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Sector analysis The shape of energy transition in the GCC On everyone’s lips The antagonistic views of Donald Trump and Greta Thunberg at the 50th Davos meeting in January 2020 well caricatured the burning debate over energy transition. The US President decried climate ‘prophets of doom’ while the Gen Z activist urged for immediate and radical action to reach the Paris Agreement’s commitments on limiting global warming. Meanwhile BlackRock, the world’s biggest asset manager, announced initiatives to confront the investment risks of climate change, including exiting thermal coal and introducing new products that ‘screen’ fossil fuels. In its latest oil and gas report, the IEA warned that no energy company will be unaffected by clean energy transition. So what shape is the transition taking in the GCC, cradle of the world’s most oil-dependent economies? Mighty sun shines over the desert In 2009, when Masdar inaugurated a 10MW solar photovoltaic plant in Abu Dhabi it was the first gridconnected and the largest of its kind across the Middle East. In 2016, the UAE renewable champion slashed a world lowest bid for solar power at the time, valued at US2.99 cents per kW/h, for the 800MW third phase of the MBR Solar Park in Dubai. In October 2019, DEWA achieved a new world record by receiving a US1.69 cents per kW/h bid for the 900MW fifth phase. Global cost of solar power has decreased by 89% from 2009 to 2018, and solar PV is now often the cheapest technology available to generate electricity for the gulf countries. The pioneering successes in the UAE have created momentum in neighbouring Saudi Arabia, Oman, Kuwait and recently in Qatar. Between 2017 and 2019, EICDataStream tracked the completion of 2.4GW of solar PV utility scale projects, a six-fold increase from 2016 total installed capacity. Another fivefold total installed capacity increase will happen as soon as 2023 with EIC’s database currently tracking twenty-five projects with a combined capacity of 11GW. Saudi Arabia alone released in January 2019 a revised renewable programme looking to install 20GW of PV by 2023, and 40GW by 2030. Many of those projects have yet to be announced. Diversifying the mix Although spectacular, the growth of the intermittent solar technology won’t be enough to reach a new energy paradigm in the Gulf. The choices of baseload technologies to balance the growing share of intermittent power capacity shape the transition to a cleaner energy mix. The emirate of Dubai announced in 2015 its Clean Energy Strategy, to produce 75% of its energy requirements from clean sources by 2050. In 2017, the UAE launched the Energy Strategy 2050 which aims to increase the contribution of clean energy in the total energy mix to 50% by 2050.
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The bold strategies include the introduction of new baseload technologies, like hydropower, solar CSP, nuclear and... coal. The ongoing 2.4GW Hassyan ultra-supercritical coal power plant will be completed in 2023. However, all the other coal power projects in the region, including a planned expansion for Hassyan, have suffered strong headwinds to secure finance and it seems unlikely that any new coal plant will get off the ground in the region. For different reasons, the spread of nuclear energy has been limited too. Bahrain, Kuwait and Qatar all dropped their plans for a nuclear plant. In January 2020, Abu Dhabi achieved extensive operational readiness assessment at the 5.6GW Barakah nuclear power plant which is expected to start up later this year. Saudi Arabia still has plans for both large scale and systemintegrated modular reactors, but they may not start to produce power before the end of the decade. At MBR solar park phase four, DEWA is building a 950MW combined solar CSP and PV, which will dispatch 24-hour solar energy. The great gas dash No matter the disruption created by the emergence of the above-mentioned technologies to power the GCC, it only affects the magnitude of investment to develop indigenous gas resources for power generation. The UAE, Saudi Arabia, Bahrain and Oman are seeing large investment in fields development. ADNOC, among a US$132 billion plan to reach 5MMbbl/d of oil production capacity, is currently pushing ahead a US$20 billion sour gas field development programme which includes Hail and Ghasha, Dalma, Sateh Al Razboot (SARB), Nasr and Mubarraz. Saudi Aramco as well is pushing for multi billion projects, including the unconventional gas development at South Ghawar and Jafurah and the Wasit gas development programme. PDO revealed in 2019 an over US$10 billion plan to develop the greater Barik area in partnership with Total and Shell. By 2025, in addition to indigenous power generation, the gas would also be used for export through a small-scale LNG plant in Sohar and a GTL plant. In late November 2019, QP announced its plan to expand total LNG production capacity from the current 77mtpa to 126mtpa by 2027. Kuwait and Bahrain, who are both building a LNG receiving terminal, are also investing in gas for their future power generation. Far from holding on to a retrograde approach to energy transition the GCC countries, led by the UAE, are introducing new and clean technologies to their power mix. Rather than a green washing pledge, it is the increased competition on prices to generate electricity – as well as access to finance – which is shaping the energy transition and pushing the hydrocarbons industry through sharp changes. Fabrice Abalain, Regional Analyst (MENA) fabrice.abalain@the-eic.com
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