How decarbonisation and energy transition can create value for MENA’s energy sector

Technology-based decarbonisation solutions are expected to be a crucial part of decarbonisation in the Middle East and North Africa (MENA) because of the region’s climate and natural resources. However, there are crucial differences between the Gulf Cooperation Council (GCC) and non-GCC countries in the MENA region that result in different priorities in the energy transition journey. Countries and companies have to adopt strategies that reflect their specific energy mix, natural resource availability and socio-economic context, as well as the development needs of their populations.

Two MENAs

When looking at emissions intensity (emissions per person) and the resources available to pursue decarbonisation (GDP per capita), the MENA region splits into two distinct sub-groups (see Figure 1).

• GCC countries have higher income per capita and higher emissions intensity per capita and account for 70% of MENA emissions.

• Non-GCC countries have lower income per capita and lower emissions per capita. They are responsible for the remaining 30% of the region’s emissions.

The subgroups also have different priorities for decarbonisation and energy transition. GCC countries, for example, need to reduce the emissions intensity in hard-to-abate sectors, such as power and oil and gas, while protecting the population’s high standards of living and employment. GCC countries will continue to play a major role in the global energy value chain and develop new energy products and derivates to diversify energy exports (e.g., clean hydrogen).

Meanwhile, non-GCC countries in MENA need to support decarbonisation without creating barriers to economic growth and poverty alleviation. They can leverage the region’s significant potential for renewable energy to capture an upside from the global energy transition.

These critical priorities translate into specific strategic actions for GCC and non-GCC MENA countries

Decarbonisation can create value in MENA

Energy and related sectors are the dominant sources of carbon emissions from the MENA region. The power and industrial sectors account for more than 50% of total emissions in MENA. Fugitive emissions from upstream oil and gas wells are responsible for more emissions than agriculture and buildings combined.

Energy transition and decarbonisation in these sectors are crucial to pursuing net zero. Decarbonisation also has an upside for GCC and non-GCC MENA countries: the opportunity to capture new value.

Opportunities in power generation

Power generation is the largest source of emissions in the region, accounting for one-third of total emissions. By gross, MENA’s power emissions are as high as the emissions for all of Saudi Arabia.

The power sector in MENA is characterised by:

High dependency on oil and gas

Currently oil and gas account for almost 95% of electricity generation in the region, with roughly 20% from oil-based power generation.

Lower-efficiency power-generation

Single-cycle gas power plants have relatively lower efficiency (30–35%) compared to combined-cycle plants (50%).

Low use of renewables

MENA has the highest solar potential globally as it receives 22% of global solar irradiance. However, solar deployment in the MENA constitutes only 5% of global capacity.

Therefore, the power sector should focus on three strategic priorities:

• Improving the efficiency of current assets and shifting to combined-cycle gas turbines.

• Using fuel switching to move away from oil-based generation assets.

• Deploying renewables at scale.

The emission intensity of the grid currently stands at 515 kilograms of CO2 emissions per kilowatt hour, which is higher than the global average (441 kilograms of CO2 emissions per kilowatt hour). If the power sector reduces emissions intensity and pursues these strategic priorities, it could unlock tremendous economic benefits. By switching from natural gas to renewables, the power sector could free up oil and natural gas for export to Europe and Asia. Exported oil and natural gas have an estimated revenue potential of $30-35 per megawatt hour at current gas prices of $2.5-3 per MMBtu.

The region’s national power companies could also export renewable energy by integrating the grids across South Asia, the Middle East, North Africa and Europe, thus diversifying the energy basket.

Source: World Economic Forum