The climate challenge facing the Gulf Arab states is simply stated: Against a remaining global budget of 260 billion tons of carbon dioxide to limit warming to 1.5 degrees Celsius, the world has recoverable resources of 729 billion metric tons of carbon dioxide equivalent of oil, 389 billion metric tons of natural gas, and 1,120 billion metric tons of coal. The Gulf Cooperation Council states hold 30% of that oil and 21% of the gas. The Gulf states are the low-cost, high-volume producers, but competition for the shrinking carbon dioxide budget will become increasingly intense.
As Russia’s invasion of Ukraine has shown, fossil fuels remain crucial in the world economy and will not be quickly or easily replaced. Fossil fuels benefit from familiarity, a massive installed asset base, good performance, and acceptable costs in many applications.
Low-carbon alternatives – notably renewables (solar, wind, and others), electric vehicles, and hydrogen – have become more affordable and effective in recent years. Nevertheless, scaling alternatives up at the necessary speed is hugely challenging. For instance, BloombergNEF estimates that annual energy investments must double by 2030 to reach a net-zero carbon pathway. Under this scenario, by 2030, the yearly deployment of solar power would have to increase more than three times, wind more than five times, electric vehicles 11 times, and batteries 26 times compared to the rate in 2020. Such rapid deployment would strain supply chains, and raw materials need to be mined and processed. Supporting infrastructure, such as long-distance electric grids and vehicle charging stations, must also grow in tandem. In some areas, notably aviation, heavy industry, and long-term energy storage, current low-carbon technologies are not yet technically or commercially viable. Perhaps most difficult is overcoming the sociopolitical inertia that keeps legacy energy systems in play.
Prominent leaders and energy officials from Gulf states have addressed this contradiction repeatedly in recent months. Sultan Ahmed Al Jaber, who is the president-designate of November’s United Nations Climate Change Conference, COP28, in the United Arab Emirates and CEO of the Abu Dhabi National Oil Company, has emphasized that the energy transition is just that – a transition – and the world cannot “just flip a switch” to get there.
ADNOC plans to increase its oil production capacity from about 4.4 million barrels per day to 5 mb/d by 2027 and possibly 6 mb/d in the longer term. ADNOC is also expanding its gas processing capacity, aiming to reach national self-sufficiency by 2030, and is building a major liquefied natural gas facility capable of exporting 9.6 million metric tons per year.
Saudi Aramco is approaching the issue more cautiously, planning to boost oil production capacity from 12 mb/d to 13 mb/d by 2027. Qatar has a colossal LNG expansion underway to take production from 77 million metric tons per year to 126 million mt/y by around 2027. Kuwait has announced goals to increase oil output from 2.7 mb/d to 4.75 mb/d by 2040, though similar plans have not materialized in the past.
And yet, the International Energy Agency stated in 2021 that net-zero carbon scenarios do not require any exploration or development of new oil and gas fields.
So, are the Gulf states just betting on a slower energy transition, higher emissions, a hotter world, and a longer-term market for their hydrocarbons? Or do they have a viable path to net-zero carbon that still makes use of their natural resources?
Unsurprisingly, the answer varies among countries and companies. The Gulf states are particularly exposed to serious climate risks. The region is one of the world’s hottest and most water scarce, with most habitation and infrastructure along the coasts, and several major Gulf states risk economic and societal collapse if climate stresses grow intolerable. Moreover, even as the Gulf states expand their role in international aviation, tourism, media, and sports, they face reputational damage over their high greenhouse gas footprint. The European Union, and perhaps others to follow, will impose tariffs on high-carbon goods, such as fuels, fertilizer, steel, aluminum, and plastics, all of which are core parts of Gulf industrialization.
Five Gulf states have net-zero carbon goals, with the UAE and Oman aiming for 2050 and Bahrain, Kuwait, and Saudi Arabia planning to reach net-zero by 2060. Additionally, ADNOC, Aramco, and Kuwait Petroleum have all set 2050 as a target for corporate net-zero emissions. QatarEnergy has a more modest near-term target of cutting its carbon intensity (emissions per unit of production) by 15% to 25% by 2030.
These targets cover the oil companies’ “scope 1” emissions, which come directly from their operations, and “scope 2” emissions, which are related to electricity purchases. Scope 1 and 2 emissions can be reduced through energy efficiency; stopping methane leaks; electrifying facilities with renewable or nuclear power (as ADNOC is doing); carbon capture, utilization, and storage; and other methods. Aramco, ADNOC, and QatarEnergy would argue that, although they continue to make improvements, they are already among the world’s least carbon-intensive producers. However, these targets do not include “scope 3” emissions, which are associated with the end use of a product and make up around 80% of the greenhouse gases released from the companies’ energy production. The Gulf states would contend that they are expected to be reliable energy providers and that, with Russian output now expected to decline, the IEA’s observation about the lack of a need for new oil and gas fields is obsolete – at least some new oil and gas is required. They would add that it is not for Gulf producers to second-guess the efficacy of their customers’ climate policies.
Nevertheless, the Gulf Arab countries must plan for a world in which the burning of hydrocarbons is increasingly deemed unacceptable and is met with tariffs and bans. The EU is pushing for leaders to commit to a “global phase-out of unabated fossil fuels” at COP28. Under a global phase-out, oil and gas could still be used but only in ways that produce minimal emissions. This would leave four options available to Gulf producers.
First, and most straightforward, is the production of long-lived petrochemicals – plastics and other nonmetallic materials that lock the carbon from oil and gas feedstock within them – which is already a focus area for the Gulf states. World demand for petrochemicals is expected to keep rising even as the use of oil for power generation, ground transportation, and industrial heat drops off.
Second is the use of carbon capture, utilization, and storage to trap carbon dioxide from industry, power plants, and other emitters. This would apply primarily to Gulf gas rather than oil. It is not clear how the Gulf states would enforce this outside their borders, but they could offer to “take back” carbon dioxide captured from their products and store it permanently at home. Despite a recent acceleration in projects, the current global carbon capture, utilization, and storage capacity of about 40 million mt/y must expand to 5.6 billion mt/y by 2050 to reach net-zero. This is an enormous challenge, and even to come close will require the Gulf states to be a core part of the effort, as they have some of the best carbon storage conditions in the world. For instance, Saudi Arabia aims to capture 44 million mt/y at its Jubail facility by 2035.
Third is the use of carbon capture, utilization, and storage to create blue hydrogen from gas or oil. This hydrogen could then be exported or, more likely, converted into ammonia or methanol or used in domestic industries, such as fertilizer and steel production. The Gulf could become a global low-carbon manufacturing hub for energy-intensive materials and their derivatives. Most of the region’s hydrogen plans revolve around green hydrogen from renewables, but Qatar, the UAE, and Saudi Arabia have significant blue hydrogen projects that will produce a total of around 6.8 million mt/y when operational.
Fourth is the capture of atmospheric carbon dioxide to offset emissions from fossil fuel products. Schemes such as reforestation have recently, rather deservedly, acquired a bad reputation for their lack of permanence and additionality (i.e., that the payments make no difference to what would have happened to the forest anyway). But better choices and management of bio-sequestration schemes, which lock up carbon in ecosystems and soil, using biomass in power plants with carbon capture, utilization, and storage or trapping carbon dioxide directly from the atmosphere and storing it underground or converting it to solid minerals, have promise.
Carbon dioxide removal is still nascent and costly, but it will become increasingly important in the decades to come; the IEA’s net-zero scenario calls for almost 1 billion metric tons of carbon dioxide removal annually by 2050. ADNOC launched a pilot with the Omani startup 44.01 to react carbon dioxide with peridotite, a rock that is abundant in both countries but is fairly uncommon worldwide, to form solid carbonate minerals and ensure permanent carbon removal. Moreover, Saudi Arabia is designing its first plant for direct air capture, an emerging technology that extracts carbon dioxide directly from the atmosphere.
The Gulf’s climate conundrum is seemingly, therefore, less complex once broken down. There are climate-compatible ways to use a significant portion of Gulf hydrocarbon reserves. The global swing in attention back toward energy security virtually demands that non-Russian production expands but in a relatively clean way. Despite some progress, Gulf national oil companies need to move much faster and in more radical directions to meet the challenge.