Saudi Arabia is investing heavily in its mining sector, with a goal of increasing its GDP contribution from $17 billion to $75 billion by 2035.
The Kingdom is pursuing a dual strategy of economic diversification through mining and optimizing oil production through technological innovation.
Despite its ambitious mining plans, Saudi Arabia remains committed to its oil and gas business, with Saudi Aramco investing in carbon capture and other technologies to reduce emissions.
After enjoying a rare budget surplus in 2022 amid high oil prices, most Gulf Cooperation Council (GCC) economies have seen their budget deficits widen with current oil prices still well below what they require to balance their budgets.
According to the IMF, Saudi Arabia, the GCC’s biggest economy, needs an oil price of $96.20 per barrel to balance its books, more than $20 above current oil prices. The situation is not helped by the fact that over the past two years, the oil-rich nation has borne the lion’s share of OPEC+ production cuts after agreeing to cut 1 million barrels per day or nearly half of the group’s 2.2 mb/d in pledged cuts. In effect, Saudi Arabia has been selling less oil at lower prices, thus compounding the revenue shortfall.
Not surprisingly, Saudi Arabia has been looking for ways to diversify its economy and become less dependent on oil. Emerging reports indicate that mining now plays a central role in Riyadh’s strategy to reduce oil dependency, with the country looking to exploit its significant reserves of phosphate, gold, copper and bauxite. Earlier in the year, Saudi Arabia’s mining minister, Bandar Al-Khorayef, revealed that the Kingdom’s reserve potential had grown by nearly 90% from the US $1.3 trillion forecasted eight years ago to $2.5 trillion. Saudi Arabia has set a goal to increase the mining industry’s GDP contribution from $17 billion to $75 billion by 2035.
State-owned Saudi Arabian Mining Company (Ma’aden) plays a crucial role in the execution of the kingdom’s mining strategies. Some of the key projects the Kingdom is developing include the Jabal Sayid copper project, a collaborative effort between Ma’aden and Barrick Gold Corp.(NYSE:GOLD), and the Al-Jalamid phosphate mine. Saudi Arabia has also been making substantial investments in exploration and geological surveys utilizing cutting-edge technologies and international expertise to discover new mineral deposits. The country has introduced a $182 million exploration incentive program and granted 33 additional mining licenses. Further, the mining ministry recently announced the auction of six mining licenses, covering deposits of lead, zinc, copper and iron.
Last month, the Kingdom signed nine investment deals in metals and mining worth more than 35 billion riyals ($9.32 billion) as it looks to build domestic supply chains for critical metals.The country’s Global Supply Chain Resilience Initiative unveiled the deals with Indian mining conglomerate Vedanta and China’s Zijin Group.
“We are announcing today nine deals that will help increase access to critical materials, advance domestic manufacturing here in the kingdom, and reinforce sustainability and overall Saudi participation in global supply chains,” Khalid Al Falih, Minister of Investment of Saudi Arabia, said during a keynote speech during the World Investment Conference in Riyadh.
Net-Zero Without Cutting Oil Production
Saudi Arabia’s diversification efforts appear to be paying off: the Ministry of Economy and Planning has revealed that non-oil revenues hit 50% of the Kingdom’s gross domestic product (GDP) in 2023, the highest level ever. The country’s non-oil economy was valued at 1.7 trillion Saudi Riyals (approximately 453 billion U.S. dollars) at constant prices, driven by steady growth in exports, investment and consumer spending.
However, Saudi Arabia has no plans to ditch its core oil and gas business any time soon. During a rare two-day visit by Fortune in early May, Saudi Aramco–world’s largest fossil fuel company– lifted the curtain on dozens of research projects underway at its headquarters in Dhahran, in eastern Saudi Arabia, which the company believes will help it tackle climate change, even while pumping a mammoth 9 million barrels or so of oil a day. Aramco claims its tech breakthroughs have the potential to cut carbon emissions from each barrel of oil it produces by 15% by 2035, equivalent to 51.1 million tons of carbon a year.
“We don’t see any contradiction. Combating emissions from these conventional energy sources is a very viable option,” says Ashraf Al-Ghazzawi, executive vice president for strategy and corporate development.
“We need all sources of energy to meet the growth in demand, which is just tremendous in the developing world. The main pillar of our strategy and technology is efficiency and optimization of our existing production,” Ahmad Al-Khowaiter, Aramaco’s executive vice president for technology and innovation, told Fortune. According to Khowaiter, the company has tripled its research-and-development staff since 2010, and listed 1,033 patents with the U.S. patent office. Aramco now spends about $800 million a year on R&D, 60% of which is focused on “sustainability”.
Carbon capture is one of the technologies Aramco has adopted to cut emissions. At its Hawiyah gas plant, the company captures carbon emitted during oil and gas production; transports it 50 miles away then injects it into an oil well to boost the recovery of crude, as well as to store the carbon. Khowaiter has revealed that the company aims to cut the cost of carbon capture by 50%, making it commercially viable. Aramco has set a goal to capture and store about 9 million tons a year of carbon in Jubail beginning 2028.
By Alex Kimani for Oilprice.com
