Japan Spots Opportunity as Saudi Arabia Diversifies Energy Sector

Japan Spots Opportunity as Saudi Arabia Diversifies Energy Sector

During a visit to Saudi Arabia in February, Japanese Industry Minister Toshimitsu Motegi reportedly offered cooperation on civil nuclear technology to help the kingdom boost oil exports by freeing up supplies currently used in domestic electricity generation. The offer came in the context of rising Saudi crude exports to Japan resulting from Tokyo’s post-Fukushima nuclear shutdowns as well as its declining imports from Iran. It also came at a time when the new Japanese government led by Prime Minister Shinzo Abe is looking to boost civil nuclear exports to support Japan’s flagging domestic industry.

Given its plans for a massive nuclear buildout, Saudi Arabia seems a logical destination for the Japanese nuclear sector. But Motegi's offer also reflects a desire not to concede strategic space to the Chinese in the Persian Gulf region.

Saudi Arabia has good reason to try to diversify its energy sector. At a price of $100 a barrel for crude, Saudi Arabia forgoes some $150 billion in annual export revenues due to its heavy dependence on oil to meet domestic electricity and transportation requirements. A move away from oil to nuclear- and solar-based electricity generation would reduce this opportunity cost, in addition to making Saudi Arabia more carbon-competitive. As such, current Saudi build plans, with a capital outlay of at least $80 billion, call for installing 17 gigawatts of new nuclear capacity by 2032, with the aim of meeting 20 percent of domestic electricity requirements with nuclear energy by then.

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