Middle East and
North Africa:
The Energy Security Paradox
While MENA’s average score for energy security indicators of 0.70/1 sets the region above the global average of 0.65/1, MENA countries face increasing challenges in responding to growing domestic energy demand. Improving efficiency, diversifying the energy mix and addressing the subsidy challenge are all factors that can support MENA countries’ transition to affordable, sustainable and secure energy systems.
The MENA region has the largest proven natural resources globally, with 57% of the world’s oil and 41% of its natural gas.65 In recent years, improved living standards and the region’s expanding petrochemical industry have increased regional energy demand, with total primary energy supply rising by over 800 million boe (14%) from 2007 levels. In line with this figure, energy consumption is expected to grow 1.9% per year between 2012 and 2035.66
Population growth and economic expansion have increased energy demand significantly over the past decade; between 2000 and 2011, domestic consumption almost doubled in Oman67 and tripled in Qatar.68 Growth in energy demand is driven across the end-use sectors: in the residential sector through increased use of air conditioning and cooling units; in the transportation sector through rising vehicle ownership; and in the industrial sector from greater industrial activity, hydrocarbon production and refining, and energy-intensive desalination plants.
Growing demand, coupled with limited development in the power generation sector, has led to inefficient use of resources, load management issues and blackouts in peak demand times in countries like Oman and Saudi Arabia. In 2012, Saudi Arabia used nearly 1 million boe of crude per day for power generation to meet increased demand69 during the summer months.
The MENA region is paradoxically experiencing energy security challenges as countries struggle to balance export revenues, domestic consumption and power sector development. To address the challenges, demand- and supply-side resource management will be increasingly important. Implementing energy efficiency measures and removing fossil fuel subsidies could curb demand, manage expected increases in expenditure on imports (for net importers) and free up resources to continue securing revenue from exports, as well as achieve environmental goals. Improved supply-side management, including additional capacity, development of upstream gas for domestic power production and the potential for an integrated supply network across Gulf Cooperation Council countries, is also all likely to be critical.
Demand Side
Improving efficiency standards can play a key role in managing demand growth. In recognition of this, MENA countries are looking at addressing this challenge; both the UAE and Saudi Arabia have created national energy efficiency plans that include a number of measures to address the efficiency of end-use sectors.
Efficiency-related programmes, however, are likely to face incentive and implementation challenges without accompanying reform of energy subsidies – fossil fuel subsidies are a key barrier to the region’s energy efficiency plans as the provision of energy below market prices encourages inefficient energy use. According to IEA estimates, the MENA region accounted for 40% of the US$ 523 billion spent on subsidies globally in 2011.70 Although high-subsidy MENA countries are showing interest in scaling back subsidies, both the IMF and the IEA see a number of obstacles to achieving the goal. Attempts to review subsidies globally have been met with both government and public opinion opposition. Improved communication of the benefits of a subsidy phase-out, accompanied by long-term plans for a gradual phase-out, could be useful tools to support the measure.
Supply Side
Regardless of the success of demand-side management, developing effective supply remains a vital area of focus for the region. Power-generating capacity in net-exporting countries is dominated by thermal – both natural gas and oil. In Oman, gas accounts for 80% of power generation, while Saudi Arabia’s power generation is dominated by crude and fuel oil, with current domestic natural gas production insufficient to meet demand.71
While countries throughout the region are struggling to keep pace with the increase in power demand, progress is underway to install both conventional thermal and renewable energy capacity. Saudi Arabia has launched the largest generation expansion plan in the Middle East with plans to increase capacity from 55 GW to 120 GW by 2020, with further increases planned by 2032; 55 GW of the expansion is expected to come from renewables, 41GW of which from solar. In 2012, Oman presented its plan to develop five renewable energy projects expected to add 6 MW of capacity.
Developing upstream gas potential in oil-producing MENA countries also offers an opportunity to improve energy supply. Despite holding the world’s fifth-largest proven natural gas reserves, Saudi Arabia has only partly developed its gas potential to date. Similarly, Kuwait is increasingly reliant on natural gas imports to reduce the amount of fuel oil used to meet peak demand. In Saudi Arabia, domestic natural gas production is directed internally, but further production will be necessary to meet growing energy demand and minimize direct crude burn for power generation. Natural gas demand is expected to double by 2030 from 2011 levels; to meet growing domestic needs, the Petroleum Ministry and Saudi Aramco announced a US$ 9 billion strategy to add 50 tcf of non-associated reserves by 2016 through new discoveries.72
The region’s supply infrastructure could also benefit from wider integration of power markets. Since 2010, the Gulf Cooperation Council – Oman, Kuwait, Saudi Arabia, Qatar, Bahrain and the UAE – has started realizing plans to integrate member countries’ power sectors with the goal of helping with load management and peak demand. The 400 kV interconnection will help stabilize power supply in peak demand periods, but faces the key challenge that all countries across the region are subject to similar demand patterns – such as increased use of cooling units in summer. To address this, Saudi Arabia has also discussed a 3 GW link with Egypt, whose peak hours vary from Saudi Arabia’s, and is considering a connection to European power grids.
The production and export of the MENA region’s huge assets in oil and gas, coupled with rising oil prices over the past decade, have improved living standards and promoted industrial expansion, thus driving an increase in energy demand. Growth is expected to extend further, putting pressure on MENA countries to improve their energy systems’ performance by managing both supply and demand. The combination of energy efficiency measures in end-use sectors, reducing fuel subsidies, expanding and diversifying generating capacity and better deployment of natural resources could help address the energy security challenge as well as tackle environmental challenges.
External Perspective: Energy Efficiency in Saudi Arabia
Khalid Al-Falih
President and Chief Executive Officer,
Saudi Aramco,
Saudi Arabia
Khalid Al-Falih
President and Chief Executive Officer,
Saudi Aramco,
Saudi Arabia
Looking at Norway as an example of a major oil and gas producer – the third largest exporter of energy after Russia and Saudi Arabia – the country has actively promoted investment in renewable energy and energy efficiency through a dedicated government agency. Similarly in Australia, another resource-rich country endowed with coal and natural gas, support for the development of renewables and energy efficiency has been enhanced through mandatory renewables targets, feed-in tariffs and energy efficiency regulations. Looking closer to home in the Arabian Gulf region, the United Arab Emirates imposed a mandatory rating system for construction of energy efficient buildings in Abu Dhabi, and created a free zone dedicated to the development of green technologies and energy conservation in Dubai.
Like those examples, and many more, the Kingdom of Saudi Arabia recognizes the importance of energy efficiency and ensuring a sustainable and diversified energy mix. This becomes of higher importance to us with the high pace of growth we are experiencing. Saudi Arabia has been able to sustain high economic growth rates over the past decade, which contributed to an unprecedented increase in demand for energy. Saudi Arabia registered higher economic growth in 2011 and 2012 than any other member of the G20 with the exception of China. Robust growth is forecast to continue as our country pursues an ambitious agenda of raising living standards for its citizens, diversifying the economic base, creating sustainable jobs and enhancing the competitiveness of the economy while sustaining our natural resources. However, diversifying our economic base from a dependence on crude oil exports should not be construed as turning away from leveraging the Kingdom’s “energy advantage”. In fact, manufacturing investments that add value and create jobs will continue to be a main pillar in the Kingdom’s economic development.
Delivering safe, secure and environmentally sustainable energy to foster this growth is of paramount importance. Saudi Arabia is pursuing a diverse set of demand-side and supply-side options to meet this challenge. On the demand side, a Saudi Energy Efficiency Center (SEEC) was established to roll out energy efficiency measures in industry, transport and buildings. In particular, SEEC has already established minimum standards for air conditioning units in a bid to reduce the growth of peak energy demand. On the supply side, the National Power and Water efficiency programme is driving efficiency improvements in existing plants and developing a long-term plan based on an optimum fuel mix consisting of conventional natural gas, liquid hydrocarbons and renewables. Currently, natural gas accounts for almost 50% of power generation, which is higher than figures observed in developed nations such as the United Kingdom and the United States. Moreover, promising unconventional gas discoveries in Saudi Arabia will further increase the percentage of gas in power generation, thus further improving generation efficiency while meeting our future energy demands.
Saudi Aramco, as a major contributor to the economy and a major energy user in its own right, is a leader in efforts to improve energy efficiency. This is demonstrated through the significant actions undertaken in all its operations. On average, since the year 2000, the company has been able to achieve 2% annual reduction in energy intensity in industrial facilities, which resulted in savings of around 130 thousand barrels per day of oil equivalent. This was realized through various initiatives such as cogeneration, retrofitting industrial equipment and process enhancements. Furthermore, our cogeneration facilities provide an additional layer of reliability to our critical infrastructure, while complementing the overall efficiency improvement of the country’s power system.
In addition, the company recently launched its own “lead-by-example” programme to improve energy efficiency in its non-industrial facilities, targeting a minimum of 35% improvement by 2020. The programme will involve massive replacement of inefficient lighting, air conditioning and low-efficiency appliances. Further savings will be achieved through improving water heating systems and enhancing building insulation. One of our landmark projects, Al-Midra office tower, received the Leadership in Energy and Environmental Design (LEED) Platinum Certification accreditation, which is the Green Building Certification institute’s highest recognition. The Al-Midra office tower combines an array of energy efficient measures in cooling and lighting, together with a passive design for the main building and supporting facilities which include the largest solar photovoltaic shaded car-park in the world, covering an area of 4,500 parking spaces and producing 10.5 MW of clean energy.
As highlighted earlier, good practices in energy efficiency and diversity can be found in many countries around the world, irrespective of their resource richness. Therefore, from Saudi Arabia’s perspective, as we progress in the development of our energy policy, we will continue to draw upon lessons learned from our own experience as well as from the international community, in order to drive a continuously competitive and prosperous economy. Saudi Aramco will continue to play a key role in these endeavours.