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Last May, Chinese solar panel manufacturer LONGi signed an agreement with Saudi trading company El Seif Group to establish large-scale solar manufacturing infrastructure in Saudi Arabia. The deal came several months after the Trump administration's imposition of global tariffs on imports of Chinese solar panels and cells. 

The big picture: Uneasy about its oil dependence and lack of domestic manufacturing capabilities, Saudi Arabia has long looked to partner with China to develop its burgeoning green industries. But while the U.S.–China trade war has given the kingdom a chance to fortify that collaboration, it also puts Riyadh in the tough position of choosing between the world's largest solar manufacturer and its most important geopolitical ally.

Background: China laid out its industrial investment policy for the Greater Middle East in a 2016 white paper, highlighting the importance of exporting industrial capacity in nuclear, traditional and renewable energy. Saudi Arabia's goal of developing 60 gigawatts of solar power by 2030, together with its dearth of indigenous competition, makes the country an attractive manufacturing destination for Chinese firms, which have already sought to deepen their cooperation with their Saudi counterparts.

Saudi Arabia seems poised to take advantage. The country aims to become a global trade hub as part of its ambitious Vision 2030 plan, and has already taken action in industrial policy to establish local manufacturing centers.

In addition to streamlining its once-byzantine trade documentation requirements, the Kingdom has established a special economic zone near Riyadh's flagship airport. 

With the lure of tax incentives, the zone could serve as a hub for assembling solar components — and, potentially, a destination for Chinese manufacturers seeking to avoid the 10% U.S. tariff. 

The potential for domestic job creation might entice Riyadh even further to pursue geopolitically risky economic relations.

Yes, but: The Trump administration is unlikely to approve of China's inroads in the Middle East. While Riyadh may be able to strengthen its domestic solar manufacturing industry by cooperating with China, it risks spurring Washington to impose tariffs on Saudi Arabia, as it has done with other allies.

The bottom line: Saudi Arabia has the opportunity to capitalize on the trade conflict to further its development goals, but must choose its partners carefully to avoid becoming collateral damage.

Juergen Braunstein is a postdoctoral fellow at Harvard Kennedy School's Belfer Center. Oliver McPherson-Smith is a Master's student at Harvard's Center for Middle Eastern Studies.

How Saudi Arabia and China could partner on solar energy

The country wants to develop 60 gigawatts of solar power by 2030.

A Saudi man speaks to a journalist at a solar plant in Uyayna, north of Riyadh, on March 29, 2018. 

A Saudi man speaks to a journalist at a solar plant north of Riyadh on March 29, 2018. Photo: Fayez Nureldine/AFP via Getty Images

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Last May, Chinese solar panel manufacturer LONGi signed an <a class="gtmContentClick" data-vars-link-text="agreement with Saudi trading company El Seif Group" data-vars-click-url="https://www.pv-tech.org/news/longi-signs-agreement-to-develop-major-solar-manufacturing-hub-in-saudi-ara" data-vars-content-id="38e99622-bc52-4f68-a0a8-3f5e9fe3d65a" data-vars-headline="How Saudi Arabia and China could partner on solar energy" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.pv-tech.org/news/longi-signs-agreement-to-develop-major-solar-manufacturing-hub-in-saudi-ara" target="_blank">agreement with Saudi trading company El Seif Group</a> to establish large-scale solar manufacturing infrastructure in Saudi Arabia. The deal came several months after the Trump administration&#x27;s imposition of <a class="gtmContentClick" data-vars-link-text="global tariffs on imports of Chinese solar panels and cells." data-vars-click-url="https://www.axios.com/trump-issues-tariffs-on-imported-solar-panels-1516657913-8494a383-555f-45dd-b869-086a6524e94f.html" data-vars-content-id="38e99622-bc52-4f68-a0a8-3f5e9fe3d65a" data-vars-headline="How Saudi Arabia and China could partner on solar energy" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/trump-issues-tariffs-on-imported-solar-panels-1516657913-8494a383-555f-45dd-b869-086a6524e94f.html" target="_self">global tariffs on imports of Chinese solar panels and cells.</a> The big picture: Uneasy about its oil dependence and lack of domestic manufacturing capabilities, Saudi Arabia has long looked to partner with China to develop its burgeoning green industries. But while the U.S.–China trade war has given the kingdom a chance to fortify that collaboration, it also puts Riyadh in the tough position of choosing between the world&#x27;s largest solar manufacturer and its most important geopolitical ally.

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Economy & Business

Singapore has for decades been a premier refinery hub and gatekeeper between Asia and the Middle East, but its position is increasingly threatened as more Gulf nations expand their processing capacity and petrochemical production.

Why it matters: Oil and petrochemicals drive about one quarter of Singapore's net exports. Greater competition in the global oil and gas value chain could take a heavy toll on the city-state’s national budget and economic growth prospects.

Background: Since the 1970s, Singapore's economy has been highly dependent on the oil industry, especially downstream activities. The prices paid by consumers in the oil markets of Asia and the Middle East are linked to cargo prices set in Singapore.

What's happening: Producer countries are increasingly shifting into the downstream activities that helped make Singapore the "Houston of Asia."

In 2018, the CEO of Abu Dhabi’s National Oil Company announced an investment of $45 billion to create the world's largest integrated refining and petrochemical project.

Saudi Aramco’s CEO Amin Nasser intends to double the firm's refining capacity over the next decade, increase its petrochemical production and invest $150 billion in its integrated gas business.

The Kuwait National Petroleum Company also plans to spend $25 billion on new downstream projects over the next 20 years.

Meanwhile, countries such as Malaysia, South Korea and Japan are competing with Singapore to establish themselves as Asia’s next liquefied natural gas hubs.

Companies and ship operators have been switching to LNG as their preferred fuel.

Furthermore, Asian countries are searching for alternative energy shipping routes through the Arctic and elsewhere, with the strategic aim of reducing dependence on energy and commodity imports that pass through chokepoints such as the Straits of Malacca.

Between the lines: These moves diminish Singapore’s bargaining power as a transit state, to the advantage of consumer countries that have more choices in the era of energy abundance.

The bottom line: The global energy transition is in an early stage, with Asian demand for oil and gas expected to continue growing and alternative shipping routes still taking shape. Yet Singapore’s relationships with oil producers will have to evolve if it’s going to remain an integral player in the future energy mix.

Juergen Braunstein is a postdoctoral fellow at Harvard Kennedy School's Belfer Center.

Increased competition threatens Singapore's oil-heavy economy

Oil-producing countries have been adding refining capacity and producing more petrochemicals.

shipping vessels near port and oil refinery facilities

Vessels anchored near an oil refinery on Singapore's Jurong Island. Photo: Roslan Rahman/AFP/Getty Images

Singapore

Singapore has for decades been a premier refinery hub and gatekeeper between Asia and the Middle East, but its position is increasingly threatened as more Gulf nations expand their processing capacity and petrochemical production.Why it matters: Oil and petrochemicals drive about one quarter of Singapore&#x27;s net exports. Greater competition in the global oil and gas value chain could take a heavy toll on the city-state’s national budget and economic growth prospects.

Ominous forecasts about the impact of climate change serve as the backdrop for the world — led by U.S. lawmakers and companies — to debate big action on the problem, which could upend energy systems and our way of life.

Energy & Environment

Since the Paris Agreement's adoption in 2015, a majority of the world's largest investors have begun to take action on climate change. According to a new report, the 2016–2017 year showed an average improvement in decarbonization within all major investor categories except pension funds.  

The big picture: As more countries act to reduce carbon emissions, large institutional investors are becoming increasingly aware that high-carbon assets, such as oil firms and coal mines, may become worthless in the long run, driving them to dedicate a larger portion of their assets to renewable energy.

As a group, sovereign wealth funds (with $6 trillion in assets under management) have made some of the largest improvements, with particular leadership from Abu Dhabi, France, New Zealand, Ireland and Canada. Last November, Norway’s SWF, the largest in the world, announced that it would decarbonize its portfolio. (Three quarters of all SWFs, however, still ignore climate risk).

Yes, but: The largest pension funds (AUM $15 trillion) have made no decarbonization progress on average, and the largest insurance companies (AUM $17 trillion) saw only a slight average improvement.

This is because both investor groups share a strong preference for standardized tradable investment products, like government securities and bonds, the vast majority of which are not climate-aligned. Unlike pension funds and insurance companies, SWFs have no explicit liabilities, allowing investment in non-standardized products and infrastructure projects with greater risks.

Why it matters: Together, large institutional investors could finance the transition to a decarbonized global energy system consistent with the Paris Agreement's goals. It might not be easy, but there are steps that can be taken, namely promoting the standardization of green investment products, increasing pension fund risk-taking through regulation, and developing in-house investment capacity among large institutional investors to encourage project finance.

Juergen Braunstein is a postdoctoral fellow at Harvard Kennedy School’s Belfer Center 

Report: more climate change recognition, action among major investors

High-carbon assets' unpromising future is driving investors to renewable energy.

Yngve Slyngstad, CEO of Norges Bank Investment Management (NBIM), presents details from the annual report of the Norwegian Government Pension Fund in Oslo on February 27, 2018. 

Presentation of an annual report on Norway's sovereign wealth fund in Oslo on February 27, 2018. The fund announced it would decarbonize its portfolio last year. Photo: Ole Berg-Rusten/AFP via Getty Images

Climate change

Since the Paris Agreement&#x27;s adoption in 2015, a majority of the world&#x27;s largest investors have begun to take action on climate change. According to <a class="gtmContentClick" data-vars-link-text="a new report" data-vars-click-url="http://aodproject.net/wp-content/uploads/2017/04/AODP-GLOBAL-INDEX-REPORT-2017_FINAL_VIEW.pdf" data-vars-content-id="c9ceadcd-1273-4027-b32b-6ea0dd0f59fa" data-vars-headline="Report: more climate change recognition, action among major investors" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="http://aodproject.net/wp-content/uploads/2017/04/AODP-GLOBAL-INDEX-REPORT-2017_FINAL_VIEW.pdf" target="_blank">a new report</a>, the 2016–2017 year showed an average improvement in decarbonization within all major investor categories except pension funds. The big picture: As more countries act to reduce carbon emissions, large institutional investors are becoming increasingly aware that high-carbon assets, such as oil firms and coal mines, may become worthless in the long run, driving them to dedicate a larger portion of their assets to renewable energy.

Juergen Braunstein

Stories

Increased competition threatens Singapore's oil-heavy economy

How Saudi Arabia and China could partner on solar energy

Report: more climate change recognition, action among major investors