To say that the six countries that make up the Gulf Cooperative Council (GCC) live and breathe hydrocarbons is hardly an exaggeration. About 60 years ago, the average city in Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Qatar, Bahrain and Oman was home to perhaps a few thousand people; Fast forward to the present day and many cities have transformed into world-class metropolises thanks to the region’s vast oil and gas wealth. Saudi Arabia alone has 16% of the world’s proven oil reserves and is also the world’s second largest oil producer, responsible for 15% of global production.
During the current year, Saudi Arabia and several other Middle Eastern countries have recorded rare budget surpluses thanks to high oil and gas prices. According to the kingdom’s finance ministry, releasing what it said were preliminary estimates, the country’s surplus in 2022 amounted to 102 billion riyals ($27 billion), or 2.6% of its gross domestic product (GDP). For 2022, total revenues will have reached around 1,234 billion riyals, against expenses of around 1,132 billion riyals.
But it has not always been so. For years, most GCC countries sank under heavy budget deficits amid low energy prices. Indeed, last year alone, S&P Global Ratings estimated that GCC central government deficits would reach around $490 billion cumulatively between 2020 and 2023, while public debt would rise by a record $100 billion. in 2021.
Of course, things have gone much better than expected for these nations, but they remain acutely aware of the oil and gas dependence of their economies.
It is for this reason that Saudi Arabia and its GCC peers have embraced the energy transition and are now investing heavily in renewable energy. According to BCG’s annual M&A report, 10.3% of all M&A deals are green energy deals, with green M&A activity quadrupling since 2001. BCG reports that the Middle East recorded 283 green deals in the first three quarters of 2022, marking a 16% increase over the same period last year with a total value of $23.8 billion. The report predicts that environmental considerations will continue to drive an increasing number of transactions, despite unfavorable macroeconomic conditions.
“Green deals are very hot in the region. The surge in sustainable transactions in the Middle East is a clear result of established national transformational agendas that seek various economic outcomes for countries on the path to net zero. As the region continues to entrench itself as a hub where collaboration and diversification can pay off, so will green mergers and acquisitions,said Ihab Khalil, Managing Director and Senior Partner of BCG.
BCG analysis found that despite the substantial premium they often command, green deals globally actually create more value than non-green deals when announced and over the course of two years. following. According to the report, the median two-year relative total shareholder return (rTSR) of non-green deals (-0.55%) exceeds that of green deals (-2.38%). Additionally, by analyzing cumulative abnormal return (CAR) over three-day periods before and after a trade is announced, BCG found that the median CAR of environment-related trades (1.0%) is slightly higher than that of non-green transactions (0.0%). %).
Of all the Gulf countries, Saudi Arabia and the United Arab Emirates are leading the way in clean energy investment. Let’s see exactly how these two countries are redefining and diversifying their economies away from oil.
Saudi Arabia: solar, wind and hydrogen energy
Although Saudi Energy Minister Prince Abdulaziz bin Salman made waves in the oil community last year after telling Bloomberg News that Saudi Arabia intended to pump the last drop of oil and be the last man standing, Saudi Arabia has devised one of the most ambitious energy plans: Crown Prince Mohammed bin Salman’s Vision 2030 economic plan.
In the economic plan, Saudi Arabia has set a target to develop ~60 GW of renewable energy capacity by the end of the decade, which compares to an installed capacity of about 80 GW of power plants electric gas or oil.
So far, Saudi Arabia has made only limited progress in deploying renewable energy with only 300 MW of utility-scale solar power in operation while 400 MW of wind power is under construction.
With its sun-scorched expanses and steady breezes from the Red Sea, Saudi Arabia is prime real estate for renewable energy generation. Last year, the Saudi national oil company Saudi Arabia sent shockwaves through natural gas markets after announcing it was launching the largest shale gas development outside the United States. Saudi Aramco said it plans to spend $110 billion over the next two years to develop the Jafurah gas field, which is expected to contain 200 trillion cubic feet of gas. The state-owned company hopes to start natural gas production from Jafurah in 2024 and reach 2.2 billion cubic feet/d of sales gas by 2036 with 425 million cubic feet of ethane per day.
Two years ago, Aramco announced that instead of cooling all that gas and exporting it as LNG, it would convert it to a much cleaner fuel: blue hydrogen.
Saudi Aramco told investors that Aramco had abandoned immediate plans to develop its LNG sector in favor of hydrogen. Nasser said the kingdom’s immediate plan is to produce enough natural gas for domestic use to stop burning oil in its power plants and convert the rest to hydrogen. Blue hydrogen is made from natural gas either by steam methane reforming (SMR) or by automatic thermal reforming (ATR), with the CO2 generated being captured and then stored. As greenhouse gases are captured, this lessens the environmental impacts on the planet.
In 2020, Aramco made the world’s first blue ammonia shipment from Saudi Arabia to Japan. Japan – a country whose mountainous terrain and extreme seismic activity make it unsuitable for sustainable renewable energy development – is seeking reliable hydrogen suppliers with Saudi Arabia and Australia on its shortlist.
The Saudi government is also building a $5 billion green hydrogen plant that will power the planned Neom megacity when it opens in 2025. Dubbed Helios Green Fuels, the hydrogen plant will use solar and wind power to generate 4 GW of clean energy that will be used to produce green hydrogen.
But here is the main advantage: Helios could soon produce green hydrogen cheaper than oil.
Bloomberg New Energy Finance (BNEF) estimates that Helios costs could reach $1.50 per kilogram by 2030, far cheaper than the average cost of green hydrogen at $5 per kilogram and even cheaper than the hydrogen from the cracking of natural gas. Saudi Arabia enjoys a serious competitive advantage in the green hydrogen sector thanks to its perpetual sunshine, wind and vast tracts of unused land.
Germany has said it needs “huge” volumes of green hydrogen and hopes Saudi Arabia will become a key supplier. Two years ago, the German cabinet pledged to invest 9 billion euros (about $10.2 billion) in hydrogen technology with the aim of decarbonizing the economy and reducing carbon emissions. CO2. The government has proposed to build 5,000 MW of electrolysis capacity by 2030 and another 5,000 MW by 2040 in the following decade to produce hydrogen fuel.
Europe’s economic powerhouse has realized it cannot do it alone and will need low-cost suppliers like Saudi Arabia, especially as it doubles its green energy commitments following a series of devastating floods in the country.
United Arab Emirates: nuclear, wind and energy recovery from waste
Last year, the Emirates Nuclear Energy Corporation (ENEC) announced the commissioning of the country’s first-ever nuclear power plant, the Barakah 1 unit.
The 1,400 megawatt nuclear power plant has become the largest electricity generator in the United Arab Emirates since reaching 100% power in early December, and now provides “constant, reliable and sustainable electricity around the clock”. According to ENEC, Unit 1 of Barakah is “is now leading the largest decarbonization effort of any UAE industry to date.“
Like Saudi Arabia, the United Arab Emirates is also laying a solid foundation for the energy transition.
Masdar, the clean energy branch of the Abu Dhabi sovereign wealth fund Moubadalais building renewable capacity in Central Asia after signing an agreement in April 2021 to develop a solar project in Azerbaijan.
Since its inception in 2006, Masdar has built a portfolio of renewable energy assets in 30 different countries, having invested approximately $20 billion to develop 11 GW of solar, wind and energy-from-waste generation capacity .
And now, Masdar says he intends to apply lessons learned abroad to build clean energy capacity at home.
“The solutions we have developed in our international operations will certainly have applications here in the UAEsays El-Ramahi of Masdar.
For example, Masdar plans to bolster the UAE’s relatively weak wind resources by developing national wind farms using the latest class three turbines capable of harnessing electricity even at low wind speeds.
Additionally, the company is also building a $1.1 billion facility that will burn waste to generate electricity in one of the largest waste-to-energy plants in the world. Once completed, the plants will incinerate nearly two-thirds of the household waste the country generates each year.
Although not generally considered a clean source of energy, modern waste-to-energy plants are much cleaner according to the United Nations Environment Program (UNEP). Using advanced technologies, these plants are able to burn waste at extremely high temperatures, ensuring complete combustion while missions are specially processed, leaving minimal amounts of toxic by-products like combustion ash. Indeed, tests have shown that the air emitted by certain waste-to-energy chimneys can be cleaner than the incoming air.
By Alex Kimani for Oilprice.com
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