Despite that talk about slowing oil demand, the truth is that for now, at least, consumption is growing. The world is hungry for fossil fuels, and looking at how the Organization of the Petroleum Exporting Countries (OPEC) is pumping more oil. If demand is stronger in the coming years, the longtime de facto OPEC leader Saudi Arabia will boost output further.
It might spell long-term trouble for the region, though. As demand for energy changes, climate change exacerbates fragility of the region – from depleting freshwater resources and temperatures soaring at a rate two-to-seven times faster than the global average. As extreme weather impacts the lives of people, there is no choice for OPEC members but to go green.
The International Energy Agency (IEA) has been warning for years that oil-producing countries must transform their economies and move away from fossil fuel dependency to renewable energy.
Last year, Ali Allawi, the finance minister of Iraq, called on fellow oil producers to include solar power and potentially nuclear reactors and reduce their dependence on fossil fuel exports.
How are these countries that have gained their wealth through producing fossil fuels decarbonizing their economies?
One would think being an environmental advocate and selling fossil fuels may appear contradictory. But perhaps not. While preserving a market for their enormous oil reserves, these nations have realized they are better off, at the same time, to be part of the solution to global warming.
Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, said that although it would pump more oil, the country can roll out solar, wind, and hydrogen projects. “We can become more efficient by installing insulation for buildings, having more efficient standards for the industry, and so on. And we can take the CO2 that was committed to the atmosphere and use it in a valuable application, say for a food or beverage company, as a valuable product, so it becomes a material, instead of discarding it.”
These seemingly opposing sides can work together to achieve the same goal. “OPEC as an organization has the mandate to regulate the price of petroleum products and make it less competitive. However, some member countries are working to develop greener energy sources domestically,” says Karim Elgendy, Urban Sustainability and Climate Consultant, Non-Resident Fellow at the Middle East Institute.
“They now have a renewable energy target as a percentage of electricity generation capacity, and the rate at which solar and wind farms are being built is increasing in recent years, especially in Egypt, Jordan, Saudi Arabia, and the UAE,” he adds.
But despite $5 trillion of investment over two decades, the world only produces about 6.7% of its primary energy needs from renewables, according to Badr Jafar, President of Crescent Petroleum, a privately-owned petroleum company. He says more needs to be done to minimize the life cycle GHG emissions of 100% of its energy needs. “Few countries in the world are doing enough, except for visionary large-scale urban projects like Masdar and NEOM.”
This November, against mounting concerns about rising energy prices and many countries’ failure to slash planet-heating emissions adequately, Egypt will be hosting the COP27 climate conference to follow through on promises made last year in Glasgow, where the tagline was “from ambition to action.”
“The first COP in the MENA region is a rare opportunity to focus on ending energy poverty by supporting solar solutions like microgrids. As rural communities transition from diesel generation to solar microgrids, especially with the recent spike in oil prices, there is a gap in investment that OPEC can fill while supporting the energy transition happening in the MENA region,” says William Brent, a global climate tech industry expert.
Transitioning to a green economy, Egypt seeks to produce 42% of its power from renewable resources by 2035 and committed $40 billion to the green hydrogen economy. It is building a hydrogen factory in the Suez Canal Economic Zone. It is also introducing an umbrella program called “Nowfi” to the green government projects in energy, food, and water to support climate action.
With the region hosting two climate conferences, and the UAE hosting COP28 next year, Elgendy says much of the regional leadership is ensuring their seats at the climate table to shape the new world economy. Powering a green energy revolution.
“During both upcoming summits, natural gas is expected to be promoted heavily as a transition fuel and a critical part in stabilizing the energy market, considering the Russia-Ukraine war and plans by some regional countries to expand exports to Europe to replace Russian exports,” says Elgendy.
He adds that Egypt and the UAE are open to this message since fossil fuel exports do not contribute to a country’s calculated carbon emissions.
DRIVING THE GREEN AGENDA
Across the region, there have been efforts to set a timeline for a carbon-free future. Saudi Arabia aims to achieve carbon neutrality by 2060, with initial investments of more than $187 billion. By the end of this decade, Saudi Arabia plans to generate 50% of its power from renewable sources.
The UAE, which produces about three million barrels of oil daily, is one of the world’s highest carbon-dioxide emitters per capita, pledged to have net zero carbon emissions by 2050.
UAE and Saudi Arabia are also members of the Middle East Green Initiative, a regional pact on climate change agreed upon last autumn.
Mohammad Sanusi Barkindo, OPEC Secretary General, noted that the Saudi Green Initiative and the Middle East Green Initiative represent an important contribution to combat climate change. During its presidency of the G20, Saudi Arabia promoted the circular carbon economy as one of the balanced solutions to the climate challenge and embraced advanced technologies as part of the global energy agenda.
Even Qatar and Kuwait have pledged to increase the share of renewables in their energy mix by 2030. Oman is also pursuing hydrogen as a potential fuel for the future. Egypt, Morocco, and Jordan are among other countries in the region with sizable renewable energy programs.
Over the next three decades, the UAE plans to spend $163 billion to reduce the emissions from power plants. Investments are made into solar farms, including the Noor Abu Dhabi, the Al Dhafra Solar Photovoltaic, and the Mohammed bin Rashid Al Maktoum Solar Park – the largest single-site solar park in the world that will generate 5,000 MW by 2030.
“With the large potential for solar energy, many OPEC members have a natural opportunity to create a domestic net-zero energy supply. The big question is whether they extend that thinking beyond their borders or continue to treat global markets for fossil fuels as the centerpiece of their future economic and trade strategy,” says Brent.
Another clean power source will be nuclear reactors built by South Korean contractors in Abu Dhabi. The country, aiming to source half its electricity from renewable and nuclear sources by 2050, is also driving the green agenda by retrofitting buildings and using electric power for transportation.
These efforts of the UAE, a regional hub for finance, logistics, and tourism, are having a major impact on neighboring petroleum exporters like Saudi Arabia and Kuwait in diversifying their economies away from oil.
OIL GIANTS DEVELOPING LOW-CARBON ENERGY
To signal that the oil giants are prepared to adapt to climate needs, Abu Dhabi National Oil Company (ADNOC) joined oil major BP and Abu Dhabi’s future energy company Masdar to develop clean hydrogen and technology hubs in the UK and the UAE. It also aims to build a world-scale blue ammonia production facility in Abu Dhabi and explore opportunities with TotalEnergies in carbon capture utilization.
Last year, ADNOC, along with Mubadala and ADQ, formed an alliance to establish Abu Dhabi as a leader of low-carbon green and blue hydrogen in emerging international markets.
Hydrogen will become even more viable as an alternative fuel amid a surge in oil and gas prices, according to Suhail Al Mazrouei, UAE’s Minister of Energy and Infrastructure. “The differential cost between green hydrogen and natural gas is becoming less, and this is a golden opportunity for us to create that business case,” he said.
Gulf states are deeply competitive, so a flurry of news about green initiatives is emerging every day.
Even Saudi Arabia’s state-owned Aramco is developing hydrogen, the clean-burning fuel that could be used in the future to power truck fleets or make steel. The oil company has plans with French player Gaussin to produce hydrogen-powered vehicles. Aiming to produce 11 trillion tons of low-carbon ammonia by 2030, Saudi Aramco is building a global alliance for blue hydrogen and blue ammonia.
Saudi utility developer ACWA Power has signed an MoU with South Korea’s POSCO Holdings to develop green hydrogen and green ammonia.
HYDROGEN CAN HELP TO TRANSITION FAST
It’ll still take several years before hydrogen becomes a fully-fledged business. According to a PwC study, the GCC states and the MENA region, which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE, could produce about 200 million tons of green hydrogen by 2050.
“Investing into alternative energy sources such as renewables is a growing trend for many OPEC members, especially Saudi Arabia and the UAE, which have backed commercial ventures that invest in renewable energy sources globally. In the short term, the reduction in oil and gas dependence domestically (by using more renewables) could release more fossil fuels for export. In the long term, this also helps them hedge against the long-term future of fossil fuel,” says Elgendy.
The scientific community warned that fossil fuels must be scaled down, both in production and use, complemented with demand-side interventions like reducing energy demand and improving energy efficiency.
But with the oil demand expected to grow, at least for a few years, according to analysts, hitting the net-zero target won’t be easy for these oil-producing states.
Demand for all energy forms has continued to grow uninterrupted for decades, says Jafar. “Assuming global hydrocarbon demand continues to rise long term, the need for global emission reduction is especially acute. The concept of peak oil demand gives false hope that upstream emissions (Scope 1 and 2) will fall. In reality, consumer-led scope 3 emissions are the real problem for which we have very few solutions. UAE and Saudi Arabia, as it happens, have been working closely with trade partners specifically on Scope 3 measures, putting them at the forefront of this discussion.”
Meanwhile, aided by a Ukraine war-driven rally in oil prices, the OPEC members of the Gulf nations are seeing billions of dollars added to their coffers. Analysts say that Gulf oil exporters need to get used to oil booms and busts, with an eye on economic diversification. “The global energy transition will probably take longer than most would like. Volatility could have near-term benefits for OPEC, but oil-producing countries can’t expect that to last long-term. If they do, they will be stranded,” says Brent.
Also, a drop-off in support for fossil fuels needs to happen much more quickly. Brent says, “OPEC’s legacy business is molecules, not electrons, so it’s possible that the hydrogen economy could offer a chance to transition quickly in a way that uses a similar infrastructure. It’s an open question whether the same would apply if OPEC tried to go big on solar, wind, and geothermal.”
What is remarkable is that the commitments made by the big petro-states signal that they now realize that the world is shifting and that they have to participate in measures to tackle global warming to be relevant. These Gulf oil exporters’ green ambitions are a fleeting image of what the region’s economy could look like in the future in a world where demand for oil and gas is weaker. For example, the region’s self-proclaimed first mover, the UAE, is now the least dependent on oil for government revenues.
The climate summit in Abu Dhabi in 2023 is already being billed as the “solutions COP.” Its presidency, says Elgendy, is expected to use the full power of Emirati diplomacy to advance decarbonization and advocate for climate technologies, such as renewable energy, green hydrogen, carbon capture and storage, efficient desalination, and agri-tech. It is also expected to recognize the new circular carbon economy framework as an alternative approach to reaching regional decarbonization goals.
Most green plans are still in their infancy, but the direction is clear.