Energy Transition

GCC countries in the energy transition vanguard

Picture of solar panels and wind turbines

The GCC countries have the potential to become leading clean energy hubs. (Image source: Adobe Stock)

The GCC countries are strategically positioned to become leading global clean energy hubs, according to the latest report in MUFG's ESG series

With global efforts towards the energy transition increasingly being recognised, regulators and policymakers in the GCC economies have incorporated decarbonisation plans into their national vision transformation programmes.

To achieve net zero targets across the region, extensive investments are being undertaken to decarbonise high-carbon emitting sectors in hydrocarbon production, power generation and industrial production, with the speed of execution contingent on technological advancement and availability, as well as an increase in the private sector participation.

Having said that, a recalibration of the energy trilemma post-COVID from sustainability towards energy security and affordability, is witnessing GCC transition targets take a pragmatic approach that is pro-growth and pro-climate. This approach recognises that sustainable systems are more value creating than traditional ones, but shutting down the old conventional economy too quickly threatens to push the price of building a cleaner new economy out of reach. This two-pronged approach of addressing the energy transition and safeguarding energy security recognises the sheer complexity of ecosystems, demanding greater alignment and collaboration on everything from capital allocation to product design, public policy as well as behavioural changes on the demand-side of the equation.

MUFG argues that the GCC region remains well positioned to capitalise on its comparative advantages of low-cost positioning across the energy value chain, geographical proximity to key import markets and its constructive regulatory backdrop to become a vital global decarbonisation vanguard. These favourable characteristics, combined with a constructive macro backdrop, will enable these economies to strengthen their pedigree beyond conventional fossil fuel energy sources in becoming a global hub for both clean electrons (solar, wind, EVs and energy storage) and clean molecules (hydrogen, carbon capture and bioenergy).

More than US$630bn of investments will be required through to 2035 for the region to achieve its ambitious decarbonisation targets, MUFG says, led by four strategic areas, namely, (1) the burgeoning role of natural gas as a transition fuel; (2) the development of attractive renewables capacities; (3) an expansion in carbon sequestration and clean fuel offerings through a rising focus on clean technology investments; and (4) investments in critical infrastructure and logistics to support the transition.

To read the full report, go to https://www.mufgresearch.com//commodities-esg/esg-series-gcc-region-and-the-energy-transition-strategically-positioned-to-become-a-vital-global-decarbonisation-vanguard/?utm_source=email&utm_medium=publication&utm_campaign=ESG+Series:+GCC+region+and+the+energy+transition

Advancing hydrogen development in the MENA region

Thomas Evans, Origination Lead EMEA, GHD. (Image source: GHD)

Thomas Evans, Origination Lead EMEA at global professional services company GHD discusses the prospects for scaling up hydrogen development in the MENA region

How do you view prospects for advancing hydrogen development in the region, and what role will the UAE's National Hydrogen strategy play in advancing hydrogen development in the UAE?

The prospects for advancing hydrogen development in the region are extremely promising. Particularly in the Middle East, countries not only have access to abundant natural resources but also possess significant investment capabilities and expertise in attracting international businesses and talent. Combined with economic stability, the region is well positioned as a global leader in low-carbon hydrogen production and innovation.

Developed in alignment with the UAE’s Centennial 2071 ambition, the UAE's National Hydrogen Strategy provides a comprehensive roadmap for establishing a successful hydrogen economy. A key focus of the strategy is on generating and supporting a domestic hydrogen market. While there may be a temptation to concentrate on production capabilities, understanding and developing domestic demand is crucial. The strategy recognises that although the technology for hydrogen export is still evolving, successful and economically sustainable hydrogen economies should first focus on their domestic markets, with the potential for international exports in the mid to long term.

The UAE's strategy also stresses the need for the integration of various hydrogen production technologies. It considers the use of blue hydrogen (derived from natural gas with carbon capture, utilisation, and storage (CCUS)), green hydrogen (produced from renewable sources), and other emerging technologies to meet its ambitious targets. A diverse technological approach will be key to advancing hydrogen development.

What are the main challenges to scaling up hydrogen development, and how can these be tackled?

Scaling up hydrogen development presents several challenges, particularly when examining the context of the UAE’s hydrogen industry.

Most importantly, there is a need for clear governance and regulatory frameworks to facilitate the growth of the hydrogen economy. We can draw valuable lessons from international examples such as the US Inflation Reduction Act, the UK Hydrogen Business Model, and EU policies like Fit for 55 and the European Hydrogen Bank. Establishing such frameworks will help remove barriers and provide more investment opportunities, propelling the hydrogen strategy forward.

The CAPEX and OPEX for low-carbon hydrogen production are currently high. Without effective market mechanisms, hydrogen is unable to compete on price with natural gas and other fossil fuels. Addressing this challenge requires the implementation of policies and incentives that can lower costs and make hydrogen more competitive. Having said this, we have seen CAPEX prices decreasing in the last 2 years by around 25% to 30% which is a positive sign for the industry.

The low-carbon hydrogen offtake market is still immature. In the UAE, there is a significant opportunity to become a leader in domestic hydrogen usage and the production of high-value green products for both export and domestic markets, such as green steel. However, there is a degree of "progress paralysis" globally, due to uncertainties about the growth rate of the hydrogen offtake market. Developing a robust domestic demand is crucial in the short term, as it helps de-risk investments by providing a guaranteed market for hydrogen products.

Supply chain constraints represent both an opportunity and a challenge for the UAE’s hydrogen economy. Currently, the global supply chain is under pressure, with long lead times and slower than anticipated technology learning rates. Strengthening the local supply chain can alleviate these issues.

Read the full interview in the latest issue of the magazine, at https://oilreviewmiddleeast.com/magazines/orme_2024_05_02/spread/?page=18