March 16, 2011 / 2:02 PM / in 9 years

Analysis: Unrest stalls Middle East struggle to cut CO2

DUBAI (Reuters) - Political unrest in the Gulf has complicated the task of lowering fuel subsidies to help cut carbon in a region with the world’s highest per capita emissions.

Gulf countries, where summer temperatures reach 50 degrees Celsius (122 F), want to adopt renewables like solar power to free up oil for export at high prices as well as cut emissions, which are six times higher than the world average.

But they have been dragging their feet by providing $30 billion a year in subsidies for oil and gas use, selling gasoline and electricity domestically at often a fraction of international rates.

G20 nations have pressured the region to end subsidies, which hamper fuel efficiency, push more oil into domestic power generation, and make renewables projects uncompetitive.

“With the protests ... there is no regime that would dare to touch subsidies for quite some time, because the cost of living has been one of the main grievances throughout North Africa and the Gulf,” said Samuel Ciszuk, Middle East analyst at IHS Energy in London. Saudi Arabia, United Arab Emirates, Kuwait, Bahrain, Oman and Qatar all offer domestic fuel discounts. In Kuwait, the average fuel price break is 83 percent, according to the Paris-based International Energy Agency.

By making subsidies harder to discontinue, and by unnerving foreign investors, Arab unrest could limit Gulf oil exports and delay even modest regional plans to adopt cleaner energy.

Saudi Arabia seeks to replace 10 percent of its fossil fuel use with renewables by 2020, while the United Arab Emirates is aiming for 7 percent.

“Where energy prices are not set by the market, it’s difficult for renewable energy sources to compete,” said Rob Sherwin, managing director at Regester Larkin in Abu Dhabi.

Fuel subsidies are common in oil-rich countries, and efforts to end them can set off major unrest. Iran’s gasoline rationing in 2007 sparked protests, and Venezuela’s 1989 attempt to raise gasoline prices set off riots that killed hundreds.


Saudi Arabia, the top oil exporter, has the most at stake. In 2009, Oil Minister Ali al-Naimi said the kingdom could one day match its oil export volumes with solar power exports.

So far it has moved slowly, with projects like a solar water desalination plant underway and a small power plant.

Meanwhile, amid soaring 8 percent annual demand growth for electricity, the Kingdom is burning up to 3 million barrels a day of its own oil, a BP Solar executive said last month, valued around $300 million on international markets at today’s prices.

Without more efficiency and renewables like solar, Saudi liquids demand was on pace to hit 8 million bpd by 2030 — more than it exports now — state-run Saudi Aramco warned in 2008.

In China, where solar and wind power are both advancing, fossil fuel subsidies are a low 3.9 percent, IEA data shows.

Solar power usually relies on subsidies of its own, but in order to favor solar, Middle East governments would have to spend more per megawatt, since it is cheaper to use fossil fuels.

Instead they are spending less. Last year, the Middle East received 1 percent of the world’s $250 billion in renewable energy investments, said Eric Usher of the United Nations Environment Program (UNEP).

“The Gulf region is in the position of playing a bit of catch up,” Usher said.

Several renewable projects are face cancellation or delay, signaling investor concern about weak investment returns.

In January, BP mothballed a $2.2 billion clean hydrogen power project with Abu Dhabi’s Masdar.

The Masdar City project, a carbon-neutral, zero waste desert “city,” was once due to open before 2019, but has been pushed back to 2025.

Saudi Basic Industries Corp said last week it may seek to burn more liquids in its plants, a move that could crimp oil exports. That would come as Saudi grapples with scarce natural gas, sold domestically for $0.75 per million British thermal units (Btu), or around one-fifth of its price in Canada.


A lag to adopt more renewables could also turn the Gulf into a bigger carbon polluter. GCC countries emit 26.3 metric tons of CO2 per capita per year, or six times the world average, according to International Energy Agency data (IEA).

The GCC countries are signatories of the Kyoto Protocol, which mandates a reduction in global carbon emissions by 5 percent in 2012, versus 1990 baseline levels.

The UAE also signed the Copenhagen Accord, which encourages further reductions by 2020.

“For a long time, renewable energy was something (these) governments were almost saying as a showcase,” Ciszuk said.

“More and more are now sincere ... but in the short term, protests make all other issues disappear from their agenda.”

Editing by Joshua Schneyer and Jane Baird.

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