CAIRO: A leader in global oil production, the Middle East is positioned to take an important role in energy transition, according to a report by McKinsey & Co.
The Middle East currently produces almost a third of global oil supply with 48 percent of proven global oil reserves and 40 percent gas reserves, the report stated.
“Today, the Middle East accounts for 1.9 gigatons of equivalent carbon dioxide of energy emissions, nearly 5.5 percent of global energy-related emissions. The region is also home to several of the world’s top 10 per capita carbon-emitting nations,” it added.
What’s more, countries in the Middle East are powered almost exclusively on oil and gas, making 98 percent of energy consumption.
The Middle East exported 22 million barrels of oil per day and 127 billion cubic meters of gas, representing 34 percent and 26 percent, respectively, of global energy exports in 2020, the report indicated.
However, the region also has some of the lowest cost and least carbon-intensive extraction basins, which are source rocks where oil and gas are born, in the world.
For example, the carbon intensity of upstream operations in Saudi Arabia of 4.6 grams of carbon dioxide equivalent per megajoule of energy is less than half the global average of 10.3g CO2e/MJ.
This is one of the major advantages the region enjoys to enable it to play a prominent role in global energy transition landscape.
But that’s not all. As the region currently also has among the lowest solar bid prices globally, renewables are gaining momentum in addition to local green agendas like the UAE’s plan to invest $160 billion in clean, renewable energy sources in the next 30 years.
Several other countries have announced giga-projects including Saudi Arabia’s Vision 2030 program, which is targeting the installation of about 60 GW of renewables by 2030.
The Kingdom has also launched the Saudi Green Initiative alongside the Middle East Green Initiative to fortify the region’s commitment to a greener world in addition to hosting the 44th International Association for Energy Economics Conference on Feb. 4-9, 2023.
The region attracts huge investment opportunities for renewable energy thanks to its geographical location.
The Middle East and North Africa region receives 22 to 26 percent of all solar radiation on earth in addition to average wind speeds that exceed the minimum threshold for utility-scale wind farms.
These unique advantages present an opportunity for the region to reduce carbon emissions on a global scale.
Promoting investments to scale the supply of carbon capture, utilization and storage, which is the capture and effective use of high concentrations of CO2 emitted by industrial activities, can be one of the major steps towards a greener region.
The untapped potential in CCUS is large because of sectors like refining, steel and cement which could use CCUS to decarbonize at scale.
The current pipeline of committed projects to 2030 still has a considerable share of gray-hydrogen projects at 45 to 50 percent capacity, rather than blue-hydrogen projects, which use CCUS to mitigate emissions, or green-hydrogen projects, which use even less carbon, according to McKinsey & Co.’s report.
The Middle East exported 22 million barrels of oil per day and 127 billion cubic meters of gas, representing 34 percent and 26 percent, respectively, of global energy exports in 2020.
The region also has some of the lowest cost and least carbon-intensive extraction basins, which are source rocks where oil and gas are born, in the world.
The region currently also has among the lowest solar bid prices globally.
Several countries have announced giga-projects including Saudi Arabia’s Vision 2030 program, which is targeting the installation of about 60 GW of renewables by 2030.
Middle Eastern countries currently use large quantities of gray hydrogen based on natural gas, about 8.4 megatons a year, or approximately 7 percent of the world’s total.
Scaling up both blue and green hydrogen as well as ammonia production could drive international partnerships and investments in hydrogen exports.
Moreover, the Middle East is a suitable region for carbon storage, with a vast and accessible underground storage potential of about 30 gigatons.
The report further indicated that the region is among the lowest-cost in the world for green hydrogen production with a potential cost below $2 per kilogram compared to the global cost range of $2.8 to $6.3 per kilogram.
Boosting renewables development as well as facilitating integration by upgrading supporting infrastructure is much needed in order to support the region’s transition. Investment in renewables has been quite low compared to oil, gas and petrochemicals as Middle Eastern countries’ power-generation mix remains low in terms of the region’s ambitious goals.
On average, a solar project takes three to four years to be complete in the Middle East. Given that the average size of the installed projects is currently only about 500 to 800 MW, the uncertainty risk is increased for long-term investments, according to McKinsey analysis.
Incentivizing electrification and energy efficiency also plays a huge role in the development of a net-zero region.
According to McKinsey research, 44 percent of the energy consumed globally is fuel based, and half of the fuel consumed for energy could be electrified with technologies that are available today.
In the Middle East, 95 percent of the energy-related consumption in industry is currently fossil fuel based and only 4 percent of the energy consumed is electricity.
The electrification of upstream assets could reduce emissions in oil and gas operations. Research and development of electric industrial equipment and processes could significantly reduce capital costs and increase the energy efficiency of electric equipment.
Promoting clean technology businesses that are building new energy solutions to diversify the local economy and capture new economic opportunities from the transition will greatly encourage other companies to follow through.
Empowering the non-energy private sector, entrepreneurship could result in faster economic diversification.
Entrepreneurs face challenges such as high incorporation costs, lack of financing for small and medium size ventures, and difficulties with licensing.
Creating a clean technology startup ecosystem powered by incentive schemes and innovation can attract both local and international investment.