Energy transition outlook: Middle East

The Middle East produces a third of the world's oil supply, exporting 75% of its domestic output. Growing climate risks and the inexorable rise in transport electrification mean we expect global oil demand to peak within a decade. The Middle East is faced with a significant challenge – building a new energy economy means accelerating nascent diversification efforts and pushing towards ambitious net zero goals.

Our energy transition outlook (ETO), part of our Energy Transition Service, maps three different routes through the global energy transition with increasing levels of ambition. And our regional updates delve into the detail at country-level. You can access a complimentary copy of the ETO executive summary by filling in the form at the top of this page. And read on for three key themes from the Middle East outlook.

1. The Middle East energy transition: reality does not yet match ambition

Many countries in the Middle East region have set ambitious climate and renewable energy targets, but can these be achieved?

In our base case, we expect emissions to remain at their current levels of 2 Bt of CO2 through to 2050. Reductions in the power sector will be offset by petrochemical industry expansion and a 45% growth in vehicle stock over the next three decades – with only 6% electric vehicle (EV) penetration.

Large oil and gas reserves have resulted in low domestic energy prices that provide little incentive to transition. The region’s energy mix consists of 97% hydrocarbons today, with renewables share expected to grow to just 15% by 2050.

Meanwhile, the region faces demographic challenges. The population is expected to expand 36% by 2050 paired with a corresponding increase in demand for food production, water and residential electricity.

2. There is a clear economic imperative for diversification in the Middle East – and hydrogen presents a significant opportunity

The Middle East produces around a third of the world’s oil supply. Fossil fuels currently generate much of the region’s wealth. Higher oil prices and recovering demand resulted in a positive fiscal balance in 2022 – but headwinds may be approaching.

Supply security has come into sharp focus against the backdrop of the Russia-Ukraine war. Countries around the world are seeking to reduce their reliance on energy imports. Renewables are an obvious solution, supported by compelling economics and intensifying climate concerns.

Many regions largely dependent on oil revenues are investing in hydrogen. The pivot is not without its challenges; policy support will be necessary to raise the price of carbon-intensive alternatives to parity. However, few places are more suited to hydrogen production than the Middle East – presenting a huge opportunity. In our base case and net zero scenarios, we expect the global hydrogen trade to reach 4-10 Mtpa by 2030 and 42-119 Mtpa by 2050.

3. Abundant natural resources mean the Middle East can play a pivotal role in the global energy transition

The Middle East can play a key role in decarbonising the global economy, given its abundant natural resources.

Previous decarbonisation investments have resulted in the lowest carbon intensity for upstream production and refining in the world. Saudi Aramco reported 10.3 kgCO2/boe in 2022 but aims to achieve net zero scope 1 and 2 emissions across its wholly-owned and operated assets by 2050.

Current and upcoming investments in carbon capture and blue hydrogen projects could lay the foundation for regional CCUS hubs. This in turn could spark the emergence of energy super basins as the nexus of new energies’ investments has the potential to add up to more than the sum of its parts.

The Middle East has an opportunity to attract foreign investment in high-value industrial sectors. Low-cost renewables and CO2 storage capacity will be attractive to those seeking out low-carbon solutions. Robust carbon pricing in the Middle East will be critical; we expect this to reach only US$64/t by 2050 in our base case – US$146/t is required in our net zero scenario.

The full ETO report explores key themes, including:

• Middle East climate targets
• Commodity demand and the power supply mix under our three energy transition scenarios
• The renewables, hydrogen and carbon capture that must be deployed to offset the potential decline in fossil fuel exports
• Country-level deep dives for Saudi Arabia, Oman and the UAE.

Fill in the form at the top of the page for a complimentary copy of the ETO executive summary.