The Saudi Government has pledged $32bn to the country’s mining industry, as it looks to develop untapped mineral assets worth as much as $1.3tn. With this money comes a stated focus on sustainability, both fiscal and environmental, as the kingdom looks to diversify its portfolio of domestic assets.
It appears capitalising in both profit and self-sufficiency terms on its potentially vast mineral wealth is high on Saudi priorities; especially against today’s geopolitical flux on energy and resources and Saudi Arabia’s long-term aim of raising living standards for its people.
So, what direction might future resource extraction take in the region, and how might the cash and resources ultimately flow? Between greener themes and new mineral priorities, oil legacies and the vast profits Saudi fossils have made down the years. Saudi’s future, in terms of extractives, is up for grabs.
Rapid growth in the sector
The International Monetary Fund (IMF) says Saudi Arabia is likely to be one of the world’s fastest-growing economies through 2022. Sweeping pro-business reforms, it says, plus a sharp rise in oil prices and production are powering recovery from the pandemic-induced recession in 2020.
Saudi Arabia’s GDP is expected to expand by 7.6%, the fastest growth in almost a decade. Of course, this is powering investment, and, perhaps surprisingly, the money appears to be moving along strategic lines global thinktanks like the IMF are calling for.
To expand; the IMF argument runs that managing oil revenues sustainably, so that spending does not rise and fall in line with the price of oil, would promote fiscal sustainability and prevent a return to previous oil-driven cycles of boom and bust. So too would far-sighted budget planning and policies to diversify the Saudi economy.
The IMF notes that interesting policies to achieve this are at hand. Reforms to energy prices so that domestic fuel prices converge with international prices could generate fiscal savings as well as support climate objectives, which are set out in the Saudi Green Initiative.
Further, the Saudi authorities’ implementation of Vision 2030 policies aims to help diversify and liberalise the country’s economy and pave the way to more stable growth, with sustainability a stated key part of this goal.
Vision 2030 and Saudi resource extraction?
Vision 2030 is a reform programme that aims to reduce Saudi Arabia’s reliance on oil for revenue generation, without compromising its commitment to high standards of living for its citizens. As a result, top level promises include; net-zero by 2060, accelerating the energy transition, achieving sustainability goals and driving new investment, as the state looks to balance diversification of industry with economic and social responsibility.
Much of Vision 2030’s plans hinge on renewable power in Saudi Arabia, with documents noting that the kingdom’s potential for solar and wind power are on the move through strategic investments. By 2030, the contribution of renewable energy to the overall energy mix will reach up to 50%. Some 4500MW of renewable energy projects are at ‘advanced stages’ already.
And according to the Agadir Group, a total of 145 applications from foreign companies are being assessed for exploration licenses. These investments form part of Vision 2030, to make the mining sector the third pillar of the national industry in compliance with the objectives of the National Industrial Development and Logistics Program.
Vitally, these proposed investments seek for the country to diversify its economy away from oil and towards minerals. Saudi Arabia industry and mineral resources minister Bandar Al-Khorayef was cited by Reuters as saying in a statement:
“These targeted investments represent an important ‘down payment’ in our efforts to move beyond exploration and extraction and into the creation of integrated value chains, a central focus of our overall mining strategy.”
Mining investment in Saudi Arabia
“The investments will continue to position the kingdom as a mining production and logistics hub for a region that stretches from Africa to Asia, while also supporting the transformation of our mining sector so it can achieve its potential,” continued Al-Khorayef, drawing attention to the fact that Saudi Arabia is investing not only in mines, but infrastructure for the entire mining supply chain.
Further reports say Saudi is seeking to finance nine mining projects for midstream minerals and metals; notably not oil. These will therefore become an important part of the Vision 2030 strategy, reducing reliance on oil revenue through diversification.
The kingdom is also aiming to tap into growing demand for metals and minerals that are used to produce batteries, an integral component in electric cars and other technologies vital to the net-zero project.
The Saudi Ministry of Industry and Mineral Resources has reportedly secured a $6bn project to build a steel plate mill complex and an electric vehicle battery metals plant as part of its plans to attract the $32bn in investment, a Reuters report showed.
The Saudi Green Initiative
Alongside mining investments, a green power plan could further diversify the state’s investments. More than 60 developments announced under the Saudi Green Initiative (SGI) represent over SAR700 billion in investments to contribute to the growth of the green economy.
This includes overall programmes that aim to achieve reductions in carbon emissions of more than 278Mtpa (million tonnes per annum) by 2030. Regarding Saudi’s energy and extractives pathway, the Initiative promises the transition to net-zero will be delivered in a manner that preserves the security and stability of global energy markets, particularly considering the maturity and availability of technologies necessary to manage and reduce emissions.
Dr Angela Wilkinson, secretary general and CEO of the World Energy Council, has said: “Whilst perhaps historically best known for its oil and gas production, Saudi Arabia is starting to make progress on green hydrogen, the water-energy nexus, renewables, clean cooking and other components of the circular economy.
“The world energy community will be following these bold and ambitious plans with interest.”
Saudi has promised to meet 50% of the Kingdom’s domestic energy needs from renewables; this alone reducing emissions by 175Mtpa and displacing one million barrels of liquid fuel per day by 2030.
It’s hard to square this target, and the overall Initiative, with tomorrow’s reality unless Saudi really is realigning its extractives conscience away from fossil fuels.
As a country that’s used to calling the global shots on oil, it’s a logical guess that Saudi will be seeking not only self-sufficiency across minerals for the technology it requires to hit its own sustainable goals, but also the opportunity to influence global agendas on the availability of these rare earth metals for batteries and other essential green transition tools.
When considering the policies as a whole, it signals a new emphasis on mineral extraction, alongside a willingness to run with the rest of the world on net-zero. This may ultimately mean oil is no longer the world’s dominant source of fuel, which in turn could have impacts on the position of Saudi Arabia in global politics.
Then again, practice can be different; figures note that Saudi Arabia remains the biggest net exporter of crude oil in the world and produced 12.3% per cent of the world total in 2019, according to the International Energy Agency.
Commentators argue that while the kingdom is in no rush to change this, mining and clean energy projects suggest it is conscious of the eventual energy transition.
Either way, it’s a challenging circle to square. Have Saudi policymakers predicted a future pathway, and chosen to shift towards their mineral, not oil, resources in order to retain their world-leading influence as far as possible? All the oil in the world isn’t much use if no one will want it.
Watching how many metal and mineral facilities spring up, compared with efforts on fossils, and how the Saudi’s act to influence fossil price and supply will provide answers as the months pass.