Delivering on the Energy Efficiency Promise in the Middle East

Despite its oil-rich history, the Middle East faces a growing energy consumption problem that poses a real challenge to competitiveness and economic growth.

The level of primary energy consumption for the Middle East and North Africa (MENA) region as a whole is now second only to the CIS, and unlike most parts of the world since 1980, the Middle East is seeing energy consumption actually grow faster than GDP. Such fast-paced growth in energy intensity will have a significant impact on the region’s economic competitiveness, by requiring more than 3 percent of GDP for energy infrastructure investment by 2030, versus 1 percent for the rest of the world.

This Oliver Wyman article discusses how even a moderate adoption of measures used elsewhere in the world to increase energy efficiency could significantly reduce investment needs for energy infrastructure, slow the pace of energy consumption growth, free up oil for export, and help mitigate pollution and the region’s carbon footprint.

Take Saudi Arabia as an example

The application of our energy efficiency model to Saudi Arabia indicates that annual energy costs could be reduced by US$15 billion to US$32 billion, assuming constant electricity production costs, with most of the savings (~52 percent) generated by the residential sector.

In addition, the Saudi government would be able to divert some of the US$100 billion in planned capital investments in the Saudi power sector over the next decade to other sectors or applications, such as renewable energy.

The Kingdom sees these advantages and is taking steps. Saudi Arabia’s Energy Efficiency Centre (SEEC) focuses on reducing power through audits, load management, regulation and education. The Saudi Arabian government has also recently decided to curb electricity subsidies.

1How can the Middle East of all places have an energy problem?

It’s not really an about energy exclusively, it’s about the energy required to deal with the region’s growth. Look at Dubai, where I’m based. It’s grown incredibly fast, as have other parts of the MENA (Middle East and North Africa) region. That growth means greater energy demand. And, in turn, increased energy demand means consumption of more resources at home. It’s a challenging trend: growth, more energy to accommodate that growth, which leads to more growth and more energy used.
2So where’s the energy going?

To get three things the region increasingly needs: cool air, fresh water, and industrial development. Have you ever been to Dubai in the summer? It’s incredibly hot – especially in July and August. And as populations grow and grow more sophisticated, the need for air conditioning and fresh water grows, which in turn requires more electricity. Taking the salt out of seawater requires large amounts of electricity. And petrochemical plants and process industries, evidence of industrial growth, are also heavy users. There are actually brown-outs in some places because they cannot meet demand for cooling in the hot summer months.
3So what’s the problem, since they have abundant resources?

Shifting resources to local consumption of power – whether it’s the financial resources to build power stations or the oil resources to fuel those stations - means they have fewer resources to use increase their overall competitiveness and drive economic growth. Many are actually in line to shift from net exporters to net consumers of oil, which means they put less on the market, which means less oil revenue.
4What other effects do these trends have?

There are real potential environmental impacts, too. The desalinization plants actually push more salt back into the sea, affecting the ecological balance in the Gulf. More power plants mean more smog and air pollution.
5How big are the changes required to slow or stop these trends?

Even moderate changes will have a positive effect. The region needs a combination of incentives that encourage people to use less power, regulations that enforce efficiency methods, and educational programs that increase awareness of energy efficiency and influence behavior.
6What’s the payoff?

It could be enormous. Even our “low policy intensity” scenario has the potential to reduce primary energy consumption by more than 25% in 2030, which means savings on the order of 50% of total consumption in the region.