Contents Energy in Transition MENAT’s Transformation: Vol 1, 2019

Thegulfintelligence.com 101 Contents

CHAPTER 1 National Energy Companies: CHAPTER 3 Technologies: New Tools Mastering a New Rule Book? Means New Strategies?

06 Keep the Green Dollars Coming 24 Technology and the Transition of Energy: By Zoe Knight, Group Head, Centre of Sustainable What’s Next? Finance, HSBC By Lord Adair Turner, Chairman, Energy Transition Commission 08 A Complementary Blend: Fossil Fuels and Renewables in the 21st Century 28 Electrifying the 21st Century: Wiring a By H.E. Saif Humaid Al Falasi, GCEO, ENOC Group New Norm By Joe Anis, President & CEO, GE Gas Power 12 There Are No More Detours: The Energy Systems, GE Power MENA & South Asia Transition is Here to Stay By Raoul Restucci, Managing Director, Petroleum 30 Digital Technology Adoption: Unlocking Development Oman Industry Efficiencies By Morgan Eldred, Managing Partner, Digital Energy 14 NOCs are Learning the Ropes – Quickly. By Abd Malik Jaffar, Regional Director PETRONAS CHAPTER 4 Finance: Finding the Subsidiaries Middle East Right Balance?

CHAPTER 2 Efficiency: Challenging Goal 32 Energy Transition: Aspiration and Reality Gains Momentum? By Dr Carole Nakhle, CEO, Crystol Energy

16 Saudi Arabia: The Kingdom’s Energy 34 Underpinning ‘Solar Arabia’ With Transition is Finally Starting to Shape Up Petrodollars By Bruno Brunetti, Managing Director and Head of By Gaurav Sharma, Independent Oil Analyst and Global Power Strategy, S&P Global Platts Analytics Forbes Columnist

18 Falling Cost of Solar: Harnessing 36 Lowest-Cost Oil Producers: Manage Opportunities Resources Like Any Other Commodity By Adnan Z. Amin, Director-General Emeritus of the By Sir Mark Moody-Stuart, Former Chairman & International Renewable Energy Agency (IRENA) Managing Director of the Royal Dutch Shell Group

20 The Paris Agreement: Why the Middle East is a Key Stakeholder By Maria van der Hoeven, Former Executive Director of the International Energy Agency (IEA)

22 Clean Hydrogen: Next Step for the Middle East? By Nobuo Tanaka, President, The Sasakawa Peace Foundation; Former Executive Director of the International Energy Agency (IEA)

*All content & statistics sourced by quoted Author Foreword

Collaboration is Key

products and collaborations in the Middle East, a global pioneer in the energy transition, are rapidly growing (see: Progress Report). For example, thematic investment funds known as ‘Electric GARETH THOMAS Revolution’ and ‘Clean Living’ that have Regional Head of Global Banking been developed by HSBC Private Banking Middle East, North Africa and Turkey (MENAT), HSBC are now available to HBME clients. We also have an internal sustainable finance agenda that has created two lower- Mastering a path is key to realizing the much-needed journey towards a healthier carbon funds that are both available in value of sustainable finance and we have and more prosperous planet. And very the Middle East: Global Lower Carbon identified two main drivers - new policies importantly, energy security for all. Equity and Global Lower Carbon Bond. and access to financial architecture Creative, committed and world-leading: Both are registered with the UAE Federal HSBC Progress Report and low interest financing - that provide a reliable, creative and these best describe HSBC’s approach Securities and Commodities Authority. services throughout voluminous stream of funds to transform to sustainable finance in the Middle As we enter the largely unexplored 2019. The collaboration energy transition blueprints into reality. East and wider region. We are building territory of green growth, limitless Middle East, North Africa & Turkey supports initiatives by We believe that only transparent and our reputation as the leading bank for potential awaits sustainable finance. the government and the collaborative efforts between all parties sustainable finance, by providing the Working together will enable all to 2018 25 MasterCard, Careem, MAF, Central Bank of Egypt (CBE) involved – notably financial institutions market with sustainable loans and safely, efficiently and innovatively break The HBME Climate In January 2019, HBME GE, Lazard, IFC, Expo 2020 to boost the SME sector; (FI), industry, government and academia advisory services across the lines of through new intellectual and geographic Business Council (CBC) was was a signatory to the Abu Dubai and Mubadala. widely regarded as the – will ensure smooth travels on the business and industries. The array of boundaries; a collective win-win. established in February 2018 Dhabi Sustainable Finance backbone of the country’s to bring together leaders Declaration, along with 24 economy. across HBME and from all other public and private sector 10 jurisdictions to ensure the entities. HBME will provide Sharakah and HBME signed bank meets its sustainable support to the Central Bank a pact to support SMEs 367 finance targets, develops of the UAE, the Securities and in Oman in January 2019 Staff training for 367 Sustainable Finance Pillar a strategy for this region Commodities Authority and to provide support for HBME professionals was and responds to client the Abu Dhabi Global Markets sustainability integration for conducted last year. This HSBC is a leading global partner to the public and private sectors in the transition to a low carbon economy. We have made needs. And the Sustainable (ADGM) on facilitating ten small and medium-sized included relationship significant progress on our 5 global sustainable finance commitments (as part of our Sustainable Finance pillar) in 2018: Finance Growth Accelerator investment flows towards enterprises (SMEs) – an managers, directors and was established in January sustainable and green integral and rapidly growing department heads trained 1. Provide $100 billion of sustainable financing and investment by 2025: $28.5bn achieved in 2018 2019, chaired by the Head outcomes. part of the sultanate’s on sustainable finance in the of Global Banking, to workforce. UAE, Egypt, Oman, Kuwait, 2. Provide 100% electricity from renewable sources by 2030, 90% by 2025; 29% achieved in 2018 spearhead a key focus for Bahrain, Qatar and Saudi this genre of funding for 20 Arabia. 3. Reduce exposure to thermal coal and manage transition for high carbon sectors: New energy policy effectively ends new coal, growth in HBME. The C3 Accelerator Program 40% tar sands and Arctic oil financing was launched in September HBME has played an 2018 as an open invitation active role in capability 7,000+ 4. Adopt recommendations of Task Force on Climate-related Financial Disclosures (TCFD): Global assessment of our exposure, 30 to entrepreneurs making a development on HSBC supported 158 reporting and disclosure HBME was amongst the positive social impact across sustainability and shareholder resolutions on first signatories to the Dubai the Middle East. Twenty sustainable finance for environmental and social 5. Lead and shape the debate around sustainable finance: 25 reports published in HSBC’s Centre of Sustainable Finance, the Declaration for Sustainable finalists were selected and Saudi Arabian British Bank issues last year and voted at bank’s new thought leadership center Finance, an Initiative from provided a week of training (SABB), of which it owns a more than 7,000 company the Ministry of Climate with impact investors from 40% stake, since June 2018. meetings at a global level. Change and Environment the social enterprise world For any enquires, please contact: (MOCCAE). In December at HBME headquarters in Diako Makhmalbaf 2018, HBME hosted over Dubai. The program ended $23mn 58 Senior Manager – Sustainable Finance MENAT, HSBC 30 representatives of the with a pitch competition, HBME in Egypt signed a HSBC globally engaged finance community and encompassing senior experts collaborative agreement in on ESG issues with 1,219 Phone +971 4 423 5609 MOCCAE to discuss new from Facebook, Amazon, December last year to help companies, in 58 countries – Mobile +971 50 419 8628 innovations in sustainable Google, MBC, Bain & Co, SMEs get access to EGP400 nearly 30% of the countries Email [email protected] finance. million ($23mn) in leasing worldwide.

2 3 Middle East Survey

In order to make the transition toward secure, efficient, and Saudi Arabia has promised to invest over $100 billion to low-carbon energy systems, which of the following should develop 41 gigawatts of solar electricity by 2032, while Middle East be the most important next step in the Middle East? most other Middle East countries have announced similar ambitious transition projects of their own. Which Middle East A. Define the need for country do you think is currently leading on energy Transition alternative energy sources implementation? B. Identify alternative Energy Transition Survey (sustainable) energy options 65% C. Define energy consumption A. Oman per sector 38% B. UAE Think Global & Act Local to Accelerate Impact! D. Define sectoral and intersectoral energy 30% C. Egypt transition strategies D. Saudi Arabia

17% 16% 18% Our survey polled 600 regional stakeholders from industry, 14% government and academia in December 2018 on what next steps 2% are required to accelerate the region’s energy transition.

The diverse range of new energy sources within the Transition Which of the following criteria is the best one to use to measure will need complete infrastructure right through the value chain a Middle East country’s progress in implementing an Energy – from production and capture to processing, storage and Transition strategy? transportation – is the Middle East legacy fossil-fuel energy “Some 86% of respondents identified that it was critical for the Middle East to infrastructure an opportunity or barrier to energy transition? A.  Removing subsidies on fossil fuels 74% B. Amount of money invested in develop competent and integrated local supply chains to propel their energy Renewable energy projects transformation. Some 69% said they were confident the region had the right C. Competence of local supply 47% financial vehicles in place to facilitate the needed investment towards more chain to deliver

sustainable forms of energy.” 26% 26% 27%

Barrier Opportunity

The existence of a competent and Policies that provide secure payments to Middle East countries need to go beyond The World Economic Forum declared In June the EU agreed a 32% EU There is a two-part solution for countries to integrated local supply chain are critical refinance renewable energy investments their current focus on the power sector in earlier this year that the global energy renewable energy target for 2030 in June overcome the energy transition challenge. for Middle East countries to be able to and help liberalize the power sector would embracing renewable energy and energy transition is still not moving fast enough. and Spain became the first EU state to Firstly, increase supply of zero-carbon accelerate its energy transition. be significantly beneficial in attracting efficiency initiatives for water desalination, And therefore the WEF said the ball is create a Ministry for Ecological Transition energy alternatives; and secondly, reduce more investments in energy transition industrial and transportation sectors? back in policymakers’ court to accelerate from merging the former Ministries for demand for fossil fuels. Which of these projects. Does the Middle East have the shift to the clean energy solutions of Environment and for Energy. Is it possible to policies should Middle East countries the right financial vehicles in place to 94% the future. get left behind in the great energy transition prioritize? facilitate the needed investment towards and miss out on its economic rewards now 86% more sustainable forms of energy? estimated at $1 trillion per year? A.  Reduce demand for fossil fuels 84% B. Increase supply of zero carbon energy 69% 79% 66%

31% 34% 14% 16% 21% 6%

Disagree Agree No Yes Disagree Agree Disagree Agree No Yes

4 5 CHAPTER 1 National Energy Companies: Mastering a New Rule Book?

used words can easily lose meaning. But Achieving renewable there is no time for slack schedules; the -8% environmental clock is ticking too loudly. energy deployment While total global green energy One major step that requires both is exceeded $300 billion last year, Article 14 of the Paris Agreement, which targets would reduce it was still 8% down on 2017 – details the need to periodically take emissions by 136 million particularly surprising considering stock of implementation and to assess the growing momentum of collective progress towards achieving tonnes of carbon dioxide, emerging markets in this field. its purpose and long-term goals. This Why? In short, the magnitude process is called the global stocktake and according to IRENA. of change incurred by the great is due in 2023. Success at navigating the energy transition takes some time myriad of nuances in every company, to get used to. country and region to achieve this goal means the effectiveness and timeliness of this process in just four years will be key 3% to setting the global tone going forward. Wind investment rose by 3% Greater clarity on how the Agreement last year to $128.6 billion, with is progressing will ensure that economic subsidies, according to Abu Dhabi- offshore wind having its second- and environmental forecasts – for based International Renewable Energy highest year. Money committed to both fossil fuels and renewables – are Agency (IRENA). This is monumental in smart meter rollouts and electric as accurate as possible. Having such a region where subsidies have long been vehicle company financings also signposts will help investors move step- intertwined with economic growth. increased, BNEF reported. by-step through what is largely uncharted IRENA highlights how progress has territory and enable them to mitigate elevated from small-scale pilot projects the assumed risks, such as stranded to almost 7GW of new power generation -24% assets and the physical implications of capacity and record-breaking bids in Solar commitments declined climate change (forced migration, natural renewable energy auctions in the UAE by 24% to $130.8 billion in disasters). In turn, this frees up capacity and Saudi Arabia. Such auctions also 2018, according to BNEF, even to deal with the uncertainty of how made solar power cost-competitive with though newly added photovoltaic the changes will play out and the best conventional energy technologies – an capacity meant the 100GW financial instruments to help the energy impressive step-change for the historical barrier was broken for the first industry adapt. This will help relieve an epicentre of fossil fuels. Geography is time. unnerving guessing game, which risks a major ace card in the region’s clean putting even budding climate-finance energy game. Aside from abundant pioneers on the back foot. sunshine, GCC countries – particularly 12% Kuwait, Oman, and Saudi Arabia – have The decline in solar is in part due good wind resources that are being to sharply declining capital costs GREEN FUTURE affordably leveraged with the deployment and BNEF’s global benchmark for Momentum towards the energy transition of higher turbine towers and longer the cost of installing a megawatt is certainly growing. In the GCC alone blades. of photovoltaic capacity fell by over the last five years, renewable Achieving renewable energy 12% in 2018 as manufacturers energy has made striking gains. Among deployment targets would reduce slashed selling prices amid a Keep the Green Dollars Coming other renewable and energy efficiency emissions by 136 million tonnes of glut of PV modules on the world targets, clean energy must account for carbon dioxide, according to IRENA. It market. 44% of the UAE’s energy capacity by would also create more than 220,500 2050, Saudi Arabia is aiming for 30% of direct jobs in a region that forms part generation from renewables and others of the Middle East and North Africa $21bn (mainly nuclear) by 2030 and Kuwait is (MENA), which the International Labor The value of sustainability and aiming for 15% in the same year. Green Organization (ILO) said retains the SDG bonds issued in 2018 – a goals form a cornerstone of countries’ highest rate of youth unemployment staggering 114% year-on-year National Visions and all signed on the worldwide. And water withdrawal for rise, Climate Bonds’ data BY ZOE KNIGHT dotted line of the Paris Agreement, power production and associated fuel revealed. Group Head, Centre of Sustainable Finance, HSBC submitting comprehensive nationally extraction would also fall by 11.5 trillion determined contributions (NDCs). For litres (-17%); critical for a region facing example, Saudi Arabia’s NDC included water scarcity challenges. $1.6trn Have no doubt: the energy transition is decarbonization’ looks like, so bolstering $300bn the aim of becoming a global technology The cost of investment in clean Carbon Tracker warned that fossil expensive business. Investor confidence clarity will improve forecasts and risk- For the fifth consecutive leader in carbon capture and storage energy is well countered – if far fuel companies risk wasting is pivotal to meeting a target that reward profiles. year, global clean energy (CCS) – a move that can help showcase exceeded – by the above benefits. The $1.6 trillion of expenditure by the world cannot afford to miss: the Meeting the goals of the energy investment exceeded the $300 the region’s innovative spirit. And the equation is simple: the world needs the 2025 if they base their business sustainable implementation of the Paris transition and the Paris Agreement billion benchmark, reaching UAE already hosts close to 79% of the energy transition, the energy transition on emissions policies already Agreement. What is one key ingredient to requires a greening of the global financial $332 billion in 2018, detailed installed solar PV capacity in the GCC needs investors and investors need announced by governments buoy investors’ appetite? Transparency. framework through easy communication Bloomberg New Energy and has managed to attract some low- transparency. Lift the veil and the funds instead of international climate We are all still figuring out what ‘good and deep-collaboration. These often Finance (BNEF). cost solar PV projects without offering will flow more easily: truly a win-win. goals.

6 7 CHAPTER 1 National Energy Companies: Mastering a New Rule Book? Chapter 1 – National Energy Companies: Mastering a New Rule Book?

A Complementary Blend Fossil Fuels & Renewables in the 21st Century

BY H.E. SAIF HUMAID AL FALASI GCEO, ENOC Group; former Technical Advisor for Deputy CEO ADNOC; former Deputy General Manager, ZADCO; former Head of Reservoir Engineering, ADMA-OPCO

The oil and gas markets that have been the wind in the sails of the Middle East’s “The UAE Energy Strategy 2050 illustrates how the economic growth since the mid-1900s are future energy mix will have a low-carbon theme: the charting a new course. A new era beckons as rising populations and obligations to the country’s ‘basket’ will comprise 38% gas, 44% clean Paris Agreement mean an ‘energy basket’ will be the mainstay of the 21st century. BP energy, 6% nuclear, and 12% clean coal.” Outlook anticipates a 55% increase in the Middle East’s energy consumption up to “It is far too early to write the obituary of technologies, policies and a societal shift 2040. A multifaceted energy basket, which oil, as growth for trucks, petrochemicals, in the way energy is consumed. It would utilizes both fossil fuels and renewable shipping and aviation keep pushing be a mistake to discount the importance energy, is a proactive approach to meet this demand higher,” said Dr Fatih Birol, the of renewables. demand at an affordable cost. International Energy Agency’s (IEA’s) Gulf countries’ innovative plans to The UAE Energy Strategy 2050 Executive Director. The agency’s World merge both camps – fossil fuels and illustrates how the future energy mix will Energy Outlook 2017 report details how renewables – are already paying off in have a low-carbon theme: the country’s oil demand will continue to grow up to the field of enhanced oil recovery (EOR) ‘basket’ will comprise 38% gas, 44% 2040, although at a steadily decreasing technologies. Projects centered on a clean energy, 6% nuclear, and 12% clean pace. But other sectors – namely win-win scenario are helping reduce coal. Efforts to increase low-carbon and petrochemicals, trucks, aviation and emissions and streamline operational renewable energy growth are wide- shipping – drive up oil demand to 105 costs. The latter is especially pertinent ranging, with significant changes already million barrels a day (b/d) by 2040. amid today’s oil prices. One illustration under way. The UAE government aims of how the two camps blend their to invest AED 600 billion ($163 billion) FRIENDS, NOT FOES operations lies to the east. Once fully by 2050 to meet the growing energy Renewables will play a complementary, operational, Oman’s Miraah solar thermal demand and ensure a sustainable rather than competitive, role to fossil plant will generate 6,000 tons of steam growth for the country’s economy, fuels in the foreseeable future. But there per day via 36 glasshouses to support while strategies to mitigate the negative is no doubt that energy and economic state-owned and Shell-led Petroleum impacts of climate change and build a security in Dubai and beyond relies on Development Oman’s (PDO) existing green economy are two threads of the the prosperity of both. BP Energy Outlook thermal EOR technology at the Amal ‘Sustainability’ theme at EXPO 2020 anticipates that the Middle East will field. The $600 million project came in Dubai. The UAE’s Barakah nuclear remain the world’s largest oil producer online in the last quarter of 2017 and has power project is another example of and the second-largest gas producer. the potential to make an 80% saving of the UAE’s pioneering dedication to a The region will account for over 34% of natural gas at the field. low-carbon future – it will be the Middle global liquids production and 20% of Nurturing talent to drive this new blend East’s first nuclear power plant when it gas production by 2040. At the same of energy innovation in the 21st century starts coming online later this year. But time, the share of non-fossil fuels in the will climb higher on energy companies’ leveraging renewable energy does not Middle East’s primary energy demand agendas. Critical and imaginative thinkers translate into fossil fuels being a ‘sunset mix increases from 1% in 2017 to 13% with fluency in the digital tools of the industry’, ready to fade into history in 2040. While non-fossil fuels account 4th Industrial Revolution will be integral books. Oil and gas will remain an integral for a smaller percentage in 2040, the to carving out the new status quo. part of the global energy mix for at least figures still mark a steady growth rate Mastering the rapidly growing digital tool 9 four more decades. when considering it will require new box – from predictive analytics, big data

8 9 Contents CHAPTER 1 National Energy Companies: Mastering a New Rule Book?

“Collaboration, transparency Green targets and innovation will enable energy companies to The UAE formally ratified the Paris surf the waves of positive Agreement in September 2016. The Agreement is the world’s most change, rather than being comprehensive deal to mitigate the negative impacts of climate change submerged by them.” and marks the biggest rise in political momentum for positive change since the Kyoto Protocol was signed in 1997. Efforts to pin down the finer details of each country’s commitments are discussed throughout the year and at the United Nations Framework Convention on Climate Change, held annually in the fourth quarter. Looking ahead, energy companies will have to frequently review to artificial intelligence – will be vital to energy human capital – a core part of Dubai’s growing WATER SCARCITY: their roadmaps to accommodate the companies’ ability to meet rising demand, while workforce – towards affordably ensuring energy Reversing the Narrative increasingly strict rule book. streamlining costs and reducing emissions. security? Efforts to continually enhance human capital The answer is collaboration, transparency Water scarcity has been also encompass bolstering the rate of and innovation, which will enable energy highlighted by the World nationalization and supporting entrepreneurs, companies to surf the waves of positive Economic Forum (WEF) 2°C as well as small and medium-sized enterprises change, rather than being submerged by them. as one of the greatest Improved energy efficiency will play a vital (SMEs). MENA Research Partners (MRP) A proactive approach is crucial. As best said by global risks to economies, role in meeting the Paris Agreement’s long- forecasts that the number of SMEs in the Gulf His Highness Sheikh Mohammed Bin Rashid Al environment and people. term goal of keeping the increase in the Cooperation Council (GCC) will rise by 156% in Maktoum, Vice President and Prime Minister of Strategies to reuse and global average temperature to well below the next five years, with the sector worth $920 the UAE and Ruler of Dubai: “Opportunities are recycle water used during 2°C above pre-industrial levels. billion. What strategies will most effectively made. They do not just lie around waiting for operations will increasingly channel this vast potential of financial and someone to grab them.” become a priority for energy 2016 companies. Progress is under way. The Netherlands’ Efficiency ethos must gain pace Environmental Assessment Agency said 12.7bn the level of CO2 emissions in the world’s Energy efficiency represents a key release valve on the burgeoning pressure to meet rising The planet’s oil wells will biggest emitting nations either fell or were demand. Energy intensity – measured as the amount of primary energy demand needed to produce 12.7 billion gallons static in 2016, in large part due to energy produce one unit of gross domestic product (GDP) – fell by 1.7% in 2017, the slowest rate of a day of water by 2020, efficiency. improvement this decade. Why? Global energy demand rose by 1.9% in 2017 – the fastest according to Total. This annual increase since 2010. This meant that the forces driving up energy demand, led by equates to an average of three strong economic growth, outpaced progress on energy efficiency. to five barrels of water for 28% every barrel of oil produced. The global population will rise to 9.7 billion from today’s 7.6 billion – a 28% climb. 2040 4.5x 3% Affordably meeting energy demand while By leveraging the range The economic efficiency of In the past, there has been 14% hitting low-carbon targets could become of cost effective energy renewables improved in 2017, a roughly linear relationship MENA will have the greatest harder, not easier. Proactive efforts are vital. efficiency opportunities spurring investors’ appetite. between upstream costs expected economic losses widely available today, energy In emerging markets, the and oil prices. When prices from climate-related water intensity would improve by average size of awarded solar spiked, so did costs, and scarcity by 2050, at up to 14% 2,100 around 3% per year between PV projects in auctions rose by vice versa. What the IEA of GDP. A Waste Heat Recovery project at now and 2040. 4.5 times while that of onshore now notes is a decoupling. the ENOC Refinery saved natural gas wind rose by half between While oil prices have more consumption equivalent to AED2.7 2013-2017. than doubled since 2016, 60 million a year. Flue gas temperatures $500bn global upstream costs have A member of the ENOC were reduced from 250°C to 150°C, Efficiency gains alone could remained substantially flat. Group, the Dugas Waste ensuring more efficient energy usage allow the world to extract Companies appear to have Water Treatment project has over the lifetime of the naphtha twice as much economic learned to do more with less. purified waste water so that hydrotreatment plant. It also includes an value from the energy it uses it can be used for irrigation. annual reduction of CO2 emissions by compared to today. Doing Water saving of more than 10,000 tons, equating to removing 2,100 so would reduce energy bills Sources: International Energy Agency (IEA); World Energy Investment 2018 Report and 26 million liters per year is cars from the roads for one year. for consumers by more than Efficiency Report 2018 equivalent to reducing water https://www.iea.org/wei2018/ Sources: International Energy Agency (IEA), ENOC’s $500 billion per year and https://www.iea.org/newsroom/news/2018/october/energy-efficiency-is-the-answer-for- demand for 60 households in Annual Report 2016, World Bank, United Nations lower pollution levels. building-a-secure-and-sustainable-energy-syst.html Dubai.

10 11 CHAPTER 1 National Energy Companies: Mastering a New Rule Book?

2040 11 MW Oil demand of 111.7m b/d The size of an installation of is anticipated by 2040, solar photovoltaic panels at according to OPEC’s World Oil PDO’s Muscat headquarters Outlook 2018 – an increase to provide power for offices, of 14.5m b/d from today. Oil with surplus electricity being There are No More Detours demand will have the largest fed into the wider grid. share of the energy mix The Energy Transition is Here to Stay through to 2040. 2020 A 100 MW independent $200bn power producer project in PDO’s investments into green PDO’s fields with a Japanese- energy infrastructure over the Omani consortium is next five years, which is also scheduled for May 2020. forecast to create 200,000 jobs in the Middle East. BY RAOUL RESTUCCI 2025 Oman’s target date to Managing Director, Petroleum Development Oman; former head of generate 10% of its total Economics and Planning, Qatar Petroleum; former Executive Vice energy mix through wind President for Middle East, Russia and CIS, of Shell E& P Middle East and solar through the Omani Government’s Tanfeedh program. Fossil fuels are not going away – they “The advent of the 4th 10% of the country’s total energy to be will remain an integral part of the energy generated by wind and solar by 2025. PDO mix for many decades to come. OPEC’s Industrial Revolution – is already playing its part in supporting World Oil Outlook 2018 forecasts that oil this aim by integrating solar into both our demand will have the largest share of the defined by emerging oil and non-oil portfolios and investigating energy mix through to 2041, increasing technologies such as where we can leverage new technology by 14.5 million barrels a day (b/d) to reach and expertise to commercialize our services 111.7 million b/d by 2040, although the automation, machine in areas, such as project management, growth will decelerate over time. But rising engineering and design, in order to develop energy needs, shifting supply such as the learning, artificial into a fully-fledged energy company. expansion of US shale oil, climate change intelligence and data Our flagship Miraah solar energy project, pressures and technological innovation being developed with GlassPoint, is mean national oil companies (NOCs) must analytics – offers NOCs providing a highly reliable and sustainable gravitate towards renewables for longer- and other industry development solution to our increasing term competitiveness and sustainability. energy needs. The project shows that Middle East countries with their high stakeholders many producing steam with solar is now levels of solar density and increasing competitive as we redeploy and monetize deployment are well-placed to build opportunities to operate the saved gas for use in higher value momentum and drive change – Oman is as safer, more productive domestic and export options. a prime example. The economic impact We are also installing 11 megawatts of the oil price volatility since 2014 has and environmentally (MW) of solar photovoltaic panels in our given more impetus to the need to diversify Muscat headquarters to provide power for energy portfolios, while continuing to responsible businesses.” offices, with surplus electricity being fed meet customer expectations with rising into the wider grid. We have just awarded domestic and global demand. At the same solar swaps, for example, could generate a contract for a 100 MW independent time, there is the need to achieve greater the further investment countries like Oman power producer project in our fields to a efficiencies through new leaner and digital need to fully mature themselves as hubs Japanese-Omani consortium, which is ways of working and technologies. of renewable energy development and scheduled for May 2020. The advent of the 4th Industrial know-how. Projects like these represent a good Revolution – defined by emerging With an investment of $200 billion start, but there must be greater alignment technologies like automation, machine in green energy infrastructure, and the and collaboration between Oman’s learning, artificial intelligence and data 200,000 jobs it is forecast to create in the public and private sectors to evolve analytics – offers NOCs and other industry Middle East over the next five years, PDO towards a greener future. This is across all stakeholders many opportunities to needs to build on the pioneering work we aspects, including strategy, research and operate as safer, more productive and have already commenced across a full development, technology, training, supply environmentally responsible businesses. supply chain of opportunities. chain development and investment. I At the same time, gas and its more Currently, the Omani Government’s remain confident and excited about staying pervasive deployment, is an enabler to the Tanfeedh program on enhancing economic competitive and playing our part in meeting energy transition. The introduction of gas- diversification is targeting in excess of the challenges of the future.

12 13 CHAPTER 1 National Energy Companies: Mastering a New Rule Book?

chains in the UAE and the wider Middle for more than half of global oil-proven East. Abu Dhabi National Oil Company reserves. Such reserves are mostly “The top five NOCs (ADNOC) reduced its zero-flaring by 78% located in OPEC member countries worldwide account for between 1995 and 2010 and Dubai-based (72%), with Venezuela and Saudi Arabia ENOC launched the first solar-powered at the top of the list. more than half of global service station in the UAE last year, with But as the global energy mix evolves more to come. Politically-backed with to have fossil fuels and renewables as oil-proven reserves.” relatively deep-pockets, NOCs have the two sides of the same commercial coin, NOCs are Learning the Ropes capability to build a bridge uniting the so must skill sets at NOCs. Seven core established and emerging; blending fossil strategies will help sharpen their game. fuels and renewables into one mix. First up is agility, giving organizations better NOCs’ appetite for stepping outside chances to survive in a fast-changing – Quickly. their comfort zones has become ecosystem. Second is early positioning increasingly common, reaffirming in segments that are gradually displacing confidence that they will be integral current products and services, such leaders in this new chapter. Take the as the rise of renewables and shifting birth of ‘international NOCs’ over the last consumption habits. Also on the list two decades, for example. They have are customer-centric business models, 78% leveraged their cross-border influence digitalization, fast adoption of new The reduction in ADNOC’s zero- 27% to become progressively influential technologies, horizontal collaboration flaring between 1995 and 2010. The amount of energy that the in a territory typically dominated by and the dynamic management of highly UAE Vision 2021 and National international oil companies (IOCs). diversified portfolios. Embracing these BY ABD MALIK JAFFAR Agenda expect the country to Chinese companies CNOOC and core principles will create a stronger and 70% Regional Director, PETRONAS Subsidiaries Middle East, PETRONAS; generate from clean energy CNPC – with approximately one-third of more diverse energy market, which is vital Globally, NOCs have 85-90% Head Iraq, PETRONAS Carigali Iraq Holding; former Head of Projects sources, reducing per capita foreign production – have implemented to coping with intensifying demand. The of global proven resources and Engineering, PETRONAS greenhouse gas emissions overseas strategies since the early International Energy Agency (IEA) said in and around 70% of total and achieving average oil 1990s, mainly in Asia and Africa, while March 2018 that the global appetite for production. consumption of five tons per Petrobras expanded internationally after energy in 2017 rose by 2.1% – more than Gone are the historical criticisms that reduce its per capita greenhouse gas person. the Brazilian oil-sector deregulation twice the previous year’s rate. national oil companies (NOCs) are emissions and achieve average oil in 1997. In Asia, Malaysian Petronas’ NOCs are gatekeepers to arguably 2.1% reactive, not proactive. A new forte to consumption of five tons per person in internationalization started in 1991 with the most precious asset a country has; The rise in the global appetite flex has given them a firm lead in the just 2.5 years. The country’s Mohammed $13.6bn upstream investments in Vietnam and energy security. Without reliable access for energy last year – more than global journey towards a diversified bin Rashid Al Maktoum Solar Park will The value of Dubai’s the company is now present in more to energy, much starts to fail. The great twice the previous year’s rate. energy portfolio. Frequent edits to Middle be the largest single-site solar park in the Mohammed bin Rashid Al than 20 countries – approximately 10% energy transition has thrown up many Eastern NOCs’ mission statements over world that uses the independent power Maktoum Solar Park; the of the world’s nations. Similar patterns question marks that demand answers the last five years have resulted in a producer (IPP) model, producing 1,000 largest single-site solar park are noted in most major NOCs, including with clear parameters; how to manage 10% unique achievement: the world’s biggest MW by 2020 and 5,000 MW by 2030. The in the world that uses the those in the Middle East. R&D for innovative technologies and Petronas’ internationalization oil producing region is also a pioneer in AED50 billion ($13.6 billion) project will independent power producer With 85-90% of global proven policies, bolstering talent creation started in 1991 with upstream renewable energy. achieve a reduction of approximately 6.5 (IPP) model. The project is resources and around 70% of total and how best to divide investments investments in Vietnam. The In the UAE alone, the Vision 2021 million tons of carbon emissions annually. expected to produce 1,000 production, NOCs’ expansion has into the two ‘camps’ of fossil fuel and company is now present in and National Agenda expects the OPEC Both goals are just the tip of the MW by 2020 and 5,000 affected the entire industry and resulted renewables, for example. NOCs must more than 20 countries – member to generate 27% of its energy iceberg, with NOCs implementing lower- MW by 2030 and reduce in a highly concentrated resource base. use their influence as a beacon for those approximately 10% of the requirements from clean energy sources, carbon initiatives across their value 6.5 million tons of carbon The top five NOCs worldwide account mired in ambiguity to find their way. world’s nations. emissions annually.

14 15 CHAPTER 2 Efficiency: Challenging Goal Gains Momentum?

Saudi Arabia “Although Saudi Arabia will aim at further attracting energy intensive industries, more efficient uses in the residential sector The Kingdom’s Energy Transition Finally Starting to Shape Up could limit the demand growth, especially at peak hours.”

Database showing the commissioning of additional switching potential away from a number of large units in sight. Almost crude estimated at 100-200 million b/s in 20 GW of new plants are set to come 2020 due to the upcoming IMO regulations. online within the next 2-3 years, or nearly a The recent commissioning of the 1.2 BY BRUNO BRUNETTI quarter of the country’s installed capacity. GW CCGT Waad Al-Shamal plant also Managing Director, Head of Global Power Strategy, Analytics, S&P A notable development in the generation marks an important step in Saudi Arabia’s Global Platts; former Managing Director, Global Power, PIRA Energy mix is that with the new projects coming wider energy strategy. This plant offers an Group; former Research Associate at Caminus and CERA (IHS Markit) online, the role of high sulfur fuel oil (HSFO) interesting example of integration of CSP and gas are set to get stronger in the (Concentrated Solar Power) with a thermal generation mix at the expense of crude. The plant, as a CSP unit complements the gas Saudi Arabia’s quest to diversify its power according to data from the electricity the changes in behavior were nearly increased ability to burn HSFO is occurring turbine that generates electricity. Similarly, 5.8% generation mix away from traditional regulator Electricity & Cogeneration immediate. Electricity demand growth at a critical time in the oil industry. The the 500 megawatt (MW) Duba Green Saudi Arabia’s power demand sources – most notably crude – is now Regulatory Authority (ECRA). slowed to 0.7% year-on-year in 2016 (down International Maritime Organization’s Power plant in Saudi Arabia is another has grown by 5.8% per more clearly shaping up. Significant power Peak demand has already reached from 4.8% growth in 2015), with peak (IMO) 0.5% cap on sulfur in shipping example of an Integrated Solar Combined annum over the past decade, demand growth (and historically low 62.26 gigawatts (GW), against an average demand down by 2.3% year-on-year – the fuel comes into effect on the 1 January Cycle (ISCC) in the Western region. During according to the Electricity domestic energy prices) has made this power dispatch on the order of 34 GW. This first decline in more than 20 years. 2020. S&P Global Platts Analytics’ study, the daylight hours, solar complements & Cogeneration Regulatory task quite challenging. But efficiency gains requires large spare capacities to meet the More specifically, residential demand Making Waves, shows there is insufficient gas, with the co-location of the two Authority (ECRA). in power usage will be emerging in a less peak and average utilization of capacities shrunk by 0.8 terawatt hours (TWh), or by desulfurization capacity worldwide to fully technologies offering benefits and costs subsidized energy price environment. is fairly low. As a form of comparison, peak 0.6%, while the number of total customers transform the volumes of HSFO produced reduction in the form of simultaneously A high penetration of electricity in the demand in Europe is only 40% higher than increased by 6%. Although Saudi Arabia by the world’s refineries into low-sulfur fuel. reducing fossil fuel usage and integration 2020 residential and commercial sector (the average demand. Poor utilization of thermal will aim at further attracting energy Saudi Arabia’s strategy to move away from costs of solar power. As the Kingdom starts The increased ability to burn residential sector alone accounts for more assets has become a challenge for utilities intensive industries as part of its reforming crude in the power sector could not have ramping up its renewable deployment high sulfur fuel oil (HSFO) than 48% of the total, with another 30% in Europe as well (or even in the US). But agenda, more efficient uses in the happened at a better time, as the world will program, the bids for the first utility-scale is occurring just in time; from commercial and government sectors) unlike Saudi Arabia, power demand in residential sector could limit the demand have an increasing surplus of HSFO. We projects (the 300 MW Skaka PV plant the International Maritime led to steep growth for total power demand those countries has already stabilized, or is growth, especially at peak hours. expect Saudi Arabia’s HSFO burn in the and the 400 MW Dumat Al Jandal wind) Organization’s (IMO) 0.5% cap over the past decade (5.8% per annum). even shrinking. Beyond demand, the capacity mix is power sector to increase by roughly 200 have surprised for their low-price levels, on sulfur on bunker fuel, down Peak demand also grew by almost 7% Saudi Arabia’s government reform now clearly evolving toward more efficient million barrels a day (b/d) through 2020 as confirming the Kingdom’s vast potential in from 3.5%, comes into effect on average over the same time period, of energy prices started in 2015 and units, with S&P Global World Power Plant a result of the new facilities installed, with renewables. on the 1 January 2020.

16 17 CHAPTER 2 Efficiency: Challenging Goal Gains Momentum? Contents

Falling Cost of Solar Harnessing Opportunities

BY ADNAN Z AMIN Director-General Emeritus; Former First Director-General of the International Renewable Energy Agency (IRENA); former Head of the UN System Chief Executives Board for Coordination (CEB); former Director of the United Nations Environment Programme’s (UNEP) New York Office; former Special Representative of the UNEP Executive Director; former Trustee and Member of the Board of Directors of the Cambridge, UK-based World Conservation Monitoring Centre 81% The drop in solar photovoltaic (PV) module prices since 2009. Solar PV costs are The global energy system is witnessing few regions is this opportunity greater than expected to halve again by rapid and disruptive change. This in the Middle East. With some of the lowest 2020, bringing average costs transformation driven by renewables is prices for solar achieved through auctions significantly below traditional fundamentally reshaping the way we in the region, countries are seizing it. energy. generate, consume and distribute energy. The UAE has been at the forefront of It is also transitioning us to a low-carbon these developments. In Abu Dhabi, a energy system, which brings new 350-megawatt (MW) solar PV auction 700 MW economic opportunities. Solar energy is at in 2016 resulted in a record low price of A concentrated solar plant the heart of this transformation, and falling USD2.4 cents per kilowatt-hour (kWh), in Dubai, which will be the costs are underpinning its remarkable while in 2017 Dubai awarded a bid to build world’s largest on completion. growth. a 700 MW CSP plant which will generate Such projects will help the Solar photovoltaic (PV) module prices electricity with storage for USD7 cents per UAE achieve its energy have declined by more than 81% since kWh. Once complete, the Dubai plant will strategy to cut carbon dioxide 2009 and the average cost of power from be the world’s largest. These projects will emissions by 70% and utility-scale PV modules has fallen by 73% help the UAE achieve its energy strategy to generate 44% of its power since 2010, bringing it firmly within the cut carbon dioxide emissions by 70% and from renewable energy by fossil fuel power generation cost range. generate 44% of its power from renewable 2050. Furthermore, solar PV costs are expected energy by 2050. to halve again by 2020, bringing average In 2017, Saudi Arabia unveiled ambitious costs significantly below traditional energy. plans to scale up renewables as part of its 1,650 MW This has fueled unparalleled expansion economic diversification strategy under its The combined electricity in solar PV capacity from less than one Vision 2030, setting a 9.5 GW of renewable capacity of the 32 power gigawatt (GW) in 2000 to almost 300 GW energy capacity target by 2030. Also in late plants that will comprise the worldwide in 2017. Last year, installed 2017, the Kingdom received record low Benban Solar Park in Egypt. capacity grew by 32%; China alone bids for its first utility scale solar project. added 54 GW of solar PV. Beyond PV, Morocco is close to the completion concentrated solar power (CSP) holds of the second phase of the Noor Solar of Aswan, will soon be the biggest solar tremendous promise and its costs are Complex in Ouarzazate, which will result installation in the world, housing 32 power witnessing similar declines. Our analysis in a total generation capacity of 510 MW plants. By mid-2019, once fully operational, shows CSP projects commissioned of CSP, offering up to seven hours of the plants will have a combined electricity between 2020 and 2022 will have dropped storage, in addition to 70 MW of solar PV. capacity of 1,650 MW. These examples within the fossil fuel power generation cost A third phase is scheduled to add further are representative of the region’s desire to range. generation capacity. The project supports seize the opportunities presented by solar These cost reductions present an Morocco’s ambition to generate more energy. As renewables continue to reshape opportunity to accelerate solar energy than half of its electricity from renewables both Middle Eastern economies and energy deployment in the pursuit of numerous by 2030, thus reducing its reliance on systems, further cost declines foreseen in objectives, from economic development expensive and volatile fossil fuel imports. solar power will only serve to accelerate and diversification to enhancing energy Similarly, in Egypt, the Benban Solar Park, energy transformation in this region and security and addressing climate change. In currently under construction near the city around the world.

18 19 CHAPTER 2 Efficiency: Challenging Goal Gains Momentum?

“The Middle East is well positioned to play a relevant role here on the global stage. The Paris Agreement: Why the But regional cooperation is essential in order to integrate all the options in new value chains, strengthen the knowledge base, develop and scale-up technologies and Middle East is a Key Stakeholder ultimately satisfy shifting consumers preferences.” 1st generation is high in the region, while ever lower cost levels, contributing to an The Paris Agreement is the it is often regarded as uneconomic and affordable and clean electricity supply in world’s most comprehensive BY MARIA VAN DER HOEVEN environmentally unattractive elsewhere. the region itself. and truly integrated Senior Fellow at Clingendael International Energy Programme (CIEP); Ongoing research on the relevance But for clean energy exports to agreement to mitigate the Former Executive Director, International Energy Agency (IEA); Former of ‘relative prices’ of different energy materialize, production must be negative impact of climate Minister of Education, Culture and Science, Netherlands; Former carriers in the economy for the energy connected to distant markets and long- change. The ambitious Minister of Economic Affairs and Energy, Netherlands mix and how such prices come about distance electricity transport remains agreement established in the suggests that this can be addressed. challenging. Fortunately, while transport French capital in December Energy efficiency is not a goal in itself. of hydrocarbons and CO2 overseas is 2015 marked a major step Rather, ‘carbon efficiency’ could also well-known territory across the globe, on from the Kyoto Protocol, Every Middle Eastern country has now the technological change that will result hydrogen, among others, as a clean prove to be a useful metric, particularly pilot projects for shipping hydrogen over signed in the Japanese city of signed the Paris Agreement, a cooperation from shifting energy policy preferences energy carrier may prove vital here. for countries that possess abundant fossil long distances are in the making. Further the same name in 1997. within the United Nations Framework worldwide. The Paris Agreement has given Energy use today generally results energy resources. If domestic energy development and adoption of renewable

Convention on Climate Change (UNFCCC). renewed impetus to the development in unabated CO2 emissions. Energy resources are harvested while the negative hydrogen technologies may turn out to be The Agreement starts in 2020 and tackles and adoption of clean energy production, efficiency improvements are therefore impacts are reduced, such resources can an essential enabler for future clean energy 184 issues such as dealing with greenhouse conversion, transport and storage widely regarded as essential measures continue to underpin the regional economy exports from the region. So far, 184 of the 197 Parties gas emissions mitigation, adaptation and technologies. This is relevant to the Middle to contain the carbon intensity of energy and wellbeing of people in coming years This is where renewable energy to the Convention supporting finance. In recent years, countries have East, for at least two reasons. When economies. For MENA, the World Bank and facilitate further modernization. For production, innovative hydrogen and the Paris Agreement have submitted their clean energy plans known energy importing regions move away estimates the potential for savings from carbon efficiency to improve sufficiently carbon chemistry and the closing of carbon ratified their commitments. as National Determined Contributions from the combustion of carbon-intensive energy efficiency at 21% of projected over time however, it is essential to close cycles could come together. The Middle (NDCs). fossil fuels, this could affect global fossil total primary energy supply by 2025. carbon cycles. For instance, through the East is well positioned to play a relevant Energy consumption patterns in fuel demand and could negatively impact Due to an abundance of energy adoption of carbon capture, utilization and role here on the global stage, but regional 21% the various Arab countries are about trade balances of exporting countries. At resources in the region, energy efficiency sequestration (CCUS) approaches. cooperation is essential in order to integrate The World Bank estimates to change, as consumption needs to the same time, such a shift can create has historically not been the policy Additionally, hydrogen as an emerging all the options in new value chains, to that the potential efficiency gradually become more environmentally- opportunities in the Middle East with priority that it has been in some of energy carrier, could prove to be vital. The strengthen the knowledge base, develop savings of projected total friendly. This is not only driven by the respect to exporting clean energy carriers the world’s energy importing regions, renewable energy producing potential in and scale-up technologies and ultimately primary energy supply for the policy choices formulated in the NDCs in efficient, innovative and perhaps such as Europe and Japan. Also, at a the Middle East is enormous. Impressive satisfy shifting consumers preferences in Middle East and North Africa of countries in the region, but also by unforeseen ways. The development of share of 30%, oil combustion for power renewable energy projects are realized at traditional and new markets. by 2025 could reach 21%.

20 21 CHAPTER 2 Efficiency: Challenging Goal Gains Momentum? Contents

140 $2trn $163bn The number of global Yearly investment needed in The cost of planned the UAE’s corporations that have signed new energy supply which will investment into renewables. up as RE100 companies grow by more than 25% up to By 2050, the country hopes targeting 100% renewables 2040, said the IEA. to have 44% of energy needs Clean Hydrogen dependency. Momentum is provided by renewables, 38% building; Apple, Microsoft, by gas, 12% from cleaner Facebook, Google, General fossil fuels and 6% from Next Step for the Middle East? Motors, BMW, Nike and nuclear energy. Walmart are just a few of the major companies involved.

BY NOBUO TANAKA President, The Sasakawa Peace Foundation; Former Executive Director of the International Energy Agency (IEA)

The International Energy Agency (IEA) does “The IEA has always underestimated the increase of not expect peak oil demand to happen by 2040. While electric vehicles (EV) and more renewable energy sources, so a zero-carbon society efficient passenger cars will reduce oil consumption for light duty vehicles (LDV), may come much earlier than expected.” the increased oil requirement of aviation, ships and trucks will be greater than the LDV reduction. Oil use in petrochemical products will also increase. This is good governance aspects of the companies SPERA Hydrogen process is as follows. news for the Middle East, but there is also they put their money into. Methylcyclohexane (MCH), which is some bad news. The European Union (EU) is the first produced from toluene and hydrogen, The IEA has always underestimated institution that officially introduced the can be safely and economically stored the increase of renewable energy (RE) recommendations of the Task Force on and transported by conventional oil tanks sources, so a zero-carbon society may Climate-related Financial Disclosures and oil tankers. Both toluene and MCH come much earlier than expected. There (TCFD). Many European corporations are maintained in a liquid state at ambient are now 140 global corporations that are divesting coal-related activities. The temperatures and pressures. If hydrogen have signed up as RE100 companies IEA Sustainable Development Scenario is produced through CCS – as with EOR targeting 100% renewables dependency. said that if governments are ambitious – it is carbon-free. Clean hydrogen is This group is expanding; Apple, enough to achieve net zero emissions by added to toluene to make MCH, which Microsoft, Facebook, Google, General 2060, a peak demand of coal happens can then be transported by a regular Motors, BMW, Nike and Walmart are right away and it must happen by the tanker to the exporting country. When the involved, to name just a few. It follows early 2020s for oil. Natural gas will MCH reaches its destination, it can be de- that these global leaders will insist that continue to be used to replace coal, but hydrogenated with a special catalyst and firms within their supply chain do the once coal is gone, gas will need to ‘de- the clean hydrogen used for hydrogen same. Likewise, many investors are now carbon’ itself. The way forward to avoid fuel cell vehicles or power generation. focusing on the environmental, social and fossil fuels becoming stranded assets Toluene can then be transported back is carbon capture and storage (CCS) to the Middle East. There are different through enhanced oil recovery (EOR) and technologies for hydrogen storage and “The time has come hydrogen technologies. transportation, such as liquified hydrogen for the Middle East to Chiyoda Corporation is a leading or liquid ammonia. Solar photovoltaics engineering company in Japan which (PV), which are abundant in the Middle consider clean innovation is developing ‘SPERA Hydrogen’ East, can also produce clean hydrogen – a business model for storing and through electrolysis. The time has come by hydrogen.” transporting hydrogen by utilizing the for the Middle East to consider clean organic chemical hydride method. The innovation by hydrogen.

22 23 CHAPTER 3 Efficiency: Challenging Goal Gains Momentum?

Technology & the Transition of Energy: What’s Next?

BY LORD ADAIR TURNER Chair of Energy Transition Commission; member of the House of Lords; Senior Fellow at the Centre for Financial Studies; former Chair Financial Services Security, UK; former Chair UK Climate Change Committee; former Director General of the Confederation of British Industry; former Vice-Chairman of Merrill Lynch Europe; and author of several books in the field of Economics and Finance

The impact of new technology on energy pressure on those still invested in thermal is going to be bigger than what most coal to get out. Fossil fuel companies people currently realize. Over the next 10 will be scrutinized on how robust their to 15 years, we are heading towards a strategies are, not just for the cycle over low-cost energy world both for fossil fuels the next year or two, but for the longer and for renewables, with the two linked term. For example, we already see together. Renewables will start to compete companies like Total and Shell making with oil in electric vehicle (EV) markets. strong statements about how the balance Simultaneously, the power of technology is of their business between fossil fuels and bringing down the production cost of fossil renewables will shift over time. Thermal fuels. Accordingly, the attitude of pension coal use is incompatible with the Paris funds and other institutional investors in Agreement commitments; the developed fossil fuel companies is changing. world must get out of burning coal in We are going to see investors tightening power stations as quickly as possible. their focus on the strategies that oil and The Energy Transition Commission gas companies are pursuing, with a lot of (ETC) is currently working with the Indian

24 25 CHAPTER 3 Efficiency: Challenging Goal Gains Momentum?

Government on how rapidly they can move “Fossil fuel companies trucking and aviation. But the impact of prices collapse, there is also huge surprised the World Bank, the International beyond coal. We believe that beyond the the new technologies will gather pace over potential for green hydrogen, produced Monetary Fund (IMF) and all the major 40 gigawatts (GW) of coal power stations will be scrutinized time. by electrolysis, to play a major role in forecasters. Before 2016, rapid Chinese 40 GW already under construction there, there Solar is a huge natural resource in the the decarbonization of fertilizer and steel growth was underpinned by rising bank The volume of coal power will probably be no more coal fired power on how robust their Middle East. In countries like Saudi Arabia production, long distance trucking and and non-bank credit provision, but with the stations already under stations built thereafter. strategies are, not just for and others, such as Mexico and Chile, we shipping. inevitable consequence that leverage was construction in India; likely the As chair of the UK’s Climate Change have seen solar power winning auctions at In the short-term, oil prices look to be rising to potentially unsustainable levels. last run. Committee, in charge of our de- the cycle over the next below 2 cents per kilowatt hour (kWh). Coal supported at $60/bl or maybe slightly Since 2016, policy has switched to provide carbonization program in the UK, if year or two, but for the just can’t compete with that, even before above due to the balance of current financial stimulus with the fiscal deficit as a you’d asked me back in 2008 how we you take into account its environmental supply and demand and the reasonable percentage GDP rising from close to 0% in 90% should take the carbon out of electricity longer term.” impact. And where the sun doesn’t shine, effectiveness of current OPEC and non- 2014 to almost 4% today. The drop in the cost of solar production, I would have said we need to we can still build power systems based OPEC producers’ supply cuts. But given That has given an enormous stimulus since 2008. Lithium ion use a combination of three technologies. primarily on renewables with short-term the sheer capacity of US shale producers to the global economy and is a key reason battery costs have fallen by Those are: renewables, fossil fuels with on the oil price may be negligible, but flexibility provided by batteries, and gas and their decreasing production costs why oil and other commodity prices 80% and onshore wind by carbon capture and storage (CCS), and by 2030 they will be very significant. turbines providing seasonal backup but – many of which are below $50/bl – the recovered in 2017. The key question now 75%. some nuclear. But the facts have changed. In particular, EVs are going to happen running sufficiently few hours that the moment oil goes above $70/bl, you are is whether the Chinese authorities can put Since 2008, the cost of solar has dropped far faster than people realize. With the average carbon intensity of electricity is going to see more supply coming on in place the policies to support continued by 90%, lithium ion batteries by 80% and declining price of lithium ion batteries, it still very low. ETC analysis shows that it stream and prices coming back down. strong growth, at say 6% per annum, over 2025 onshore wind by 75%. I did not anticipate might be cheaper to buy an EV by 2025 will be feasible within 15 years, and far The other main factor to impact oil the next 10 years. My judgment is that they The year it might be cheaper those changes, but they create a new than an internal combustion engine, as earlier in some favored regions, to build prices short-term is of course what probably can, but there could certainly be to buy an electric vehicle reality to which many people have not yet well as being much cheaper to run it. power systems based almost entirely on happens in China and with Chinese bumps along the road. Plus, any significant than an internal combustion woken up. Oil will retain its other uses such as for renewables at total cost well below coal- demand. The buoyancy of the Chinese slowdown of Chinese growth, even if only engine, as well as being much The short-term impact of these changes petrochemicals and heavy transport, like based systems. As renewable electricity economy in the last two years has temporary, will lead to lower oil prices. cheaper to run it.

26 27 CHAPTER 3 Technologies: New Tools Means New Strategies? Contents

Electrifying the 21st Century Wiring a New Norm

BY JOE ANIS President & CEO GE Gas Power Systems, GE Power MENA & South Asia

136, That’s the number of years since inventor Thomas Edison unveiled a world- “Laudable progress is already being made. Last changing energy innovation – the first August, Masdar signed an Engineering, Procurement thermal power plant. Now, the world is in the midst of another evolution that will and Construction (EPC) contract to build the Dhofar affordably meet low-carbon targets and the rapidly rising demand of 26% between Wind Power Project – the first large-scale wind farm in 2016 and 2026. Oman and the GCC.” The magnitude and location of electricity demand growth aren’t the only things transforming the 21st century power landscape. At the highest level, change is being driven by three powerful trends: and the GCC. Saudi Electricity Company policies in the ever-growing treasure the emergence of digital technologies, the (SEC) has started operating a combined trove of energy efficiency. For example, arrival of increasingly affordable diversified cycle power plant in Waad al-Shamal the number of electric vehicles (EV) on power technologies and decarbonization Mining City, heralding the first ever gas roads worldwide rose to a record high of through the maturation of renewable turbine made in Saudi Arabia. The project 3.1 million in 2017, with 125 million EVs energy and energy efficiency. Traditional was rolled out of GE’s manufacturing by 2030, according to the International and emerging, physical and digital, large facility in Dammam with more than Energy Agency (IEA) in January. But and small – all are converging to create a 140 local suppliers and a 70% local heightening ambitions and strengthening new 21st century power network. Saudi workforce. The latter is especially policy as per the EV30@30 Scenario could The benefits are almost immeasurable. valuable to supporting the national goal of see 220 million EVs on the road within the Essentially, as more sustainable, intelligent Saudization. And in the UAE, the Hassyan same period – a staggering 83% more. and customizable energy solutions project in Dubai will be a 2400 megawatt GE technology already helps create one- become available, so will more low carbon (MW) capacity coal-based power plant third of the world’s electricity, equipping and national growth opportunities. In the when construction wraps up in 2023 – 90% of power transmission utilities Middle East, both are critical to supporting the first such power plant in the region. worldwide and serving more than 180 the Paris Agreement and the economic The $3.4 billion project will play a vital countries – roughly 90% of the globe’s diversification detailed in National Visions, role in supporting the country’s Clean nations. With such responsibility, we respectively. But there’s another key driver: Energy Strategy 2050, which aims to must not simply keep pace with demand improving energy security and therefore diversify sources of power generation to but rather anticipate it, to ensure energy quality of life. incorporate 44% clean energy, 38% gas, security. Other players, big and small, Laudable progress is already being 12% coal and 6% nuclear across the UAE must adapt the same proactive mindset. made. Last August, Abu Dhabi’s by 2050. Succeeding in this new, networked energy renewable energy company, Masdar, But ensuring long-term energy security landscape requires the nimbleness of a signed an Engineering, Procurement and means much more progress is required in start-up and the wisdom of experience Construction (EPC) contract to build the the Middle East and beyond. More ‘out of feeding into each other. There are no limits Dhofar Wind Power Project, marking the box’ thinking will increase the number to innovation and there is plenty of room the first large-scale wind farm in Oman of innovative technologies and progressive for everyone. We’re just getting started.

28 29 CHAPTER 3 Technologies: New Tools Means New Strategies?

“A digital trend that has tremendous benefits in enabling Digital Technology Adoption today’s energy transition? Additive manufacturing, also known Unlocking Efficiencies in Industry as 3D printing. Investment is on the rise on research and development in this area.” 12%-22% The potential savings of energy consumed through reduced maintenance and improved indicate the optimization variables and the use of IIOT, estimates safety, leveraging aspects like acoustic can achieve energy-cost reductions the American Council for an BY MORGAN ELDRED monitoring of steam traps, condition of 3%-8%. In the latter application, Energy-Efficient Economy Managing Partner, Digital Energy; former Research Director, monitoring of pumps and heat exchanger set points are sent directly to each (ACEEE). Gartner; former Head IS Strategy & Risks, Maersk Oil; former Capital performance – all wirelessly connected. optimizable variable and can achieve Projection Manager, Shell Other areas include supervisory control, energy-cost reductions of 6%-15%. data acquisition and analytics systems, Another digital trend that has 50% providing cost-effective installation and tremendous benefits in enabling The cost reduction that Energy transition within the Middle East processing energy and for transportation BlackHills Farms in New Zealand, which paybacks of less than six months. energy transition is that of additive BlackHills Farms in New will be accelerated through three key of structural materials within the supply has managed a 50% reduction in cost Case studies have indicated the manufacturing, also known as 3D Zealand achieved in just over digital technology trends: the Industrial chain. in a little over a year as a result of lower difference in operating costs associated printing. Investments for research and a year. Internet of Things (IIOT), energy efficient The American Council for an Energy- energy and water consumption. with these implementations at about development (R&D) are on the rise in digital architectures and 3D printing. Efficient Economy (ACEEE) has estimated The IIOT is not one technology; it is $12.3 million per year for a typical this area. For example, Sandia National Recent advancements in the IIOT, potential savings of 12%-22% of all a collection of technologies through 250,000 barrel a day (b/d) facility. Laboratories (a R&D center federally 30% although primarily created outside of the energy consumed through the use of the the integration of sensors, cyber Assuming about 60% of energy funded by the US government) is The improvement in energy energy industry, have been adopted by IIOT. For example, Germany’s Daimler physical systems and smart algorithms. operations are not operating as well as studying 3D printing for the production of efficiency Germany’s Daimler energy firms into their own operations, reported a 30% improvement in energy Energy companies require new they could, the overall financial impact wind turbine blades. 3D printing has the has reported for its robot leading to breakthroughs in efficiencies. efficiency for its robot systems, while energy efficient digital architectures could run into billions of dollars annually. ability to produce materials used within systems. Canadian Forest The main focus has been on reducing the Canadian Forest Products reported a to leverage this integration. The IIOT Within the IIOT, new software tools the design of energy facilities that can Products also reported a energy that facilities require for heating, 15% reduction in energy consumption within the energy sector has primarily focused on energy efficiency will allow significantly reduce the carbon footprint 15% reduction in energy cooling, ventilation and lighting. Other by applying real-time alerts that indicate focused on increasing the reliability two ways for energy facility management on the design, implementation and consumption by applying real- uses have been to measure and optimize usage outside of anticipated norms. The and integrity of physical assets. Typical – open loop and closed loop. In the supply chain overhead used within the time alerts that indicate usage the energy used for extraction and largest reference case however is how implementation to date has focused on former, optimal set points manually cost of construction. outside of anticipated norms.

30 31 CHAPTER 4 Finance: Finding the Right Balance? Contents

78% The increase in total greenhouse gas emissions from 1970 to 2010 from industrial processes and fossil fuels, such as coal, oil and natural gas, detailed the Intergovernmental Panel on Energy Transition Climate Change (IPCC). Aspiration and Reality 17% The growth rate of renewable power worldwide in 2017. This is higher than the 10-year average and the largest increment on record, according to BP.

BY DR. CAROLE NAKHLE CEO of Crystol Energy; Member of the Governing Board of the 80 GW Natural Resource Governance Institute; Visiting Lecturer at the The target of combined Blavatnik School of Government at Oxford University, the University renewables capacity across of Surrey, and Saint Joseph University (Beirut); Recipient of Honorary all countries in the region by Professional Recognition Award from the Tunisian Minister of 2030 based on countries’ Energy, Mines & Renewable Energy National Visions.

The topic of energy transition has caused “For the first time in history, the world is moving into an explosion of interest in recent years. 80 GW It is the concept of a greener future a more diversified energy landscape where no single The combined increase in through renewable forms of energy, renewables capacity across all such as biofuels, solar, wind, nuclear fuel is dominant.” countries in MENA by 2030, and hydropower. The Intergovernmental based on countries’ National Panel on Climate Change (IPCC) said time to fully develop. It can take several also delay the progress of green energy Visions. emissions from industrial processes and decades to get the right infrastructure in dominance. fossil fuels such as coal, oil and natural place, change behaviors, develop policies Finally, for some countries, the www.irena.org/mena gas were responsible for an estimated and regulations. Plus, the relative price energy transition, as per the current 78% increase in total greenhouse gas signal of different energy sources should understanding, may simply backfire. This emissions from 1970 to 2010. There be right in order to enable the switch is particularly the case for petroleum- are lofty ambitions within the energy from one energy source to another. dependent economies, including the transition towards renewables – and Third, a joint report by the International Gulf countries. Investments in alternative it comes with unique challenges and Energy Agency (IEA) and the International sources of energy still have a very long considerations. Renewable Energy Agency (IRENA) payback period and will continue to Firstly, there is an equally important in 2017 shows that the energy require strong government support for transition taking place which is often transition towards a greener future the foreseeable future. The problem overlooked. Traditionally, one fuel has is consistent with limiting the rise in here is that financial investment has dominated the world’s energy mix until global temperature to well below two to be funded by oil and gas revenues another fuel has taken over. Coal, for degrees Celsius. The report explores in petroleum-dependent economies example, replaced traditional biofuels various low carbon technologies with a dominant public sector. Even and fuelled the first Industrial Revolution. that do not necessarily exclude fossil when money does come from private More than half a century later, oil fuels. In this respect, the effort that investment, it is typically triggered by became king. Since the first oil shock oil and gas companies are making in explicit or implicit government backing. in the early 1970s, its dominance has reducing the environmental impact of The result is a vicious cycle – to sustain been gradually eroded as the share of their activities and products – all while a clean energy transition requires more, natural gas has expanded. More recently, remaining competitive – should not not less, hydrocarbon investment and renewable energy has made its presence be underestimated. Manufacturers of production for as long as clean energy more notable. The main shift now is conventional internal combustion engines is not cost competitive. To facilitate the that over the next few decades, the are placing equal emphasis on making energy transition in such economies, world is moving into a more diversified their cars more environmentally friendly. economic diversification should therefore energy landscape where no single fuel is Advances in such areas will surely be the primary goal of governments dominant for the first time in history. improve on current carbon emission before committing to ambitious clean Secondly, energy transitions take levels. But at the same time, they will energy plans.

32 33 CHAPTER 4 Finance: Finding the Right Balance?

Underpinning ‘Solar Arabia’ with “The concept of a ‘Solar Arabia’ bankrolled by petrodollars is gaining currency. The theme first promoted by policymakers in Saudi Arabia has been adopted in earnest Petrodollars by the government of the UAE.”

700 megawatts (MW). It claims the plant In March 2018, it inked a Memorandum BY GAURAV SHARMA will deliver electricity 24 hours a day at of Understanding (MoU) with Japan’s Independent Oil Analyst & Editor; Columnist – Commodities, Oil & a levelized tariff of USD7.3 cents per SoftBank to develop the grand project Gas and Investing; former Business Editor, IB Times UK Newsweek kilowatt-hour (kWh), which can “compete that is a hundred times larger than Media Group; former Oil Markets Analyst & Desk Editor, Sharecast; with fossil fuel generated power without anything being planned anywhere in the former Oil & Gas Analyst/Features Writer, IJ Global subsidies.” world. In fact, going by Bloomberg New It demonstrates policymakers’ willpower Energy Finance’s (BNEF) data, the project as well as international and regional would be bigger than the entire solar 700 MW The oil price climate is relatively benign knowing that demand for oil will continue GCC. A cursory look around Dubai and collaboration, with both China’s Silk power generation capacity of France. The aimed capacity of the at the moment for Gulf crude producers. to grow over the coming decades. Studies Abu Dhabi would reveal both Emirates Road Fund and Saudi Arabia’s ACWA SoftBank’s Vision Fund will invest $1 world’s largest single-site The days of three figure oil prices may by the International Energy Agency (IEA) increasingly peppered with solar panels, Power Barka being stakeholders in the billion in phase I of the project with not solar thermal plant to be built not return in the immediate future, but support this claim with Executive Director arrays and renewable energy projects in project. Yet, the poster project does little to much concrete information on where in the UAE. Lead sponsor oil benchmarks Brent and West Texas Dr Fatih Birol opining that even if one in a matter of years after the UAE ditched demonstrate speed of execution if 2020 is the rest of the mammoth investment will DEWA claims the plant will Intermediate have oscillated in the $60-$80/ every two cars is electric, crude demand fuel subsidies during the oil price slump of deemed a target year for wholesale energy come from. Realistically, it cannot be deliver electricity 24 hours a bl range for most of 2018. The upper cap would keep growing. That’s because much 2015-2016. diversification. More so, if the regional bankrolled by Saudi petrodollars alone. day at a levelized tariff of USD of the range marks the highest prices on of the demand is driven by aviation and The UAE is also in the process of building leader UAE is used as a benchmark with its Furthermore, it would require Riyadh to 7.3 cents per kWh. record since the fourth quarter of 2014. For petrochemicals, not by automobiles. the world’s largest single-site solar thermal commendable initiatives being miles ahead completely upgrade its power grid to many powerbrokers in the GCC with low The concept of ‘Solar Arabia’ bankrolled plant, which will combine a central tower of what’s afoot elsewhere in the GCC. handle the incremental wattage. That is carbon and regional energy diversification by petrodollars is gaining currency. The and parabolic trough technology to harvest Of course, few can dwarf Saudi Arabia’s not to suggest that it cannot be done. ½ targets, nothing could be better. theme first promoted by policymakers in energy from the sun, store it in molten salt grand plans for 7.2 gigawatts (GW) of solar However, healthy skepticism is needed Even if one in every two cars While an inexorable march to a low Saudi Arabia has actually been adopted and produce steam to generate power. power by 2019, and a whopping 200 GW until the first gigawatts fire-up the Saudi is electric, the IEA believes carbon economy is visible in the Middle in earnest by the government of UAE and The lead sponsor – Dubai Electricity & by 2030, with a project price tag of $200 grid before 2020, and by extension much that crude demand would East, policymakers have the comfort of is the subject of much navel gazing in the Water Authority (DEWA) – is aiming for billion. of the GCC. keep growing.

34 35 CHAPTER 4 Finance: Finding the Right Balance?

Lowest-Cost Oil Producers Manage Resources Like Any Other Commodity

BY SIR MARK MOODY-STUART Chairman of the Global Compact Foundation; Chairman of the Innovative Vector Control Consortium (IVCC); Member of Board of Directors of Saudi Aramco Former Vice Chairman of the UN Global Compact; Former Chairman & Managing Director of Royal Dutch Shell; Former non-Executive Chairman of Anglo American plc

For normal commodities like iron ore or copper, the lowest-cost producers “Instead of comfortably sharing a reliably growing pie, command the largest market share. Oil all producers will have to compete for a finite market.” has not behaved in this way since the early days of OPEC in the 1960s because the lowest cost producers restrained their In the short term, the picture is is the existence of a tried and tested production, keeping the price of oil well complicated by the very large number of roadmap. above the marginal cost of supply. This higher cost non-OPEC projects that were First, there must be a willingness to enabled cycles of higher cost non-OPEC cancelled in the light of the 2014-2015 oil invest in new capacity that may not be developments, successively in the UK price downturn. immediately required, or that is brought North Sea, Alaska North Slope, deep- The downturn and the energy transition on stream in a phased way. Saudi Arabia water offshore and most recently shale oil have also had a significant impact in the has long adopted this policy in the production. thinking of the private sector. Despite the interests of market stabilization. Second, With continued growth of demand, recovery in price, companies are now there must be a clear signalling of the low-cost Middle East producers have increasingly only prepared to sanction capacity to make such investments in 70% generally been able to satisfy their projects with break-even prices at levels very low-cost production environments, The percentage of global domestic social and development income well below $50. As we have seen in the sending a clear warning to higher cost energy investments that requirements without growing market past this caution may be short lived, but it producers. Plus, it communicates a will be government-driven, share. Time and again, the bulk of volume provides an opportunity for truly low-cost carefully expressed desire to maintain meaning energy decisions will growth has been taken up by non-OPEC producers to invest to increase capacity. prices and production discipline. be primarily government-led, producers. The great energy transition So, what is holding them back? There This moderate approach should according to the IEA’s World that is now underway may be about to are two factors. be coupled with a more aggressive Energy Outlook 2018. change this approach. First, low-cost producing countries willingness to utilize spare capacity Different analysts’ estimates on when face increasing demands on revenues, whenever necessary to prevent a sudden ‘peak demand’ for oil will occur vary not only to meet the investment needed increase in prices, linked to a cautiously $11bn by several decades. But there is some to transform their economies, but also upward movement of market share. Investments in renewables agreement that there is likely to be a to meet demands for social transfers to Production brought on line should only across the Arab region in period of flat or little demand growth for satisfy the understandable expectations be closed again in response to a price 2016, compared to $1.2 billion oil before any decline. Thus, instead of of the population. Second, OPEC’s dip. While complex in the context of an in 2008 – a nine-fold increase comfortably sharing a reliably growing low-cost producers are understandably organization like OPEC and the need for in just eight years. pie, all producers will have to compete concerned that signalling a willingness cohesion, such an approach has been for a finite market. Of course, even to invest to increase capacity and thus practised for many years with some when oil demand is flat, significant new potentially market share will have a success by major commodity producers, 13% development will still be needed to offset negative effect on oil prices and so have a admittedly with occasional price dips Percentage of EVs that the the decline of older fields. However, it net negative effect. caused by misjudging the situation. World Energy Council said does mean that in the longer term, all This is a familiar dilemma for low-cost I commend this approach to all truly will be on the road in 2040, producers will compete for market share producers of other commodities. Hence, low-cost oil producers. They have carried compared to the current 1%. of fixed or reducing demand. the good news for low-cost oil producers higher cost producers for too long.

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