THE FUTURE OF OIL STATES
Mass produced renewable energy in the Middle East may sound incongruous, but can the region really go green?
The concept of renewable energy in the Middle East sounds incongruous, for this is a region that is home to more than half of the world’s crude oil and more than a third of its natural gas reserves. However, local attention is slowly turning to both the sun and the region’s desert winds. In time, this shift in emphasis could play as key a role in limiting the damaging effects of the climate crisis as any other. Can the Middle East go green?
Oil, gas and sunlight are perhaps the three defining characteristics of the Gulf states and the wider Middle East. The first two of these are finite in supply but – for better or worse – have powered the global economy and made the lands in which they are found, for the most part, fabulously rich. The third – clean and infinitely abundant sunlight – has not been spared a moment's thought, until recently.
Eleven nations in the region are operating or developing renewable schemes of one kind or another. According to the International Renewable Energy Agency (IRENA), solar is now ‘the most competitive form of power generation in the Gulf ’. Yet, even though the region enjoys on average at least 300 sunny days a year, it remains to be seen whether the balance will soon tilt in favour of renewables.
Several powerful drivers, not all of them altruistic, are slowly shifting the energy mix of the region. These pressures include rising populations, climate change and economic diversification.
Whether they like it or not, the Gulf states will soon start facing environmental constraints imposed by international jurisdictions. As Glada Lahn, Senior Research Fellow of Energy, Environment and Resources at Chatham House, points out, ‘meeting the long-term goal of the Paris Agreement – limiting the increase in the global average temperature to well below 2°C above pre-industrial levels will have profound implications for fossil fuel markets.’ Lahn forecasts oil demand to slow from the mid- to late-2020s, and natural gas to decline from the mid-2040s.
In addition, climate change, so intimately linked to the fossil fuels these states produce, is now being felt palpably in the region. ‘Oil has been a tremendous vector of development in the Gulf Cooperation
Council (GCC) region,’ says Julien Jreissati, campaigner
for Greenpeace Middle East and North Africa, ‘but it has come at an increasingly unbearable cost to the environment and public health.’
A recent report by Greenpeace on NOx pollution showed that several Gulf cities ranked among the top 50 most polluted during the summer of 2018, with Dubai topping that list. ‘Cities such as Dubai and Riyadh suffer from chronic air pollution problems due to their addiction to fossil fuel on the production and consumption side,’ says Jreissati.
‘These nations face a perfect storm,’ says Dr Jim Krane, specialist on energy in the Middle East at Rice University’s Baker Institute, Houston. ‘They have lots of fossil fuels, they’re subsidised domestically so everyone uses them, they are high-income states and there’s high demand.’ Renewables, by contrast, are a relatively recent arrival to this energy landscape. According to IRENA, which coincidentally happens to have its headquarters in
Abu Dhabi, their localised benefits include lowered environmental pollution, rising quality of life, the conservation of scarce water supplies, job creation and clean rural electricity supplies.
A more cynical – perhaps realistic – driver is a desire on behalf of these states to safeguard hydrocarbon reserves for export. As IRENA notes, not only will greater domestic use of renewables negate rising import costs but also free valuable crude oil resources for export. ‘Renewables will help them maintain exports and keep up with demand for domestic use,’ says Krane.
Jreissati agrees with this view, noting that ‘in my opinion this is the main driver of renewable energy in the Gulf region taking precedent over climate change and air pollution. There is a common understanding that a transition to renewable energy would be very beneficial economically for the local economies as it will free up more oil and gas for export.’
This approach need not be entirely negative if it means the region itself becomes cleaner. ‘This may contribute to building more stable and diversified economic and energy systems,’ adds Jreissati. In particular, it would mean the region relying less on oil for power generation. ‘Generating electricity with oil is very inefficient,’ says David Renne, president of the International Solar Energy Society (ISES). ‘Exporting it for use in transport is more efficient. But it’s certainly the case that they see it being more valuable to export oil rather than burning it themselves.’
A NUMBERS GAME
Regional targets for renewable use and corresponding reductions in fossil fuels are, on the surface, impressive. Almost 7GW of new power generation from renewable sources has now been pencilled in for the early 2020s. If the region achieves its renewable energy deployment and hydrocarbon reduction targets, says IRENA, by 2030 it will cut 354 million barrels of oil equivalent in fossil fuel consumption from the power sector (a 23 per cent decrease); will reduce its emissions by 136 million tonnes of carbon dioxide; create more than 220,500
direct jobs; and reduce water withdrawal for power production and associated fuel extraction by 11.5 trillion litres (a 17 per cent decrease).
All this seems dauntingly ambitious. Renewables’ installed power has grown by 400 per cent in the region over the past four years but this has come from an extremely low base. At the end of 2017, the region had some 146GW of installed power capacity, of which renewable energy accounted for less than 1 per cent. ‘In no country in the Gulf region do renewables account for more than 1 per cent of electricity generation or consumption,’ says Krane.
In contrast, the Gulf states as a region collectively produce more carbon emissions than Japan. Energy consumption collectively is 849 million tonnes of oil equivalent (Mtoe) in 2018, almost double that of Japan. Saudi Arabia, with current reserves of 266 billion barrels of crude oil, could produce at current rates for at least another 60 years. The Saudi kingdom also holds the world’s sixth-largest natural gas reserves, the second-largest in the region behind Qatar, which in turn has estimated proven gas reserves of about 24.9 billion cubic metres. Across the Strait of Hormuz, meanwhile, Iran has the world’s fourth largest proven oil reserves and the world’s second largest proven reserves of natural gas.
When it comes to energy consumption, the region also punches above its size. Such has been demand that two hydrocarbon-rich states, Kuwait and UAE, have been net importers of gas since 2008. Oxford Energy data shows that Saudi Arabia has risen to be the world’s sixth largest consumer of oil and natural gas while
Iran is the world’s third largest natural gas market after the USA and Russia. Iran is in the surreal position of simultaneously holding the world’s largest gas reserves while being a net importer of natural gas to compensate for domestic production shortfalls.
In a region known for ostentatious statements of wealth, some of the plans for renewables are eye-catching
This alarming picture of rapidly escalating demand and production has emerged in just a few decades; the region has historically been a peripheral demand market for energy, a consequence of its initially low levels of industrialisation (up to as late as the 1960s) and its relatively small population in comparison with North America, Europe, and South and East Asia.
SOLAR INTEREST
In the face of this juggernaut, renewable energy seems to represent little more than a lightweight counterpunch. ‘Renewable energy in the Gulf is burgeoning and there are great prospects,’ says Jreissati. ‘But Gulf states are at various levels of advancement and commitments.’ Kuwait’s solar PV output is just 2GWh; the UAE produced 95GWh of solar in 2016, and 261GWh of solar thermal; Saudi Arabia produced 1Gwh of solar in 2016.
As of 2016, the International Energy Agency reported that Iraq had no measurable solar nor wind generation and that it also had no data for renewables in Qatar, though the latter nation hosts almost all of the region’s commercial-range waste-to-energy power generation capacity. Most of the limited deployment of wind power is located in Kuwait.
Key areas in the region offer huge potential for solar, says Dr Manal Shehabi, research fellow at the Oxford Institute for Energy Studies, particularly where the Global Horizontal Irradiance is high (this is the total amount of short-wave radiation received from above by a surface horizontal to the ground and is of use for photovoltaic installations). These include the northwest and centre of Saudi Arabia, the southwest of Oman, Bahrain and Qatar as well as the Khaif region of Iran. Wind in some areas regularly reaches 100m/second and could provide energy in large parts of Saudi Arabia, the south of Oman and the western parts of Kuwait.
‘Solar is growing in the region and interest is very strong,’ says Renne. ‘It has lagged behind other regions because the incentives [in terms of subsidies] have not been there.’ Solar currently accounts for 94 per cent of installed capacity and 91 per cent of future projects. This comprises both Solar PV and Concentrated
Solar Power (CSP), which generates solar power by using mirrors or lenses to concentrate a large amount of sunlight onto a small area. CSP, most of which is located in the UAE, Kuwait and Saudi Arabia, can be stored, which makes it more attractive for large-scale projects where sun is abundant.
Perhaps unsurprisingly in a region known for ostentatious statements of wealth, some of the plans for renewables are eye-catching. When fully completed in 2030, the Mohammed bin Rashid Al-Maktoum Solar
Park in Dubai will boast 2.3 million solar panels across 4.5 square kilometres of desert and power 50,000 homes. In the neighbouring emirate is the Noor Abu Dhabi solar power plant, which began operations in July this year. With 3.2million solar panels spaced across eight square kilometres, the $870m plant produces 1.2GW of electricity to supply 90,000 people. Both Al-Maktoum and Noor Abu Dhabi vie for the accolade of the planet’s largest solar plant.
Then there is Masdar City, located ten miles southeast of Abu Dhabi. Construction began in 2008 on what was proclaimed to be a hub for clean tech companies that would lead by example when it came to environmental urban planning. Designed by Foster and Partners, planners took heed from the design of cities such as
Cairo and Muscat, where narrow streets catch and create winds. Temperatures in Masdar’s streets are generally 15 to 20°C cooler than the surrounding desert. The city was also planned to have no light switches or water taps within it; with motion sensors instead helping meet targeted cuts in electricity and water consumption by 51 per cent and 55 per cent respectively.
Research in the region is also improving the use of renewables. These include the Masdar Institute, part of Khalifa University, where a special blend of concrete to store thermal energy has been trialled, enabling storage of thermal energy in the form of molten salts.
‘All this is definitely positive,’ says Jreissati. ‘These cities – like Dubai – have always been a centre of innovation for the wider region. These countries need to reinvent themselves to keep thriving in a renewable future, and green technologies could become an important source of income.’
Momentum for renewables, though, has been difficult to maintain. By 2016, Abu Dhabi authorities had admitted that Masdar City would not attain its goal of net-zero carbon levels; even its completion date has been pushed back from 2015 to at least 2030. Renewable targets also vary hugely in scale and ambition across the region. With the headline-grabbing assertions that are associated with the UAE, Dubai has announced its Clean Energy Strategy 2050, aiming, as a first step, to source 25 per cent of its energy from solar power by 2030. By the same year, Bahrain aims for a 30 per cent reduction in energy consumption; the UAE wants a 40 per cent cut in electricity consumption by 2050; Saudi Arabia plans for an eight per cent reduction in electricity use by 2021; Qatar an eight per cent per-capita cut in electricity use by 2022. Yet Oman aims for just a two per cent reduction in emissions by 2030; and Bahrain to reduce electricity consumption by six per cent 2025.
‘Some Gulf countries have been making impressive announcements with little to show for it,’ says Jreissati. ‘It is fair to say that Masdar City did not deliver on the initial vision but the massive solar power plants such as the Al Maktoum park and the Noor Abu Dhabi plants are being delivered and are locking in considerable renewable energy capacity.’
LAST MAN STANDING
Given the abundance of renewable energy to hand it can seem puzzling why technology has not been more enthusiastically embraced. Krane points out that simple economics act as a brake. The problem, he says, is that oil and gas are the only business where a company or government can consistently earn extraordinary levels of profit. ‘Their cost base is so low. Profits for renewables are a tiny fraction of that,’ he says. ‘If you are an autocratic state whose government is dependent on buying the support of your public then nobody in their right mind is going to move away from such huge profits to a marginally profitable business. From a political and economic perspective, the business case for renewables in the Middle East simply is not there.’ As well as economic obstacles in the form of subsidies for oil and gas, solar companies looking to break into the region are also confronted with natural obstacles in the form of local climate. ‘Coastal cities in the region have two peaks in demand,’ says Krane,
‘the afternoon heat, where solar does have the potential to meet the peak, and also night when humidity creeps in from the coast and everyone jacks the air con up. The sun has set, so solar is not used. Companies aren’t really willing to meet the capital investment cost when you still need cheap fossil fuels in the evening.’
Sandstorms can also confound plans, requiring cleaning operations that use great amounts of water. ‘Dust storms can last for three days,’ says Renne. ‘You just have to ride them out.’
Equally dispiriting is the reality that, whatever is driving renewables in the Gulf, the concern that the world’s fossil fuels are dwindling is not among them. ‘Looking at the supplies of oil and gas as being finite isn’t that helpful,’ says Krane. ‘We have more fossil fuels not just in the world but in the Middle East than we can ever burn. The world will burn up before they are used up. It’s not a depletion problem.
‘They would like to remain the last oil producers standing. When climate constraints start to bite and others change, they don’t want to give that business up. They are really just looking to make as much money as they can from fossil fuels no matter what that does to the planet’s environment and their own environment.’ The social contract that exists between most states in the region and their citizens appears to be key to how quickly renewables enter the market. Managing the need for renewables with the short-term expectations of citizens who are heavily dependent on the state for jobs and income will represent something of a tightrope walk, according to Shehabi.
‘The regimes have an incentive to diversify economically but it is a fine balance,’ he says. ‘A lot of people have guaranteed jobs in the public sector and that comes at great fiscal cost. But if we know in the long-term the world is moving towards a non-oil scenario then they will have to find another system for supporting them. Renewables won’t generate enough revenue for that. The economic structures would have to change at that point and that would require a change in the political structures too. When you get a reduction in export revenues you get a crunch.’
Renne has some sympathy with this picture as it is one he recognises elsewhere as he pushed the case for solar. ‘The shift is occurring but what puts the brake on it is a desire to make sure everything happens sustainably, the states feel a responsibility to ensure there is no major disruption.’
The required shift in mentality may be happening already, says Jreissati. ‘The main obstacle resides in the oil market which has tended to listen to blind decision makers in the past. Many diversification efforts and renewable energy plans have been dropped in the past due to a global increase in the oil prices. This lack of long-term vision could be the main obstacle, although it seems like things have changed on that front.
‘The Gulf countries are now aware that if they want to continue thriving in the future they would need to significantly decrease their reliance on fossil fuel and transition to renewable energy. This is providing great incentives for renewables.’
Given the small populations of the Gulf states (though not that of Iran), the potential for job creation is far from insignificant and may allay some of the concerns about maintaining the social contract between states and citizens. ‘This is the youngest region in the world,’ says Shehabi.
Solar technologies could, under IRENA projections, account for 89 per cent of renewable energy jobs in the region by 2030. The deployment of around 40GW of utility-scale solar PV could account for 124,000 jobs, while small-scale rooftop solar, which tends to be more job-intensive, could employ 23,000 people, mostly in the UAE and Oman. Construction, operation, maintenance and manufacturing inputs for concentrated solar power projects could account for 50,000 jobs. Wind energy also has the potential to be a key employer in Saudi Arabia, Oman and Kuwait.
CLIMATE OF CHANGE
No-one, though, is foolish enough to believe that all trends are heading in the same positive direction.
Notwithstanding their ‘green’ visions, the nations of the Gulf collectively plan to boost refining capacity by 1.5 million barrels of oil a day over the next couple of years. In addition, most of these nations are becoming large and rapidly growing producers of petroleum products other than crude oil – among them gasoline, liquid petroleum gas LPG, propylene, naphtha (a key source of feedstock in petrochemical production), diesel and fuel oil, kerosene, and jet fuel.
Some observers believe a jarring jolt, perhaps in the form of an environmental catastrophe, may provide a catalyst. ‘The change is not occurring fast enough, oil is locked in for many years to come,’ says Renne. ‘A single environmental emergency that could be clearly assigned to climate change and really caused harm and social issues could deliver the momentum. That happened in China where air pollution was so bad that coal-fired plants were relocated and local measures were put in place such as free electric scooters.’
The tipping point, suggests Jreissati, could come sooner than anyone thinks. ‘In the near future, oil demand will be the final nail in the coffin of the oil era,’ he says. ‘As long as the region is stable and not being dragged into conflicts and wars then I am optimistic. The more the states feel the heat they will accelerate their unavoidable transition to renewables.’ Renne has picked up on this at a senior level too and adds that ‘Saudi Arabia has realised its reserves aren’t going to be around for ever.’
Despite reservations, Krane is optimistic that change will come to the region – just that it will not happen any time soon. ‘The great amounts of free land, that great solar resource, means there is a strong argument for it,’ he says. ‘As costs come down they could become a power exporting region. But that doesn’t mean renewables will take over from oil and gas.’
Gulf states will eventually follow the lead of governments in Europe and other jurisdictions, says Shehabi. ‘Everywhere in the world people are riding the wave of renewables and it’s the same in the Gulf. People will see that renewables improve their air, their breathing. If they are smart, that is where they need to be heading. There’s a lot of opportunity for a lot of things to happen.’
In a literal sense, ‘a wind of change is coming to the region on the renewable energy fronts,’ says Jreissati. ‘The question is whether it will be fast and ambitious enough.’ Renne points out that at least 20 years have passed since talk first arose of giant solar arrays in the Gulf that, thanks to interconnectors, could supply all of Europe’s energy needs. We are still waiting.