The Gulf, which is the world’s O&G center of gravity, is facing growing uncertainties. Some are prompted by traditional rivalries, recently strained by the US strategy of “maximum pressure” on Iran and by several asymmetric attacks occurred in the region. Some others are connected with the challenges that the energy transition poses to those States that based their economic fortune and their own domestic stability on oil revenues.
Since 2014, following the collapse in crude oil prices, Arab monarchies have realized the need to diversify their economies and their energy mix - each one at a different pace. Owing to price volatility, and confronted with the need to invest to stimulate sectors alternative to the O&G as well as boost youth employment in private sector, the Gulf sovereign wealth funds rapidly deflated.
The economic strategies at the core of the ambitious Vision 2021, 2030 or 2040 are not only driven by “survival reasons”: the global commitment towards a low-carbon future also binds Gulf countries to carve out an important role along the path to decarbonisation.
The shift towards gas as transitional fuel is common to many Gulf countries, where it represents the main driver of diversification from oil, although with different strategies and at different paces mainly due to the structural shortage of gas or limited investments launched so far in the gas sector. In fact, although the Gulf is the second region in the world for gas reserves after Eurasia, production only represents 11% of the total global output, with differentiated national contexts as regards gas exploitation.
Natural gas is the almost exclusive component of the primary energy mix in many countries in the area, such as Qatar, UAE, Oman and Bahrain (more than 85% of domestic demand for primary energy). These countries, in recent years, have strongly committed to search for the optimal allocation of their resources on the domestic market, by subsidizing the demand and intervening on energy efficiency, favoring gas both in the thermoelectric sector and as an economic lever in the industrial initiatives (petrochemical and refining).
Other large Gulf producers, such as Saudi Arabia and Kuwait, instead, remain significantly anchored to oil for their domestic consumption (around 50% of primary demand), mainly due to the failure to implement structural reforms in the energy sector, to economic distortions and to the absence of internal competitiveness. Although the thermoelectric system is able to increase the production of electricity from gas, moving away from oil, the availability of “cleaner fuel” is conditioned to the insufficiency of the infrastructures, of the investments and the know-how in those countries that still privilege the use of gas in reinjection in order to maintain oil production levels. Saudi Arabia’s and Kuwait’s limited capacity in the gas sector forced the two countries to shape their Visions almost entirely around the target of renewables and nuclear energy: Riyadh aims to reach +40 GW in the next 10 years (26% of the power mix).
Due to the growing energy demand also driven by huge industrial, logistic and infrastructural projects (new ports and special economic zones), needed to divert Gulf economies away from oil, some Arab monarchies are developing indigenous gas resources. This appears to be pivotal also to abide by contractual commitments for exporting LNG to the Asian markets, as it is the case particularly for Oman and the UAE.
These two countries are trying to boost offshore hydrocarbon research to develop sour or tight/shale gas, using advanced technologies. The region is an interesting global laboratory for innovative strategies. In this light, Abu Dhabi is an example of experimenting and applying on an industrial scale those techniques and high-tech processes, such as the Carbon Capture Utilization and Storage (CCUS) and the “drone application for seismic”. In addition, many Gulf countries are prone to developing unconventional resources. However, replicating the fortune of shale gas outside the US represents an enormous gamble for the region, due to its technical and commercial features as well as for the environmental impact of this business.
Eni’s recent expansion in the Gulf aims at gathering the important momentum of energy development in the region. Since 2018, in 16 months, Eni has signed 16 contracts in three different countries (UAE - in the emirates of Abu Dhabi, Sharjah and Ras Al-Khaimah - Bahrain and Oman), where the Company is present through the whole value chain. The Gulf indeed is a natural platform interconnecting the routes from the new Asian giants to the European market and across the Horn of Africa. It developed sophisticated financial services and has attracted investments from the new global players, like China and India, which are seeking to invest their political and economic resources. By entering the region, Eni is at the forefront in seizing the opportunities of an area that sees international partnerships as a lever for the development of its resources.
In order to satisfy the growing domestic energy demand, Gulf countries have also resorted to LNG imports, thanks to the favorable conjuncture on international markets. Saudi Arabia, being limited in its gas resources availability, is evaluating importing LNG on its western coast. Kuwait is building a new regasification plant on shore in Al-Zour, in addition to the existing floating regasificator essential for the Country’s summer peak of power and desalinization demand. Bahrein as well is starting importing LNG in the second half of 2020.
In such a heterogeneous context, only Qatar is able to export significant LNG volumes. Challenging the rising output in the US and Australia, Doha strongly committed to become the world’s top LNG supplier by 2027. Qatar already supplies gas to Oman and the UAE through the Dolphin pipeline and in February it signed a new agreement to supply liquefied natural gas to Kuwait. Riyadh and Manama, instead, are reluctant to import from Qatar due to the political reasons connected to the embargo imposed to Doha in 2017.
In recent years, strained political relations in the area has led to the suspension of several projects of regional gas sale. Muscat strategy, which is part of the Omani Vision 2040, aims at recovering the historic interconnection between the countries of the Arabian Peninsula - through the energy infrastructures as well – but has not been fully implemented precisely because of the intra-GCC tensions.
Beyond boosting strategic investments in the gas sector, UAE and Oman have also implemented significant policies to follow through along the path of renewal. The Omani program Tanfeedh, for instance, aims to reach 93% of the GDP incomes for non-oil sectors. The same applies to the effort Abu Dhabi is placing over circular economy.
Overall, smaller monarchies appear more resilient to change than countries such as Saudi Arabia, as they have more resources to distribute per capita and because they launched their plans for the post-oil era well before 2014. That said, all Gulf countries - with due differences - will likely continue to deal with the hard sustainability of their ambitious Visions, not only in terms of energy diversification, but rather in the socio-economic context of fiscal and labor policies, whose implementation occurs very slowly, for fear of altering the social contract. Beyond rethinking their development models, these countries will in fact have to introduce measures to review public spending and to reform their welfare systems, in particular by cutting energy subsidies or introducing forms of taxation.
Furthermore, forecasts predict that in the next 15 years over 500,000 young graduates in the six Gulf countries will enter the labor market without being able to be absorbed by the public sector. This perspective is forcing governments to boost the private sector while promoting policies to reduce the dependence on foreign workers (expats in the UAE and Qatar represent 88% of the population). Those dynamics are likely to further alter consolidated domestic socio-political balances.
 The United Arab Emirates launched in 2010 the UAE Vision 2021, which has been strengthened in 2017 by the launch of the UAE Energy Strategy 2050 aiming to increase the contribution of clean energy in the total energy mix from 25% to 50% and reduce carbon footprint of power generation by 70%.
 Saudi Arabia, Bahrain and Qatar have launched their own Vision 2030 to attain strategic goals in diversifying the economies away from their reliance from oil, enhancing the private sector and attracting foreign investments, with a special focus on innovation and education.
 Oman has committed to implement its Vision 2040 focusing on heritage as a top-down driver of economic transformation (since it plays a bridge role between tradition and future) as well as heritage as a means of promoting regional connectivity and cooperation.
 The 10th Assembly of the International Renewable Energy Agency (IRENA) took place in Jan. 2020 in Abu Dhabi focusing on renewable energy, recognized as playing a central role in the achievement of several UN Sustainable Development Goals (SDGs) including energy access.
 Renewable energy market analysis: GCC 2019, p. 26, International Renewable Energy Agency (IRENA).
 The Gulf Cooperation Council's Shift to Gas. Avoiding Another Fossil Fuel Trap, p.7-10, Nicolò Sartori, Istituto Affari Internazionali (IAI), Dec. 2018.
 Diversification in Gulf hydrocarbon economies and interactions with energy subsidy reform: lessons from Kuwait, p. 6, The Oxford Institute for Energy Studies (OIES), April 2019.
 Middle East diverges on energy transition, Jan. 2020, Energy Intelligence.
 The Future of Gas in the Gulf: continuity and change, J. Stern, p. 1-5, Oxford Institute for Energy Studies (OIES), 2019.
 Tanfeedh: National Programme for Enhancing Economic Diversification. To implement the national plans promoted through Vision 2040, Sultan Qaboos had started diversifyng the economy by focusing on strategic sectors alternative to O&G (logistics, infrastructure, tourism and industrial production - also thanks to the transformation of its ports into regional maritime hubs and the creation of special economic zones to attract foreign investments) but also by supporting privatization and public-private partnerships, education, digitization and technological innovation and by promoting labor policies such as “Omanization” (to encourage the insertion of young nationals in the private sector).
 For instance, the UAE have included integrated waste management among the main strategic targets of Vision 2021 and the country is working to strengthen partnerships between the government and the private sector and to launch initiatives that aim to transform waste from an environmental burden into an economic resource, focusing on recycling and on the transformation of waste into energy (power and bio-fuels).
 Unsustainable: but why?, Giacomo Luciani, p. 5-7, Oxford Institute for Energy Studies (OIES), June 2019.
 Bahrain, Saudi Arabia and the UAE recently introduced VAT, while Oman, Kuwait and Qatar plan to implement it by 2021.
 Economic diversification and job creation in the Arabian Gulf: a value chain perspective, Martin Hvdit, p. 36-39, Oxford Institute for Energy Studies (OIES), June 2019.
 CIA data (2019).