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Gulf must ‘bridge gap’ between oil and renewables

Gulf carbon capture Reuters/Essam Al-Sudani
Increasing geopolitical risk in the Middle East should support oil prices and higher volatility can be expected, says analysts from ANZ Bank
  • Global energy crisis makes transition complex, says IEF, S&P report
  • Gulf has balance sheet and technical knowhow to enact change
  • But developing nations face $2trn energy transition funding gap

GCC oil producers will play a crucial role in the global transition to a lower carbon future if they can help bridge the historic disconnect between hydrocarbons and clean energy.

That is according to Joseph McMonigle, secretary general of the International Energy Forum (IEF), a Riyadh-headquartered think tank.

“There is growing recognition that the oil and gas industry needs to be part of the climate dialogue and a key driver of energy solutions, given that it provides 55 percent of the world’s energy,” McMonigle told AGBI.

“The industry has the balance sheets, engineering capabilities and ability to execute at scale, and its expertise will be particularly important in technologies such as carbon capture and storage (CCS) and low carbon hydrogen.” 

The UAE’s hosting of the UN’s Cop28 climate change conference this year is “hugely significant”, McMonigle added. 

“It gives me hope that we will help policymakers better understand how the energy transition will actually take place. Historically there has been a disconnect between the Cop process and the actors who will make the transition happen, particularly the energy industry.”

The IEF represents the interests of oil-producing Opec members, as well as the oil-consuming members of the Paris-based International Energy Association (IEA). 

North-South divide

The IEF published the Shaping a Living Roadmap for Energy Transition report today with S&P Global Commodity Insights.

It urged advanced economies to deepen their engagement with developing countries – which include those in the Middle East and North Africa (Mena) – to overcome a new “North-South divide” on the pace and priorities of energy transition. 

The so-called Global North (developed economies) has the funds and knowhow to make progress on reducing emissions from the energy sector, while the less-developed Global South faces serious funding and other challenges to achieving the same goal, the report said.

Wealthy Gulf oil exporting nations can to an extent be considered part of the Global North, and are therefore in a position to play a key role in facilitating shifts in global energy production and consumption, it added.

“Expectations of a linear global transition have been shaken as climate goals co-exist with priorities around energy security, energy access and affordability,” McMonigle said.

McMonigle said historically there has been a disconnect between the Cop process and those who will make the transition happen, particularly the energy industry
Inclusive and equitable

“The energy crisis of the past two years points to the need to develop a multi-dimensional approach that is inclusive of different situations in different parts of the world, and is equitable.” 

The Mena region has many leaders in the energy transition, he told AGBI, including the UAE, Saudi Arabia and Morocco, which is emerging as a global player in wind power and other renewables. 

McMonigle said that Saudi Arabia was “a regional leader in sustainability” and that it has made “huge progress in its transition journey, notably with the 2021 announcement of the Saudi Green Initiative”.

Under the initiative, the kingdom pledged to increase its generation capacity by 50 percent by 2030, reduce carbon emissions by 278 million tonnes per year, cut methane emissions by 30 percent by 2030 and achieve net zero emissions by 2060.

It is also investing $5 billion in low carbon hydrogen and implementing large-scale tree planting and improved waste management. 

The UAE, meanwhile, was the first in the GCC to sign the Paris Agreement, first to commit to an economy-wide reduction in emissions by 2030, and the first to announce a net zero by 2050 strategy.

It says it has invested more than $150 billion in climate action and aims to double that over the next decade.

Geographical gaps

However, globally, there remain “growing geographical gaps in terms of finance, policy and technology that will need to close,” the report warned. 

The recent crisis in global energy markets and high energy prices has contributed to inflation. Global greenhouse gas emissions have reached new highs and squeezed economies, while widespread power shortages have forced many countries to pivot back to fossil fuels. 

Daniel Yergin, vice-chairman of S&P Global, said: “A series of shocks, crises and tensions in the global energy system have rendered the energy transition more complex.

“Transitioning a $100 trillion global economy in a quarter of a century is a big challenge.”

The UN Conference on Trade and Development (Unctad)’s World Investment Report 2023, published last month, found that developing countries including those in Mena face a combined annual $2.2 trillion investment shortfall in meeting energy transition goals set by the UN.

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