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MENA Energy: Renewables Rising

In a new report by Citi Research’s Oliver Connor explores the diversification of MENA’s energy investment and how it’s affecting the region’s standing in a lower-cost, lower-carbon global system.

As the Middle East/North Africa (MENA) region looks set to strengthen its position in global energy this decade, a new report highlights three key themes:

  1. Deeper petrochemical integration
  2. An accelerating shift to renewables
  3. Mega-scale green hydrogen exports, with MENA the most competitive supply source

The region supplies nearly a third of global fossil-fuel output.

Now a cross region effort to decarbonize the power system will lead to greater use of renewables alongside green-hydrogen export capacity, the report says.

The authors note that virtually all MENA investment before the pandemic was focused on hydrocarbons, of which 60% was oil. But oil’s spending’s share is expected to fall to just over a third of the total by 2030, as gas, petrochemicals and renewables advance.

Renewable energy is expected to lead that expansion.

 

MENA Plays A Key Role In Global Primary Energy Supply

Figure 1. MENA Plays A Key Role In Global Primary Energy Supply Source: Citi Research, BP Statistical Review 2022, *primary energy = oil, gas and coal If you are visually impaired and would like to speak to a Citi representative regarding the details of the graphics in this document, please call USA 1-888-800-5008 (TTY: 711), from outside the US +1-210-677-3788.

© 2022 Citigroup Inc. No redistribution without Citigroup’s written permission.

Source: Citi Research, BP Statistical Review 2022, *primary energy = oil, gas and coal

 
 

In the past 30 years the Middle East has on average supplied almost a third of the world’s oil . That’s equivalent to just over 10% of the total energy needs of the world. That’s made MENA a key player in global economic growth and driven economic prosperity across the region.

In recent years, OPEC’s aggressive production cuts have forced it to cede market share. But the report points out that the need for higher prices isn’t a question of cost competitiveness but one of fiscal balance.

Middle Eastern gas, meanwhile, has gone from a by-product to a prized export commodity since the late 1980s.

More than a third of global gas reserves sit in the Middle East- mostly held by Iran and Qatar.

And the decarbonzation agenda is driving more gas generation.  Saudi Arabia, for example is aiming for a 50-50 gas-renewable mix buy the end of this decade.  

Global gas investment is likely to focus on new LNG supply, particularly as Europe seeks to replace some 120 million tons of Russian gas per year.

The authors see the Middle East, led by Qatar, as playing a key role in delivering the LNG buildout needed.  

Renewables

Nearly 95% of MENA’s power demand is met by oil, gas and coal. But the drive for deeper decarbonization is poised to change this. Scaling up renewables will be pivotal in achieving the region’s net-zero targets.

The shift to electrification will free up capacity to export hydrocarbons and bring economic viability to energy exports in the form of green hydrogen or ammonia. The authors call the pursuit of renewables “a lightning rod for change” across MENA, with many countries seeking to localize supply chains.

While China is the engine of global clean-energy manufacturing today, the authors think MENA has the labor supply and resources to build a meaningful local supply chain.

 

Green Hydrogen

The authors see MENA as key also to meeting expected global growth in green hydrogen and say MENA is by far the most advanced region in terms of achieving scale this decade. The authors think MENA could meet virtually all of Europe’s green-hydrogen import target of 10 million tons per year by 2030.

 

Commodity Chemicals

As with oil, Saudi Arabia holds a dominant position in the region. Since the mid-2010s, the advent of U.S. shale and a drive for chemical self-sufficiency in Asia has led to some retreat in market share, but the industry remains an important economic driver.

The push for oil and gas growth is a key factor for the petrochemicals sector.

Another area of interest is improving chemical yields from oil: Today petrochemical yields are around 45%, but it’s hoped that can be raised to 70% over time. For more information on this subject, please see MENA Energy - A Decade Of Energy Growth (23 Jan 23)

Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.

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