Investors must not miss the big picture in GCC energy transition

There is no dearth of money across the region but borrowers need to strengthen their proposals

Local energy champions in the GCC are actively playing their part in enticing capital and confidence to the region. Getty

High oil prices certainly help to boost the GCC's financial outlook, but there is more to it.

Inevitable economic peaks and troughs mean borrowers with a diverse toolkit and attitude of adaptability will be able to quickly capitalise on investor appetite amid the global energy transition — the greatest challenge in modern history.

The financing yardstick to release capital is surer than ever: proof of concept and the validity of the project must be extremely robust.

For example, Mashreq has committed $30 billion to sustainable financing by 2030 — a vast sum in a very short span of time in a very ambitious space.

Yet our challenge is echoed by others in the financial ecosystem: finding the right commercial and environmental destinations to justify allocating the credit.

Essentially, there is no dearth of money across the GCC but borrowers need to strengthen their proposals.

Streamlining the sell

The momentum to craft a mixed energy basket is picking up but more can be done.

For one, more clarity is needed on the follow-through of climate commitments made at recent Cop climate gatherings.

This applies to Cop27 in Egypt, which was held last November, and Cop28, which is set to take place in the UAE later this year, as investors are reassured by tangible steps emerging from high-level dialogue.

This is especially true for investors who are being sought for big-ticket financing in relatively new energy markets, such as circular markets and green hydrogen.

Other much-needed actions include ironing out policy frameworks and reporting standards, from carbon pricing to carbon capture and storage (CCS) and more.

There are far more questions in the energy transition than answers; investors want to see strategies that aim to reverse the global status.

Such frameworks and standards must meet international best practice but it is equally crucial that they factor in local and regional nuances. Not only does this make them more useful and applicable, it also helps borrowers capture the attention of various investor types.

Investors’ need for greater visibility extends to the hydrocarbon sector — pivotal to sustaining energy security — especially as the Russia-Ukraine war affects supply-demand dynamics.

With the International Energy Agency expecting global oil demand to rise by 1.9 million barrels per day this year, to a record high of 101.7 million bpd, garnering investor support to both expand and green hydrocarbon operations simultaneously is key.

Ramping up environment, social and governance efforts is another sure route to deepen investors’ buy-in. Many corporate clients want to understand how to curate ESG guidelines and policies with long-term relevance — a fair question, considering there are 600 reporting standards worldwide, according to Ernst & Young.

Those who commit to designing the most appropriate and thorough system today will reap the reward as investors are expected to favour ESG credentials, especially from 2025.

Strong growth ahead

The UAE’s economy is projected to grow by 7.6 per cent in 2022, the highest in 11 years, driven by both oil and non-oil sectors, according to the latest estimates by the UAE Central Bank. The latest growth forecast is higher than the 5.4 per cent estimate made by the Central Bank in July last year.

Non-hydrocarbon growth in the Emirates this year could climb by 4 per cent, according to the International Monetary Fund, which is an important nod to the breadth of economic potential for Opec’s third-largest producer.

Local champions in the GCC, such as Masdar, are also actively playing their part in enticing capital and confidence to the region.

Abu Dhabi’s green energy company has set a target of at least 100 gigawatts in renewable capacity and the production of up to 1 million tonnes of green hydrogen by 2030, which is bold, considering today’s global green hydrogen market is miniscule.

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  Sheikh Khaled bin Mohamed, member of the Abu Dhabi Executive Council and chairman of the Abu Dhabi Executive Office, witnesses the signing of the agreement to develop clean hydrogen. All photos: Adnoc

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  Adnoc, Masdar and BP will jointly develop clean hydrogen and tap into opportunities offered by the energy transition.

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  Sheikh Khaled, Dr Sultan Al Jaber, Minister of Industry and Advanced Technology, and executives from Adnoc, BP and Masdar at the signing ceremony.

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  Dr Al Jaber, who is also managing director and group chief executive of Adnoc and chairman of Masdar, says the Teesside project will help to accelerate innovation in the decarbonisation of energy in industrial sectors.

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  Masdar and BP also signed a preliminary deal to explore potential collaboration on the HyGreen Teesside green hydrogen project in the UK.

The fact that the Arab world’s two largest economies have committed huge sums to reach their net zero goals — Saudi Arabia will invest $180 billion by 2060, and the UAE has pledged $163 billion by 2050 — certainly reinforces investors’ willingness to get involved.

Ever-discerning investors seeking holistic progress will force some energy borrowers to really up their game this year, operating more transparently and boldly than ever.

The positive squeeze will create stronger capital markets that support the right projects at the right time, enhancing energy security and the climate agenda — both imperative, especially as the UAE prepares to open doors to Cop28.

Badar Chaudhry is senior vice president of energy unit at Mashreq Bank