Middle East looks to channel fossil resources, petchems into energy-transition drive

A wave of low-carbon projects is building in the Middle East as the region's energy and chemical companies push to achieve their government-prescribed net-zero goals by 2050.

Many of the Middle East's multibillion-dollar, low-carbon developments -- including blue- and green hydrogen and ammonia projects -- as well as major petrochemical programs will be funded by petrodollars as the financial returns from conventional oil and gas activities are channeled by the region's leading producers into their energy-transition plans.

The state-backed companies undertaking these projects are increasingly vocal in pushing for what they call a more realistic approach to the global energy transition, arguing that fossil fuels must play an essential role if long-term, low-carbon strategies are to be achieved along with stable energy supplies.

Amin Nasser, president and CEO of Saudi Aramco, highlighted the need for a "much more credible" energy-transition plan in a keynote speech at a digital forum held recently by Schlumberger. According to Nasser, the plan should be based on three strategic pillars: a recognition by policy makers and other stakeholders that supplies of ample, affordable, conventional energy are still required over the long term; that new, lower-carbon energy should steadily complement proven conventional resources; and that further reductions should be made to the carbon footprint of conventional energy, through technology.

"When you shame oil and gas investors, dismantle oil- and coal-fired power plants, fail to diversify energy supplies -- especially gas -- oppose LNG receiving terminals, and reject nuclear power, your transition plan had better be right. Instead, as this crisis has shown, the plan was just a chain of sandcastles that waves of reality have washed away," Nasser said.

Policy makers and stakeholders can help by uniting around a plan based on the three pillars, he said.

Aramco's own targets for achieving net-zero Scope 1 and 2 greenhouse gas (GHG) emissions from its wholly owned assets by 2050, while simultaneously investing in and extending its long-term oil and gas production capabilities, include continuing with the company's downstream expansion, said Nasser when announcing Aramco's third-quarter financial results.

Aramco will continue seeking to leverage "the significant potential of our products to meet rising global demand for petrochemicals, which will be critical to the materials transition that is required to support a lower-carbon future," he said. "In addition, we continue to develop new, lower-carbon energy solutions as we work to be part of a more practical, stable, and inclusive energy transition."

UAE commits to net zero

The UAE, the third-biggest oil producer in OPEC, became in October last year the first Middle Eastern country to commit to reaching net-zero emissions by 2050.

However, state-owned Abu Dhabi National Oil Co. (ADNOC), like Aramco, continues to ramp up its crude oil production -- in ADNOC's case by 1 million b/d, to a planned 5 million b/d by 2030 -- to meet forecast oil demand growth, while also investing billions to expand its petchems and renewables portfolio.

The company, together with Abu Dhabi National Energy Co. (ADQ) and a growing number of international partners, is under way with one of the largest petchem and low-carbon developments in the region. The initial phase of development for the Abu Dhabi Chemicals Derivatives Co. (Ta'ziz) industrial chemicals park at Ruwais involves a minimum investment of $5 billion, with more in the pipeline.

According to Khaleefa Yousef al-Mheiri, acting CEO of the Ta'ziz joint venture, the project is very much in line with the UAE's 2050 net-zero initiative. The complex will leverage low-carbon electricity sources such as cogeneration from an on-site utilities facility, and from grid power from nuclear and solar energy, and use best available technology to drive manufacturing growth with lower-carbon emissions.

"Ta'ziz is a critical enabler of the UAE's industrial development and manufacturing growth ambitions. In line with our chemicals' growth strategy, this major project [will] harness our country's vast natural resources, while responding to the growing global demand for chemicals," he said.

By leveraging clean grid power and gas-based feedstocks, new low-carbon industrial value chains will be built "that will further grow, diversify, and future-proof our economy," Mheiri said.

One of the Ta'ziz complex's anchor projects currently in the development phase is a world-scale blue ammonia plant, in partnership with Fertiglobe, Mitsui & Co., and GS Energy Corp. A final investment decision on the 1 million mt/year plant is scheduled for late 2022, with startup in 2025. Mitsui and GS Energy plan to offtake significant volumes of the low-carbon ammonia to meet growing demand in Japan and South Korea.

Ta'ziz is also progressing plans with Proman (Wollerau, Switzerland) for a 1.8 million mt/year gas-to-methanol plant at Ruwais, although a schedule for the project has not yet been disclosed. The companies signed an agreement earlier this year to construct what would be the UAE's first methanol production facility, aimed at meeting growing domestic and international demand for the product as a lower-emission fuel and to produce chemical derivatives. The methanol facility would be one of the most energy-efficient and low-emission plants in the world, according to Proman CEO David Cassidy.

New growth phase at Ta'ziz

A new growth phase announced by ADNOC and ADQ includes plans for a low-carbon steam cracker at the Ta'ziz chemicals park. ADNOC and ADQ, the majority owners of the Ta'ziz venture, have said the next phase of growth "will more than double the number of chemicals produced at the industrial hub."

The companies say the centerpiece of the expansion will be the cracker, which will supply feedstocks for derivative plants and bring "multiple new product value chains to the UAE for the first time." The individual derivative products have not been detailed.

The cracker project is at the feasibility study stage, with the design phase set to start in the first quarter of 2023, ADNOC and ADQ said. The planned ethylene capacity of the cracker has not been given.

A joint venture agreement has also been signed to advance a previously announced ethylene dichloride (EDC), chlor-alkali, and polyvinyl chloride (PVC) production facility at Ta'ziz. ADNOC said the project partners -- Reliance Industries and UAE-based Shaheen Chem Holdings Investment -- signed a joint venture incorporation agreement in October, with the total investment to exceed $2 billion. The facility is planned to have capacity for 940,000 mt/year of chlor-alkali products, 1.1 million mt/year of EDC, and 360,000 mt/year of PVC.

Middle Eastern petchem producers, especially those in the energy-rich Gulf states, benefit from regulated prices for gas, and profit windfalls for the region's energy companies from the sustained high price of oil throughout 2022 are being invested in their new or expanded low-carbon and petchem projects such as Ta'ziz.

"The MENA region's petrochemicals industry has a competitive advantage when it comes to ethane feedstocks," said Ramy al-Ashmawy, senior energy specialist at multilateral financial institution Arab Petroleum Investments Corp. (Apicorp), quoted recently by Platts, part of S&P Global Commodity Insights. "For other feedstocks like naphtha and crude, there is a relative competitive advantage due to proximity to ample upstream oil and gas production. This saves supply-chain costs [shipping, logistics, and insurance] compared to other regions such as Europe, which heavily rely on imported feedstocks," he said.

As long as Gulf feedstock and energy prices remain regulated and below international levels, regional petchem producers "will continue to stay very competitive relative to global peers," said Robert Stier, senior petrochemical analyst at S&P Global. "Middle Eastern producers will have positive margins relative to Asian and European markets, which are under pressure now."

The region is not relying solely on its vast conventional energy reserves and financial resources to fund its energy transition, however. Aramco recently launched a $1.5 billion sustainability fund that will invest in technology that can support "a stable and inclusive energy transition."

The fund will be among the largest sustainability-focused venture capital funds globally.

The fund, managed by Aramco's venture capital arm, plans to invest in technologies worldwide that support the company's net-zero 2050 goal for its wholly owned operational assets, as well as the development of new lower-carbon fuels. Initial focus areas will include hydrogen, ammonia, carbon capture and storage, synthetic fuels, GHG emissions, energy efficiency, nature-based climate solutions, and digital sustainability.

Sustainability well integrated at Aramco

"Climate change is a critical issue, which is why sustainability is well integrated in Aramco's strategy and investment decisions," said Aramco Chairman Yasir al-Rumayyan. "By driving large-scale investments and building key domestic, regional, and international partnerships, Aramco aims to enable a stable and inclusive energy transition that meets the world's need for energy with lower emissions."

Aramco is targeting production of 11 million mt/year of blue ammonia, predominantly as a carrier of blue hydrogen, by 2030. This will support the reduction of emissions in sectors such as heavy-duty transport, heating, and industrial applications, it said.

The company has also set itself the goal of capturing, utilizing, or storing 11 million mt/year of carbon dioxide equivalent (CO₂e) by 2035, together with GHG emission initiatives aimed at reducing or mitigating more than 50 million mt/year of CO₂e from its upstream and downstream segments, also by 2035.

Aramco is the parent of Sabic. The Sabic Agri-Nutrients business and Aramco recently achieved a key milestone for blue hydrogen and ammonia produced by the firms at Jubail, Saudi Arabia, with each granted certification by TÜV Rheinland, an independent German testing, inspection, and certification agency. The certification was for 37,800 mt of blue ammonia produced by Sabic Agri-Nutrients and for 8,075 mt of blue hydrogen produced by Aramco's refining subsidiary Sasref. The certifications are the first of their type in the world, said Olivier Thorel, vice president/chemicals at Aramco. They also signify "a major milestone in our efforts to develop clean energy solutions, and advance our hydrogen and ammonia export capabilities," he said.

As Aramco's chemicals business, Sabic is leveraging its infrastructure "to produce blue ammonia that can help meet the world's growing needs for sustainable solutions," said Fahad al-Sherehy, vice president/energy efficiency and carbon management at Sabic. Hydrogen will play an essential role in decarbonization and forms part of Sabic's roadmap toward achieving carbon neutrality by 2050, with an interim target of a 20% cut in carbon emissions by 2030, he said.

Aramco's flagship $5 billion Neom green hydrogen and ammonia project in Saudi Arabia, meanwhile, has entered the "full execution stage," according to one of Aramco's project partners, Air Products, with startup planned for 2026. "We're doing engineering, procurement, construction," Samir Serhan, chief operating officer at Air Products, told S&P Global on the sidelines of the recent Adipec energy conference in Abu Dhabi.

Air Products is working with ACWA Power and NEOM Co. on the project by the Red Sea to produce 240,000 mt/year of renewable hydrogen, which will be processed into 1.2 million mt/year of green ammonia mainly for export. The hydrogen will come from about 4 gigawatts (GW) of solar and wind power. The six-month EPC contract, when awarded, will have a value of about $900 million. ACWA Power and Air Products each owns a 33.3% interest in the NEOM Green Hydrogen Co. joint venture, with NEOM Co. owning 33.4%. NEOM is a joint stock company wholly owned by Saudi Arabia's sovereign wealth fund. Air Products will be the exclusive offtaker of the facility's green ammonia.

Oman's green hydrogen, ammonia ambitions

Oman, the Middle East's biggest oil producer outside OPEC, has this year dramatically stepped up its own plans for green hydrogen and ammonia, targeting the development of 8.5 million mt/year in capacity by 2050.

The country announced in October a goal of achieving net-zero emissions by 2050, becoming the fourth country in the six-member Gulf Cooperation Council (GCC) to commit to net-zero targets, following the UAE, Saudi Arabia, and Bahrain.

Plans include the launch of Oman's first green hydrogen project tender before the end of November, with an award by March 2023, said Firas al-Abdawani, acting CEO of Hydrom, at a webcast ceremony to launch the new company, which will be in charge of managing tenders and other aspects of Oman's green hydrogen strategy. Oman plans to develop up to 1.25 million mt/year of renewable hydrogen by 2030, he said.

The first tender for green hydrogen projects will be in Duqm, a special economic zone that is hosting a number of energy projects, with a second tender to be launched in April 2023 and awarded by December that year, Abdawani said.

Oman is offering investors incentives such as lower land fees to develop green hydrogen projects in the Duqm, Dhofar, and al-Jazir regions over an area spanning about 50,000 square kilometers, says Abdulaziz al-Shidhani, director general/renewable power and hydrogen at Oman's ministry of energy and minerals. The projects are expected to attract investments totaling $140 billion by 2050, with production earmarked for domestic as well as export markets.

Oman's state-owned energy company OQ will take a 20% stake in these green hydrogen projects, according to Shidhani. OQ is moving ahead with a previously announced green hydrogen and ammonia project in Oman's southern Salalah free zone in partnership with Air Products and ACWA Power. The proposed facility will produce hydrogen from electrolysis and nitrogen from air separation to be used in the production of green ammonia, with the renewable power coming from solar, wind, and energy storage.

Clean technology firm ACME (Gurugram, India) and renewable power producer Scatec (Oslo, Norway) are also under way with plans to begin construction on the first phase of a project in the special economic zone at Duqm to produce 100,000 mt/year of green ammonia. A second phase is expected to raise total capacity to 1.1 million mt/year. The companies recently signed a term sheet for Yara International to offtake the entire output from the first phase, and for potential further offtake from the second phase.