The Seed and the Harvest: a long-term vision for the role of Gulf Oil Exporters in the Global Energy Transition
The seeming paradox of oil-exporting Gulf countries pursuing a renewable energy diversification agenda has been discussed extensively in this journal (cf. OEF Issue 96) and elsewhere. The ACWA Power bid in Dubai was the first project in the world to break the six cents per kWh for a competitive, unsubsidized tariff. As such, it brought the prospect of solarization in the Gulf Cooperation Countries (GCC) forward at a rate that exceeded even “optimistic” expectations. Nevertheless, the level of current and planned RE penetration is small compared to the potential. In this paper, we look beyond the short- and medium-term horizon and investigate the role that GCC could play in the long-term, global, sustainable energy transition. We argue that accelerated adoption of RE in these countries is not an existential threat but a way of securing a role as an energy exporter in a world fueled entirely by renewable energy.
Such a world is much closer than many realize if we are to have a reasonable chance to stay within the 2C average temperature rise threshold. This target implies that the bulk of the fossil fuel phase-out would need to occur by 2050-2080 depending on the assumption of the CO2 emissions budget. IPCC gives a wide range for this budget from around 500 to 1500 GtCO2 with a 66% likelihood value of 990 . At face value this means that GCC societies would be forced to radically transform their economies in a span of just two generations mirroring the lighting fast ascent from poor nomadic societies into the richest countries in the world on a per capita basis.
It is unsurprising that the prospect of such transformation triggers discomfort and an almost instinctive reaction to fight back. So, it is to the credit of the Gulf energy exporters that their governments, for different reasons each, have to a large-extent, embraced the need to act against climate change although they refrain from leading this effort. I argue that it is in the interest of GCC energy exporters to move from the sidelines and instead lead the charge for the following three reasons.
First, given the high quality of the fossil resource base, their extraction rates and exports are the least affected by carbon curtailment among all energy producers. Second, there will be a temporary but noticeable increase in the demand for the fossil fuels that these countries produce in order to fuel the transition from fossil to renewables. Third, from a strategic perspective it is better to be actively involved in a change that should come anyway than react to it as the delay entails the risk of missing out at the opportunities created by the transition.
Growing Fossil extraction rates for GCC under climate constraints
Looking deeper into the first statement, we note that not all fossil fuels are equal. They differ with respect to their marginal extraction cost in a way that generally reflects physical properties that can be summarized in a metric like the energy return on energy invested (EROEI) . The non-conventional resources like tight oil, shale gas, tar sands, and deep-sea oil all have a higher marginal cost of extraction reflecting the fact that they are harder to extract, transport, and/or refine into useful products. In a recent paper, McGlade and Ekins  attempted to map the geographical distribution of the resource that could be extracted under the carbon constraints by overlaying the safely recoverable reserves with the marginal cost of extraction of a given formation or type of resource. They offer two estimates one with Carbon Capture and Storage (CCS) and one without.
Since a large number of the 2C compatible scenarios rely on CCS (even using biomass for taking carbon out of the atmosphere during the second part of the century), it is necessary to parenthetically elaborate why we do not consider this option viable at scale and in time. CCS in electricity power plants, as opposed to industrial processes, imparts a significant operational energy penalty for the capture, compression, transport and injection of CO2 into geologic formations that is around 40% with the current dominant technology (amine-based, post-combustion capture)  and somewhat less for oxy-combustion systems. In addition, it requires heavy capital investment further deteriorating the EROEI of the resource. Given that even proponents suggested that “[t]ens of large CCS demonstrators need to be built worldwide from 2009”  when only one CCS power plant is operational in 2015 , it is evident that the window for scaling up CCS in order to support the energy transition is closing.
Focusing, therefore, on the analysis without CCS deployment, they estimate that the unburnable part of the Middle East oil and gas reserves are 38% and 61% respectively by 2050 allowing for additional extraction beyond that date. For comparison, Canada would have to leave 75% of its oil reserves unburned and all coal regions would need to keep more than 80% of their coal in the ground. The practical implication of this allocation for individual ME producers in terms of extractable reserves is that, assuming an equal allocation across countries, shown in Figure 1, all three of the top producers would be able to increase their annual oil extraction from 13% for KSA to 60% for Kuwait and still stay within the extractable limits.
Figure 1 Daily Average crude oil production in 2013 compared with the daily production level at which the 2C-compliant extractable reserves are exhausted by 2050 (in Mbbl/day)
The Seed of the Energy Transition
This ability to increase fossil fuel extraction may still look counterintuitive and detrimental to the climate cause, but the realities of the only alternative energy supply that can scale, renewable energy or RE, require an upfront energy investment in order to be constructed. This energy investment subtracts from what we might call society’s operational energy budget creating an energy deficit. Fossil fuels are the sole viable option for balancing this deficit and providing the “seed” investment in a flexible way.
Historically, energy transitions were partial affairs lasting several decades . In some respects they would be more appropriately classified as substitutions since looking at the nominal amount of energy provided, most primary energy sources that humanity exploited have expanded – just their utilization changed. Coal, for example, still powers our trains and heats our homes, just more effectively by centralizing its combustion in electricity power stations than the less efficient distributed use in steam engines and boilers while the global amount of energy provided from biomass and biofuels is higher than ever before. The reality is that we don't have any historical precedent for the massive scale transition required to move from fossil fuels to renewables, especially when the bulk of this transition needs to take place in the next four decades and effectively phase-out almost all fossil fuels during this century.
Given that we are emitting around 35GtCO2 per year without a visible slowing down yet, the phase-out of fossil fuels will need to be abrupt. In order to prepare for this and to avoid precipitous changes in the energy supply that would cause social dislocation, we need to phase-in the appropriate RE capacity with advanced planning. By applying an energy balance approach to the constraints of the energy transition , we find that RE installation rates should increase by a factor of 30, from 0.2TW/year in 2013 to 6TW/year in 2040 but even higher numbers may prove necessary. When RE installations accelerate at such rates, the investment consumes more energy than it produces. As a result, in order to compensate, the energy system will need to rely on fossil fuels to provide what we call the seed in the sower’s strategy of the energy transition.
In other words, the forthcoming energy transition, if it is to be sustainable, cannot be expected to occur organically and without a significant degree of advanced planning, for three principal reasons: (i) the potential of depowering, i.e. decreasing economic energy intensity, is limited if any, (ii) there are no past global or regional scale energy transitions to act as guidance, and, critically, (iii) climate change mitigation imposes very tight constraints on the remaining amount of fossil fuels that can be safely used.
As a result of the above, fossil fuel exporters are called to play a vital role in fueling and shaping this global undertaking which we call the sustainable energy transition (SET). While SET spells bad news for marginal oil producers like tight oil, deep-sea, and tar sand plays, as explained in the previous section, it relies on the production of oil and gas reserves with low extraction costs to support the early years of accelerated RE expansion in a way that does not cause severe economic dislocations.
Sustaining an Energy Exporter Status in a Renewable Energy World
Beyond simply powering the energy transition by exporting their fossil fuels, GCC countries have the opportunity to become a sustainable energy exporter if they choose to leverage their capital to build out the necessary infrastructure. Even in an RE-based world, there will be a constant need for high density energy carriers to power processes that cannot be easily electrified (e.g. airplanes, ships and trucks) as well as raw materials for the production of plastics and fertilizers.
The GCC countries could act proactively to meet this demand by building the necessary, large-scale, infrastructure. They would do so by capitalizing on their sun-belt RE potential and convert this locally generated electricity into a transportable, energy-dense fuel.
In order to put this in context, we provide an example on what it would mean in the case of the UAE. In Figure 1 we assumed that extractable reserves would be produced by 2050 at a constant rate. Given that neither field production dynamics nor economics indicate a rectilinear production, a logistics curve production extending further after 2050 is far more likely. This profile, known as Hubbert curve approximation , can be applied to show the unconstrained and the constrained extraction rates for oil and gas resources of the UAE until the end of the century (Figure 2).
Figure 2 Oil and natural production profile for the UAE following a Hubbert curve approximation with the addition of a solar-based electricity to ammonia system in TWh (developed in collaboration with Denes Csala)
The darker shade trapezoid that reaches to about a fifth of the peak production, shows the amount of synthetic fuel that could be produced if 10% of the UAE’s land area is utilized for large-scale photovoltaic plants dedicated to an electricity to liquids process. This area could accommodate around 350GW of installed PV capacity that would drive a system of large-scale electrolyzers for hydrogen generation, along with nitrogen from air separation units. Their combination would produce ammonia (NH3), an energy carrier that has higher energy density than liquid hydrogen with lower storage costs . Ammonia can be exported and used by direct combustion, through a fuel cell or as a critical input for fertilizer production. An interesting synergistic option is offered for the utilization of the oxygen byproduct from the air separation units. The oxygen stream could be used for a natural gas oxycombustion carbon capture system with the resultant CO2 being either stored or used as feedstock for hydrocarbon synthesis in a Fischer-Tropsch system. In either case a larger amount of natural gas could be utilized than the 39% permitted under climate constraints. This rough concept is intended to demonstrate the possibility of using the Gulf’s RE potential not simply to support the local economy in the post-oil era but also to offer a significant, sustainable resource of liquid-fuels that can allow these countries to maintain a position as net-energy exporters. Whether it would take this form or another, it is an option that the GCC countries need to seriously consider as the window for building out such a system requires abundant capital and lengthy pilot testing.
Moving back from this long-term vision, like all journeys, the energy transition in the GCC requires firm initial steps. A possible pathway for these initial adoption phase was developed as part of global REmap, an effort led by the International Renewable Energy Agency. Institutional change along the physical infrastructure is necessary. Some key initiatives could include:
· revising the take-or-pay clauses with the independent power and water producers (IWPPs) into capacity reserve agreements that would adjust as needs change,
· increasing the flexibility of water production to maximize the efficiency of the legacy multi-stage flash plants by leveraging the development of strategic water reserves and moving all new desalination capacity towards electricity-driven reverse-osmosis systems,
· pricing internal resources in a way that reflects the opportunity cost for the country.
Changes along these lines supplemented by clarification of land-use and allocation of areas for utility scale RE plant development would nurture the RE expansion rate necessary for the countries to become truly sustainable and energy leaders in a transitioning world without having to provide subsidies.
Sustainable Investments in an Volatile World
While the Gulf countries continue to maintain positive trade balances, the 2014/15 drop in oil prices from a fairly constant $100 to less than $38 per barrel in August 2015 has instilled concern about the long-term finances of these countries. It is possible that this precipitous drop is a result of a deflationary spiral dynamics as monetary expansion in the financial system is constrained by stopping quantitative easing. This curtails debt financing reducing the amounts available for discretionary spending worldwide, which in turn impacts manufacturing output and their resource consumption. A byproduct of a financialized economic system , such a deflationary spiral is not caused by actual physical shortages of energy or other resources and therefore it is possible that another cycle of economic expansion will push prices up especially as some of the marginal producers will have been pushed to bankruptcy.
As a result, the next cycle of expansion, if it materializes, is perhaps the last viable chance to make a global energy transition sustainable. The fuel exporting countries can lead the way with proper direction of their investment not only in financial products but also in physical assets located on their territories. Done with foresight, such investment would allow them to secure a sustainable future as energy exporters and create resilient local infrastructures that can thrive even after oil and natural gas become unburnable globally. To do so, it is imperative that development of RE projects and energy efficiency infrastructure needs to begin in earnest. Given that RE already makes economic sense for electricity generation, it is a matter of overcoming institutional inertia and apprehension as well as rethinking the energy system structure in order to accommodate higher RE penetration.
In closing, when the economic system becomes limited by energy constraints, as those imposed by the specter of a global climate catastrophe, the rule of limited resources and increasing complexity that has doomed the empires of the past will become relevant again. If we want to prevent a collapse, we will need alternative energy sources to support us as we attempt to solve the problems inherited by building a complex civilization. Historian Joseph Tainter eloquently describes the implications from this tendency for complexity to beget complexity and the need for energy availability to resolve them:
“[I]n addressing the problems of global change, our societies are likely to become more complex and more costly. We need the wealth that can be provided by greater availability of energy to finance greater complexity, including more research, more education, more regulation of environmental matters, and new technologies.” 
The GCC fossil exporters are therefore positioned to be a key contributor in solving this critical future energy puzzle by providing low-impact fossil resources for moving to a renewable energy world. Not only that, but looking at the sustainability of their economies and with forward-looking investments, they could maintain a global position in the energy system as providers of a renewable stream of energy carriers taking advantage of their access to capital and solar resource potential.
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