OPEC’s Middle Eastern Heavyweights Want Renewable Energy
In December 2017, sovereign wealth funds (SWFs), i.e., state-owned investment funds, of Saudi Arabia, Qatar, United Arab Emirates (UAE), Kuwait, together with those of Norway and New Zealand, signed a framework agreement called One Planet, through which they pledged to include green technologies and renewable energy into their investment portfolios. Some energy observers saw this as a rebuke to U.S. President Donald Trump’s rejection of the 2015 Paris climate accord by some of the major oil-producing nations. Signatories of One Planet stressed that a low-carbon economy would open new investment possibilities, admitting that climate change presents long-term financial risks for them.
To date, however, there is little indication that Middle Eastern SWFs have significantly increased the share of renewables in their investment portfolios as a result of signing this non-binding agreement. Even so, this symbolic agreement is part of the recognition by some of the world’s largest oil and gas producing Arabian Gulf countries that renewable energy is an important component of their energy supply security. Saudi Arabia, UAE, Qatar, and Kuwait have set some of the more ambitious renewable energy targets in the Gulf Cooperation Council (GCC), a regional political and economic alliance, as illustrated in Figure 1.
Figure 1: Sustainable Energy Plans and Targets in the Gulf Cooperation Council
The primary motivations behind pursuing renewable energy in each of these countries are to meet domestic electricity demand – which is growing at about 5 percent per year in the region, reduce fuel imports, and free up domestically-produced oil and gas for exports. Climate change is a lesser concern, and for some it is not a concern at all, standing behind these more practical considerations.
All GCC economies have national strategy plans until 2030-2035, which embrace sustainable growth and economic diversification.
All GCC economies have national strategy plans until 2030-2035, which embrace sustainable growth and economic diversification, including reduction of dependence on oil and gas revenues and greater investment in renewables and energy efficiency. Saudi Arabia’s Vision 2030 is by far the most ambitious of them all in its desire to prop up green energy in the kingdom and move the economy away from oil.
Under its Vision 2030 plan, Saudi Arabia plans to invest 1.51 billion USD in renewables, including generation of 25 gigawatts (GW) of solar and wind energy within five years and about 60 GW in the next ten years, and create more than 4,500 jobs. Its SWF, known as the Public Investment Fund (PIF), will be in charge of implementing 70 percent of all renewable projects in Saudi Arabia, while a Renewable Energy Project Development Office will develop the remaining 30 percent. Because Saudi Arabia has failed to act on all of its ambitious renewable targets in the past, it is uncertain whether it will be able to meet the even bigger goals it set out in the Vision 2030 plan. Other SWFs in the region have also been key financiers of renewable energy projects, especially solar.
Petroleum Production Not Disappearing Anytime Soon
Building renewable energy capacity and having a strong commitment to reducing greenhouse emissions do not mean, however, that the leading Middle Eastern oil and gas producing nations plan to bring an end to their massive hydrocarbon sectors. On the contrary, the largest oil producers in the Organization of the Petroleum Exporting Countries (OPEC) – Saudi Arabia, UAE, Kuwait, and Iraq – are generously funding production capacity increases for the long term.
Saudi Aramco, for example, ranked as the world’s most profitable company in 2019, announced in September 2018 that it planned to spend more than 133 billion USD on oil and gas extraction over the next ten years. In a move confirming Saudi Aramco’s commitment to fossil fuels, the company stated that it would expand to international downstream oil and gas markets, which is a big change from its traditional focus on developing domestic energy resources.
Kuwait Petroleum Corp. had planned to invest 500 billion USD in capital projects through 2040, until it was forced to revise this figure down recently due to an OPEC oil production cut deal, which was expected to slash the emirate’s main source of revenue and reduce spending on oil and gas projects.
In late 2018, the Supreme Petroleum Council of Abu Dhabi authorized a 132-billion USD plan to invest in the country’s oil and gas sector. Abu Dhabi National Oil Company is poised to compete with regional oil majors as it expands its gas production and refining capacity. One of the world’s largest exporters of liquefied natural gas (LNG), Qatar is preparing to invest 20 billion USD in the U.S. shale gas and LNG market, consistent with its overseas expansion plans. This small Gulf kingdom invited new bids for tenders in April 2019 to build up to 100 new LNG carriers for its North Field Expansion project, which is part of its strategy to boost the country’s LNG output capacity from the current 77 million tons per year (tpy) to 110 million tpy. So, GCC members are not parting with fossil fuels any time soon.
Divestment from oil and gas companies by Middle Eastern SWFs is highly unlikely. Even Norway’s recent decision to divest oil and gas stocks in its SWF, the Government Pension Fund Global (GPFG), will be minimal in scale. Details of the new policy show that GPFG will not shed the majority of Norway’s oil and gas equity investments, although it plans to increase the share of renewables in its portfolio. Similarly, portfolios of SWFs in the Arabian Gulf continue to hold stakes in oil and gas sectors. For example, Abu Dhabi Investment Authority, the second-largest SWF after Norway in terms of petroleum-based assets, continues to invest only in oil and gas stocks, and there are no indications that it will change the investment policy.
The Qatar Investment Authority holds stakes in Russian state-run oil giant Rosneft, French oil and gas major Total, and the British-Swiss commodities conglomerate Glencore. While Saudi SWF PIF has no oil and gas exposure, Saudi Aramco continues to invest in large oil and gas ventures.
While cutting dependence on hydrocarbons may be a long-term plan for GCC nations, there are no set timeframes to do so and little incentive.
While cutting dependence on hydrocarbons may be a long-term plan for GCC nations, there are no set timeframes to do so and little incentive. The raison-d’être of SWFs is generating return on investment. As such, they tend to focus on high-profit and risky ventures, such as the fossil fuel sector. Hence, SWFs and oil and gas majors in GCC countries will be driven purely by profit-and-loss calculations in making decisions about investing in renewable energy. Their rationale for financing clean energy projects is likely to be justified by how that will help in the production of oil and gas (their proverbial bread and butter), how much profit deployment of renewables would generate by making oil and gas available for exports, and how much they would earn by investing in renewable energy technologies. In the meantime, the economies of these countries remain heavily reliant on oil and gas as main sources of national revenue and fuels to generate power and operate vehicles.