The Middle East’s oil and gas resources are unparalleled. It is the most important source of income and wealth in the region for decades. While it is widely accepted that the era of fossil fuels will eventually come to an end, some pundits did not expect such a big change in the short term. But recent developments cast doubt on whether oil and gas – dependent countries can withstand the coming changes. In addition, Covid-19 pandemic disease has been predicted.
Oil king Over the decades, the Middle East has become one of the most important regions in the world for oil production. Not only are the reserves in the area some of the largest, but low production costs increase the sector’s potential by reducing investment risks. Despite a coal shale revolution in the U.S., the Middle East produced nearly half of the world’s oil production in 2019.
Although fossil fuels are a rich source and a major asset for economic development, most countries in the Middle East have not been able to diversify significantly. A combination of political instability, domestic conservation elements, and poor policy means that global oil prices are driving economic development in the region.
The vibration
Despite their dependence on fossil fuel exports, some countries in the Middle East are waking up to renewable energy potential. Improvements in production processes and economies of scale have significantly reduced wind and solar costs to the point where it is cheaper than fossil fuels in some sectors. The Middle East, in particular, has tremendous potential due to favorable conditions.
Related: 8 New Power Technologies That Will Make Your Mind Strike While the world is embroiled in the Covid-19 pandemic, the long-term effects on oil demand remain uncertain. While some experts remain optimistic about the recovery of oil demand as a result of the improving economic situation in 2021, several prominent energy institutions anticipate a negative fall from the pandemic.
Bernstein Energy, Rystad Energy, and the Paris-based IEA expect an ‘oil peak’ to occur somewhere in 2030 as a result of structural changes in the economy and social pressures in most developed countries. Sales of EVs continue to reduce oil demand while wind and solar costs go down. Oil export countries should be encouraged to diversify. To stay relevant in the 21st century, these states have to take renewables seriously.
Race against the clock
Expert experts expect peak oil to occur in the next decade as a major challenge for the Middle East. OPEC, however, remains prestigious and demand is expected to continue to grow until 2040. This could be a bad omen for oil-rich countries in the Middle East as it reduces the proliferation crisis.
In addition to the risk of declining revenues, investment in wind and solar could reduce current heavily subsidized electricity bills. In addition, a large amount of oil is currently being used to generate electricity that can be extracted.
Saudi Arabia’s controversial de facto ruler, Crown Prince Bin Salman, has unveiled his ‘Saudi 2030’ development agenda. The IPO should be part of Saudi Aramco’s country’s ‘crown jewels’ having provided the necessary funds. The lack of interest of large institutional investors in the IPO is an indication that profit, in the long run, is uncertain.
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While Western societies are increasingly concerned about climate change and putting pressure on their governments, authoritarian development is not like authoritarian Arab countries. Beijing, too, has embarked on an ambitious energy transition path due to heavy pollution.
The remarkable geographical potential of the Middle East has the potential to power the region’s next energy revolution. Several countries have already been mentioned several major projects. The UAE has announced plans to begin construction of several major solar parks in 2021, which together with the Barakah Nuclear Power Plant could provide half of the country’s electricity by the middle of the century.
Saudi Arabia has big plans, too. Work has already begun on a 400 MW wind farm on the northwest shores of the country. Despite its small size, it will provide the necessary knowledge for future projects. Exports of clean hydrogen could become an important export product in the future due to the low production costs in the Middle East. Saudi Arabia expects the largest hydrogen plant in the world in his new future city called Neom.
Despite the main announcements, a healthy dose of complaint should be applied when looking at the real intentions of these countries. According to the IEA, renewables accounted for only 26 percent of total power capacity expansion in the Middle East in 2019. This makes it one of the worst performing regions. In most parts of the world, this number is almost three times higher. There is still a lot of work to be done.
By Vanand Meliksetian for Oilprice.com
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