The Middle East is at the precipice of what will be the second most innovative chapter in its unique energy narrative, the first being defined by the region’s role as the epicentre of global oil production since the mid-1990s. The growing appetite of governments for low carbon is more than a silver lining to the dark economic cloud caused by two years of low oil prices – it has created an entirely new horizon.
The previous era of $100 per barrel oil and investors’ general aversion to expensive technology costs stalled the decade-long conversations in the Middle East to embrace a low-carbon ethos. But a now settled range of lower oil prices, and the Abu Dhabi Water and Electricity Authority’s announcement in September that it received the lowest bids ever for solar power, are two key developments that help reaffirm the dawn of a new energy roadmap in the Middle East.
The Gulf Cooperation Council’s (GCC) support for the United Nation’s Framework Convention on Climate Change (UNFCCC) meeting in Paris last December saw a region with one of the worlds’ highest rates of pollution solidify its status as an environmental conservationist.
The US and China, the world’s two biggest contributors of global emissions, agreed in September to join the 180 countries that have signed the Paris Climate Agreement over the last year. The agreement aims to reduce emissions of greenhouse gases (GHG), and to limit global warming to 2°C, and ideally no more than 1.5°C.
US and Chinese support of the climate agreement is the first time so many of the world’s leaders have united under a single framework. Environmental concerns affect every piece of the global oil and gas puzzle. In South America, for example, a third of organisations responding to a Lloyds Register survey said curbing the sector’s negative environmental impact is the primary driver for their research and development (R&D) spend.
So, as global momentum increases, the Middle East’s sunny climate, R&D ecosystem, and penchant for innovation, mean that it has the opportunity to champion and export clean energy technologies, especially for solar.
At current rates, the Middle East’s energy consumption by 2035 will rise by 60%, and oil consumption per capita will be more than three times the global average. These sobering statistics, laid out by BP’s Energy Outlook, underscore the urgency of environmental reformation. The region has already made hard-won progress in what is an economic blink of an eye.
The World Bank estimated in 2014 that the Middle East and North Africa accounted for 48% of global energy subsidies, despite being home to just 5.5% of the world’s population. The economic toll of subsidies, at a time when balance sheets are cracking under the pressure of low oil prices, prompted some governments to start reducing subsidies last year; a politically sensitive move considering that subsidies have been ingrained in the region’s psyche as a national right thus far.
The UAE, which the International Monetary Fund (IMF) estimated spent an annual $7bn on petroleum subsidies, took the plunge and deregulated gasoline and diesel prices from 1 August, 2015, for example.
The Abu Dhabi-based International Renewable Energy Agency (IRENA) said the GCC has the potential to save 400 million barrels of oil, and reduce the combined per capita carbon footprint by 8% by 2030, by meeting the renewable energy targets that governments have put in place. The UAE aims to have 30% of its power generation from clean energy by 2030, with Kuwait and Qatar targeting 15% and 20% respectively during the same period.
A low carbon future does not mean a one-track journey in which the Middle East ignores valuable hydrocarbon infrastructure and reserves, as illustrated by Oman’s Miraah project. Miraah will be one of the world’s largest solar plants when it starts coming online in 2017, and will save 300,000 tonnes of emissions per year, which is the equivalent of taking 63,000 cars off the sultanate’s roads. GlassPoint is spearheading the project for Oman’s state-owned and Shell-led Petroleum Development Oman (PDO) to feed 6,000 tonnes of solar steam per day directly into PDO’s thermal enhanced oil recovery (EOR) operations at the Amal oilfield.
Three key lessons can be taken from this project: low carbon technologies are compatible with some of today’s extensive – and typically profitable – hydrocarbon operations; supporting small and medium-sized enterprises’ (SMEs) entrepreneurial spirit is crucial; and private-public partnerships are highly effective.
All three points could be applied to resolving the disparity between the region’s water scarcity and its swelling population and booming industry. Qatar already uses desalinated water to meet 99% of municipal demand, amid a forecast that today’s population of 2.6 million is likely to multiply eightfold by 2050, for example.
A note of caution accompanies Middle Eastern governments’ and energy companies’ ventures into a low-carbon frontier as the International Energy Agency (IEA) expects oil prices to hover around today’s $50 per barrel range until mid-2017. As pressure builds on already strained budgets, the region must block out the bearish noise and focus on R&D and talent-creation for clean energy to accelerate the downward cost spiral.
