Adapting to Climate Impacts in the MENA Region

Adapting to Climate Impacts in the MENA Region

The UNFCC, in this article, comes after an IEA report in which a change of goals of the world’s leading energy advisor from that of the oil supplies protector to that of fossil fuels banning partisan is noticeable. Transitioning to a net-zero will mean breaking bad habits, but can we get there in time? This question is mainly addressed to those oil-exporting as well as would-be exporters countries of the MENA region.

It seems it is either adapting to Climate Impacts in the MENA Region and survive the potential effects of lack of exceptional revenues through quasi-vital know-how or going to COP26 and be pointed at as the source of all evils.

So without further ado, let us learn what is proposed.

The picture above is of The Conversation.

Adapting to Climate Impacts in the MENA Region

Adapting to Climate Impacts in the MENA Region

UN Climate Change News, 21 May 2021 – Closing knowledge gaps on the effects of climate change across the North African and West Asia/Gulf Cooperation Council (GCC) subregions was the focus of a recent meeting which showcased initiatives that will form part of an action plan for closing such knowledge gaps in the region.

Understanding the effects of climate change in the local and regional context and identifying specific regional knowledge gaps are important first steps in scaling up adaptation actions – a key pillar of the Paris Agreement. The meeting held on 5 May was the third of its kind involving partners of the Lima Adaptation Knowledge Initiative (LAKI).

 ‘Adaptation as we know is a journey, building on knowledge and cultivating synergy with the Sustainable Development Goals (SDGs) and other global frameworks. The initiatives outlined in the action plan will go a long way towards providing concrete anchors for advancing adaptation efforts in countries in this region,’ said Paul Desanker, Manager, Adaptation Division, UNFCCC.

Defining joint adaptation actions

A collection of projects led by organizations partnering with the UNFCCC were presented at the meeting, including: Scaling up mangrove carbon sequestration studies from the United Arab Emirates to Oman to support adaptation; development of a digital system accessible through mobile phones to transfer key knowledge to farmers to shield them from climate shocks in Jordan; frameworks and systems for data collection and monitoring of climate impacts; and technological advances in drought management and smart agriculture.

Funding opportunities to support the implementation of actions

Participants at the meeting shared their views on opportunities and challenges for cross-collaboration and received guidance from climate finance experts on funding schemes to support the action plan. The coordinator for the Global Adaptation Network at the United Nations Environment Programme (UNEP) Elizabeth Bernhardt, explained that innovation is a key priority for securing funding opportunities such as the Global Ecosystem-based Adaptation Fund and the Adaptation Fund Climate Innovation Accelerator (AFCIA).

‘If there’s something that has proven benefits for communities and proven ability to be scaled up and scaled out to other locations, it would be a top priority. Is it truly innovative? Does it demonstrate how a barrier could be overcome in a way that other countries can emulate?’ she said.

MENA adaption knowledge gaps tweet

Next steps

This was the last of a series of three virtual meetings, as a part of the second phase of the LAKI for North Africa and GCC subregions. In the previous phase, a total of 28 priority adaptation knowledge gaps were identified across the two subregions, which included lack of data, lack of access to data, lack of actionable knowledge, and lack of methods to process knowledge into an actionable form.

Adapting to Climate Impacts in the MENA Region
LAKI group image

Activities in the plan will now be implemented, and progress for each action will be showcased at events throughout the year, including the UN Climate Change Conference COP26 in Glasgow in November and the MENA Regional Climate Week in March 2022.

Adapting to Climate Impacts in the MENA Region
Tweet Dr. Khalil Ahmed

More information

The LAKI is a joint action pledge made by the UNFCCC secretariat and UNEP through the Global Adaptation Network (GAN) under the Nairobi work programme (NWP). For the West Asia-GCC and North Africa subregions, the secretariat collaborates with the UNFCCC-WGEO Regional Collaboration Center for the Middle East, North Africa and South Asia based in Dubai (RCC Dubai), the UNEP Regional Office for West Asia, and the UN Economic and Social Commission for Western Asia (UNESCWA).

To learn more about the LAKI, click here.

To get involved, please contact: nwp@unfccc.int


A fossil fuel divestment ‘how-to’

A fossil fuel divestment ‘how-to’

Here is a story told by Professor Paul Bierman about divestment from fossil fuel how-to get rid of this earth’s malefic resource of easiness. In short, it is about salvaging what remains of the earth’s goodness and secure an unaltered future for the coming generations.

For over a century, burning fossil fuels has helped propel our cars, power our businesses, and keep the lights on in our homes. Even today, oil, coal, and gas provide about a lot of our energy needs.

Divesting is the act of removing any financing of the fossil fuel industry, increasingly found to be an unethical industrial human activity. The fossil fuel divestment movement that started gaining attraction in 2010 could not have begun if no palliative industry can procure all that necessary energy. 

In recent years, the divest movement from fossil fuels has grown to a multi-trillion dollar movement involving numerous institutions worldwide. And thanks to stricter policies to address the climate crisis, fossil fuels are gradually becoming yesterday’s energy source. They could soon be considered, were it not for the Big Oils and their lobbies, as a nasty, dirty and nuisance liable to damage the planet’s soils, air and above all, its climate. Luckily, Fossil Fuel complicity being no longer hidden, divestment is gradually brought about and sustained by the likes of the professor here.

A fossil fuel divestment ‘how-to’

As a climate scientist, I find fossil fuel divestment to be critical low-hanging fruit, even if its effects are largely symbolic. But it never ceases to amaze me how we struggle to get it done.

At the University of Vermont (UVM) where I’ve taught since 1993, the divestment movement lasted a decade and got nowhere. Then — in less than a year — it happened. A growing student movement did the work. Emboldened by Mike Mann’s visit to campus and Greta Thunberg’s youth activism, students ramped up pressure on the University administration (which initially pushed back with standard lines about fiduciary responsibility). Some savvy students even noticed — buried deep on UVM’s web site — that the Green Fund, a small piece of our endowment, yielded better growth than the rest of UVM’s investment portfolio. Even that reasoned argument fell flat until public action by students and faculty allies threatened UVM’s well-manicured image as the “Environmental University.” In our image, and in the image of Williams College, lies the power for change.

When more than 100 students arrived with signs and speakers at the UVM fall Board of Trustees public comment period (scheduled at 8:30 a.m. on Saturday, October 26, 2019), the dialogue began to change. At the winter meeting several months later, I, along with students, appealed to the board to divest and diversify (to me, these are tightly linked). Hundreds of students cheered under the watchful eyes of several armed UVM police and through rope barricades isolating the board. Still nothing changed. But TV cameras rolled.

When the same students planned to disrupt admitted students’ day visits a month later (we need to convince students to attend UVM since their tuition pays our salaries), decision makers noticed. I was Nordic skiing at dusk when my cell phone rang. It was the provost. She asked, Would I stop the student “activists” from protesting tomorrow? I said no. But I advised that she call and speak to them directly — hear their voices. The students had an audience and the log jam began to break. The board got a new chair. A committee was formed. By summer, the president celebrated “our” decision to divest because it demonstrated UVM’s true environmental mettle. 

Our actions may have had a price. In December, UVM proposed to terminate the geology department — one of the big players in climate-change research on campus. Soon after, I was told by a dean that some in the administration had labeled me a “troublemaker.” A few weeks later, the emails and phone calls began. I’ve now heard from staff, faculty, a dean, and a large donor that some of UVM’s leadership team doesn’t believe climate change is real. So far, UVM has declined Freedom of Information Act requests from reporters to release relevant emails. Change does not come easily and without a cost.

What is clear to me now is that concerted student action, in the public square and supported by faculty (and alums!), is key to making change. Divestment means challenging established economic and management power structures; it’s not easy, and it carries risks. But it’s the right thing to do. In the words of the late John Lewis, “Never, ever be afraid to make some noise and get in good trouble, necessary trouble.” The climate crisis mandates we make some noise and get in some good trouble. Every one of us.

Paul Bierman ’85 is a Professor of Geology at the University of Vermont. He lives in Burlington, VT.

How Does the Arab World Move Away From Oil Dependence?

How Does the Arab World Move Away From Oil Dependence?

BRINK‘s GEOPOLITICS article tells us How Does the Arab World Move Away From Oil Dependence? It also tells us how this part of the MENA region should leave in the ground substantial unexploited reserves of hydrocarbons together with its vast expense of stranded assets for good.

It is now common knowledge that for some time and without dramatic breakthroughs, widespread power generation from solar, photovoltaics and wind will remain more expensive than fossil fuels. And electric vehicles won’t replace gasoline-powered vehicles unless battery costs drop and oil prices go up at unrealistic rates.
Analyses by researchers concluded some time back that market forces alone won’t reduce the world’s energy needs to be met by fossil fuels.
Economic development and energy in the age of climate change cannot possibly wait for another opportunity. Anyhow, let us what Margareta Drzeniek, author of the article has to say.

The picture above is for illustration and of Arab News.

How Does the Arab World Move Away From Oil Dependence?

How Does the Arab World Move Away From Oil Dependence?
A general view of an oil field in Saudi Arabia. Many countries have undertaken major reform efforts to reduce commodity dependency.
Photo: Fayez Nureldine/AFP via Getty Images

The Arab world has historically been a hotspot for global risks. Over the past decades, the risk nexus of a tense geopolitical environment, high levels of youth unemployment and governments’ inability to diversify economies has been challenging the region’s leaders. 

The COVID pandemic accelerated pressures on income, and the twin transition to net zero and a more technology-driven economy will only exacerbate the region’s exposure to global risks and underlying gaps in resilience. While the region is not homogenous, three interdependent areas are key to strengthen resilience in all countries: economic diversification away from dependence on commodity or low-value exports, private sector growth to enable job creation, and future-proofing skills. 

Getting Out of Oil

Many countries have undertaken major reform efforts to reduce commodity dependency. The Gulf countries’ economic development plans — usually dubbed Vision 2030 or the like — have aggressive targets and high ambitions. 

For example, Saudi Arabia is implementing Vision 2030, which aims at transforming society, diversifying the economy, creating jobs and increasing the level of ambition throughout. 

In the UAE, efforts are taking place at the Emirate level, notably in Abu Dhabi and Dubai, which both have 2030 strategies that aim to strengthen high-end manufacturing (e.g., in medical equipment and aerospace). The objectives are ambitious — Abu Dhabi aims to grow the non-oil sector by more than 7.5% annually. 

Similar initiatives are under way in North Africa. Trade agreements with the EU entered at the turn of the millennium have had some success, notably in the automotive sector, where exports increased by a factor of 50 to 60 in Egypt and Morocco and tripled in Tunisia. Nevertheless, countries in North Africa remain dependent on a few sectors, including tourism, agriculture and apparel and on the EU market. 

The African Continental Free Trade Area, which started trading in 2021, provides an important opportunity for diversification and integration at the regional level, including regional backward linkages to ensure broader participation in global value chains. Weak infrastructure and connections between countries remain to be addressed to more fully benefit from this opportunity. 

Public Sector Still the Employer of Choice

Private sector growth has been a key to building a strong and vibrant domestic private sector that provides employment for the significant youth bulge currently entering the labor market in all countries of the region. 

In most countries in the region, the public sector remains the employer of choice due to perceived employment stability over a lifetime, but also because many people lack the skills required in the private sector, notably soft skills such as for example team work, entrepreneurial attitudes and agility. 

The transition to a more environmentally sustainable economic model appears to be risky at first glance, but investment in renewables could provide a solution to the unemployment challenge.  

However, the public sector is not able to absorb all the young people coming into the market. Private sector growth is necessary for political stability, but it has been hampered by heavy regulatory environments, rent-seeking behavior and governance challenges, and political uncertainty.

Some positive developments are happening in local startup ecosystems, which have been blossoming across the region, enabled by digital business models that circumvent some of the rigidities of the traditional business environment and take advantage of the prevalence of digital technologies.

Energy Sustainability Is the Critical Pathway

The region’s elephant in the room remains environmental sustainability. 

It is important in two ways. Firstly, the world’s move to net zero threatens the very economic model of hydrocarbon-exporting MENA countries, and secondly, countries experience significant environmental degradation and are major pollutants. 

Qatar places 122nd in the Environmental Performance Index; Saudi Arabia is 90th and Morocco 100th (UAE, however, is a better 42nd). Challenges range from threats to biodiversity, which is low for climatic reasons, and water shortages, to an energy-vore lifestyle coupled with a lack of awareness of sustainability challenges. Gulf Cooperation Council (GCC) countries are also among the top 14 per capita emitters of carbon dioxide globally. 

Albeit from a low level, efforts to improve on environmental sustainability are gaining speed. The UAE’s Energy Strategy 2050 aims to double the contribution of renewables in the country’s energy mix, and the renewable energy capacity in the Gulf countries already increased by approximately 313% between 2014 and 2018. 

Chinese Partnerships

Strategic investments with Chinese partners are the main channel toward achieving this objective. Deteriorating air quality in the region and its potential impact on health may increase pressures on governments to tackle the issue more holistically. 

The transition to a more environmentally sustainable economic model appears to be risky at first glance. Progress in diversification and private sector development has been slow, and although the region is entrepreneurial, youth unemployment remains a key issue. However, recent research shows that investment in renewables could provide a solution to the unemployment challenge.  

Renewable energies are generally more labor-intensive than extractives. The International Renewable Energy Agency estimates that current commitments and project plans could create 220,000 jobs in GCC countries by 2030.  

To sum up, while economic diversification is crucial, the energy transition provides resilient recovery pathways to the MENA region that could ensure future growth, a stronger intergenerational contract and higher resilience.

Margareta Drzeniek is a managing partner at Horizon Group. She previously led the economics unit of the World Economic Forum and was in charge of the main flagship reports, including The Global Competitiveness Report and the Global Risks Report.

@MDrzeniek

Are Renewables a True Threat to Oil’s Long-Standing Reign?

Are Renewables a True Threat to Oil’s Long-Standing Reign?

A particular world elite seems to take pride in their commitment to sustainability and the well-being of their peoples. Simultaneously, their respective government/businesses invest in those industries leading to the present climate change.
It is undeniable that this is changing, with impacts such as extreme weather fluctuations and increased intensity of natural disasters. The hydrocarbon industries are directly involved, if not now, causing climate change.
How can concerned citizens hold these elites and other civil societies to their sustainability standards?
Divesting is the act of removing any financing of the fossil fuel industry, increasingly found to be an unethical industrial human activity. The fossil fuel divestment movement started gaining traction in 2010. Over 1,200 institutions worldwide have joined forces and proceeded into divesting. This movement could not have started if no palliative industry can procure all that necessary energy. And despite that, questions such as ‘Are Renewables a True Threat to Oil’s Long-Standing Reign?’ are still being posed.

Our question would be whether all this questioning affects these contemporary world trends of renewables combined with divestment from fossil fuels.

Meanwhile, let us see what The Maritime Executive‘s article by Riley Cooper says about it.

Are Renewables a True Threat to Oil’s Long-Standing Reign?

The pandemic has possibly provided the catalyst needed to accelerate a global shift toward renewable sources of energy by bringing this topic to the top of the agenda of discussions held by political leaders and lawmakers as the world witnessed how the atmosphere quickly reacted to a few months of lower carbon emissions.

As a result, the stock price of multiple companies in the clean energy space has taken a quantum leap, while oil prices have also managed to recover most – if not all – of their lost territory during the first quarter of this year.

How is it that the crude oil price keeps booming alongside the valuation of these green energy firms? Will fossil fuels continue to be a part of the future or is this perhaps the last bull run for oil as the world keeps heading to a greener future?

The following article aims to take a closer look at how threatening can these alternative sources of energy can really be for oil’s long-standing reign based on the rate at which these technologies are being adopted in the United States.

How does the United States generate the power it needs?

A study from Washington-based think tank Pew Research Center published before the pandemic struck indicated that petroleum continues to be the leading source of energy in the United States according to data from the country’s Energy Information Administration (EIA).

In the past 18 years, the market share of oil has only retreated 2.3%, sitting at 36.4% by the end of 2018.

Meanwhile, natural gas seems to be advancing as an important source, with its share jumping 6.5% during the same period while currently accounting for 30.7% of the country’s energy consumption.

So, what about biofuels and other alternative sources? According to the EIA, these sources of energy, including nuclear and hydroelectric, covered only 20% of the country’s needs, with coal being the source that has lost the biggest share dropping from 22.9% to 13.1% by the end of 2018.

That said, the rate at which solar power has grown is quite remarkable, jumping nearly five-fold in less than 5 years.

Realistically, it seems that although renewable sources are gaining more and more ground as time passes, it will take decades before fossil fuels, including oil, can be fully replaced by solar, wind, or nuclear energy.

This view is reinforced by a recent report from the Shell Oil Corporation. Although the company has already acknowledged that the world is heading to a future in which fossil fuels will become a smaller contributor to its energy needs, this future is still fairly distant as the required infrastructure that needs to be in place to fully power homes, industries, and other facilities is still in the earliest stages of their development.

In regards to the possibility of a fossil-fuel-free world in short notice the company stated the following: “despite more than a century of progress, electricity makes up only 20% of the final energy that society uses today and the rate of increase has been the same since the earliest days, about two percentage points of final energy share per decade”. 

Shell added: “To achieve the goals of the Paris Agreement that pace of growth would need to rapidly increase”.

Therefore, if renewable sources of energy keep advancing at the current pace, chances are that crude oil prices will not be severely affected by the threat of a full-blown substitution of fossil fuels – or at least not in the next five to ten years.

Has the pandemic changed something about this outlook?

The pandemic has affected the public’s view about what has been for a while a seemingly inevitable shift towards environmentally-friendly sources of energy by bringing more attention to a topic that was not necessarily a top priority for lawmakers and political leaders prior to the health emergency.

Now, with clean energy companies becoming interesting targets for investors around the world as possibly the best next-generation bet, chances are that capital will start flowing to these ventures to help them to further accelerate their efforts.

If that continues to happen, these larger investments made in the technology and infrastructure required to accelerate the adoption of greener sources should perhaps put the world on the right track to achieve its net-zero carbon emission goal even before 2050 – the date set by the Paris Agreement as the milestone for a green world.

Riley Cooper is a UK-born writer and who lives in USA. Her work explores issues related to finance, business psychology, environment, and language.

Geopolitical Implications of Global Decarbonization for the MENA

Geopolitical Implications of Global Decarbonization for the MENA

NATURAL GAS NEWS‘ Geopolitical Implications of Global Decarbonization for MENA producing countries by Pier Paolo Raimondi and Simone Tagliapietra, Oxford Institute for Energy Studies (OIES) is an expert’s hindsight in the foreseeable future of the region.

Endowed with half of the world’s proven oil and gas reserves, the Middle East and North Africa (MENA) region represents a cornerstone of the established global energy architecture. As the clean-energy transition gains momentum worldwide, this architecture might shrink—challenging the socio-economic and geopolitical foundations of the region in general, and of its oil and gas-producing countries in particular.

The picture above is for illustration purpose and is of Natural resource wealth and public social spending in the Middle East and North Africa published back in 2015.

Geopolitical Implications of Global Decarbonization for MENA producing countries

February 21, 2021

This challenge has two dimensions: domestic and international. Domestically, a decline in global oil and gas demand would reduce revenues for producing countries. Considering the profound dependency of these countries on oil and gas rents (the ‘rentier state’ model), this could have serious economic and social consequences. Internationally, the global clean-energy transition might push producers towards a fierce competition for global market share, exacerbating geopolitical risks both regionally and globally.

In 2020, MENA oil and gas producers experienced a situation that some observers have described as a preview of what the future might look like for them beyond 2030, as global decarbonization unfolds. The COVID-19 pandemic resulted in an unprecedented crash in global oil demand. At the same time, oil prices collapsed (for the first time in history, the benchmark West Texas Intermediate entered negative territory) due to a lethal combination of falling demand and OPEC+ coordination failure. All this generated a perfect storm for MENA oil- and gas-producing countries, which led to unprecedented macroeconomic imbalances.

The evolution of oil markets, national stability, and prosperity as well as international influence are closely linked in the MENA region, but MENA oil- and gas-producing countries are far from homogenous. Different countries are likely to experience different impacts from the global clean-energy transition, depending on a number of domestic and international factors.

International factors

MENA producers are likely to be affected by the differences in the trajectories for oil and gas markets, the speed of the energy transition in different world markets, increased competition between energy producers, and increasing penalties for carbon intensity in production.

While gas is set to play a role in the global energy mix for decades, oil is expected to lose relevance as a result of decarbonization policies and technological developments in electric vehicles. BP’s 2020 Energy Outlook warned about the imminence of peak oil demand. In its business-as-usual scenario, oil demand is set to recover from the pandemic by 2025 but drop slowly thereafter. In its rapid-energy-transition scenario, oil demand drops from around 100 million barrels per day (mb/d) in 2019 to 89 mb/d in 2030 and just 47 mb/d in 2050. Such a scenario would represent a challenge for MENA oil producers. By contrast, in the business-as-usual scenario, gas demand is expected to increase from 3.8 trillion cubic meters (tcm) in 2018 to 5 tcm in 2040, underpinned by a massive coal-to-gas switch in Asia and elsewhere. Such a scenario would be beneficial for MENA gas-producing countries such as Qatar and Algeria, which could remain geopolitically relevant by providing an important transition fuel to a decarbonizing world.

In the MENA region, Qatar seems to be the best positioned to preserve its geopolitical role, thanks to its significant liquified natural gas (LNG) capacity and its geographical location between Europe and Asia. Nevertheless, gas-producing countries will not be immune to the challenges posed by decarbonization policies in the long run. Gas demand is especially difficult to predict starting in the second half of the 2030s, as a result of increasing cost competition in power generation from renewables, as well as stricter environmental regulations (e.g. the EU Methane Strategy). It will thus be of paramount importance for MENA gasproducing countries to cut emissions in their gas value chain, in order to preserve their position and geopolitical influence.

The speeds of the energy transition in different world regions will also affect MENA geopolitical shifts. For instance, Europe’s oil and liquids demand is expected to decrease from the current 13.3 million tons of oil equivalent (Mtoe) to 8.6 Mtoe in 2040, according to the International Energy Agency’s stated-policies scenario. By contrast, Asia-Pacific countries’ oil and liquids demand is set to increase from the current 32.5 Mtoe to 37.9 Mtoe in 2040. Thus, MENA producers more exposed to the European market are likely to suffer more—and earlier—from the global decarbonization process than others more exposed to Asian markets. That is, energy demand will increasingly dominate energy geopolitics, especially in an oversupplied energy market.

In such a scenario, export portfolio composition and diversification will determine the evolution of geopolitical influence for MENA oil and gas producers. Exporters that depend heavily on European markets will see their geopolitical position erode and their revenues fall. For example, Algeria, which mostly exports gas via pipeline to Europe, has been an essential element of the European gas supply architecture. Unless it manages to decarbonize its gas exports, this important role will shrink as the European Green Deal is implemented. In 2019, 85 per cent of Algeria’s total gas exports flowed to Europe, 62 per cent via pipeline (mainly to Italy and Spain). By contrast, LNG provides more flexibility to gas exporters, which will enable them to respond effectively to the geographical shifts of the energy demand. Qatar is the world’s top LNG exporter. In 2019, Qatar exported 83 per cent of its total gas exports via LNG. Of this volume, 67 per cent was directed to Asia Pacific countries. Asian markets are expected to drive energy demand growth in general and LNG in particular until 2030. Oil and gas producers will increasingly try to gain market share in such growing energy markets.

While energy demand will be crucial in the future, energy supply issues will not disappear. Competition among producers will persist, and even increase in the foreseeable future. The peak of oil demand will create a harsher world of more intense competition and tighter revenues for MENA oil producers. Regional oil and gas producers are likely to pursue different supply strategies, which will need to deal with the consequence of the global energy transition.

The transition indeed raises an existential dilemma—requiring a choice between maximizing production, which would weaken higher-cost exporters, and coordinating production cuts to increase prices, which could deprive governments of vital revenues. These are not trivial issues, as maximization of production would put into question established assumptions about saving reserves for future production and avoiding stranded assets. An intensification of competition among producers could thus undermine coordinated actions (e.g. OPEC agreements), which are important to oil price stability. This was illustrated by the collapse of OPEC+ talks in March 2020—spurred by disagreements between Saudi Arabia and Russia on the introduction of production quotas, as the two were also competing for market share with US shale oil producers—and the consequent fall in oil prices.

Another example of the growing competition among producers is the growing opposite visions between the United Arab Emirates (UAE) and Saudi Arabia that emerged openly during OPEC talks in late 2020. Although they managed to reach an agreement within OPEC, the UAE’s ambitious plans to increase its oil capacity from about 4 mb/d to 5 mb/d by 2030 puts further pressure on the traditional alignment among Gulf OPEC producers. Moreover, in late 2020 the Abu Dhabi National Oil Company announced a $122 billion investment plan for 2021–2025, suggesting that the UAE had abandoned its more cautious approach to the oil sector. The plan suggested that MENA national oil companies might gain a growing share of world oil and gas production in the future. That is also due to (Western) oil companies’ decisions to cut their capital expenditure and other investments. Such decisions are motivated mostly by low oil prices and their commitment to decarbonization.

In a more competitive world, some MENA producing countries such as Saudi Arabia and the UAE have the economic advantage of vast oil reserves (298 and 97 billion barrels, respectively), the lowest production costs (under $4 per barrel), and the least carbon-intense production. In the next years, due to expected higher carbon prices, carbon intensity will play a key role in determining which oil and gas producers will be able to preserve their geopolitical influence. MENA oil producers with higher production carbon intensity, such as Algeria and Iraq, might thus lag behind.

Domestic factors

The global energy transition can also impact MENA oil- and gas-producing countries’ governance, due to their heavy dependence on revenues from these resources. To address this issue, regional oil and gas producers have launched several strategies (referred to as Visions) aimed at economic diversification (e.g. by increasing productivity, strengthening the private sector, and developing non-oil sectors), as well as increasing the share of renewables in the energy mix. These Visions were largely developed as a response to the 2014 oil price drop; COVID-19 and the acceleration of the global energy transition make it necessary to accelerate them. A country’s chances of success at this are likely to be affected by domestic factors including population size, government capacity, and financial ability to implement diversification measures.

Countries with a large, young, and growing population (Algeria, Saudi Arabia, and Iraq) will encounter significant obstacles to the transformation of their rentier-state model. By contrast, countries with a smaller population, like the UAE and Qatar (9.7 and 2.8 million inhabitants, respectively) are likely to find it easier to adjust.

The ability to govern and finance major domestic socio-economic transformation will also be crucial. For example, North African countries could exploit their geographical vicinity to Europe and become major clean-electricity suppliers. In this sense, the recent EU Hydrogen Strategy considers imports of 40 GW of green hydrogen from the EU’s eastern and southern neighbours. However, countries like Algeria and Libya are experiencing major social and political instability, which undermines such scenarios and discourages the needed foreign investments. Thus, countries with major governance issues like Algeria, Libya, and Iraq are expected to lag behind on energy and economic diversification. The risk is that these countries will focus political energies on an intensifying fight for a share of the diminishing global oil and gas market, rather than on a strategy to reorient their economy. By contrast, countries with stronger governance are better equipped to transform their economies, bear the negative consequences of the transition in the short term, and navigate the geopolitical evolution.

The availability of large foreign exchange reserves will be crucial for the transformation of MENA producing countries. With such reserves, countries could offset the negative economic effects of lower oil demand and revenues in the short term, while investing in renewable energy projects for the medium and long term. Thus, countries like Saudi Arabia, the UAE, and Qatar (with $500, $108 and $38 billion of foreign reserves, respectively) are potentially well equipped to manage the negative effects of lower revenues and foster economic transformation. Additionally, countries with large sovereign wealth funds could use them as an integral part of the diversification effort, for example to finance research and development and renewable-energy projects in MENA countries.

Producers with large foreign exchange reserves, sizable sovereign wealth funds, and small populations to appease are potentially the best placed to navigate the uncharted waters of the global energy transition.

MENA oil and gas producers have also considered developing their high renewable-energy potential, especially solar. This could help them pursue several goals, including economic diversification and reduction of greenhouse gas emissions. It could also free additional oil and gas volumes, currently used to meet fast-growing domestic energy demand, for sale abroad to produce additional revenue—thus avoiding the negative economic effects of growing energy consumption and positioning themselves as major renewable powers in a low-carbon future.

More recently, MENA oil and gas producers have begun to consider the growing interest in hydrogen as a way to preserve their geopolitical influence and remain pivotal actors in the future energy system. Given the region’s abundant renewable energy and carbon capture and storage potential, MENA countries could be at the forefront in both the green and blue hydrogen markets. In the short and medium term, blue hydrogen could benefit from its cost advantages. In the longer term, the MENA countries could exploit their excellent solar conditions and low-cost renewables in order to produce and export green hydrogen. Three MENA oil producers (Saudi Arabia, the UAE, and Oman) have announced major hydrogen plans. For example, in July 2020 an international consortium announced plans for a $5 billion green renewables and hydrogen plant in Saudi Arabia, which aims to begin shipping ammonia to global markets by 2025. In September 2020 Saudi Arabia shipped 40 tons of blue ammonia to Japan in a pilot project undertaken by Saudi Aramco and the petrochemical giant Sabic.

Conclusions

The global energy transition will inevitably affect MENA oil- and gas-producing countries, both macroeconomically and geopolitically. However, not all MENA countries will see their geopolitical influence change in the same way. Some countries are better equipped than others to offset the negative effects domestically and internationally. Internationally, MENA oil and gas producers will start to focus more on energy demand differences among world regions. MENA countries with lowest-cost and least-carbon-intensive production are better positioned to preserve their geopolitical influence. Moreover, export portfolio composition and diversification will crucially define whether a country will lead or lag behind in the energy transition. Oil and gas producers are also endowed with an abundant renewable potential, another possible route to future energy leadership.

Nevertheless, competition among producers will remain or even increase, potentially undermining coordinated efforts to stabilize oil prices. Due to the strong link between hydrocarbons and the nature of the state in the MENA region, the domestic sphere will be a key element in the geopolitical shifts. Population size, strong governance, and the financial ability to adapt to change will help some MENA oil and gas producers to preserve their geopolitical role, while managing domestic socio-economic transformation.

Originally publishes by the Oxford Institute For Energy Studies.

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.