Exploring the Energy Transition and Net-zero Strategies of Gulf Oil Producers
This is a summary of discussions that took place at a roundtable gathering held in March 2023 at Rice University’s Baker Institute for Public Policy as part of a collaboration between the Center for Energy Studies and the Edward P. Djerejian Center for the Middle East. The Middle East Energy Roundtable brought together industry leaders, academic experts, research analysts, and participants from Kuwait to discuss key trends shaping the Gulf’s energy transition politics.
The meeting was held under the Chatham House Rule, and the unattributed views expressed in this report are those of the participants. This document is intended to serve as an aide-mémoire to those who took part and a general summary of discussions for those who did not.
Key points that emerged from the meeting included:
- Member countries of the Gulf Cooperation Council (GCC) have different terms and perspectives on the energy transition compared to non-oil states. In GCC countries, monetizing hydrocarbon assets to maintain national security is a top priority. Thus, from the GCC perspective, the energy transition should involve adopting a balanced approach through a gradual transition toward more sustainable energy sources and emissions mitigation. In doing this, Gulf nations hope to avoid exacerbating inflation and social and security problems. They also hope to continue investing in fossil fuels while encouraging the development of clean energy technologies in the next two decades.
- There is, however, a political will to engage in energy diversification and maintain development growth with less reliance on hydrocarbon revenues. The GCC countries emphasize the need for partnership and collaboration with the rest of the world to address key challenges, primarily related to technology advancements.
- The GCC’s energy transition faces major challenges, including access to funds for infrastructure, technology limitations, and, in the smaller states, land availability for renewables.
- National goals espousing high levels of renewable energy penetration by 2030 appear unrealistically ambitious and are unlikely to be met in full. Even a 50% goal attainment would be a positive outcome.
Overall, participants agreed that the energy transition presents distinct challenges for hydrocarbon exporters like those in the Gulf, and that a more gradual pace of change is preferred to maintain political and economic stability while still addressing the need for climate solutions.
The Current Energy Landscape in the Gulf
To understand the energy transition in the Gulf, it is important to highlight its current energy landscape. The total installed power generation capacity in the GCC as of 2022 was 170 gigawatts (GW), with a production injected to the grid that reached about 667 terawatt hours (TWh). Most GCC electricity is generated by combusting natural gas and oil products. Power demand is growing at different rates in each country, which in part reflects the differences in size and populations across the six states. A Kuwaiti consultancy projects electricity demand in the GCC to reach 900 TWh in 2030 from 618 TWh in 2020, highlighting the need for urgent action. To fulfill the growing demand, around 280 TWh will have to be added over the next seven years. In terms of required installed capacity, Saudi Arabia and the UAE lead with a projected required installed capacity of 28 GW and 17 GW, respectively.
As of 2022, a participant stated that renewable electricity provided up to 4% of the total GCC demand, from an installed capacity of 5 GW, mainly in Saudi Arabia and the UAE. Each country in the region has announced its own separate target for increasing the renewable share in the energy mix. Bahrain originally announced a target of 5% by 2025 and 10% by 2035, but made an amendment recently, increasing its targets to 10% by 2025 and 20% by 2035. Kuwait announced a 15% target by 2030; Oman announced a 10% target by 2025 and 30% by 2030; and Qatar announced a 6% target by 2020 and 20% by 2030. Saudi Arabia set the most aggressive target in the Gulf, with the aim of having renewable energy generate 50% of electricity by 2030, followed by the UAE, which set a 27% clean energy target by 2021 and a 44% target by 2050.
Will GCC Countries Reach their Renewable Energy Targets?
A study presented at the roundtable looked at three scenarios whereby GCC countries achieve their renewable energy targets by 50%, 100%, and 150% by 2030. It highlighted that a mix of technology — including photovoltaic, solar, wind, and geothermal — will be necessary to meet these targets as no single technology can attain this. The second scenario, whereby GCC countries simply fulfill their announced targets without under- or over-shooting, would entail adding 147 GW of renewable energy, from 5 GW today to 152 GW in 2030, as well as an investment of around $181 billion over the next eight to 10 years. Most of this investment will be allocated to hardware, which is usually imported from foreign markets, mostly from China. Failure to localize the majority of the supply chain within the GCC market will result in missed opportunities to further industrialize and diversify regional economies.
Bearing these challenges in mind, even reaching 50% of the target production of renewable energy would be considered a success given the fact that the raw materials used to build hardware are not directed to or reserved for the GCC but rather the entire world, which is competing for the same materials for the energy transition. Despite the challenges outlined, investing in the energy transition will also yield benefits, such as hydrocarbon fuel savings of 200 million barrels of oil equivalent per year, representing an opportunity cost of $10 billion per year at $50/barrel if the transition investments are not made, as well as substantial reductions in greenhouse gas emissions, providing both economic and climate action benefits to GCC states.
Energy Efficiency and the Importance of the GCC Interconnection Grid
Another issue examined was the importance of energy efficiency and the possibility of bringing consumer demand down by making changes to energy prices. Electricity in the Gulf is heavily subsidized by the state. For instance, in Kuwait, electricity is subsidized by approximately 95%, leading to lower prices and increased consumption. A possible solution would be to redefine the tariffs on electricity and water in order to adjust consumer behavior, but this has potential political implications. Other models being discussed are setting tariffs at market price and providing cash assistance instead, or setting a threshold on subsidized electricity and water per household.
The discussion then turned to the importance of the GCC Interconnection Grid, which connects the six GCC countries, from Oman to Kuwait, and could be used to exchange electricity during peak periods. More projects like this one that send electricity to a high-demand location from another location would be beneficial. The company that owns the GCC grid has, in fact, recently agreed to a project that will connect the same grid to Iraq, a country that is deeply affected by electricity shortages. Such regional cooperation can be an example of the benefits that accrue when countries work together and pool resources in pursuit of a common objective.
Other Options: Nuclear Power and Carbon Capture and Storage
Participants also considered the potential of nuclear energy. The UAE completed the first nuclear plant in the GCC in 2020, and Saudi Arabia has its own separate plans for nuclear energy that have not yet gone beyond the drawing board. A GCC-wide nuclear energy initiative, which was proposed in 2007, similarly went nowhere. The use of small modular reactors (SMRs), which could transform the energy landscape into a more environmentally friendly one, are being discussed in some GCC countries. SMRs are not yet commercially feasible, but they will likely be by 2050 or 2060 and could be used in applications beyond traditional power plants, such as on-site power for petrochemicals.
In terms of decarbonization plans in the region, participants discussed the prospects for carbon capture and storage (CCS). The challenge with carbon capture is the need for infrastructure, transportation, and storage. For the GCC to secure a position in the future market of clean technologies, such as blue hydrogen, there needs to be an investment in carbon capture, whether in its gas phase or solid phase. A promising technology called methane pyrolysis separates carbon from oxygen and turns it into a solid phase, making it easier to store. There is also ongoing materials research into using carbon nanotubes made from methane pyrolysis as a replacement for metal in structural applications. GCC states enjoy many advantages in CCS, including expertise, clustered emissions, and viable storage opportunities nearby in depleting oilfields.
The Case of Kuwait
Looking at the particular case of Kuwait, participants emphasized the need for investments in small-scale clean energy projects and the importance of remaining a responsible hydrocarbon supplier. Participants also stressed the country’s commitment to the energy transition. In August 2022, Kuwait’s oil sector developed a strategy for the energy transition and is now in the process of creating roadmaps toward it. It is estimated that the cost will be $20 billion by 2040.
Some of the challenges that Kuwait will face are the availability of land for solar energy and the need for funding and technology. Bilateral partnerships with governments and private sector investment will be critical for the latter. Despite these challenges, Kuwait has committed to achieving net-zero greenhouse gas emissions in the oil and gas sector by 2050 (Scope 1 and 2 emissions) and to increasing renewable energy production to meet 15% of electricity demand by 2030. Collaboration across sectors and among states is necessary to achieve this goal and can be both a responsibility and an opportunity for the GCC to take the regional lead.
Conclusion: A Gradual Transition
GCC states are pursuing a gradual strategy toward the energy transition to avoid inflation, instability in global energy markets, and political uncertainty in the region. Achieving net-zero emissions will be challenging and require sustained levels of funding well beyond the national capacities of many countries if announced 2050 targets are to be met. Viewed from a regional perspective, the energy transition is two-fold: a transition of technology but also an evolution of behavior and collective mindset toward sustainable, clean energy. A question that remains to be answered is whether GCC states will work collectively toward common energy transition objectives or instead focus on separate country-specific initiatives.
The authors would like to thank Moe Aljuboori, Hadi Almansour and Praneel Jadav for their assistance in taking notes at the roundtable and helping draft this report.
This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s), and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.