< Previous10 COMMENT oilandgasmiddleeast.com JANUARY 2022 The UAE is changing the narrative of the energy transition with COP28 in sight BY: Vijay Valecha, Chief Investment Officer, Century Financial UAE enters the end of its BLACK GOLD ERA I t’s hard to believe that the UAE was once a parched desert with a tiny town where now luxurious hotels, shopping malls, and skyscrapers dominate. The nation is now regarded as a symbol of prosperity and humanity’s triumph over nature. Before the discovery of oil, the UAE had a subsistence economy, with households depending on natural resources like pearl diving and agriculture to meet their basic requirements. Oil was discovered in Abu Dhabi in the early 1960s, prompting UAE officials to demand immediate unification in 1971. The discovery of the ‘black gold’ ushered in a new age of trade and radically transformed the country. CLIMATE CHANGE – A DOUBLE EDGE SWORD FOR UAE The UAE is susceptible to climate change’s physical effects, such as rising temperatures, unexpected extreme weather, and sea-level rises. At the same time, its economy, which is dependent primarily on oil and gas exports, is vulnerable to mitigation and adaptation policies to reduce global fossil fuel use. For these reasons, even though oil and gas exports will continue to be a significant source of revenue for the foreseeable future, the UAE has decided to define, restructure, and implement economic diversification policies that consider renewable energies a viable path to weaning the country off fossil fuel dependency. SUSTAINABLE INITIATIVES The UAE has a history of setting records, whether it’s for the world’s tallest building, the most luxurious hotels, or the COMMENT oilandgasmiddleeast.com JANUARY 2022 11 city of Masdar in Abu Dhabi, which is the world’s first city to have a zero-carbon footprint, zero waste, and is car-free. The city is still under construction, but it is expected to house 40 to 50 thousand people over a six-kilometre span. For UAE residents, the prospect of a dozen unmanned aerial vehicles (UAVs) flying above their heads with delivery packages and swooping down on their doorsteps to bring groceries, food, or medications is not far off. Another interesting initiative is Abu Dhabi’s rollout of self-driving taxis as a part of its trial project on Yas Island that will include three electric and two hybrid self-driving vehicles. These ground- breaking initiatives are in support of Sheikh Mohamed bin Zayed Al Nahyan’s Vision 2050 to cut carbon emissions and promote the use of sustainable green energy. A CHANCE FOR A NEW NARRATIVE The oil-dependent nation has completed a slew of green initiatives to aid the worldwide fight against climate change, and its efforts have not been unnoticed. The UAE won the bid to host the COP28 in 2023, demonstrating the country’s commitment to collaborating with the international community to expedite global efforts to address climate change and environmental protection while also ensuring a more prosperous future. The UAE is known for setting landmarks, and hosting COP28 would be a masterstroke in the climate sphere for the Middle East, which is the world’s hottest, driest, and most water-scarce area, with temperatures forecasted to rise more than twice the global average by 2030. The Emirates’ choice to host the COP28 reflects strong leadership and a vision of how an oil-producing country can underline the need to go all-in on greening the planet. THE UAE WON THE BID TO HOST THE COP28 IN 2023, DEMONSTRATING THE COUNTRY’S COMMITMENT TO COLLABORATING WITH THE INTERNATIONAL COMMUNITY TO EXPEDITE GLOBAL EFFORTS TO ADDRESS CLIMATE CHANGE AND ENVIRONMENTAL PROTECTION THE SMOOTH TRANSITION The UAE has taken early measures to bid farewell to the last barrel of oil and strike a balance between economic progress and environmental protection. The UAE Energy Strategy 2050 aspires to develop an energy mix that balances economic needs and environmental goals by combining renewable and clean energy sources. To fulfil rising energy demand and assure long-term economic growth, the UAE aims to invest AED600 billion through 2050. The UAE is enthusiastic about hydrogen as a source of energy and has been developing a thorough plan to position itself as a clean fuel exporter and capitalise on its future possibilities. As part of the UAE’s ongoing energy diversification efforts, ADNOC, Mubadala, and ADQ formed a partnership in January to build a hydrogen economy in the nation, focused on low-carbon green and blue hydrogen. CORPORATES UPPING ESG GAME The term ‘sustainability’ has crept into our everyday lives. It’s also made its way into the financial realm, where it’s become one of the key motivators to change investor behaviour. Analysts estimate that the global sustainable investments are growing profoundly and reached $35 trillion or 36 percent of the total assets under management in 2020. Corporate America, too, has jumped on the sustainability bandwagon owing to growing shareholder concerns. For example, did you know McDonald’s Big Mac has a carbon footprint equivalent to driving a car for nearly eight miles? To make its brand more sustainable, McDonald’s is making significant efforts to introduce the meat-free McPlant burger to all stores. Additionally, the burger giant announced that it would reduce fossil fuel-based plastic in its Happy Meal toys by 90 percent by 2025. The UAE, an international business hub, has joined Western counterparts mandating ESG reporting for UAE- listed companies; this comes when retail investors in the UAE have started to consider ESG factors while investing. These initiatives reflect the UAE’s overall mission to be an established global sustainability leader. CAPITALISING ON THE TREND The UAE has persistently strived to bring sustainability to the spotlight to fade the veil between the West and the Middle East; however, the alternative energy domain remains a niche investment in the region. Tech companies worldwide are starting to embrace greener, more sustainable business models to be carbon negative, water positive, and waste-free. Investors hoping to profit from this new market trend should keep a watch on the STOXX Global Climate Change Leaders Index, which was created to identify the world’s most sustainable companies. Apple, Bank of America, Microsoft, and Alphabet are among the STOXX Index’s heavyweights that may be added to a portfolio. Apart from purchasing stocks in solar panel manufacturers, investors can consider Invesco Solar ETF (TAN) in the alternative energy space. The global repercussions of climate change are becoming more evident than ever, with unprecedented heatwaves, roaring wildfires, and catastrophic floods, making it critical to keep a small percentage of an investor’s portfolio in green assets. 12 COMMENT oilandgasmiddleeast.com JANUARY 2022 O n the face of it, COP26 in Glasgow and ADIPEC in Abu Dhabi were two very different forums. The first, a global summit to combat climate change with a strong undercurrent of environmentalist protest; the second, the biggest gathering in the world of the oil and gas firms deemed responsible by many for global warming. But there was enough overlap in the agendas and outcomes of both events to reach the conclusion that there is a consensus that climate change is THE big issue facing the world today, and that the hydrocarbon industry has recognised that and is stepping up to play its part. Not that the hydrocarbon sector was officially represented in Glasgow. The organisers decided quite early on that official delegations could only come from government and government-related entities, which left the industry outside the main forum, in the cold (literally). At the ADIPEC forum in balmy Abu Dhabi a few days later, it was clear from speaker after speaker that many of the concerns of Glasgow had been noted, especially by the Middle East-based organisations that had made both trips. In fact, the final declaration from Glasgow contained few items that ADIPEC delegates could regard as controversial. The 1.5 centigrade limit for global warming was not set as a hard-and-fast target in the COP26 agreement. Rather, were welcomed in Abu Dhabi just as warmly as they had been in the previous week at COP26. But, despite the feeling that the can was being kicked down the road to some degree to Egypt and the UAE, there are still urgent priorities facing energy policymakers and corporations in the Middle East. It is significant that these priorities have been set not by the UN climate change organisers, but by the regional hydrocarbon producers themselves. For example, the two biggest oil producers in the Arabian Gulf – Saudi There was common ground at COP26 and ADIPEC, but fundamental differences remain Both conferences covered the same ground, but a conundrum sits at the heart of sustainability debate it was “kept alive” as an aspiration, to be further debated at COP27 in Cairo next year and might very well be further kicked down the road to COP28 in the UAE the year after. That is no immediate headache for the hydrocarbon producers, but there could be more friction when the big energy consuming nations are asked to prove that they have hit the targets of the “nationally determined contributions” set out by the UN climate change watchdogs to reduce emissions. The show-stopper in Glasgow was the last-minute drama about coal, and the insistence by China and India that coal should be phased “down” but not “out”. That too is not really an issue for the oil and gas producers, who can sell more of their (cleaner) products to the large Asian economies if coal production is reduced. The financial resolutions of the COP26 were also a compromise the oil companies could live with. The developed countries did not meet their pledge of $100bn financing for the less developed to ease the energy transition, but there was sufficient consensus in both Glasgow and Abu Dhabi on the need for a transition fund, and on the crucial issues of a global carbon market. Other Glasgow outcomes – like reforestation, methane mitigation, the focus on hydrogen as a fuel of the future, and critical US-China co-operation – By: Badar Chaudhry, Senior Vice President, Unit Manager, Energy Sector, Mashreq13 COMMENT oilandgasmiddleeast.com JANUARY 2022 Arabia and the UAE – have both set ambitious medium-term goals to accelerate the energy transition. The UAE has outlined plans to reduce CO2 emissions from power generation and water desalination by 50 per cent over the next decade, alongside a big expansion in renewables, and alternatives like hydrogen and nuclear, that will help the Emirates to get to the goal of net zero carbon emissions by 2050. Saudi Arabia – which has pledged to get to net zero by 2060 – is committed to phase out the burning of oil in domestic power generation altogether by 2030, $600bn was required just to keep up with demand for hydrocarbon power for the rest of this decade. Both Saudi Arabia and the UAE are convinced of the need for more oil and gas to fuel global economic growth and are aggressively increasing their supply limits to this end. Producing and exporting more oil while attempting to adhere to ambitious climate change targets remains the big conundrum for the big regional hydrocarbon powers – especially given the accelerating deadline for meaningful action on global warming. replacing it with renewables like solar and wind to complement cleaner gas power. The scale of the challenge is illustrated by the fact that renewables only account for about 1 per cent of Saudi energy generation currently. But the biggest difference between COP26 and ADIPEC was also the most telling. The Glasgow forum heard multiple calls for an immediate end to investment in fossil fuels. In stark contrast, ADIPEC spent a good deal of time bemoaning the low levels of investment in oil and gas in recent years. One UAE energy leader said some 14 COMMENT oilandgasmiddleeast.com JANUARY 2022 The oil and gas industry needs to take cybersecurity threats seriously to prevent global energy disruption BY: Mena Migally, Regional Vice President, META, Riverbed Protect your data or face disruption T he oil and gas sector is no stranger to cybersecurity threats and the challenges they present. We only need to go back six months to see one of the most disruptive cybersecurity incidents for the energy sector in living memory – The Colonial Pipeline attack. The ransomware attack in May 2021 caused chaos, shutting down a major US oil and gas pipeline responsible for supplying nearly half of the East Coast’s petroleum. For global energy industry leaders, this security breach, in particular, should act as a signpost moment, highlighting why cybersecurity requires urgent and constant focus. The question for many leaders, however, is where do you start when nearly 70 percent of organisations have little to no visibility into network and application performance or how they are using resources? Working with our clients in the oil and gas sector has made the truth clear: businesses can’t protect COMMENT oilandgasmiddleeast.com JANUARY 2022 15 what they can’t detect. Particularly when it comes to digital transformation, and their data, maintaining visibility can be the difference between experiencing a breach that shuts down your power grid, isolates an offshore rig or halts the supply chain, and troubleshooting the problem before it causes irreparable damage. Organisations can begin to tackle this issue, embrace digital transformation and future proof their infrastructure, now and into the future. The increasing convergence between Operational Technology (OT) and corporate IT environments in the oil and gas sector has widened the potential attack surface and lowered the barrier for malicious actors. At the same time, oil and gas companies are fighting against more than just the threat landscape. They are also managing an infrastructure that is geographically dispersed and aging. For example, a company may be dealing with fragmented systems, multiple vendors with different security guidelines and irregular patching due to remote and unmanned locations. Add to this the rise of compliance complexity, and it’s no wonder that the oil and gas sector is finding it difficult to keep its most important asset, data, safe. Digital transformation holds the key to not only business growth, but also to enabling oil and gas companies to protect their network. However, oil and gas companies are in various stages of their digital transformation journeys, with many still in the early phase. To make a long-term success of digital transformation, enterprises need to understand the current cyber-physical risk landscape and also the threats that the Industrial Internet of Things (IIoT) and new technologies bring. This means taking a proactive stance on security in which changes are constantly monitored and technologies updated. Such an approach would also mitigate the risks of digital transformation projects being delayed or experiencing major setbacks once launched and will help businesses avoid major vulnerabilities at a later stage. Many energy companies are beginning OIL AND GAS COMPANIES ARE FIGHTING AGAINST MORE THAN JUST THE THREAT LANDSCAPE. THEY ARE ALSO MANAGING AN INFRASTRUCTURE THAT IS GEOGRAPHICALLY DISPERSED AND AGING to adopt tools such as encryption, and particularly AI — which mimics human intelligence by analysing data in order to speed decisions and stay ahead of the cybercriminals and foreign government-backed hackers. Using its ability to analyse large volumes of data very quickly, and far faster than humans, AI software can detect deviations that could be the work of hackers trying to gain access to a system. The technology can then analyse the methods used in previous cyberattacks, giving systems operators the tools needed to find and thwart the next attack. As oil and gas companies add new services, converge infrastructure and enable cybersecurity measures, they need to have a holistic view of the entire network infrastructure. From encrypted applications, network traffic to remote workers, cybersecurity and the applications they are using, IT teams must be able to see what is coming in and out of the network. Otherwise, there is no way to protect the transfer of data and put the compliance and security measures in place to combat ever more sophisticated threats. The starting point is to implement unified Network Performance Management (uNPM) in order to have an always-on, always up-to-date view of the network. Riverbed’s unified NPM solutions collect and analyse 100 percent of the data from every application and across every device in use. Equipped with the resulting insights, IT teams can identify any problems that are occurring, both on a rig and in locations across the network, while also implementing actions to rectify the issue. By applying this same visibility to threat detection, incident response and remediation, the threat landscape can be reduced, cybersecurity and compliance measures can be rolled out seamlessly, and digital transformation can drive productivity and growth. The cyberattacks and repeated targeting of the oil and gas sector is a warning sign that cybersecurity is no longer a nice to have, but a fundamental component of IT infrastructure. While there is no denying that IT teams have a challenge, with fragmented infrastructure, remote rig locations and data siloes, visibility is the key to futureproofing their business against ever more sophisticated attacks. While many may be in the early stages of their digital transformation and cybersecurity journey, it will be those who invest in the right technologies, full fidelity visibility and create a holistic view of their infrastructure that will be able to protect their most valuable asset – data. 16 COVER STORY oilandgasmiddleeast.com JANUARY 2022 T he energy sector is changing. Climate change and sustainability needs are driving a transition away from traditional fossil fuels towards cleaner energy. The energy mix is changing, with the role that fuels like oil and coal will play set to decrease, with other technologies likely to increase. Of these, natural gas is proving popular as part of the transition, with one mega exporter likely to benefit: Qatar. Qatar is home to the world’s third largest natural gas reserves. Gas has already been pointed to as a lower-carbon transition fuel, and forecasts, such as the BP Energy outlook 2050, already place higher demands on liquefied natural gas (LNG) than on oil in the future. Particularly in Asia, gas needs are likely to increase as countries transition from coal to LNG as an electricity source. By carbon-intensity, Qatar’s gas production is one of the lowest globally. This figure will likely continue to drop further as QatarEnergy follows through with its sustainability strategy. Plans are already in place to reduce methane leaks, increase CCS (carbon capture and storage) and solar power use. “I believe that the best for the LNG industry is yet to come, and that more consumers are realising the economic benefits and environmental qualities of LNG, and are adopting it as a key, cleaner, economical and reliable component in their energy mix,” Saad Sherida Al- Kaabi, Qatar minister of state for energy affairs, and the president and CEO of QatarEnergy said at the 10th LNG Producer-Consumer Conference. Like its energy rich neighbours in the GCC, Qatar exports a significant volume of fossil fuels relative to its own consumption. This places the country in a fortuitous situation when it comes to international buyers looking to switch to LNG as a cleaner alternative fuel source amid the energy transition. Examples of Qatar’s role here as the LNG provider for the transition can already be seen. Announcements include decade-long supply agreements with firms in China, including Guangdong Energy Group and S&T International. This dynamic is at play across Asia, with similar agreements signed with Korean, Taiwanese, Pakistani, and Bangladeshi firms in 2021. Covid-19 shocked the global economy, hitting the energy market hard. Prices for energy commodities dropped significantly, with the price for West Texas Intermediate oil even turning negative at one point. This shock caused all energy firms to slash capital expenditure which has now caused supply constraints, while prices have rapidly recovered to pre- Covid-19 levels. In Qatar, several large Qatar is well positioned to take advantage of gas’s increasing role in the global energy mix as countries around the world transition to cleaner fuel sources Running on gas: Qatar and the energy transition17 COVER STORY oilandgasmiddleeast.com JANUARY 202218 COVER STORY oilandgasmiddleeast.com JANUARY 2022 LNG projects were either postponed or cancelled altogether. This dynamic has resulted in Qatar shrinking down the table in term of export capacity, with the US set to become the world’s number one LNG exporter in 2022, according to the EIA. Qatar will shift to the number three spot below Australia. Furthermore, the timeline on gas is also limited. Despite its low carbon-intensity, countries will eventually be replaced with renewable energy sources in the goal to hit net zero. Wood Mackenzie estimates gas demand to be resilient through to 2050, and will displace coal in developing economies. However, the improving demand outlook for LNG now, compared to other fuels, along with a constrained supply market, mean the time is right for the country to push ahead with plans to expand its LNG facilities. In February 2021, QatarEnergy announced that it had awarded the main contract for the construction of four new LNG terminals for its North Field East expansion, the world’s largest offshore gas field, with supply set to come on-stream in stages between 2025 and 2027. The firm also intends to commission a further two trains and could expand it further. These new trains will significantly boost the country’s LNG output, with production set to hit 127 million tonnes by 2027, from 77 million tonnes currently. PwC also notes that the expansion plan will increase Qatar’s production of valuable by-products, including condensate, natural gas liquids, helium and ethane. Deliveries of LNG utilise Qatar’s fleet of conventional, Q-Flex and Q-Max LNG vessels, but with demand for LNG set to increase, the country has begun expanding its fleet. In November 2021, QatarEnergy announced that it had ordered six new LNG ships from two South Korean shipyards. The firm called out the North Field expansion project as one reason for the orders. “These orders, and those that will follow in the near future, constitute a significant part of our program to expand Qatar’s LNG fleet to meet the requirements of our LNG expansion projects, our existing fleet replacement, as well as our LNG trading arm,” Al- Kaabi said in a statement at the time. Earlier in October, the firm also announced that it had ordered four new LNG carriers from Hudong-Zhonghua Shipbuilding Group, the first LNG vessel deal QatarEnergy has signed with a shipyard from the Asian giant. In its bid to accelerate through the energy transition, announcements have also been made in Qatar for a bevy of international investment agreements. In 2020, the first large-scale solar power plant was announced in Qatar, with a partnership between Total and Marubeni to build the Al Kharsaah Solar PV IPP Project. The solar plant will provide 800 megawatts at peak output, representing 10 percent of the electricity peak demand in Qatar. “We are proud to pioneer the development of the first large-scale solar power plant in Qatar and support the country’s assertive commitment to developing renewable energy … This project further strengthens our long-term partnership with Qatar in oil, natural gas, refining and petrochemicals and expands it to include renewable energy,” Total Chairman and CEO Patrick Pouyanné said at the time of the announcement. The project is operated by Siraj 1, a jointly owned company between Total, Marubeni and Siraj Energy. Siraj Energy has been at the heart of Qatar’s renewable energy ambitions, and formed as a joint venture between QatarEnergy and Qatar Electricity & Water Company. The country’s push into solar energy not 19 COVER STORY oilandgasmiddleeast.com JANUARY 2022 only represents decarbonisation efforts for local power use, but also presents opportunities for the country to invest in the future development of green hydrogen. Qatar’s LNG expertise and history also places the country in a positive position to play a role in a future global hydrogen market. Existing LNG infrastructure, such as pipelines and liquid transport, can be repurposed for the processing of hydrogen. Additionally, the production of blue hydrogen requires natural gas, which Qatar, given its low carbon-intensive gas supplies, will amply be able to take advantage of. This leaves the country in a position to become a hub for hydrogen production and export in a similar manner to the stated goals of some of its Gulf neighbours, such as Saudi Arabia and the UAE. International agreements on hydrogen continue apace. QatarEnergy signed an agreement with Korea’s Hydrogen Convergence Alliance (H2Korea) to help provide the framework for cooperation in developing the hydrogen sector in both countries. QatarEnergy is also turning beyond it borders in its embrace of the energy transition. In October 2021, QatarEnergy signed an agreement with Shell to pursue joint investment in blue and green hydrogen projects in the United Kingdom. The agreement is aimed at targeting integrated and scalable opportunities in sectors that hydrogen could help decarbonise. In particular, the companies noted industrial cluster development, the transport sector and the London metropolitan sector as targets for the agreement. “This agreement does not only reinforce the long lasting and strategic partnership between QatarEnergy and Shell, but also creates a viable path for innovation and investments in low carbon fuels and technologies across the UK’s energy sector, a key area of investment for QatarEnergy. This agreement also builds on QatarEnergy’s commitment to provide reliable access to cleaner energy globally,” Al-Kaabi said after the signing. The intrinsic expertise that this will build in Qatar could also provide the country with an opportunity further down the road to export expertise. This is an opportunity that Qatar’s compatriots in the Gulf are already exploring. Abu Dhabi National Oil Company (ADNOC) in the UAE announced in 2020 that it would launch an artificial intelligence joint venture with Group 42, an Abu Dhabi-based technology firm. The new company, AIQ, is focused on developing and commercialising AI products for the oil and gas industry, and utilises ADNOC’s history in the industry. A similar project could develop in Qatar, particularly with the relationship that LNG could hold in the development of hydrogen exports in the future. This being said, near-term goals are still focused on reducing Qatar’s own greenhouse gas emissions. In October 2021, the country unveiled a new climate change plan, envisioning a 25 percent in emissions by 2030 compared to the baseline. The plan also includes a 25 percent reduction of the carbon intensity of the country’s LNG facilities by 2030. As part of these efforts, Qatar’s Ministry of Environment and Climate Change said that it would intensify its efforts to support carbon capture and storage at its gas production facilities. Carbon capture utilisation and storage (CCUS) technology could not only help reduce Qatar’s emissions, but can also provide a platform for further development and production of blue hydrogen from current natural gas facilities. Next >