At a time when US consumers are frustrated with high energy bills, in part due to data centres, Saudi Arabia is pitching itself as an AI hub with a different message: invest in data centres here, and we will power them on the cheap.
“Saudi Arabia has one real comparative advantage when it comes to AI, and that is cheap electricity,” Greg Priddy, an energy expert at the Center for the National Interest, told Middle East Eye.
“By almost every other metric, it would be better to build centres somewhere else,” he said.
But the lure of ultra-cheap energy, thanks to old-school fossil fuels, means Saudi Arabia has a fighting chance to become an AI powerhouse, experts say.
AI was front and centre during the Future Investment Initiative conference (FII) in Riyadh this week, where Saudi executives said they plan to make the desert kingdom the third-biggest player in AI alongside superpowers China and the US.
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Saudi AI company Datavolt is building a $5bn data centre on the kingdom’s Red Sea coast. Meanwhile, Humain, an AI firm owned by Saudi Arabia’s $1 trillion Public Investment Fund (PIF), is building data centres from Riyadh to Dammam, that it says will have 6.6 gigawatts of capacity by 2034.
That kind of ambition needs to be put into perspective, because it would be laughable in almost any rich, medium-sized western country, experts say.
“We are talking about a number that is one and a half times Denmark’s entire electricity use per year,” Pierre Pinson, an expert at Data-centric Design Engineering at Imperial College London, told MEE.
To be sure, Saudi Arabia needs to massively expand its electrical grid to feed that kind of power to its data centres, “but it is developing”, Pinson said. “Say in five years, this is not mission impossible”.
The main reason is that Saudi Arabia has vast reserves of fossil fuels.
‘Profitability’
To be sure, there are numerous ways to generate electricity, including clean options such as wind and solar, but the amount of power required to run data centres means companies will take anything they can get, experts say.
Data centres are basically sprawling compounds with rows of computers and servers that house AI chips. They need electricity to run and, importantly, to be cooled down. In the US, tech companies are turning to gas turbines to power data centres.
Saudi Arabia generates about 60 percent of its electricity from natural gas. Because oil is so plentiful in the Gulf state and easy to extract, Saudi Arabia is one of the few countries in the world that still generates electricity by burning crude and fuel oil, which contributes to a little more than one-third of its electricity generation. Solar contributes about two percent to Saudi Arabia’s electricity, but that number is growing fast.
‘You are going to have the lowest-cost energy to build data centres anywhere in the world’
– Amin Nasser, CEO of Aramco
As would be expected in the world’s largest oil exporter, gas prices in Saudi Arabia are very cheap. The price of electricity is also a bargain compared to Europe and even the relatively energy-rich US.
Commercial electricity prices in Saudi Arabia are anywhere from 30 to 50 percent cheaper than the global average, according to a report by consulting firm Roland Berger.
“This significant saving can directly improve data center operators’ profitability,” the authors said.
The link between Saudi energy and AI was on full display on Tuesday, when state-backed oil giant Saudi Aramco announced plans to acquire a “significant minority stake” in Humain.
“Data centres need lower-cost energy,” Amin Nasser, the CEO of Aramco, said last year, in a pitch to the AI industry. “You are going to have the lowest-cost energy to build data centres anywhere in the world because this is the place for it.”
Experts say that Saudi Arabia would like to use renewable energy to power data centres. It is also investing heavily in US technology to extract shale gas, taking a page out of the US’s playbook that helped make the country a net exporter of natural gas a decade ago.
“Saudi Arabia is going to have a lot of new gas available. That will be used for domestic consumption and not export,” Priddy said.
In the meantime, Saudi Arabia benefits from having crude oil to burn, literally.
“If Saudi Arabia burns crude oil to do this, they essentially pay nothing,” Ellen Wald, an expert on energy and author of Saudi Inc., told MEE.
Oil to burn
While some oil exporters want to limit domestic use to free up barrels for export, experts say that Saudi Arabia’s deposits are so vast and cheap to tap that the kingdom doesn’t need to worry. Saudi Arabia has the lowest oil production cost in the world, at less than $10 per barrel.
“If Saudi Arabia can make more by burning crude to power data centres than exporting it, it’s worth it,” Wald said.
Oil prices reached over $100 per barrel after Russia invaded Ukraine in February 2022, but have been trending down over the last three years. The International Energy Agency said in October that the world produced an oil surplus of 1.9 million barrels per day (bpd) from January to September and estimates that number may rise to 4 million bpd next year.
‘In Saudi Arabia, the price of electricity is whatever the government wants it to be, unlike in the West’
– Pierre Pinson, Imperial College London
In sum, one of the biggest constraints that China and the US face in achieving AI dominance – the price of energy – Riyadh can brush off.
“If the Saudis wanted to increase their capacity by half a million barrels per day just to power data centres, they could do that without a problem and not give up anything on exports,” Priddy said.
Saudi Arabia is an absolute monarchy. Crown Prince Mohammed bin Salman has pushed through social and economic reforms while curbing the power of the country’s religious establishment and secular political opponents.
Amid a global cost-of-living crisis, the crown prince has shown he is sharply sensitive to the cost consciousness of the people of Saudi Arabia. Earlier this year, he issued a sweeping decree freezing the rent price in Riyadh for a period of five years.
He can do the same with electricity prices.
“In Saudi Arabia, the price of electricity is whatever the government wants it to be, unlike in the West,” Pinson said.
“Whereas in the US you have a free market that accounts for network constraints, that’s why you have high residential electricity prices in regions near data centres. That huge demand is reflected in prices.”
The idea of Saudi Arabia leveraging its fossil fuel wealth into other industries is not new. The whole point of the crown prince’s Vision 2030 initiative is to diversify the economy away from a reliance on oil exports.
PIF, the kingdom’s repository for its oil wealth, is investing in mega projects, such as Neom, on the Red Sea coast. But some of the more grandiose parts of Vision 2030, such as the futuristic 170km-long city called The Line, are being scaled back.
Now, PIF plans to focus on tried-and-true industries, such as logistics, mineral exploitation, and religious tourism, as it contends with lower energy prices and rising budget deficits, Reuters reported this week. AI is one industry where the kingdom is doubling down, partially because it has cheap energy, experts say.
“This is not the first time Saudi Arabia has done this. They tell companies, ‘come build your auto-plant in our country and you won’t have to pay for energy’,” Wald said.
However, that has only brought mixed success to the kingdom.
Who else is going to buy it?
For example, Saudi Arabia has struggled to develop a heavy manufacturing sector, in part because foreign investors have been reluctant to build expensive, complex factories in the Gulf. Saudi Arabia also lacks the skilled labour to staff such facilities.
The kingdom has been more successful in parlaying its oil wealth into petrochemicals. These are the refined polymers and compounds of oil that are found in everything from fertilisers and plastics to laundry detergents, paper, and clothing.
The last piece of the puzzle for Saudi Arabia is getting the advanced semiconductors that power data centres. Saudi Arabia and the UAE have been lobbying the Trump administration hard on this front.
When Trump visited the kingdom in May, he gave approval for Nvidia to sell 18,000 of its newest “Blackwell” chips to Humain. The UAE was also promised hundreds of thousands of chips.
Those deals are in limbo as some US officials raise concerns about the kingdom’s ties to China. They worry that the advanced US technology could be shared with Beijing.
It has almost become routine for Saudi business leaders and officials to reassure the US that they will not share American technology with China, which is the top buyer of Saudi oil.
“In our case, I will never do that,” Tareq Amin, Humain’s CEO, said during FII in Riyadh this week, when asked if he would purchase Huawei technology.
One Saudi analyst who speaks with officials in the country told MEE that they are confident the Trump administration will eventually approve the sales.
“The Europeans don’t have the money, and China is out. Who else is going to buy this expensive American technology?”
