CERAWeek: Middle East could prosper in energy transition

With the energy transition likely to reduce global demand for oil and natural gas, especially oil, conventional wisdom is that the producing nations of the Middle East will suffer as their primary source of revenue begins a gradual decline.

But two global politics experts, speaking at CERAWeek by IHS Markit on 1 March, said the impact will not be felt in the same way in every country, and that some Middle East nations could come through the next several decades quite strongly.

"It is possible to say [the energy transition] is going to be consequential for energy producers in the Middle East. But that's where the generalization ends," said Margaret O'Sullivan, chair of the North American Group of the Trilateral Commission and the director of the Geopolitics of Energy Project at Harvard University's Kennedy School.

"Producers in the Middle East are very heterogeneous, and their fates are equally differentiated," O'Sullivan continued. "It's a lot more complex than the conventional wisdom that a lot of people hold that the energy transition means pain, suffering, and collapse for [all] Middle East producers."

The first thing to keep in mind, said fellow panelist Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University, is that oil demand is not going to collapse overnight.

"In a world that is on track for the Paris goals, [the International Energy Agency] is telling us that the world is using 80 million barrels per day of oil in 2030 and 65 million in 2040. That's still a lot; somebody has to supply it," he said.

O'Sullivan and Bordoff are working on a paper that looks at how different countries in the Middle East are poised to ride that decline and take advantage of the rise of renewable power, as well as demand for clean hydrogen, ammonia, and methanol.

"What we see is … there will be some producers in the Middle East that are well positioned during this transition," O'Sullivan said. "We're still going to be using some oil, so low-cost producers, particularly ones that have decent [government] institutions that have the ability to try to diversify their economies and that have the ability to bring hydrogen and solar into their mixes they will fare quite well."

Saudi Arabia, United Arab Emirates, and Qatar, for example, have announced huge investments in carbon reduction, such as carbon capture to offset new production, or efforts to build green hydrogen industries.

But countries such as Iraq and Algeria "are going to find it a lot more difficult" to stay competitive, she said.

"Those with very abundant cheap, renewable energy might be dominant players in the global hydrogen, ammonia, or methanol trade — because we need that, too," Bordoff added.

In addition, the very idea of an energy superpower nation will change as electrification becomes the dominant supply of energy, Bordoff said. China has staked out a leading position as a manufacturer of solar panels and batteries, which is potentially challenging the traditional energy superpowers, though he said that making a simple assumption about China's dominance in that field is no more accurate than thinking all Middle East oil producers are the same.

Posted 02 March 2021 by Kevin Adler, Chief Editor