Peak Oil Future – Not all is Doom and Gloom for Petrostates

Demand for renewable energy will be widespread and mainstream in the future as it gradually replaces fossil fuels.…

Demand for renewable energy will be widespread and mainstream in the future as it gradually replaces fossil fuels. For the Middle East, this seismic shift is neither the end nor the beginning of the end, but a new beginning replete with long-term opportunities.

Sometimes when reality sets in, all hell breaks loose. At the height of the Covid-19 health crisis in the US, future prices for Brent crude nosedived below $20 per barrel while WTI crude prices crashed more than 300% into the negative for the first time.

In the PwC Africa Oil & Gas Review 2020, it was reported that “Covid-19 did not only caused the biggest global oil demand slump in history, at nearly 40 times worse than the global financial crisis of 2007, but has in fact accelerated the global energy transition by as much as five years as the developed world uses the renewable energy transition to anchor economic stimulus packages and new economic diversification. With global oil demand now estimated to never again exceed 2019 demand levels, the global energy markets have truly reached a tipping point.”

Put simply, the peak oil demand is now behind us.

But even before things went south, the epiphany that an inevitable transition towards renewables was tacitly acknowledged and accepted by the oil-rich Gulf Arab states. Multiple ambitious projects and billions of dollars later, the region looks well on track to achieve the objectives of the Pan-Arab Renewable Energy Strategy.

Kudos to its climate, where the sun radiates its golden rays almost every day and the recurrent gushes of wind that drifts aimlessly from dusk onwards. The demand for cleaner fuel is poised to gain further traction due to the more affordable cost of power. At a paltry rate of $0.0135 per kWh, the Al Dhafra Solar PV Project in Abu Dhabi has achieved the lowest tariff for solar power globally.

In Jordan, the completion of the Shobak wind farm will benefit more than 30,000 households while simultaneously displacing 75,000 tonnes of carbon dioxide over 35 years. Commercial operations of Qatar’s 800MW Al Kharsaah solar power plant which will commence next year, is expected to cover 10% of the domestic peak electricity demand as well as signify Doha’s declaration of intent to host a carbon-neutral FIFA World Cup in 2022.

Equally noteworthy is Saudi Arabia’s construction of a futuristic mega-city known as Neom along the coast of the Red Sea. The $500 billion vision is powered by green hydrogen – a carbon free fuel that can be leveraged on to drive down greenhouse gas emissions and overcome the complication of intermittency that occasionally disrupts wind and solar power. Oman, Kuwait and Bahrain all have large projects in the pipeline too. In hindsight, renewables capacity in the Middle East is expected to expand by 18 times come 2025.

Cognizant of the promising future that beholds the renewable energy market in the Middle East, American companies have moved to strike while the proverbial iron is hot. Tesla marked its foray into the Mideast in 2017 through the opening of a dealership and service centre in Dubai, along with 28 charging stations throughout the UAE. More contemporarily, the acquisition of Noble Energy has paved the way for Chevron to harness natural gas in the Eastern Mediterranean.

Yet, the ever-existing risk of instability has given investors some fuel for second thoughts. Syria and Yemen remain war-ridden after the Arab Spring; the Saudis are waging a proxy battle against Qatar and Iran; the high-profile assassinations of general Qassem Soleimani and nuclear scientist Mohsen Fakhrizadeh – and retaliations by Tehran – remain cause célèbres that deter foreign investment.

The normalisation of ties between Israel and some of the Gulf nations might just be the turning point that the region needs to allay some of the apprehension. Energy transitions have always represented watershed historical moments with profound and far-reaching geopolitical ramifications. Following the signing of the Israel–UAE peace agreement, the duo further agreed to establish a tripartite partnership with the US in the energy sector.

If the present is any indication of the future, there is little that could go wrong for the renewables industry in the Near East. The pivotal backdrop against a successful transition from fossil fuels towards renewable resources transcends the parameters of sustainability – it will usher in regional peace, prosperity and security, a triumvirate that have proved elusive for too long.

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