Finance

Saudi capex expected to shift focus to renewables

August 16, 2024

As part of a "capex super-cycle" up to 2030, Saudi Arabia is set to invest $235 billion in renewables — As part of a "capex super-cycle" up to 2030, Saudi Arabia looks set to invest $235 billion in renewables

Focus on clean energy, says report
Still investing $200bn in oil
Financing may prove difficult

Saudi Arabia is predicted to drastically scale back its capital expenditure in fossil fuels, allocating less than a quarter of its $1 trillion planned investment to oil.

Goldman Sachs Research expects capex in the oil sector to decline by $40 billion between 2024 and 2028, as the kingdom pivots towards renewable energy and economic diversification.

In what the US bank describes as a “capex super-cycle,” they say Saudi Arabia will invest $1 trillion across six strategic sectors by 2030.

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Seventy-three percent of the funds will go to non-oil sectors, a notable increase from an earlier forecast of 66 percent.

Clean energy is the primary beneficiary of this reallocation, with $235 billion earmarked for renewable projects – up from $148 billion – as the country more than doubles its 2030 energy capacity target.

Goldman Sachs now estimates Saudi Arabia’s potential investment in upstream oil and gas to drop to a range of $190-220 billion by 2030, down from $230-260 billion.

Despite this, natural gas remains central to the country’s decarbonisation strategy, serving as a bridge fuel in its broader economic transformation.

Saudi minister of investment Khalid bin Abdulaziz Al-Falih said in June that the Gulf state will maintain its leadership in energy provision, while diversifying its energy portfolio to include green exports.

“We are not going to cede our position as a global leader of providing competitive energy,” said Al-Falih, previously CEO and president of state oil company Aramco.

Saudi Arabia is also funnelling investments into mining, transportation, logistics and digitalisation – sectors it deems vital for reducing the country’s dependency on oil revenues.

The government has set aside $182 million for mineral exploration incentives and plans to award over 30 mining exploration licences this year. About $200 billion has been allocated to aviation, electric vehicles and associated infrastructure.

However, financing this ambitious $1 trillion capex plan is proving challenging, Goldman Sachs said.

With oil prices hovering between $80 and $85 per barrel and production dipping to nine million barrels per day, Saudi Arabia faces rising fiscal pressure.

The country’s budget deficit is forecast to widen to 4.3 percent of GDP this year, compared with 2 percent last year, driven largely by increased spending and lower oil revenues.

Goldman Sachs said Saudi Arabia will need to explore alternative financing sources to address the projected $25 billion-per-year funding gap for its capex projects.

This week Saudi introduced major investment law reforms, which analysts believe will unlock a backlog of delayed deals.

Last year’s Cop28 climate summit in Dubai concluded with the adoption of a landmark agreement urging countries to “transition away” from coal, oil, and gas this decade.