U.A.E.’s energy sector evolution has been nothing short of disruptive in the past few years. A changing global marketplace, its ambition to diversify its economy and a focus on renewables and sustainability have helped the U.A.E., the world’s seventh largest petroleum producer, cope with volatile oil scenarios.
According to the U.S. Energy Information Agency (EIA)’s 2017 country analysis for the U.A.E., the country’s hydrocarbon export revenues will account for $65 billion in 2017; roughly 20% of all export revenue. This figure is however, considerably lower than the hydrocarbon export revenues of 2013, which amounted to $129 billion (35% of total export revenue), owing to the decline in oil prices, according to the International Monetary Fund (IMF).
As petrodollars dip, the U.A.E. is focusing on efficient and sustainable energy production in the long term. Taher Diab, Sr. Director—Strategy & Planning / Secretary General—EEA, Dubai Supreme Council of Energy explains that the U.A.E. energy policy today is hinged on the key themes of sustainability, energy security, energy efficiency, diversification of fuel sources as well as creating a low carbon economy. “If you follow what has been happening in the last –five years, it has been focused a lot on sustainability. Security of energy is one big pillar. And under the security of energy, is where the diversification of petroleum has been driven, where solar has started to make strides. On the other pillar, which is energy efficiency, we have started talking about optimizing the use of power and electricity and also to move away from the government subsidy, which has been happening proactively for the last few years.”
He feels the U.A.E.’s vision and ability to act on its objectives has helped the country’s energy sector to be progressive. “The U.A.E. has been very clear in its vision towards sustainability, - conserving the energy, diversifying the portfolio, bringing in energy efficiency into the equation and of course targeting a low carbon economy. And there are very specific programs for each of these”.
PPP’s or the private-public partnership has been successful, he says, citing it as a key tool that helped manage the economic volatility caused by oil prices while creating an additional investment stream to boost the energy sector expansion. “Now we are seeing the benefits of bringing in private stakeholders/sector in the clean energy projects, with solar tenders being awarded etc. And all that energy is coming through the PPP model. So the private investors are coming in, they are transferring the knowledge and technology, and sharing the risks. And with that comes capacity building, as a lot of local knowledge is being gained here in the market,” he adds.
Taher feels that the U.A.E. governments’ ability to act swiftly on its vision and objectives has allowed the sector to evolve rapidly. “When we said we want to increase the share of clean energy particularly solar, in the energy mix, the government immediately went ahead and started building the solar power plants, adding capacity incrementally, first 200MW PV, then 800MW PV followed by 700MW CSP... leading to targeted installed capacity of 5000MW by 2030.”
In the coming years, the U.A.E. is looking to diversify its energy production with a mix of renewable projects and clean energy technologies- laid out in its Energy Plan 2050. The government is also reportedly investing nearly AED 600 billion by 2050 in the development and implementation of renewable energy sources-solar, nuclear, waste, wind.
Solar has also gained much traction over the last few years, with the country’s first solar energy generation plant feeding power into the grid for the first time in 2013. With prices falling nearly 70% for solar technologies since then, the scope and scale of solar energy have increased manifold.
Alternate Revenue Streams and Diversification
As the U.A.E. shifts to a more sustainable energy mix, it is also paramount that the country optimizes its current assets. Dr. Sultan Ahmed Al Jaber, ADNOC Group CEO, emphasizes this point in the State of Energy Report 2017 as he pushes for a more flexible business models to capture growth. “We are balancing a focus on maintaining efficiency and improving performance with targeted investments that will deliver smart growth”, he says. Delineating the 2030 growth strategy for Abu Dhabi via its national oil arm ADNOC, Dr. Sultan Ahmed Al Jaber forecasts “a more profitable upstream, a more valuable downstream and a more economic and sustainable supply of gas”, in the 2017 UAE Report by the Oxford Business Group. Currently the energy giant produces nearly three million barrels of oil and 9.8 billion standard cu feet per day of raw gas though it plans to triple its output of petrochemicals by 2025. As per the report, long-term investments in innovation, development of renewable energy and carbon capture technologies are part of its committed energy objectives for the future.
This explains ADNOC’s move to publicly list parts of its business (IPO) and forge new partnerships with oil majors in a bid to boost profitability, generate additional revenue streams and acquire new market share amidst depressed oil prices. Earlier this year ADNOC announced plans to expand its model of partnering with international oil majors like Exxon Mobil and Royal Dutch Shell across its three major energy segments: exploring for and producing fossil fuels, storing and transporting them and processing them into fuels and chemicals. The Abu-Dhabi state owned energy retailer was also considering an initial public offering of minority stakes and recently confirmed plans to sell at least 10% of the fuel distribution (ADNOC Distribution) business.
Taher Diab, DSCE, feels PPP’s and IPO’s are the ideal risk-mitigating tools for the new energy era. “This (IPO) marks a paradigm shift where the government has changed their mindset about how they can invest in their companies for the future, whether it is an expansion or a project. Earlier it seemed there was just one way, you pay from your own equity for all the assets of all the projects that you need to pursue. But now, having an IPO is not only a great way to take the burden off your financials, but you are also bringing in some additional investment that you can use for your infrastructure or your asset or your expansion, and share that benefit with the public. And that is an ideal model. Instead of relying heavily on selffunding, the IPO provides another risk management tool and it can release some funding for some other projects.”
Talking about the timing being right for this move, because of the depressed oil prices he adds “Companies are not generating revenues the way they used to. And when you go down by almost 50% you have to look for other sources of revenue. So the PPP model is one, and IPO is another. So ADNOC is doing this and so is Mubadala and we expect EGA to go down this path as well,” he adds.
Solar-powered aircrafts and carbon capture (CCU) technologies, clean energy and renewables, hybrid cars and diversified energy mix, PPP’s and IPO’s, all form part of UAE’s holistic approach to energy. And stand testament to the UAE’s commitment to diversify revenue streams and investments across the energy sector, and work towards a sustainable tomorrow for everyone.