Ep51: Yousef Alshammari 'Saudi Arabia's net zero conundrum'

"All these young people, they have ambitions to work on clean energy, and support the sustainable development of the Kingdom": Yousef Alshammari on the Saudi perception of the net zero transition.


This week on Cleaning Up Michael Liebreich is joined by Yousef Alshammari, the CEO of CMarkits – an energy consultancy specializing in oil markets.


This is an abridged transcript of the conversation, edited for clarity.


ML: Can I ask you to summarise the overall Saudi position or view on the clean energy transition that I've spent nearly 20 years talking about? Is it ‘don't be silly, it's not happening?’, ‘It's happening, but it's slow?’ Is it being embraced? Is it being resisted?


YA: You mentioned 20 years ago, so 2001. And in 2001 I don't think in Saudi Arabia, we thought about energy transition at all. There was minor initiatives on solar energy, but it was on a very limited scale. The energy transition in Saudi Arabia, in fact, started with energy efficiency. So the Energy Efficiency Centre was established by the current energy minister Prince Abdulaziz in order to reduce our crude oil consumption in power generation and in water desalination. And currently, natural gas makes up more than 50% of local power generation in Saudi Arabia. So of course, it means that the carbon footprint of our generation in Saudi Arabia has been massively reduced compared to, let's say, to the year 2000, and before And it's currently with after Paris Agreement in 2015.

Saudi Arabia, of course, signed that agreement and pledged something like 130 million tonne reduction by the year 2030. Of course, all these pledges are subject to revision and changes, I believe now there is a target to have at least 10 gigawatts of renewables in the electricity sector by the year 2025. And the target is to take off all the oil that is still being used in power generation, and the power generation will only be composed of natural gas and supplemented by renewables. And renewables I'm talking about solar and wind. So we'll have at least, let's say 10 gigawatts of capacity from renewables in the power generation sector. We're also interested in renewables for water desalination. But that is still at the early stage of development that depends really on the technology.


ML: Yousef, the problem is that there's just been an announcement after announcement after announcement to be honest. Back in 2018, there was this big announcement with Softbank, that there would be 200 gigawatts of solar power before the year 2030. The fact is, last year in 2020, no solar power was installed. So for all the acceleration, it's 300 megawatts here, and it's a few hundred there, and it's a few gigawatts overall, but if it's going to be these very substantial figures, doesn't there have to be a lot more acceleration than we're really seeing?

Since you see this enormous focus on having the cheapest, the single cheapest project. Is Saudi Arabia ever really going to become a kind of renewable superpower, as I call it, where you've got the cheap solar, the cheap wind, but you've got to have tens of gigawatts to move the needle. If it's just small numbers of project then that's not going to kind of change the energy flows in the world. But you're optimistic?


YA: Well, I am an optimist, absolutely. But I don't think that we will become a renewable energy superpower instantly. I’d love that, but certainly the transition has to take place in a consistent manner. Oil will be a major energy source for the next ten, twenty years. So Saudi Arabia doesn't want to move away from oil, it wants to make use of all energy resources available within the Kingdom. And if you have seen the 2030 vision, the targets that have been announced there are extremely ambitious. So if we look at where we have been just five years before now and today, the speed at which these projects have been implemented, and the reforms that have been happening are just incredible. So that makes me ambitious, that we should actually be able to achieve our renewable energy targets by the year 2050. And hopefully become energy, net CO2 neutral by the year 2050.


ML: But let's get on to the hydrogen plans, because in a sense, that's even more core to the Saudi business model, isn't it? Because it will be selling a fuel, ammonia or hydrogen around the world. Where do those plans currently sit? How are they coming along?


YA: We've seen the first shipment of blue ammonia going to Japan by Saudi Aramco. So I believe we're going to see green hydrogen coming in from NEOM going to markets where hydrogen is being used already as a fuel. I believe Asia would be a major target for that, because they already have some interesting infrastructure, there are already market relationships developed between Saudi Arabia and Asia. So I believe we can start there. Certainly there is a target even to export to Europe. And we have seen a visit by John Kerry, just a couple of weeks ago to the Kingdom. And one of the most important topics discussed with the Saudi Crown Prince was the green hydrogen project. So essentially the US wants to look at Saudi Arabia as a hub for green hydrogen generation to be exported globally.


ML Right. But you're an energy economist, have you looked at the cost of generating power in Japan from the blue ammonia from Saudi, or the green hydrogen from Saudi? Because I love pilot projects. I love engineers. I love innovative stuff. But I'm not seeing it, just in terms of the transport costs, the production costs for green hydrogen, and the transport costs. I mean, this isn't oil. This isn't just room temperature in a ship. This is really complicated stuff to move around. It has to be chilled, and it has to be compressed and so on. I mean, it doubles, triples and quadruples the cost. So have you looked at the economics of that? Is this a realistic plan, do you think?


YA: Well, I certainly think it is a realistic plan. Because Saudi Arabia can have the cheapest green hydrogen coming from solar power. So the solar energy that can be generated from Saudi Arabia can be at a record low. I believe it's going to be certainly below $2 per kilogramme of hydrogen.


ML: In Saudi surely, Yousef? Yes, I agree with that. You can get $2 green hydrogen in Saudi. But the moment you export it by anything other than a pipeline, you're going to add two, three, four dollars per kilo to that price.


YA: Well, it will be shipped as ammonia. Ammonia is kind of a cheaper way of storing hydrogen.


ML: Yes, I guess I'm still I'm still grappling for the economics of that because in Saudi you're making ammonia, you’re making fertiliser, right? That would be using hydrogen at $1 per kilo. Possibly even a bit lower than that, because you have a lot of gas. So now you're talking $2? And then when you export it, let's call it $3. But I want to just finish by looking at COP 26. So now everybody is focused on net zero, not reducing carbon, but net zero, and that becomes much more threatening for Saudi, what is Saudi’s negotiating strategy likely to look like?


YA: Well, Saudi Arabia is focusing on circular carbon - whereby the world uses oil and CO2 is being captured from that oil being used for high value products. And so the circular carbon economy is now very much invested in in the Kingdom and I believe that will be the key part of the country’s strategy during COP26.

The country is certainly going ahead with its climate driven development agenda. And that is not just by the way, because we want to use solar or we want to cut our CO2 emissions, but also because we are concerned about the environment, the whole environment within the Kingdom itself. The Crown Prince has just announced a green initiative: 10 billion trees to be planted in the Kingdom, and the Green Middle East initiative – to plant 40 billion trees within the GCC and the Arab world in general – so 50 billion trees overall. And remember the country signed up to the Paris Agreement. So I believe we don't need to be worried about the position of the country. From my own perspective – I’m a lecturer at a university in Saudi Arabia and all these young people, and Saudi youth makes up at least 50% of the population, they all have ambitions to work on clean energy, and support the sustainable development of the Kingdom, which will all tap into meeting its climate targets. So this is why I think you should be optimistic about our position at COP 26.