Innovations Needed for Mideast to Decarbonize

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The energy transition has become central to many countries’ strategies in the coming decades and Mideast Gulf hydrocarbon producers are no exception — with Opec members United Arab Emirates (UAE) and Saudi Arabia pledging last year to become carbon neutral by 2050 and 2060 respectively. But their path is different to many, as Mideast Gulf producers face pressure to maintain certain levels of fossil fuels production, and keep supplying markets, while they diversify their sources of revenue and meet green energy targets — potentially becoming significant suppliers of renewable energy to Asia and Europe, too. And while these countries will continue producing hydrocarbons cheaply, efficiently and with lower emissions, they will be faced with some challenges in doing so, according to Boston Consulting Group (BCG) Managing Director and Senior Partner Ferdinand Varga.

Structural Changes

Producers will need to significantly reduce emissions while remaining cost competitive to play their part in mitigating climate change. “They will need to develop new carbon abatement technologies, encourage research development and improve energy efficiency,” Varga told Energy Intelligence. This raises the question, he said, of what innovations producers can deploy in a world of climate change adaptation and declining oil use. “Net-zero pioneers may have to be agile operators to compete for talent with start-ups and corporations venturing into renewable energy,” Varga explained. Organizational structures will also have to represent business priorities, with benefits such as flexible work options, higher pay and diversity helping to attract and retain talent to strengthen organizations, he added.

The Mideast region has already taken significant steps to diversify its energy mix and expand its renewable energy capacity, especially in solar and wind. The UAE and Saudi Arabia have led these efforts, with the UAE recording the largest increase in renewable capacity worldwide in the past 10 years, followed by Saudi Arabia, according to a recent report by Australia-based aggregator Compare the Market.

Supply Chain

Another challenge Mideast Gulf countries are faced with is the development of a new supply chain, Varga tells Energy Intelligence. “Net-zero pioneers face an elevated challenge of establishing a new supply chain and integrating a concentrated Original Equipment Manufacturer (OEM) supplier for products such as ammonia and hydrogen,” he explains.

This challenge, Varga says, can be addressed by scaling up partnerships and building an integrated supply network. Indeed trends in this direction have emerged in the region over the past couple of years, with local or state-owned companies teaming up with international players and the private sector to help develop their renewable and hydrogen potential. Saudi Acwa Power’s partnership with Air Products in Neom to produce and export green hydrogen is a perfect example of the need for partnerships to achieve integrated projects. Such partnerships have been key to the development of the needed technologies, and building the right infrastructure to integrate the hydrogen economy, Katarina Uherova Hasbani, partner and global director of strategy and advisory for consultancy AESG told Energy Intelligence. Earlier this week, the UAE's Energy Minister Suhail al-Mazrouei echoed Hasbani and Varga's comments when, during the keynote speech at Siemens Energy’s MEA Energy Week, he said that a collaboration with the private sector is necessary to develop hydrogen at scale, and at the speed his country aspires to.

Technology Key to Decarbonization

Decarbonizing the utilities sector is key to achieving net-zero. And technology will also be key for Gulf countries’ decarbonization efforts and helping electricity ecosystems deliver clean energy in a reliable way, according to Vargas. Other steps are crucial to accelerate the decarbonization of utilities. They include having a real price for carbon, the introduction of a carbon market, access to green financing, debottlenecking the supply chain, localizing some elements of the supply chain and driving down the cost curve, he explained.

Digital technology and “smart grids” will also play a key role in allowing the integration of renewable energy into electrical power supply. And so will gas. “Looking beyond renewables, power generation through the development and support of battery storage for energy storage with the likes of hydrogen will be a key area of growth as the usage of gas is highly paramount in the energy transition,” Varga said.

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