Solving Europe’s energy challenge13 September 2022
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One of the most apparent aspects of the Russia-Ukraine conflict is the rapid increase in energy prices brought on by Moscow’s reduction in exports to its European neighbours.
In 2021, Russia was the largest exporter of oil and gas to Europe, supplying some 40 per cent of its energy requirements, including 100 per cent of the total gas imports of five EU states, according to the International Energy Agency.
The continent’s three largest economies – Germany, Italy and France – depended on Russian gas for 46 per cent, 34 per cent and 18 per cent of their energy needs, respectively.
The imposition of sanctions on Russia in March 2022, followed by Moscow’s threat to suspend hydrocarbon exports, has resulted in a surge in energy prices.
Opec’s crude basket price increased from $78 a barrel at the start of the year to $122 in early June, while Henry Hub natural gas prices more than doubled from $3.8 a million British thermal units (BTUs) to $8.7 a million BTUs over the same period.
Expensive energy bills
This rapid energy inflation has been passed on to consumers through higher electricity bills.
In the UK, for instance, the energy regulator Ofgem estimates that the default tariff price cap will more than double from £1,300 ($1,529) in January to £3,580 in October, and reach a peak of £4,266 in the first three months of 2023, when demand will be highest during the colder winter months.
Replicated across the continent, this is likely to result in millions of households entering ‘fuel poverty’ as they struggle to pay their energy bills.
The Mena region is well-positioned to plug the shortfall in Russian gas exports as European governments scramble to source gas from new markets to reduce their dependence on Moscow
Reducing reliance on Russia
The subject was not surprisingly a central theme of debate at Siemens Energy’s Middle East & Africa Energy Week held in June, where attendees agreed on two main conclusions drawn from the crisis.
The first was that the Middle East and North Africa (Mena) is well-positioned to plug the shortfall in Russian gas exports as European governments scramble to source gas from new markets to reduce their dependence on Moscow.
The GCC alone globally exports almost exactly half of the 411 billion cubic metres of gas that Russia supplies to Europe annually. Most of this is in the form of long-term liquefied natural gas (LNG) contracts to east Asia, but there is some limited capacity available – primarily from Qatar – to fill part of the shortfall.
European nations have been quick to recognise this. For example, following a visit to the region by its Vice-Chancellor and Climate & Energy Minister Robert Habeck in March, Germany – Europe’s largest energy market – is now fast-tracking the construction of two LNG import terminals and has entered a long-term energy partnership with Qatar, the world’s largest LNG exporter.
The second principal finding from the Middle East & Africa Energy Week was that the conflict would act as an additional catalyst for renewable energy development as nations globally attempt to diversify their energy sources and reduce their dependence on imported fossil fuels.
This was in keeping with the results of a poll of up to 400 of the event’s participants. The survey, which forms the central component of the Siemens Energy’s Middle East & Africa Energy Transition Readiness Index, revealed that attendees considered the acceleration of renewables as the highest priority among 11 energy policies in their efforts to tackle the climate crisis, as well as the one with the greatest potential impact.
The Middle East is already taking a clear lead in this as it sets ambitious targets for clean, renewable capacity. For example, Saudi Arabia is looking to scale up its share of gas and renewable energy in its energy mix to 50 per cent by 2030.
Similarly, the UAE has set ambitious targets for 2050: to improve energy efficiency by 40 per cent, reduce emissions from the power sector by 70 per cent and increase the share of renewables in the energy mix to 44 per cent.
While Europe is looking for alternative gas supplies to urgently fill the gap in the short term, there is little doubt that in the longer term renewable energies and hydrogen will dominate the energy markets
Dietmar Siersdorfer, Siemens Energy
In the long run, the energy crisis also provides momentum for the development of hydrogen production in the region, one of four other central themes emerging from the Energy Week.
Demand for hydrogen in Europe alone is forecast to double to 30 million tonnes a year (t/y) by 2030 and to 95 million t/y by 2050. Thanks to its geographical position, the Middle East is ideally located to meet this demand either by ship or pipeline.
Today, there are at least 46 known green hydrogen and ammonia projects across the Middle East and Africa, worth an estimated $92bn, almost all of which are export-orientated.
“While Europe is looking for alternative gas supplies to urgently fill the gap in the short term, there is little doubt that in the longer term renewable energies and hydrogen will dominate the energy markets. That the robust mix of the energy (gas and renewables) will make the energy system more resilient and support energy supply security while we, at the same time, move us at a fast pace into a renewable future,” says Dietmar Siersdorfer, Siemens Energy’s Managing Director for the Middle East and UAE.
Electricity to Europe
Another unintended consequence of the Ukraine crisis is to turn attention to direct electricity supply from the Mena region to Europe.
Although plans for exploiting the high solar irradiation levels and space provided by the Sahara desert through initiatives such as DESERTEC have long been mooted as an alternative solution, a combination of the crisis, lower costs and improving technologies are increasing impetus.
Some projects are already capitalising on the trend. For example, a joint venture of Octopus Energy and cable firm Xlinks recently received regulatory approval for a 3.6GW subsea interconnector between Morocco and the UK, using energy produced from vast solar arrays in the desert.
A similar project is the 2GW high-voltage EuroAfrica connector currently under construction linking Egypt with Greece via Crete. Plans are also under way for a third power connection between Morocco and Spain, which today is the only operational electricity link between Africa and Europe.
With the Egyptian-Saudi interconnector now under construction, and agreements recently reached for interconnectors between Saudi Arabia and Jordan and Kuwait and Iraq, the region is growing closer to supplying power to Europe directly.
“The development of regional grids has brought the prospect of direct current connection with Europe ever closer,” says Siemens Energy’s VP and Head of Grid Stabilisation in the Middle East, Elyes San-Haji. “Due to its plentiful solar resources, the Mena region could become an energy hub with a global network of high-voltage highways and super grids.”
Interconnection makes sense on many levels. Not only would Europe benefit from a diversified, economical and renewable energy source, but its season of peak demand, winter, coincides with when supply is lowest in the Middle East, and vice-versa. Power transfer would not necessarily have to be in one direction only.
The Ukraine conflict and ensuing energy crisis have created an unprecedented opportunity for the Middle East and Africa to become more closely integrated with Europe. Whether in the form of fuel exports, either gas or potentially green hydrogen fuels, or direct electricity supply, the Arab world has never had a better chance to become the energy partner of choice for its European neighbours.
Exclusive from Meed
Kuwait cancels oil financing tender
6 June 2023
Region positions itself for sustainable future
6 June 2023
Hospital boost for Jordan construction
5 June 2023
Political deadlock in Lebanon blocks reforms
5 June 2023
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Sports Boulevard to seek construction partner for iconic buildings
6 June 2023
Saudi Arabia’s Sports Boulevard Foundation plans to work with contractors on a collaborative basis for the iconic buildings that are part of the world’s longest park stretching across the centre of Riyadh.
“There are still many infrastructure and iconic building projects in the design stage, and we will be seeking great construction partners to join us on a collaborative basis on this great journey,” said Tony Aikenhead, chief development officer, Sports Boulevard Foundation at MEED’s Saudi Giga Projects conference in Riyadh on 5 June.
Iconic destinations planned for the development include the Sands Sports Park, Amphitheatres, the Centre for Cinematic Arts, the Arts District, the Discovery Park, Wadi Ajyasen, and the Global Sports Tower.
The large-scale project aims to turn the cityscape of central Riyadh, which today is dominated my major highways, into a recreational area. “It is truly a transformational project, which will become the world's longest park at over 135 kilometres in length and help to deliver on the objectives of Vision 2030. Sports Boulevard runs across Riyadh from east to west. That's where the complexity comes in because it's right through the centre of Riyadh along the service corridor,” said Aikenhead.
The project will be spread across different districts within the park. “The Boulevard will be split into street districts to maximise the unique features and attractions that the city has to offer. Each district will deliver a different destination and a different array of opportunities for residents and visitors alike. We are making good early progress in the delivery of these districts. Construction has already begun in the Wadi Hanifa district on the site of the bridge, the arts district, and the promenade. We have also started work on the Prince Turki and King Abdulaziz underpasses,’ said Aikenhead.https://image.digitalinsightresearch.in/uploads/NewsArticle/10916967/main.jpg
Kuwait cancels oil financing tender
6 June 2023
Kuwait’s national oil company Kuwait Petroleum Corporation (KPC) has cancelled its tender for a consultant to study financing options for the country’s state-owned oil and gas companies.
In a statement published by KPC’s Higher Purchase Committee it said that the companies that purchased tender documents are eligible for a refund.
The invitation to bid on the tender was issued on 18 December 2022.
KPC did not give a reason for the cancellation of the tender.
Kuwait has been looking to increase efficiency and restructure its state-owed oil and gas companies for several years.
In 2020, a contract for a study to look into the restructuring was won by UK-based Strategy&, a subsidiary of the financial services company PwC.
The plan was expected to cut costs and merge many of the state-controlled companies in the country’s oil, gas and petrochemicals sector.
At the time, KPC said that the mergers would slash the number of large state-controlled companies in the sector from eight to four.
In 2020, local reports said the Supreme Petroleum Council (SPC) and KPC had already approved plans to restructure the oil sector.
It is thought that the restructuring could have significant benefits for KPC in the long term.
A similar restructuring by Abu Dhabi National Oil Company (Adnoc) helped to open the door for increased foreign investment in the UAE’s energy sector.
After a sweeping restructuring, in December 2017 Adnoc listed 10 per cent of Adnoc Distribution, the largest operator of retail fuel service stations and convenience stores in the UAE. This raised $851m, making it the largest initial public offering in Abu Dhabi in a decade.
In May 2022, KPC said that it was considering selling shares in its downstream subsidiary Kuwait National Petroleum Company (KNPC), with the Higher Purchase Committee tendering a contract for a feasibility study regarding the potential “partial divestment of shares in KNPC”.
At the time, the announcement about the potential share sale from the Higher Purchase Committee surprised many within Kuwait’s oil and gas sector.
Despite Kuwait publicly discussing the restructuring of its oil and gas sector for several years, very little concrete progress has been made towards making the planned mergers.https://image.digitalinsightresearch.in/uploads/NewsArticle/10915058/main.gif
Region positions itself for sustainable future
6 June 2023
At the end of November, the region will host the UN’s climate change conference for the second time in two years. Cop28 in the UAE, like Egypt’s Cop27 last year, will bring world leaders together to discuss energy transition and the fight against climate change.
Arresting climate change will arguably be humankind’s greatest challenge over the coming decades. To succeed, people from all over the world will need to work with each other, which is why events like Cop28 that bring countries together are so important – despite the criticism they can attract.
At the project level, cooperation will also become an increasingly important trend.
This year there are clear signs that governments are jointly working on projects that will contribute to the fight against climate change.
Some of the best examples are in the transmission and distribution sector. In recent months, significant steps have been taken across a range of interconnection projects to link countries’ electricity grids.
Efficiency is the main driver for these projects. Particularly for GCC nations, the capacity to obtain large-scale solar energy affordably, combined with the marked differences in peak energy demands between the colder and hotter months, frequently leads to considerable surplus capacity.
Smoothing out these peaks and troughs as part of a larger regional or international grid also means less power generation is required and reduced carbon emissions.
As the shared challenge of climate change rises up the global agenda, more projects that pool resources, share expertise, and transcend borders and politics will be needed.
From regional collaborations on electricity grid interconnections to international climate conferences, the region is positioning itself at the centre of a more collaborative and sustainable future.
This package includes:
> Region plans vital big grid connections
> Soaring data demand drives boom
> Read the June 2023 MEED Business Reviewhttps://image.digitalinsightresearch.in/uploads/NewsArticle/10910825/main.gif
Hospital boost for Jordan construction
5 June 2023
This package on Jordan's construction sector also includes:
> Egis selected for Jordan hospital project
> Jordan's largest construction project to move onsite
> Hill wins work on Saudi-backed hospital project in Jordan
> PIF to invest $24bn in six Mena countries
Jordan’s construction sector will get a major boost this year as the country’s largest project prepares to move onsite over the summer after the first phase of its masterplan has been finalised.
The $400m hospital project is being developed by the Saudi Jordanian Fund for Medical and Educational Investments Company (SJFMEI) on a build-operate-transfer (BOT) basis.
For the hospital project, SJFMEI appointed US-based Hill International in partnership with the local sub-consultant Dar al-Omran to provide project construction management services last year. The project team is now preparing to tender construction contracts.
“We have completed the first phase of the masterplan,” Said Mneimne, senior vice-president of Hill International, told MEED in an interview.
“This summer, we will appoint a contractor for the enabling works. We will then appoint a contractor for the foundations and the structure,” he added.
The scale of the project is a challenge for Jordan’s construction sector, and an international engineering, procurement and construction (EPC) contractor may be needed to deliver the project.
“We have not yet decided what the contracting strategy will be,” Mneimne said.
The project involves the construction of a university hospital with 330 beds, 72 outpatient clinics, a children’s hospital, and a medical school with a total capacity of 600 students and a projected annual intake of 100 students.
The project also includes five medical centres of excellence focused on disciplines such as cardiology, oncology, neurology, gastroenterology and orthopaedics. There will also be four scientific research centres in genomics and precision medicine, stem cells and regenerative medicine, health systems and public health, and bioinformatics.
The built-up area is estimated at 110,000 square metres. It will be located on the airport road, near the Ghamadan area on the outskirts of Amman.
A joint venture of Lebanon’s Dar al-Handasah (Shair & Partners) and Perkins & Will was appointed for the engineering design and supervision services.
SJFMEI is a wholly owned subsidiary of the Saudi Jordanian Investment Fund (SJIF). Saudi Arabia’s Public Investment Fund (PIF) owns 95 per cent of the fund, while Jordanian banks hold the remaining 5 per cent.
Ownership of the project will be transferred to the Jordanian government after the end of the investment period.
The hospital is the largest active standalone project in Jordan, according to regional projects tracker MEED Projects. The second-largest project is the estimated $228m King Hussein Bridge Terminal and Freight Yard project, which is at the prequalification stage.
Major projects are needed after a disappointing decade for Jordan’s construction sector.
Data from MEED Projects shows a fluctuating trend in the value of construction and transport contracts awarded in Jordan over the past 10 years.
In 2013, the total value stood at $1.429bn. A sharp rise in 2014 to $2.475bn marked the peak of contract awards during the period.
A steep fall was witnessed in the subsequent years, with the total value plunging to just $662m in 2015, a dramatic decrease of nearly 73 per cent from the previous year. This downward trajectory continued, with the value plummeting further to a record low of $79m in 2020 amid the global economic disruption caused by the Covid-19 pandemic.
A closer look at the data indicates periods of minor recovery, notably in 2017, when contract awards rose to $866m, following a particularly poor performance in 2016 at just $159m.
Despite these rebounds, the overall trend illustrates a declining construction and transport sector in Jordan, with the years 2021 and 2022 recording values of $32m and $86m, respectively, a stark contrast to the highs of 2013 and 2014.
The fluctuating values in contract awards reveal the industry’s volatility over the past decade, linked to regional instability, economic downturns and global disruptions including the Covid-19 pandemic.https://image.digitalinsightresearch.in/uploads/NewsArticle/10914437/main.gif
Political deadlock in Lebanon blocks reforms
5 June 2023
Lebanon’s political deadlock is likely to continue to weigh on the country’s economy and undermine security over the medium term, according to experts.
The country currently has an interim government and has been without a president since former President Michel Aoun’s term ended at the end of October last year.
Progress towards forming a new government is likely to be slow, with the legislature divided over who should replace Aoun as president.
In March, the Iran-backed Hezbollah group and House Speaker Nabih Berri’s Amal Movement party – which together constitute Lebanon’s Shia base – announced their support for the Christian politician Sleiman Frangieh.
Hezbollah and its allies have since tried to gather support for Frangieh as president, but strong opposition from the majority of the country’s Christian, Sunni and Druze political blocs has left him short of the 65 votes required to be elected in the 128-member legislature.
Over recent weeks, members of Lebanon’s parliament that oppose Frangieh have started to rally around the former finance minister Jihad Azour.
Azour currently serves as the director of the Middle East and Central Asia Department at the International Monetary Fund (IMF).
As the parliament is divided, whether either candidate can obtain a majority vote remains uncertain. According to experts, even if a president is named, it will be extremely difficult for them to form a government.
Nicholas Blanford, a non-resident senior fellow with the Atlantic Council’s Middle East programmes, says it will likely be some time before a government is formed.
“Getting a president elected is only the first step,” he said. “Once the new president is in place, there is the tricky task of forming a new government.
“As we’ve seen over the past 20 years, forming a new government can take months as people bicker and jostle for various lucrative and influential portfolios.”
Barbara Leaf, the US assistant secretary for Near Eastern affairs, said on 31 May, during a Senate committee hearing, that the Biden administration was considering sanctions if a new president is not elected soon
Only when a government has been formed will Lebanon be able to start initiating the series of reforms that the international community has demanded to unlock aid, grants and loans to try to put the country on the path to economic recovery.
As Lebanon’s economic crisis has worsened and the security situation has declined, increasing pressure has been applied from other countries that want to try to restore stability in the region.
Barbara Leaf, the US assistant secretary for Near Eastern affairs, said on 31 May, during a Senate committee hearing, that the Biden administration was considering sanctions if a new president is not elected soon.
Separately, two members of the US House Foreign Affairs Committee called on the administration to impose sanctions on individuals involved in corruption to “make clear to Lebanon’s political class that the status quo is not acceptable”.
In a letter to Secretary of State Antony Blinken on 30 May, they said: “We also call on the administration to continue pressing for full accountability for the August 2020 Beirut port blast and support independent, international investigatory efforts into egregious fraud and malfeasance by the governor of Lebanon’s central bank.
They added: “We must not allow Lebanon to be held hostage by those looking to advance their own selfish interests.”
French officials have also taken action to try to crack down on perceived corruption by members of Lebanon’s political elite.
In May, French prosecutors issued an arrest warrant for Lebanon’s central bank governor, Riad Salameh.
The warrant followed Salameh’s failure to appear before French prosecutors to be questioned on corruption charges.
In response, Salameh issued a statement saying that the arrest warrant violated the law.
Salameh has been the target of a series of judicial investigations at home and abroad on allegations that include fraud, money laundering and illicit enrichment.
European investigators looking into the fortune he has amassed during three decades in the job had scheduled a hearing in Paris for 16 May.
A key problem is you still have the same cabal of oligarchs in power and it is likely they will still be represented in the next government
Nicholas Blanford, Atlantic Council’s Middle East programmes
Breaking the deadlock
Analysts believe cracking down on corruption among Lebanon’s political elite is key to breaking the country’s political deadlock.
“A key problem is that you still have the same cabal of oligarchs in power and it is likely that they will still be represented in the next government,” said Blanford. “These oligarchs do not want reform because if they implement a meaningful reform process, they run the risk of losing their positions of power.”
While the country’s opposing political blocs continue to vie for power and the formation of a new government seemingly remains only possible after at least several months of negotiations, the outlook for Lebanon in the short term looks bleak.
Meaningful government assistance for Lebanese citizens struggling with declining security and heightened economic pressures remains a distant prospect. High levels of emigration are also likely to continue as the country’s population seeks relief from the hardships at home.https://image.digitalinsightresearch.in/uploads/NewsArticle/10907713/main.gif