Upgrading industrial energy policies in the GCC: The imperative

Economic diversification has been a critical developmental objective for the Gulf Cooperation Council region since the 1970s.

In one way or the other, this objective has been translated into three overarching development strategies: the export or import of new products, the international trade of existing products for new markets and the qualitative upgrade of the exported or imported products.

These strategies extend beyond energy but historically relied on a functioning energy system in the GCC. Within the context of energy, the region could successfully extend the hydrocarbon value chain upstream through the development of manufacturing and service capabilities and expand it downstream through the establishment of industries such as chemical and petrochemical, iron and steel, cement and aluminum. Such extension on either side of the mainstream hydrocarbon portfolio has brought socioeconomic benefits, including greater trade opportunities, foreign investments and jobs.

However, the energy sector in the GCC now faces three fundamental challenges: overwhelming sector subsidies, high energy consumption in the industrial sector that could ultimately outpace the available resources in some instances and shifting international trade scenario with the emerging carbon tax adjustments and emission caps. These challenges collectively suggest one thing — and one thing only — that the current industrial energy policies in the GCC require a revamp.

The update of industrial energy policies is not a new concept, as many governments worldwide have already been adopting various practices to help their industries actively embrace the consumption reduction agenda through industrial programs with mandates, performance-benchmarked targets, loans, grants and financial instruments.

In order to gain insights into the efficacy of these efforts, we have looked into the annual average improvement in energy intensity of major industrial sub-sectors, including chemical and petrochemical, iron and steel, cement and aluminum across six countries as well as the outcome from the analysis of International Energy Agency.

We found out that the spectrum of average annual sectoral improvement — thus energy consumption reduction — between 1 and 2 percent from 2010 to 2020. Therefore We believe it’s crucial for GCC countries to upgrade their industrial energy efficiency policies and set mandatory energy intensity improvement targets to stimulate industries to self-assess their operational procedures, processes and energy efficiency practices.

Mandatory policies have proven to be an effective tool to increase industrial energy efficiency, as evidenced by their successful implementation in many countries worldwide.

For instance, a policy for the chemical and petrochemical sectors could focus on improving efficiency in process heating and motor-driven systems. In the iron and steel sector, a policy could prioritize increasing the recycling of scrap metal to produce new metals.

The cement sector could benefit from policies that reduce the clinker-to-cement ratio and install heat recovery facilities. The aluminum sector could focus on promoting the use of recycled scrap in the production process. Aluminum recycling is significantly less energy-intensive than primary production, and utilizing recycled scrap as feedstock can contribute to a significant opportunity for energy efficiency.

By actively engaging industry stakeholders in tailoring realistic policies, the GCC countries could realize potential efficiency gains such as significant energy savings, cost-effectiveness, and accelerated progress toward emission reduction targets while promoting sustainable economic growth.

• Mariya Al Tobi: Independent Industrial Analyst

• Dr. Abdullah Al-Abri: Consultant at the International Energy Agency