthiscountryisidealforpotentialeconomicdevelopment.

3SaudiArabiahasapopulationof30,770,375andapovertyrateof12.7percent,

whichisrelativelylow,evenlowerthantheU.Spovertyrateof14.5percent.The

populationwithaccesstoelectricityis94.1percent,whichislowerthanmanydeveloped

countries(Bawah2013).Withitsabsolutemonarchysystemofgovernment,largestate

sectorandsupplyofwelfarebenefits,theSaudieconomyisdescribedasa“bewildering

combinationofafeudalfealtysystemandamoremodernpoliticalpatronageone”(House

2012).Inmanyaspectsoftheirbusinessrelateddealings,Saudisoperatebymanipulating

individualprivileges,favors,obligations,andconnections(House2012).Likewise,the

governmentbureaucracyisamazeofcoincidingoropposingpower,focusedunderthe

helpofnumerousroyalprinceswiththeirownprioritiesandagendastopursue.Saudi

Arabia’sgovernmentisextremelycorruptandalmostallprofitsofoilexportationgotothe

governmentofficialsandroyalty.EventhoughSaudiArabiareceivedascoreof49onthe

corruptionindexthisputsthemasthe55thleastcorruptcountryoutof175.Comparatively

theUnitedStatesscoreda74,makingthemthe17thleastcorruptcountryintheworld.In

theMiddleEasttherearefivecountriesthatareratedlesscorruptthanSaudiArabia

includingJordanandtheU.A.E.(TransparencyInternational2014).Morethan95percent

ofallSaudioilisproducedonbehalfoftheSaudiGovernmentbytheoilgiant,Saudi

Aramco,andtheremaining5percentbysimilarcompanies(Pierru2014).Thecostof

maintainingtheRoyalFamilyisestimatedtobeapproximately$10USbillionperyear

(Darley2015).A2005surveybytheRiyadhChamberofCommercefound77percentof

businessmenpolledfelttheyhadto`bypass`thelawtoconducttheiroperations.Sincethen

"businessmensayithasonlygottenworse"(Darley2015).Overall,corruptionplaysahuge

4roleinthewaytheeconomyfunctionsinSaudiArabiacostingthecountrybillionsof

dollarsperyear.

EnergyPortfolio

Thegovernmenthasencouragedprivatesectorgrowthformanyyearstolessenthe

kingdom'sdependenceonoil,andtoincreaseemploymentopportunitiesfortheswelling

Saudipopulation.Inrecentdecadesthegovernmenthasbeguntopermitprivatesectorand

foreigninvestorparticipationinsectorssuchaspowergenerationandtelecom,andhas

alsocompliedtotheWorldTradeOrganization(WTO).

AsofAugust2009,asreportedbytheWorldBankSaudiArabiaisthestrongest

MiddleEasterneconomy.SaudiArabiahasannouncedplanstoinvestapproximately$46

billioninthreeoftheworld’slargestandmostambitiouspetrochemicalprojects.These

includethe$27billionRasTanuraintegratedrefineryandpetrochemicalproject,the$9

billionSaudiKayanattheWaybackMachinepetrochemicalcomplexatJubailIndustrial

City,andthe$10billionPetroRabighrefineryupgradeproject(Rajhi2003).Together,the

threeprojectswillemploymorethan150,000techniciansandengineersworkingaround

theclock(Rajhi2003).Uponcompletionin2015–16,theRasTanuraintegratedrefinery

andpetrochemicalsprojectwillbecometheworld’slargestpetrochemicalfacilityofits

kindwithacombinedproductioncapacityof11milliontonsperyearofdifferent

petrochemicalandchemicalproducts(Rajhi2003).

SaudiArabiaproduces558milliontonsofoilequivalent(MTOE)ofoilperyearand

consumesalittleover1.095MTOE/yearandproduces85.3MTOE/yearinnaturalgasand

consumesalmosttheexactsameamount(Table1)(Pierru2014).Naturalgasiswhatruns

5manyofSaudiArabia’spowerplants.SaudiArabiaproduces524,327,190totaltonsofCO2

pollutionperyearbutonapercapitabasis,thisequals17.04tons/personandCO2

EmissionperUS$2000GDPareequalto.635tons(Table1)(Alshehry2015).Saudi

Arabia’semissionsareveryhighcomparedtomanycountriesandalmostrivalthatofthe

UnitedStates.

SaudiArabiaplanstoincreaseelectricity-generatingcapacityto120gigawatts(GW)

by2040tomeetthecountry'srapidlygrowingdemandforelectricity(Parajuli2015).

SaudiArabiaplanstoconstruct16nuclearpowerreactorsoverthenext20yearsatacost

ofmorethan$80billion,withthefirstreactorcomingonlinein2022(Garwan2014).It

projectsa17GWenuclearcapacityby2040toprovide15%ofthetotalrequiredpower,

alongwithover40GWeofsolarcapacity(Garwan2014).SaudiArabiawantstohavea

goodstartonswitchingfromitsdependenceonoiltootherenergyresourcesby2020.

ComparedtotheUnitedStates,SaudiArabiaisverybehindinrenewableresources

(Table1).SaudiArabiahasvirtuallynodevelopedsourcesofrenewableenergywhilethe

UnitedStateshasapproximately14.2percentrenewableenergysources.TheUnitedStates

oilconsumptionpercapitaishigherthanthatofSaudiArabia’seventhoughtheUnited

Statesproducesmuchlessoil(Table1).TheenergydemandofSaudiArabiaismuchless

thanthatoftheUnitedStatesevenwhencomparingitonapercapitabasis.TheUnited

Statesconsumesanextremelylargeamountofenergyperperson,almost6,800kgofoil

equivalent,morethananyothercountryintheworld(Table1).EventhoughtheKingdom

ofSaudiArabiauseslessenergyperpersonthantheUnitedStates,greatstridesareneeded

inordertomakeadentintheirenergyconsumptionandCO2emissions.

6PotentialEnergySupply

SaudiArabiahasaveryhighpotentialforsolarenergysinceitisalmostalways

sunnyandisclosetotheequator(Figure2).TheKingdomofSaudiArabiahasmany

proposedsolarprojectsandhasevencommittedto41gigawatts(GW)ofsolarcapacityby

2040.Itisprojectedtobecomposedof25GWofsolarthermal,and16GWofphotovoltaic

(Garwan2013).SaudiArabiahasalotofopenlandthatwouldbegreatforsolarandwind

farms.Onthecoast,highwindspeedshavebeenobservedwhichwouldbeidealforwind

farms(Parajuli2105).Geothermalventshavealsobeenfoundnearthecoasts,whichcan

beusedforgeothermalpower.Solar,windandgeothermalplantsareintheplansforSaudi

Arabia’sfuture.AllthreeoftheserenewableenergysourceswillbeimportantifSaudi

Arabiaeverywantstowaneoffnaturalgaspowerplants.Withatotallandareaof

2,149,690km2or830,000squaremiles,thismakesSaudiArabiaidealforwindandsolar

power,especiallysincemuchofthislandisdesolatewithlittledevelopmentandscarce

vegetation.(Parajuli2015).

PoliciesGoverningResources

SaudiArabiahasvirtuallynopoliciesregardingenergyefficiencyoruseand,in

general,hasbeenlargelyopposedtotheUnitedNationsclimatenegotiationsalthough

someprogresshasbeenmade.InregardstotheKyotoprotocol,SaudiArabiaaspartof

theircommitmenttoacleanerfuture,announcedtheyarelaunchingtheworld’slargest

solarpowereddesalinizationplant(Figure3).SaudiArabiaisalsotryingtoenactlawsto

reduceemissionsaswellasfindalternativesourcesofenergyotherthannaturalgasand

7oil,suchasnuclear,solar,andwind(Figure3).KingAbdullahhasalsoorderedauniversity

tobeestablishedthatfocusessolelyonenergyefficiencyandadvancement.

SaudiArabiahasplanstolaunchsix"economiccities"(e.g.KingAbdullahEconomic

City),tobecompletedby2020inanefforttodiversifytheeconomyandprovidemorejobs

tocitizenswithinitsborders.(Alshehry2015).Theseeconomiccitiesarebeingbuiltata

costof$60billionandare"expectedtocontribute$150billiontotheeconomy"(Alshehry

2015).Asof2013fourcitieswerebeingdevelopedandsixteennuclearplantsareplanned

forthefuturetohelpreduceoilandcoalpowerplantemissions.

TheKingdomofSaudiArabiahasnotsetemissionsreductiontargetsfor2020or

2030.Greenhousegasemissionsareexpectedtoincreaseby30%by2020comparedwith

2010levelsandby60%in2030ifcurrentpoliciesarenotimprovedupon(Alshehry2015).

In2013,theKingAbdullahCityforAtomicandRenewableEnergy(K.ACARE)releaseda

whitepapertoinstall54GWofrenewableand17GWofnuclearpowerby2040.Theplan

hasthepotentialtocurbemissionsin2040byaround200MtCO2e,areductionof25%

comparedtocurrentprojectionlevels.However,fulfillmentoftheplanwithinthetimeline

isnon-binding.SaudiArabiahasstillnotsubmittedanationalmitigationpledgetotheUN.

In2011,SaudiArabiadescribedtheinitiativestoensuresustainabledevelopmentinthe

Kingdom.Thesemainlycoverenergyconservationmeasures;renewableenergyresearch

anddevelopment,withafocusonsolarenergy,aswellascarboncaptureinitiatives.After

theDohaconferencein2012,itstatedinalettertotheUNFCCCthatthecountrywould

soonbereadytosubmititsnationalmitigationpledgegivenitsspecialcircumstancesasan

economyhighlyreliantonhydrocarbonproductioninwhichmitigationactionsconflicts

withnationaldevelopmentobjectives.Todate,nopledgeorNationallyAppropriate

8MitigationAction(NAMA)hasbeensubmittedandthereisnoshiftexpectedinpolicy

regardingthecurrentoversupplyofoil.

InorderforSaudiArabiatoaccomplishthesegoalsofeconomicdiversification,they

haveaskedforoutsideinvestmentandthesharingoftechnology.AsSaudiArabiagrows

financially,theyaretryingtobecomemoreefficientandenvironmentallyfriendly.With

theuniversityofefficiency,greatstrideswillbemadetofurtherSaudiArabia’s

commitmenttoagreenermoreefficientfutureprimarilypoweredbyrenewable,green

energy.

ProposedPortfolio

IfSaudiArabiaconsumedthesameamountofenergypercapitaastheUnitedStates,

thenitwouldneedtoreallyinvestalotofmoneyinnuclear,windandsolarenergy.Saudi

Arabiahasthetechnology,finances,andresourcestoeventuallyhaveasolelyrenewable

energyportfoliowithinthenextfortyyears.SaudiArabiahasthefinancialbackingand

perfectgeologicallandscapetogoonehundredpercentrenewable,greenenergyby2060.

OnehundredpercentofSaudiArabia’senergyisalreadyproducedinsideitsborders;

however,theproblemitcurrentlyfacesistryingtogetoffitsoildependency(Parajuli

2105).SincemostoftheGDPisbasedoffoil,ifpricesfalldramaticallythatcould

potentiallybeverydevastatingtotheeconomy,whichiswhyKingAbdullahwantsSaudi

Arabiatohavealternativesinenergyproduction.Atthecurrentrateofextraction,Saudi

Arabianoilisonlyprojectedtolastanotherninetyyearsbeforethereservesrunout.This

meansthattheSaudigovernmentneedstostarttheireffortsonothersourcesofenergy

andincomeintheverynearfuture.(Garwan2013).KingAbdullahproposedacitytobe

9builtsolelybasedoffatomicandrenewablepower,thedesignofthecityhasalreadybeen

completedandconstructionwillbecommencingsoon(Parajuli2015).

Conclusion

SaudiArabiahasthepotentialtobeontheforefrontofrenewableenergyinthe

MiddleEastaswellastherestoftheworld.Theyhavemadeambitious,yetachievable

goalsinregardstorenewableenergy.SaudiArabiaisdeterminedtomakeseveralthriving

economiccitiesforwhichatleastoneistoberunonlywithrenewableenergy.Their

commitmenttomaketheworld’slargestsolarpowereddesalinizationplantisverygood

foragreenerfuture.Convertingsaltwatertofreshwaterinatimeofdroughtisvery

important.Desalinizationisanexpensivepracticebutwithitbeingstrictlyrunbysolar

power,whichwouldoffsetexpensesimmensely.

Altogether,thenewlyplannednuclearpowerplants,solarplants,windfarms,

geothermalplantsandeconomiccitieshavethepotentialforcreatinghundredsof

thousandsofjobsintherenewableenergysector.SaudiArabia’scommitmentstoa

greenermorerenewablefuturecomesassomewhatofasurprise,butwhenyouaccount

foritsboomingeconomy,growingpopulationofforeignlabor,anditsconstructionofthese

“citiesofthefuture”itisofnosurprisethat“goinggreen”willbeoneofthecountry’smain

concernsinthenearfuture.Sinceallthesenewcitiesarebeingbuiltfromthegroundup,it

iseconomicallyandenvironmentallysensibleforthemtobeself-sufficientandrunoffof

atomicandrenewableenergysources.ItseemsfeasibleandlikelythatSaudiArabiaison

therighttrackforagreenerfuture,possiblysurpassingthatoftheUnitedStates.

10

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11

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12

AppendixA

Table1:SaudiArabia&TheUnitedStatesEconomiesCompared.

CountryName Population GDP %Accessto

Electricity

Povertyrate(%livingbelow

US$2/day

UnitesStates 318,900,000 $16,770,000,000,000 100% 14.50%

SaudiArabia 30,770,375 $1,652,000,000,000 94%

12.7%(lessthan

$1.25/day)Netoil

importer(oilproduction/o

ilconsumption

)

TotalEnergyConsumptio

n(MTOE/yr.)

TotalEnergyConsumptionpercapita

(TOE/person)

TotalEnergyConsumptionper$2000US

GDP

CO2Emission(totalinkilotons)

0.55 254 0.7965 0.000015146 5,433,057480.365 208 0.6167 0.104594431 524,327

CO2Emissionpercapita

(tons/person)

CO2Emission(tons)perUS$2000GDP

Renewableresource

potentialas%oftotal

consumption

OilProduction(MTOE)

OilConsumption(MTOE)

17.56 0.017036 12.90% 558 1.09517.04 0.635 0%

NaturalGasProduction(MTOE)

NaturalGasConsumption(MTOE)

85.3 85.3

13

AppendixB

Figure1:SaudiArabia’soilandgasprofile(IEA2015).

14

AppendixB

Figure2:SolarpotentialinSaudiArabia(SolarGIS2013).

15

AppendixB

Figure3:OfficialKyotoProtocolcommitments(Durban,SouthAfrica2011)