Middle East & Gulf States Network
The Middle East and Gulf States region not only includes major energy producers but also some of the fastest-growing energy consuming countries.
Energy security from the producer perspective and sustainable energy policies are two key themes in this region. In particular, there is a growing awareness that national energy policies have to tackle issues of energy efficiency and ways of expanding the domestic energy mix in order to maximise hydrocarbons available for export.
The World Energy Council is increasingly seen in the region as a forum for shared experiences and best practice. Member committees in this important energy producing region actively support the World Energy Trilemma work programme and are increasingly active in the Council’s governance processes.
Energy in the Middle East
REGIONAL OVERVIEW & CONTEXT
Energy leaders in the MEGS region are preoccupied with the growth in digitalisation and technologies such as Data AI and IoT Blockchain, which are seen as potential solutions for enhanced energy efficiency and reliability, but also a higher risk of cyber threats. In the action priorities sphere, renewables deployment is expanding rapidly with the UAE leading the way. New projects are also due to come online in Saudi Arabia, Kuwait, Oman and Qatar. Still, renewables constitute a very small share of the overall energy mix in the region, where the economies are largely dependent on revenues from oil and gas.
CRITICAL UNCERTAINTIES & ACTION PRIORITIES
IoT/Blockchain is seen as an issue of greater uncertainty in a region where national grids tend to be centralised. This is likely to change as renewable technologies expand and systems are decentralised. Off-grid solutions offer possibilities of access in a country like Lebanon, which suffers from acute power shortages because of damage to the national grid. However, blockchain has not yet taken off.
Data AI also emerges as a Critical Uncertainty. While the technology is seen as a means of enhancing energy access and affordability, the risk of cyber-attacks is a concern. The use of drones to attack strategic targets in Saudi Arabia is an example of how technology can be seen as a threat. Growth in the Middle East’s digital market has exposed several countries to cybercrime.
Sustainable Cities also appear as a Critical Uncertainty. Across the region, there is a push towards renewable forms of energy and less dependence on fossil fuels for power generation. This has prompted action to design sustainable cities with a particular focus on heating and cooling systems, The effort uncertainties exist around technology maturity and infrastructure.
Renewable Energies remain an Action Priority and are seen having a greater impact. This is due to the stepped-up deployment of renewable technologies in several countries in the region. The UAE leads the way through deployment of large-scale solar PV and CSP at highly competitive prices. Saudi Arabia plans to generate 9.5GW of electricity from solar and wind by 2023. The seven members of the Gulf Cooperation Council (GCC) had 146GW of installed capacity in 2017 or which renewables accounted for less than 1%.
Energy Efficiency remains an Action Priority but moves closer to the uncertainties section. Subsidised energy prices encourage higher consumption in a region where fossil fuels still dominate the energy mix. Saudi Arabia and the UAE have introduced efficiency standards for electrical appliances but there are no standardised energy efficiency codes in several countries.
Digitalisation is perceived as an Action Priority. Several governments in the region are implementing subsidy reforms and investing more in modernising their energy systems. This is being achieved in some instances through collaboration between local utilities and technology firms. Saudi Arabia is set to become the largest smart grid market in the region and plans to deploy 8.3 million smart meters by 2027.
The Middle East grappled with a highly volatile oil market in 2018 as the region’s largest oil producers, led by Saudi Arabia, the UAE and Kuwait, were forced to cut production to prevent oil prices from sinking under the weight of excess supply as they did by the end of last year.
The surplus was caused largely by the relentless rise in US shale oil output, making the US the world’s largest producer of oil ahead of Middle Eastern kingpin Saudi Arabia. This changing dynamic has eroded the power that the Arab members of the Organization of the Petroleum Exporting Countries (OPEC) once wielded over the oil market and the price of a commodity that is the mainstay of their economies, which remain highly dependent on oil revenues.
That is why Commodity Prices have been identified in the 2018 issues survey as an action priority for the Middle Eastern states. The region’s oil importers such as Jordan, Lebanon and Israel, are affected positively by lower oil prices, while for governments in the oil producing nations, a lower oil price provides an opportunity to remove remaining subsidies on fossil fuels and electricity without the risk of a public backlash while boosting revenues and curbing domestic consumption.
The Gulf States, including Saudi Arabia and the UAE, began introducing subsidy reforms when oil prices collapsed in late 2014 and are in the process of lifting remaining subsidies that previously ate up a large chunk of state budgets and allowed for rampant energy consumption. Energy Subsidies remain an action priority and success in implementing planned price reforms are crucial as the Middle Eastern nations have begun to diversify their energy sources, particularly in power generation, where oil and gas are dominant.
Demand for electricity in the Middle East is growing in line with economic growth and an expanding industrial sector, coupled with high demand for energy for air conditioning during the summer and for desalination of water. According to the Arab Petroleum Investments Corporation (APICORP), electricity demand in the Arab world has increased 10-fold since 1980 due to population growth, industrialisation, urbanisation and subsidies. APICORP says that although growth rates have slowed because of slower economic growth and the partial removal of subsidies, the MENA region will need to add capacity at 7.4 percent annually until 2021, which corresponds to additions of more than 130GW and would require investments of approximately USD180 billion.
Governments continue to meet this challenge by expediting new projects and upgrading their infrastructure while also encouraging the private sector to join as partners and financiers. Most Arab countries are struggling to meet increasing electricity demand and thus experience frequent blackouts, as has been the case in Kuwait. Iraq is a special case due to the damage to its infrastructure after decades of war and internal conflict, a situation that has led to constant power shortages and social unrest. In Lebanon, subsidies on petroleum products and the state electricity utility are making it difficult for renewables to compete with fossil fuel powered generation despite the rapid decline in the cost of wind and solar technologies, which are being introduced gradually. Although the global trend is toward more decentralised power systems in much of the developed and developing world, in Lebanon, the government is trying to recentralise the power sector given the heavy reliance on higher cost private diesel generators.