TEY_post_Neil-O’KEEFFE

After years of environmental reporting being the preserve of the HSE department, it is now firmly in the boardroom and on CEOs’ and CFOs’ minds.

Neil O’KEEFFE Partner and Middle East Energy, Resources and Sustainability Consulting Leader PwC

While there is considerable investment and activity in the renewable energy space, things are still relatively nascent for other technologies and decarbonisation levers.

James THOMAS Partner, Middle East, and Oil and Gas Leader STRATEGY&

Scaling up sustainability in the UAE

October 25, 2023

The past 10 years, and particularly the last two, have seen rapid and substantive movement from the UAE government towards establishing the country’s place in a more secure and sustainable energy future.

Even before its commitment to be net zero by 2050 made at COP27 in Egypt in 2022 – the earliest such commitment by any of the GCC countries – the UAE had made significant steps including the delivery of a 5.6-GW nuclear power project, major solar IPP programmes, blue/green hydrogen and ammonia projects, and plans for electrification of offshore oil and gas facilities to transition away from burning gas.
Abu Dhabi has also sought to consolidate and restructure how these investments are delivered through the development of new joint ventures between its national champions, such as ADNOC, Mubadala, ADQ, TAQA and Masdar. However, since COP27, and ahead of its hosting of COP28 in Dubai in November 2023, activity has further intensified with major announcements of the expansion of carbon capture and storage programmes; blue, green and pink hydrogen and ammonia programmes; and the continued expansion of solar with the largest single-site solar plant in Al Dhafra coming fully on line this year.
Moreover, the Emirates Water and Electricity Company has rolled out the Clean Energy Certificate programme to allow consumers to confidently certify that the power they consume was produced from renewable sources. They have also taken on oversight of much of the UAE’s power and water system to integrate and plan for the vastly changing energy mix. The approach is very much for the UAE government to lead and take an active stake in projects, but also to partner with international technology, construction and operating companies in their execution.
While there is considerable investment and activity in the renewable energy space, things are still relatively nascent for other technologies and decarbonisation levers. Green hydrogen and ammonia projects are still sub-commercial compared to grey ammonia. Carbon capture and storage projects are at the pilot stage and, without a clear carbon management regulatory framework in place, are unlikely to attract private capital.
Indeed, in the private sector, while there is active participation in the development and operation of major renewables projects, it’s fair to say that the pace of change is a little slower towards corporate decarbonisation and energy transition. As finances remain weakened by the Covid-19 pandemic and global supply chain challenges, and no firm regulatory forcing mechanism is yet in place, many companies are still in the planning and evaluation phase.

 

MAXIMISING ENERGY: The UAE is taking a strong position on both energy security and sustainability. While renewable and decarbonised sources of energy are scaling up, the conflict in Ukraine has highlighted the fragility of even hydrocarbons-powered energy systems in many parts of the world.
In parallel, as major international oil companies around the world have come under increasing shareholder pressure to decarbonise their portfolios in favour of renewable energy, coupled with a period of suppressed oil prices, global investment in upstream crude exploration and production has waned over the past five to eight years
As such, ADNOC – along with several of the other large Middle East NOCs – has defined ambitious growth strategies for its hydrocarbons portfolio, rightly arguing that the world will continue to need economical, safe, reliable and lower-carbon-intensity sources of hydrocarbon energy as we move to more sustainable ones.
As such, with its advantages of political stability, ease of doing business and established liveability, the UAE could see its oil sector experience something of a “gold rush” as suppliers and contractors shift their focus away from other flatlined or declining markets in favour of Middle Eastern growth prospects.
That would imply a hotting up of competition in the region among those suppliers and contractors, which would in turn suggest the potential for a burst of innovation as everyone tries to demonstrate their technological leadership in helping to extract greater volumes of hydrocarbons more safely and efficiently than their competitors.
It will likely also see a continued focus on localisation. ADNOC’s In-Country Value (ICV) programme has successfully encouraged suppliers to increasingly commit assets, talent and capital to the UAE and these requirements are likely to become more stringent as the GCC countries compete to become the regional centres for these companies. Of course, all of this has the potential to upset stability and relationships in the geopolitics of OPEC, OPEC+ and the world’s oil markets.

WAVES OF CHANGE: The energy market has been beginning a seismic shift for a few years now. The dual shock of the Covid-19 pandemic with the oversupply of oil to global markets accelerated a number of trends that have been slowly building momentum.
Firstly, we have witnessed a contraction of the oil and gas value pool. There has been an irreversible demand destruction due to behavioural changes in travel and mobility, coupled with a “survival of the fittest” supply elimination in hyper-competitive, commoditised environments.
Secondly, there has been an accelerating substitution – renewable energy is already at costs lower than forecasted for after the end of the decade, and installation is accelerating, technology barriers for new energy vectors such as hydrogen and batteries are rapidly falling away and the “build in back greener” mantra is driving policy making in major energy markets.
Thirdly, sustainability is (finally) impacting strategic choices. After years of environmental reporting being the preserve of the HSE department, it is now firmly in the boardroom and on CEOs’ and CFOs’ minds. Whether raising external capital or making investment decisions, they can’t not be looked at through an ESG lens. Decarbonisation technologies and solutions are also being proven in the real world – be that the scaling up of carbon capture and storage (CCS), battery technology now enabling renewables to power companies through the night, or the first cargoes of ammonia being shipped out of the region to Europe and Asia.
Lastly, digitisation is (finally) impacting ways of working. The energy industry has long been ahead of the curve on the application of technology and digital, but really only to be able to do the same work more efficiently. However, now the use of digital tools is starting to fundamentally disrupt ways of working – whether that be applying AI and machine learning for process control system optimisation, using digital twins for planning projects and training new users or leveraging drones for pipeline and construction project inspections.

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