The Gulf’s energy mix is changing

As the Middle East’s relationship with Asia expands, high oil exports and surging inward investment into renewables are redrawing the energy landscape.

Asia House’s new report, The Middle East Pivot to Asia 2022, unpacks this key regional trend, and its implications for businesses and policymakers.

Oil remains a key driver of Gulf-Asia trade 

Higher oil prices during 2021 are one of the reasons why GCC-emerging Asia trade has recovered from the COVID-19 pandemic so strongly, and further price increases in 2022 could make it a record year. Asia is the main destination for GCC hydrocarbons, and an important source of revenue for the Gulf states, and demand from Asia is expected to increase over the next five to ten years.

The GCC’s top five export destinations for hydrocarbons (2020) 

Yet investments in renewables is gathering pace. When the oil price is above the fiscal breakeven price for Gulf states to balance their budgets, as is the case currently (except for Bahrain), we tend to see additional revenue channelled into economic diversification projects and growing non-oil sectors, which in turn encourages Asian investment in the Gulf.

Given current conditions, this is likely to be a trend that continues.

“We’re seeing more cooperation on energy innovation,
such as the development of hydrogen.”

Waleed Rasromani, Corporate M&A Partner, Dubai and Riyadh, Linklaters, spoke to Asia House as part of the research. Read the interview in full

Gulf and Asian investment in renewables is expanding

Gulf energy majors are looking to diversify their revenue streams away from hydrocarbons and become global renewable energy producers in their own right. While Gulf firms are involved in projects at home, they are also moving increasingly into overseas enterprises including within Asia. Asian companies are investing in solar and other renewable energy projects in the Gulf, while Gulf SWFs are providing the investment required for Asian economies to hasten their energy transitions.

There has been considerable activity in Asia-Gulf sustainability cooperation over the past year, with notable projects and investments including:

• UAE renewable energy firm Masdar has begun work constructing a US$2bn floating power plant in Indonesia capable of generating 145MW of electricity and exporting power to Singapore. The project is expected to be completed in January 2024 (Bellini, 2021).
• In March 2022, China’s Jinko Power was awarded a contract to develop the 300MW Saad solar plant. It will cost US$213m to deliver and will power 132,000 homes in Saudi Arabia (Energy & Utilities, 2022a).

VIEW THE FULL REPORT

For more information about Asia House’s Middle East expertise and research services, and to enquire about bespoke presentations on the issues covered in the report, please contact Jonathan Smith, Corporate Affairs Manager: jonathan.smith@asiahouse.co.uk

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