In a fairy-tale turnaround that few could have foretold, oil prices have soared to multi-year highs, largely aided by strong post-Covid-19 demand, surprise OPEC+ cuts and the disruption caused by Russia’s war in Ukraine.
The petrodollar windfall has really given a boost to previously battered Gulf economies, allowing some Gulf Arab states to pay down debt and others to diversify their oil-reliant economies in very big ways.
All the six Gulf Arab states – Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain, and Oman – are on track to post budget surpluses, many for the first time in a decade, thanks to buoyant oil prices and years of fiscal reforms.
But it’s not just the Arabian oil giants that will be enjoying the good times. In its latest forecast, the World Bank has predicted that in 2023, the entire Middle East and North Africa (MENA) region will grow 3.5%, more than twice the global average growth rate of 1.7%, thanks mainly to high energy prices and increased oil production.
GCC growth is expected to stabilise at 3.7% this year after expanding at a blistering 6.9% clip in 2022.
Although hydrocarbons remain the backbone of MENA’s economy, the realities of climate change, and wild oil price swings have been forcing Gulf nations to restrategise and diversify their economies away from oil, and Saudi Arabia is leading the way, again.
Although Saudi Energy Minister, Prince Abdulaziz bin Salman, recently made waves in the oil community after telling Bloomberg News that Saudi Arabia intends to pump every last drop of oil and is going to be the last man standing, Saudi Arabia has crafted one of the most ambitious clean energy blueprints: Crown Prince Mohammed bin Salman’s Vision 2030 economic plan.
In the economic plan, Saudi Arabia has set a target to develop 60 GW of renewable energy capacity by the end of the decade, which compares with an installed capacity of roughly 80 GW of power plants burning gas or oil.
So far, Saudi Arabia has only made limited progress deploying renewables with just 520 MW of utility-scale solar in operation while 400 MW of wind power is under construction.
With its sun-scorched expanses and steady Red Sea breezes, Saudi Arabia is prime real estate for renewable energy generation.
Last year, Saudi Arabia’s national oil company, Saudi Aramco, sent shockwaves through the natural gas markets after it announced that it was kicking off the biggest shale gas development outside of the United States.
Saudi Aramco said it plans to spend $110 billion over the next couple of years to develop the Jafurah gas field, which is estimated to hold 200 trillion cubic feet of gas.
The state-owned company hopes to start natural gas production from Jafurah in 2024 and reach 2.2 Bcf/d of sales gas by 2036 with an associated 425 million cubic feet per day of ethane.
Two years ago, Aramco announced that instead of chilling all that gas and exporting it as LNG, it will convert it into a much cleaner fuel, Blue hydrogen.
Saudi Aramco has told investors that Aramco has abandoned immediate plans to develop its LNG sector in favor of hydrogen.
Nasser said the kingdom’s immediate plan is to produce enough natural gas for domestic use to stop burning oil in its power plants and convert the remainder into hydrogen. Blue hydrogen is made from natural gas either by Steam Methane Reforming (SMR) or Auto Thermal Reforming (ATR) with the CO2 generated captured and then stored.
As the greenhouse gasses are captured, this mitigates the environmental impacts on the planet.
Last year, Aramco made the world’s first blue ammonia shipment, from Saudi Arabia to Japan.
Japan, a country whose mountainous terrain and extreme seismic activity render it unsuitable for the development of sustainable renewable energy, is looking for dependable suppliers of hydrogen fuel with Saudi Arabia and Australia on its shortlist.
The Saudi government is also building a $5 billion green hydrogen plant that will power the planned megacity of Neom when it opens in 2025.
Dubbed Helios Green Fuels, the hydrogen plant will use solar and wind energy to generate 4GW of clean energy that will be used to produce green hydrogen.
But here’s the main kicker: Helios could soon produce green hydrogen that’s cheaper than oil.
Bloomberg New Energy Finance (BNEF) estimates that Helios’ costs could reach $1.50 per kilogram by 2030, way cheaper than the average cost of green hydrogen at $5 per kilogram and even cheaper than gray hydrogen made from cracking natural gas.
Saudi Arabia enjoys serious competitive advantage in the green hydrogen business thanks to its perpetual sunshine, wind, and vast tracts of unused land.
Germany has said it needs “enormous” volumes of green hydrogen, and hopes Saudi Arabia will become a key supplier.
Two years ago, Germany’s cabinet committed to invest €9B (about $10.2B) in hydrogen technology in a bid to decarbonise the economy and cut CO2 emissions.
The government has proposed to build an electrolysis capacity of 5,000 MW by 2030 and another 5,000 MW by 2040 over the next decade to produce fuel hydrogen.
The European economic powerhouse has realised it cannot do this alone, and will require low-cost suppliers like Saudi Arabia especially as it doubles down on its green energy commitments following a series of devastating floods in the country.
Back in 2021, the Emirates Nuclear Energy Corporation (ENEC) announced the commissioning of the country’s first-ever nuclear power plant, the Barakah Unit 1.
The 1,400-megawatt nuclear plant has become the single largest electricity generator in the UAE since reaching 100% power in early December, and is now providing “constant, reliable and sustainable electricity around the clock.
“ENEC says Barakah unit 1 is “now leading the largest decarbonisation effort of any industry in the UAE to date.”
Following in the footsteps of Saudi Arabia, the UAE is also laying a strong foundation for the energy transition.
Masdar, the clean energy arm of Abu Dhabi sovereign wealth fund Mubadala, is building renewable capacity in central Asia after signing a deal in April 2021 to develop a solar project in Azerbaijan.
Since its inception in 2006, Masdar has built a portfolio of renewable energy assets in 30 different countries, having invested about $20bn to develop 11GW of solar, wind and waste-to-energy power generation capacity.
And now Masdar says it intends to apply the lessons gleaned abroad to develop clean energy capacity back at home.
“Solutions we have developed in our international operations will definitely have applications here in the UAE”, says Masdar’s El-Ramahi.

By: Alex Kimani
Source from Bloomberg News.