Middle East oil giants plan to make the energy transition and secure their competitive edge with investments in carbon capture, renewables and hydrogen.
Boyden's perspectives on the news and trends that are transforming industries
Energy transition was a dominant theme at ADIPEC, the world’s largest oil and gas industry event, held in Abu Dhabi in October. In his keynote address Sultan Al Jaber, the UAE’s Minister of Industry and special envoy for climate change, emphasized its importance and summarized the strategy oil entities in the Middle East plan to implement. “ADNOC is making today’s energy cleaner while investing in the clean energies of tomorrow,” he said. Al Jaber is CEO of the Abu Dhabi National Oil Company (ADNOC) and Chairman of Masdar, a state-controlled clean energy firm in which ADNOC has a stake.
A commitment to decarbonisation represents a marked shift from the traditional stance of the region’s energy industry, which has been to defend fossil fuels. Naysayers suspect greenwashing, but there is evidence to suggest sincerity. Saudi Arabia and Kuwait announced targets of net zero emissions by 2060. The UAE and Oman say they will reach it by 2050. All of the Persian Gulf countries have signed the Global Methane Pledge, and the UAE will host the UN climate summit in 2023.
Broadly, the first phase of the Gulf’s two-pronged approach is to double down on oil and gas, but make production cleaner. As oil prices remain high, companies are investing to expand output. Aramco’s capital expenditure in 2022 will add up to $40 to $50 billion; it plans to spend even more in the next few years to increase capacity. ADNOC will spend $150 billion by 2027. With full awareness of the inevitability of energy transition, the goal is to be “the last one standing”, according to Patrick Heller, Chief Program Officer of the Natural Resource Governance Institute, an American NGO.
Gulf oil giants expect declining demand for oil as governments worldwide move to cut carbon emissions. Mariam Al-Shamma of S&P Global says they plan to ensure their longevity by being the cleanest producers. They are well positioned to do so, according to The Economist, because their reserves are among the least carbon intensive to extract. In addition, energy companies in the Middle East are creating operational efficiencies to further reduce carbon intensity. Grades of crude made with fewer emissions will likely fetch a premium, as is already the case in the LNG market, says Al-Shamma.
The plan then calls for investing a portion of proceeds from fossil fuels into clean energy technologies such as carbon capture and storage, renewables and hydrogen. Vast open spaces with abundant sunlight put places like Saudi Arabia ahead in decarbonisation. As Jim Krane of Rice University in Texas notes, its geology is tailor-made for storing carbon from industrial areas. Development of carbon capture, storage and utilisation capacity is in the works at Aramco. Both Saudi Arabia and the UAE plan to build capacity for renewables, including wind and solar.
Some of the biggest investments are in hydrogen, which is considered clean if developed using renewables. Saudi Arabia and the UAE are investing heavily in clean hydrogen, aiming to control at least 25% of the global market by 2030. Ben Cahill of the Centre for Strategic and International Studies says that to secure first-mover advantage, they are making deals with buyers in Asia and Europe. Others, notably Oman and Qatar, are also betting on the hydrogen economy, which could generate $120 to $200 billion in annual revenues for Gulf countries by 2050, consulting firm Roland Berger estimates.
