The Legal Framework for Energy Supply in the Kingdom

The energy sector in the Kingdom of Saudi Arabia represents a cornerstone of its economy. The Kingdom possesses the second-largest proven crude oil reserves after Venezuela, significant natural gas reserves, and an extensive electricity distribution network that covers all major cities, provinces, and villages across the Kingdom. Thus, it is essential to preserve the diversity of energy sources in the Kingdom and use them sustainably and efficiently (1).

In this context, the Energy Supply Law was issued to ensure sustainable and reliable energy sources to support the Kingdom’s economic and demographic growth. 

Primary Objectives of the Energy Supply Law

1. Regulating the Energy Sector:
   Regulating the energy sector is one of the primary objectives of the law. It achieves this by organizing three main stages of the sector: energy production, transmission, and distribution, ensuring the efficiency and sustainability of the sector in the Kingdom. This aligns with the Kingdom’s vision to diversify and sustain its energy sources.
   The regulation also includes energy allocation for consumers in the following sectors: electricity production, crude oil refining, petrochemical production, water desalination, industry, mining, agriculture, construction, telecommunications, transportation, logistics, and other sectors (2).
2. Diversifying Energy Sources:
   The law aims to gradually replace fossil fuels with renewable energy sources, contributing to the reduction of carbon emissions. Promoting the circular carbon economy and empowering the renewable energy sector are among the core standards for energy allocation under the Energy Supply Law.
3. Environmental Protection:
   The law incorporates environmental regulations designed to mitigate negative environmental impacts. These include standards to reduce pollution and minimize the environmental effects of energy generation and transmission operations. The Energy Supply Law and its Energy Allocation Regulation emphasize objectives such as enhancing the circular carbon economy, managing greenhouse gases, and empowering the renewable energy sector (3).
4. Encouraging Efficient Energy Use:
   The law seeks to rationalize energy consumption and ensure sustainability by evaluating activities and projects requesting energy supply, assessing their feasibility and energy needs, and establishing standards for energy consumption after allocation. This contributes to a more efficient use of energy.

How to Submit an Energy Allocation Request for a Project or Activity

Individuals or entities seeking energy allocation for their projects or activities must submit a request to the Ministry of Energy through the channels announced on the Ministry’s official website, using the approved forms. The request must include personal details and the following information:

1. The name and scope of the activity, the energy consumption sector, and its geographical location.
2. The type and quantity of energy required, and the duration of allocation.
3. A feasibility study for the activity.
4. Financial solvency and a financing plan for the activity.
5. Details of the activity’s implementation stages.
6. A detailed localization plan.
7. Any studies generally required for the activity (4).

The Ministry of Energy is not obligated to decide on allocation requests within a specific period due to the significant variation in project sizes and sectors. However, the Ministry is required to notify the applicant of the time frame needed to evaluate the allocation request and make a decision within 15 working days from the date the request is completed (5).

If the allocation request is approved, the Ministry of Energy issues a document to the applicant called the “Energy Allocation Document.” This document includes the recipient’s details, the purpose of the allocation, the type and quantity of energy, and the document’s duration and provisions (6). However, issuing the Energy Allocation Document does not constitute approval to engage in the activity for which the allocation is required. The recipient must obtain the necessary licenses and approvals to carry out that activity (7).

This raises the question of whether the legislator should require applicants to obtain licenses for the activity before submitting an energy allocation request to ensure that energy is not supplied to any unauthorized or non-compliant activity or project.

Standards Governing Energy Allocation

The Energy Supply Law assigns the “Energy Allocation Committee” the task of approving the standards upon which energy allocation is based. These standards include:

1. Achieving optimal energy usage.
2. Contributing to enhancing and diversifying the national economy.
3. Meeting energy mix targets.
4. Improving energy usage efficiency.
5. Promoting the circular carbon economy.
6. Managing greenhouse gases in compliance with strategies approved by the Supreme Committee for Hydrocarbon Affairs and the Supreme Committee for Energy Mix Affairs for Electricity Production and Renewable Energy Sector Enablement. These energy allocation standards are reviewed every three years or as needed (8).

A special license from the Ministry of Energy is required to engage in activities related to natural gas and its liquids or hydrogen-related activities. This includes activities such as transportation, processing, fractionation, gas purification, aggregation, storage, local distribution, import and export, sales, and the establishment, ownership, and operation of natural gas networks and facilities, or hydrogen-specific facilities (9).

What are the three main stages of the energy sector that the Energy Supply Law aims to organize to ensure efficiency and sustainability?

The Energy Supply Law aims to ensure the efficiency and sustainability of the energy sector in Saudi Arabia by organizing the following three main stages:

1. Energy Production
2. Transmission
3. Distribution

By regulating these specific stages, the law seeks to provide reliable energy sources that support the Kingdom’s economic and demographic growth while aligning with the broader vision of diversifying and sustaining energy sources.

How does the Law align with the Kingdom’s vision regarding energy source diversification?

The Energy Supply Law aligns with the Kingdom’s vision regarding energy source diversification through several strategic mechanisms and regulatory standards designed to ensure sustainability and efficiency:

• Regulating the Entire Energy Chain:   The Law organizes the three main stages of the energy sector—production, transmission, and distribution. This structure is specifically designed to ensure the sector’s efficiency and sustainability, which directly aligns with the Kingdom’s goal to diversify and sustain its energy sources.
• Transitioning from Fossil Fuels:   A primary aim of the Law is to gradually replace fossil fuels with renewable energy sources. This transition is intended to reduce carbon emissions and modernize the national energy profile.
• Core Standards for Energy Allocation:  When the Ministry of Energy allocates energy to various projects, it applies standards that prioritize the circular carbon economy and the empowerment of the renewable energy sector. Other key standards include meeting specific energy mix targets and managing greenhouse gases.
• Strategic Oversight: The Law ensures that energy allocation remains in compliance with broader national strategies. For instance, greenhouse gas management must align with strategies approved by the Supreme Committee for Hydrocarbon Affairs and the Supreme Committee for Energy Mix Affairs for Electricity Production and Renewable Energy Sector Enablement.
• Resource Preservation: The Law recognizes that while Saudi Arabia holds massive oil and gas reserves, it is essential to preserve the diversity of these sources and use them efficiently to support long-term economic and demographic growth

Overview of The Legal Framework for Energy Supply in the Kingdom

The text outlines the legal and regulatory framework governing energy distribution and sustainability within Saudi Arabia. This legislation serves to centralize the oversight of energy production, transmission, and usage across various economic sectors while prioritizing environmental protection and carbon reduction. Prospective users must undergo a formal application process through the Ministry of Energy, providing detailed project feasibility and financial plans to secure an allocation. Specialized committees evaluate these requests based on their ability to enhance economic diversity and improve energy efficiency. Furthermore, the law emphasizes a strategic transition toward renewable sources and the implementation of a circular carbon economy. Ultimately, obtaining an energy allocation is a preliminary requirement that does not replace the need for specific operational licenses and regulatory approvals.

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Sources:

1. Energy Report for the Kingdom of Saudi Arabia 1442 AH (2020), issued by the King Abdullah Petroleum Studies and Research Center (KAPSARC), available on the official KAPSARC website: <Saudi Arabia Energy Report – KAPSARC>.
2. Article (2) of the Energy Supply Law, issued under Royal Decree No. (M/80) dated 4/6/1444 AH.
3. Article (2) of the Energy Allocation Regulation for the Energy Supply Law, published on the Saudi Ministry of Energy website: <Energy_allocation.pdf (moenergy.gov.sa)>.
4. Article (3) of the Energy Allocation Regulation.
5. Paragraph 1 of Article (5) of the Energy Allocation Regulation.
6. Paragraph 4 of Article (5) of the Energy Allocation Regulation.
7. Article (9) of the Energy Allocation Regulation.
8. Paragraph 3 of Article (3) of the Energy Supply Law.
9. Paragraph 1 of Article (5) of the Energy Supply Law.