Abu Dhabi Seizes the Transition Initiative

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  • Project management capacity, financial muscle and leadership are emerging as the key energy transition enablers for Mideast producers.
  • In the region, no one is driving green projects quite as fast as future COP28 host, the United Arab Emirates. 
  • Abu Dhabi is using every state lever at its disposal to transform its energy system.

Critical climate talks in Glasgow gave some producers just enough to work with, while leaving others bristling at alleged OECD high-handedness. Strong investment signals from the summit are yet to emerge, but it is increasingly clear the future will belong to those most able to adapt and adapt early.

As such, the oil and gas industry at this week’s Adipec conference in Abu Dhabi was actively embracing net-zero targets, certainly as far as Scope 1 and 2 emissions. But at the same time it remains defiant as to the enduring relevance of hydrocarbons in the energy transition. Among regional producers, a triumvirate of Saudi Arabia, the UAE and Qatar have spearheaded transition initiatives, but Abu Dhabi has edged ahead in recent weeks, ambushing observers with the speed at which it is delivering on its pledges.

Jolly Green Hydrogen Giant

Regionally, the UAE was the first to announce a net zero by 2050 target, putting it a full decade ahead of Saudi Arabia and Bahrain. Two recent UAE initiatives should be game-changers. Abu Dhabi National Oil Co.'s (Adnoc) announcement last month that nuclear power will fuel all of its grid from January 2022 means that in one fell stroke, 30% of the UAE’s 2030 emissions cut target will be met. And on Wednesday, Adnoc and state energy firm Taqa announced they would be forming “a clean energy powerhouse, with a total generating capacity of at least 30 gigawatts of renewable energy by 2030.”

Much of this will be produced with an eye to building a green hydrogen industry, marking a departure for the UAE, which has until now been more focused on blue hydrogen from natural gas, with the carbon dioxide captured. The scale of the envisaged solar expansion, not to mention technological, financial and marketing challenges posed by green hydrogen, are daunting. But Adnoc clearly has significant capacity in managing megaprojects and rapid expansion — as symbolically illustrated in the juxtaposition of its old six-storey office headquarters next to its 75-story new headquarters, completed in 2014.

One should not get carried away. The UAE is close to the top of global listings of highest per capita emissions. And it remains just as committed to hydrocarbons, albeit, thanks to the nuclear move, somewhat decarbonized ones. On Tuesday, Adnoc announced $6 billion in drilling contracts as part of its crude capacity expansion to 5 million barrels per day. This was followed by the Thursday award of $1.46 billion in construction contracts for the Dalma sour gas development. One source tells Energy Intelligence that the offshore Upper Zakum field (Adnoc 60%, Exxon Mobil 28%, Jodco 12%) has recently hit capacity of 1 million b/d, over three years ahead of schedule.

Wind in Saudi Hydrogen Sails

In the long run, Saudi Arabia could well challenge in the transition race. Details are yet to emerge on its massive $10 billion afforestation program, and there is widespread skepticism over this form of offsets. But the kingdom is also working to become the world’s top hydrogen exporter by 2030, dedicating a large part of output from its giant $110 billion Jafurah gas development to blue hydrogen. And in green hydrogen, Saudi Arabia has advantages. The capacity to complement stellar solar conditions with excellent wind on its Red Sea coast will enable it to power production 24 hours a day, as envisaged at its giant $5 billion Neom green hydrogen project, which should bring on some 650 tons per day of hydrogen from early 2026.

Neom developers are targeting paradigm-busting production costs of as low as $1.5 per kilogram, which would make it competitive with blue hydrogen. However, much of the commercialization challenge facing Neom, and indeed all Gulf hydrogen projects, lies with transportation, which faces cost and safety challenges.

As in Saudi Arabia, Mideast green hydrogen projects probably will need 24-hour generation to enable large-scale commercialization. Egypt and Oman also have significant wind potential. And the UAE has the possibility of tapping nuclear, to make purple hydrogen when the sun goes down. Of course, renewable resources are plentiful, and the region faces tough competition.

Oil Champion

While trumpeting its transition plans, Abu Dhabi also used Adipec as a platform to defend fossil fuels and sound the alarm as to the dangers of an overly precipitous energy transition. “We cannot just flip a switch,” Adnoc CEO Sultan al-Jaber told the conference. “After almost a decade of underinvestment in our industry, the world has sleepwalked into a supply crunch," he argued, pointing at a need to almost double global investment in oil and gas to $600 billion annually.

No doubt Glasgow was a bruising experience for the industry, a huge target for the environmental movement. Nevertheless, there was acknowledgement that the conference outcome could have been worse, and that high energy prices were enabling producers to make their voice heard.

At a government level at least, there is increasing recognition that intermittency issues with renewables mean fossil fuels will have to provide baseload capacity for some time. “At the end of the day, we are an industry that is out of fashion, but not out of date,” quipped Peter Wood, Royal Dutch Shell’s chief energy adviser.

Producers are beginning to smell blood as to the potential economic turbulence generated by a fast-track transition, which they argue is the Achilles' heel in climate activist arguments. OECD governments need to be more “frank with the consumers. The future energy is not going to be cheap,” argued UAE Energy Ministry Suhail al-Mazrouei. High fossil fuel prices are also negatively impacting renewables, argued Christophe Ruhl. “A few months ago, most of us would have signed up to the statement that high hydrocarbon prices are good for renewables,” he explained. “Not true. It turns that you need cheap and plentiful hydrocarbons to generate the energy security to get this transition to start.”

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