Abu Dhabi started the year with a flurry of initiatives to develop hydrogen fuel and renewable energy at home and overseas - touting the investments as essential for driving the economic recovery from the COVID-19 crisis and tackling climate change, while keeping oil and gas alive for the foreseeable future.
The deals, announced during the virtual Abu Dhabi Sustainability Week in January, highlight the OPEC member’s efforts to diversify its oil and gas-rich economy as it recovers from the pandemic, by investing in low-carbon technologies like hydrogen, a promising zero-carbon fuel for road, shipping and aviation transport. The United Arab Emirates’ GDP growth is projected to have dropped by 6.6 percent in 2020 as oil demand collapsed, according to the International Monetary Fund.
“When it comes to global development, where we are all focused after the COVID recovery, we should adopt pro-growth policies, based on a diverse energy mix,” said Sultan Al Jaber, the UAE’s industry and advanced technology minister, chief executive of the Abu Dhabi National Oil Company (ADNOC) and chairman of renewable energy company Masdar, in a speech during Abu Dhabi Sustainability Week. “And the reality is, to power this growth and ensure continued global progress, oil and gas will need to remain part of this energy mix for many years to come.”
Key to reducing emissions from oil and gas, Al Jaber said, is the “widespread” use of technology that captures and reuses or stores the carbon. The UAE’s existing carbon capture infrastructure will make it one of the world’s lowest-cost and largest producers of blue hydrogen, which is made from gas with emissions captured and stored or reused, he added.
Carbon capture and utilisation or storage is seen as an important part of quickly reducing emissions in line with the Paris climate agreement’s goals - particularly in the hard-to-decarbonise sectors such as steel and heavy industry, where clean alternatives to fossil fuels are still maturing. But it’s also expensive and has so far failed to keep up with the exponential growth, and falling prices, of proven zero carbon technologies like solar and wind energy.
“The UAE’s existing carbon capture infrastructure will make it one of the world’s lowest-cost and largest producers of blue hydrogen, which is made from gas with emissions captured and stored or reused”
Through new partnerships announced during Sustainability Week, Abu Dhabi is forging ahead with blue hydrogen production and stepping into green hydrogen, which is produced from renewable energy without emissions. The production of green hydrogen - a cornerstone for the shift away from fossil fuels - currently costs two to three times more than blue hydrogen, according to the Abu Dhabi-based International Renewable Energy Agency. But it could become cost competitive with blue by 2030, with the falling renewable power costs and improved electrolyser technologies.
The Abu Dhabi Hydrogen Alliance, led by Abu Dhabi’s sovereign wealth fund Mubadala Investment Company, ADNOC and Abu Dhabi holding company ADQ, aims to expand blue hydrogen production and explore opportunities for green hydrogen. Under the alliance, Mubadala and Germany's Siemens Energy signed initial agreements to drive green hydrogen developments and to build a demonstration plant in Abu Dhabi’s Masdar City, in collaboration with Etihad Airways, Lufthansa Group and Marubeni Corporation.
As well as developing hydrogen, Abu Dhabi is continuing to invest in renewables both at home and internationally. Masdar announced a first agreement with France’s EDF Renewables to explore renewable energy opportunities in Israel, marking a first step in energy cooperation after Israel and the UAE normalised relations with the Abraham Accords in August 2020. That comes in addition to the Abu Dhabi Fund for Development’s 90 renewable energy projects in 65 countries as of January, including in the Caribbean, Cuba, Jordan, Oman, Maldives, Sudan, Somaliland and Liberia.
The road to green
These initiatives build on an already burgeoning clean energy sector in the UAE. A multinational group of companies including Masdar and the Abu Dhabi National Energy Company (TAQA) was awarded a contract last year to build the world’s largest and cheapest solar power plant - the 2-gigawatt Al Dhafra, which is expected to generate enough power for around 160,000 homes from 2022. That is set to be overtaken in size by Dubai’s Mohammed Bin Rashid Al Maktoum Solar Park, with plans to expand to 5GW by 2030.
The United Arab Emirates also became the first Gulf country to hike its pledged goals under the Paris Agreement, as all countries are required to do by November’s United Nations COP26 summit in Glasgow. The country now aims to cut greenhouse gas emissions by 23.5 percent by 2030, compared to 2016 levels. Yet the Climate Action Tracker, an NGO that tracks progress on the Paris goals, said that while the goal marks clear progress it is still “highly insufficient”.
At the same time, oil and gas continue to underpin the UAE’s wealth, accounting for nearly a third of GDP. That is set to rise following the economic hit of reduced oil demand and prices during the pandemic. Abu Dhabi, the largest crude-producing Emirate, plans to invest $122bn up to 2025 to raise ADNOC’s production capacity to 5 million barrels per day by the end of the decade, from 4 million now, according to S&P Global.
“We are targeting to be the lowest cost producer and cleanest cost producer,” UAE Energy Minister Suhail al-Mazrouei told S&P in January. “That combination is what gives us confidence there will be future demand for our barrels. We will be ready, if there is a demand pickup, that we have those resources.”
However, meeting the Paris agreement’s goals for averting the worst impacts of climate change - limiting global warming to 1.5 degrees Celsius and reaching net zero emissions by mid-century - requires the world to halve greenhouse gas emissions between 2020 and 2030, while regenerating nature, according to the UN’s international panel of climate scientists. To do this, the world needs to reduce fossil fuel production by roughly 6 percent per year in this decade, the UN Environment Programme warned in December. Current plans to increase fossil fuel output by an average 2 percent per year would more than double the production that would keep global warming within 1.5 degrees Celsius.
“While the transformation to a net zero energy sector requires a steady and concerted phase-out in all fossil fuel production, it will be easier and cheaper if the oil and gas industry takes part”
While the transformation to a net zero energy sector requires a steady and concerted phase-out in all fossil fuel production, it will be easier and cheaper if the oil and gas industry takes part, the International Energy Agency said in January. Oil and gas companies need to clarify how the energy transition will affect their operations and business models and set out how they can help accelerate the pace of change - for instance by focusing its investment and expertise on hydrogen and carbon capture and shifting business from “oil and gas” to “energy”, it said.
That is the direction the UAE is rightly taking, both at home and through international partnerships in developing countries - helping to accelerate and expand technological advances. It just needs to move faster to catch up to what the science says is needed.