‘A long way to go’ to reduce the Gulf’s carbon emissions

July 17, 2023

Hydrogen to play big part in GCC’s decarbonisation plans
2022 marked highest expansion in planned renewables capacity
Gulf energy majors have ‘critical advantage’ with Asia links

As some of the world’s largest emitters of carbon dioxide, big exporters of hydrocarbons and beneficiaries of high per capita incomes, the spotlight is on the Gulf states’ efforts to reduce their carbon emissions.

Expectations are high – and likely to become higher – as the UAE prepares to host Cop28 in November.

“There is growing scrutiny on the role of the Gulf states in the energy transition and what role they see themselves playing over the long term,” says Ben Cahill, a senior fellow in the Energy Security and Climate Change programme at the Centre for Strategic and International Studies.

“They have a long way to go in this decarbonisation journey.”

Some countries are making progress. The region recorded its highest expansion in planned renewables capacity on record – 13 percent – in 2022.

Providers have commissioned 3.2 gigawatts (gw) of new capacity, data published in March by the International Renewable Energy Agency showed.

Cahill pointed to the fact that hydrogen, a gas seen as integral to the global energy transition since it produces zero emissions when burned, forms “a big part” of the GCC’s decarbonisation plans.

Building a hydrogen economy

Annual revenues from green hydrogen in the GCC are estimated to grow to about $200 billion by 2050 with the region poised to play a key role in the evolution of the world’s much-anticipated future hydrogen market.

There is domestic demand for low-carbon hydrogen in oil refining, ammonia and transportation.

The Gulf will also support international partners in reducing their carbon emissions.

The UAE is targeting a 25 percent market share of low-carbon hydrogen and derivatives in key import markets by 2030, with an initial focus on Japan, South Korea, India and Europe.

Saudi Arabia, meanwhile, wants to become the world’s largest exporter of hydrogen by 2030.

In May, the kingdom’s Neom Green Hydrogen Company (NGHC) reached financial close on an $8.4 billion green hydrogen production facility at Oxagon in the Neom megaproject.

It also secured an exclusive 30-year off-take agreement with US-based Air Products for all the green ammonia produced at the facility.

“The thing about the long-term development of a hydrogen economy is that you need to develop both the supply and the demand at the same time,” Cahill said, speaking at a webinar held by Arab Gulf States Institute in Washington last month.

“And that’s a hard thing to do. But the potential is there, clearly.”

Neom’s $8.4bn green hydrogen project is part of Saudi Arabia’s plans to become the world’s largest exporter of hydrogen by 2030

Critical geographical advantage

Cahill said that the national oil companies in the Gulf have a “really critical advantage” through their links with customers in Asia and elsewhere.

“These companies have been selling to Asia for a long time,” he said. “They have long standing relationships with the big utilities and gas buyers in Japan and South Korea.”

“We also need to think of these countries as large holders of investment capital who can be a real catalyst for renewable energy development in North Africa and other regions,” Cahill said.

In April, Saudi Arabia’s ACWA Power announced it would build a 1,000 megawatt solar power plant in central Iraq as part of a joint venture with the Iraqi government.

The plant in Najaf city, 160km south of the capital Baghdad, will be Iraq’s first clean energy project.

The two countries are also in talks about linking their power networks, exploring opportunities for cooperation in renewable energy and attracting investment in electricity generation projects.

Gulf carbon emissions — ACWA Power’s 950mw Noor Energy 1 solar power plant in Dubai. The company is building a similar facility in Iraq

Starting from a very low base

But these plans should not obscure the low base from which these countries are starting.

The Middle East’s renewable generation capacity stands at only 29gw or about 1 percent of the global total.

And the region is the worst-performing globally for investment into renewable electricity sources, according to research published last month.

The Renewables 2023 Global Status Report showed that Africa and the Middle East combined represented less than 2 percent of worldwide investment last year, amounting to $8.4 billion.

In 2021, only 0.2 percent of Saudi Arabia’s electricity came from renewables. The GlobalData consultancy forecast that its renewables capacity will be just 1.5gw by the end of 2023.

Adam Sieminski, senior adviser at the King Abdullah Petroleum Studies and Research Centre, said that the kingdom has set “a stretch goal” that half of its electricity will be coming from natural gas and half from renewables by 2030.

But he said that rising prices for the inputs which go into a renewables proposition may hinder progress.

“I think they will make some progress towards that but the targets are being made more difficult by inflation,” Sieminski said.

Andrej Kormuth, a partner in the Dubai office of law firm Bracewell, confirmed to AGBI that its developer clients are having to allocate bigger budgets to complete projects due to the increased cost of renewables.

“Inflation has created the potential for greater margin of error, particularly in relation to the construction budget,” Kormuth said.