Mideast Gulf producers are striving to manage the pace of the energy transition.A rush to net zero risks higher energy costs and condemning millions to energy poverty, they warn.There are no silver bullets, but producers are pinning hopes on carbon capture and blue hydrogen to prolong the lifeblood of their economies. Save for later Print Download Share LinkedIn Twitter Unsurprisingly, transition policy challenges dominated discussions at this week’s Gastech conference in Dubai, given critical UN climate talks in Glasgow fast approaching. Record gas prices have come as manna from heaven for embattled producers desperate for ammunition in the policy fight to slow the net-zero juggernaut.“Unfortunately, there is a drive now to be emotional about net zero,” United Arab Emirates Energy Minister Suhail al-Mazrouei told delegates at Gastech. “I think we have to be honest with consumers and tell the cost associated with net zero. And I don’t think anybody is talking about that cost,” he argued, pointing out that eye-watering prices have in some cases triggered a switch back to using dirty coal for power generation.It has taken a perfect storm of factors to drive European gas prices to above €100 ($117) per megawatt hour. But producer arguments that anti-hydrocarbon policy bias has played a critical part in driving up prices will resonate. Already, cracks are emerging in net-zero policies and things will get much worse if calls to stop investment in new oil and gas are heeded, producers argue. The International Energy Agency (IEA), which in May urged exactly such an investment freeze, this week called on Russia to boost gas supply to Europe.Supply Crunch"The thing that is worrying me more is that we have not even entered the winter yet, which is the traditional season for really high prices,” Qatari Energy Minister Saad al-Kaabi warned Gastech delegates. “The euphoria around the energy transition is forcing companies not to invest in gas and oil projects ... People are realizing there is a supply crunch.”No doubt, Mideast Gulf producers are nervous. Still, they are looking to their low-cost, low-carbon oil to withstand transition demand pressures and are pressing ahead with upstream capacity expansion plans. State-controlled oil giant Saudi Aramco is officially targeting a capacity of 13 million barrels per day, while Abu Dhabi National Oil Co. (Adnoc) set its target at 5 million b/d.Noting the almost 700 ongoing climate litigation cases globally, Opec Secretary-General Mohammed Barkindo argued producers were in danger of not getting their voices heard and needed to step up. Climate change policy in Glasgow needs to take into account the 600 million people in Africa that have no access to electricity, he said, echoing a familiar Opec argument.Opec predicts that demand for energy will grow by 28% to 2045, with oil and gas remaining the dominant fuels in the global energy mix at 28% and 25%-26%, respectively. Investment in oil and gas, which had not recovered from the 2015-16 contraction, plummeted by 30% last year, and to argue for a freeze in new investment was seriously “distorting the narrative,” Barkindo warned.Policy WarThe more progressive producers are positioning themselves as energy transition enablers. Carbon capture and storage (CCS) and hydrogen are seen as the key technologies. But right now investments here are exposed to massive policy risks. Many climate activists view CCS as a Trojan horse being employed by the oil and gas industry to ensure its survival. CCS is expensive, requiring strong government financial incentives, and this is likely to be a key policy battleground in the months ahead.The UAE, Qatar and to a lesser extent Saudi Arabia are spearheading Gulf CCS development. The region is expected to be a key area of CCS growth, together with the US. But other producers, for instance Russia’s Gazprom Neft, also see a huge opportunity in CCS. The firm is in active discussions with industrial players emitting some 10 million tons per year, Vadim Yakovlev, the firm’s deputy CEO, tells Energy Intelligence. Rather than being the problem, CCS enables producers to be “part of the solution,” he argues. “More than that, without this technology, net zero is not achievable.”Color AgnosticismGreen hydrogen made from renewables is being pursued by some Gulf producers, such as Saudi Arabia’s Neom initiative. But for now, the vast majority see blue hydrogen made from natural gas, with carbon capture for the produced carbon dioxide, as far more economical and a key bridging technology until green hydrogen becomes commercially viable.With its use of CCS, blue hydrogen too triggers strong misgivings over its carbon footprint. But the Gulf argument is that all forms of hydrogen are needed. “We can’t let the climate crisis turn into energy crisis. ... Rainbow hydrogen is better than no hydrogen,” argues Joseph McMonigle, head of the Riyadh-based International Energy Forum. “Currently the electrolyzer capacity in the world is about 200 MW [megawatts]. We need 500 times that capacity.”Abu Dhabi’s Adnoc for the moment is concentrating on blue hydrogen and is moving aggressively with targeting a 1 million ton/yr project at Ruwais and recently joining up with BP and fellow UAE firm Masdar to form a hydrogen alliance. The lack of policy direction over hydrogen means up to now development has been a “leap of faith,” Adnoc Hydrogen boss Khalid al-Muhaidib told the conference. “It is like driving a vehicle in the fog,” he complained.Fate of NationsMore than just a question of climate activist versus producer, or technology X versus technology Y, the energy policy decisions of the next few years will shape the global political economy of the next century. Theoretically CCS and hydrogen could enable a growth narrative in terms of trade with producer countries. But some see the energy transition as precisely a good opportunity to deglobalize, concentrate power generation domestically and reduce energy supply vulnerability.Such economic isolationism would inevitably trigger the collapse of producer economies — but also put a stop to the petrodollar recycling that has helped underpin developed countries’ exports.