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Hydrogen money can be beneficial for green infrastructure in the Middle East

July 6, 2023 at 7:00 pm

Executive Vice President of the European Commission for the European Green Deal, Frans Timmermans (C) and European Commissioner for Internal Market, Thierry Breton (R) give a joint news conference on EU Net-Zero Industry Act and European Hydrogen Bank in Brussels, Belgium on March 16, 2023 [Dursun Aydemir – Anadolu Agency]

The conversation about climate change needs to shift from simply reducing carbon emissions to ensuring developing nations can take part in a diversified green economy in the Middle East region. Yet, first it is important to accept that governments have hardly any source of revenues, independent from oil and gas. In Iraq, for instance, that dependence exceeds 90 per cent. If government revenues in the region are dominated by hydrocarbons, hydrocarbon revenues will have to finance the new, clean energy infrastructure.

Since the start of the Ukraine war, two main issues changed the pattern of diplomacy in the Middle East: grain and hydrocarbons.

Many countries in the region were forced to radically rethink their grain import strategies in the following months. Additionally, the war in Ukraine is also reshaping geopolitical relations, as the West looks to shore up its hydrocarbon supplies.

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European countries looked to Qatar as a replacement for lost Russian gas supplies. The Gulf country has drawn up plans to expand its liquefied natural gas (LNG) production by 40% a year by 2026 through its North Field East project and, in recent years, has nurtured relations with a number of European importers.

In March 2022, UK’s Former Prime Minister, Boris Johnson, visited two Gulf countries in an effort to reduce his country’s dependence on Russian energy and to increase green energy deals.

During his visit, Johnson met the Crown Prince of the United Arab Emirates, Mohammed bin Zayed Al Nayhan, in Abu Dhabi, and both leaders welcomed the long-standing partnership between the two countries and discussed opportunities to increase collaboration between the UK and UAE on energy security, green technology and trade. This meeting suggests that the Gulf region can be a main partner for the UK’s green energy transition.

While the Middle East is trying to supply energy to the world, the region itself is in a phase of energy transition. The Saudi Green Initiative (SGI) was launched by the Crown Prince in March 2021 and brought to an international audience of experts and diplomats by Saudi Arabia last November in a specially built domed pavilion, on the sidelines of the COP27 climate conference in Sharm El-Sheikh, Egypt. To accelerate the implementation of initiatives to achieve the MGI goals, the Crown Prince announced, in November 2022, that Saudi Arabia established and hosts a dedicated MGI Secretariat and allocated US $2.5 billion to support MGI projects and governance.

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Despite those initiatives, hydrocarbons will continue to become the backbone of Middle Eastern economies, as the Middle East’s energy transition continues to be slow despite promises of large additions of renewable capacity in the coming years.

In 2022, thermal power (coal, oil and gas) accounted for 90 per cent of the region’s power capacity. Although this power capacity share is expected to decrease, fossil fuels will continue to dominate, with GlobalData forecasting that, by 2035, thermal power will still account for 70 per cent of total capacity. A similar story emerges in the power generation mix, with fossil fuels being expected to account for 84 per cent of the power generation mix in 2035.

Relatedly, an energy transition in the Middle East requires financing. Governments rely heavily on selling hydrocarbons for this money. The coronavirus pandemic has overshadowed several issues that, pre-crisis, were top priorities for many governments and organisations around the world. One such agenda item is the energy transition, which refers to the transformation of our energy system from one that heavily relies on carbon-dioxide-emitting fossil fuels – coal, gas and oil – to one which is dominated by green and clean sources of energy. Although no one knows how long and how deep the current crisis is going to be, or what the shape of recovery will be, it is only a matter of time before the push for the energy transition will regain its pre-crisis value.

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The region’s oil and gas exporters have set ambitious targets to diversify their energy and electricity mix. The United Arab Emirates (UAE), for instance, aims to obtain half of its primary energy from clean sources by 2050, from less than 2 percent in 2018. This should be a welcome move from an environmental perspective, especially since the region encompasses some of the biggest carbon emitters (on a per capita basis) in the world. Also, economically speaking, greater use of green energy would free more oil and gas for exports.

To sum up, despite ambitious renewable energy targets and an increasing number of solar and wind projects in the pipeline, renewable generation is forecast to account for a mere 8.3 per cent of the total generation mix by 2030. On the way to Net Zero Target, the Middle East should invest green technology 60 per cent more than oil and gas infrastructure.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.