Of this overall sum, over 150 billion cubic metres of natural gas – around one-fifth of the region’s total gas consumption – is used each year in low-efficiency gas-fired power plants1, which have an average efficiency2 of 30-35%. Combined-cycle gas power plants with an average efficiency of close to 50% could produce the same amount of electricity using about 50 billion cubic metres less gas. Replacing the current low-efficiency plants with more efficient combined-cycle ones would enable the producer economies to save and export that gas, which would generate USD 50 billion if sold at USD 30 per Mbtu – the current continental European wholesale prices.

There is also considerable potential to replace low-efficiency gas power plants with renewables, which could free up even more natural gas for export and strengthen the region’s infrastructure for the clean energy transition. Renewables currently produce less than 3% of total electricity generation in 9 of the region’s 10 producer economies. (Egypt is the outlier, with renewables accounting for around 10% of electricity generation.) Replacing the entire low-efficiency gas fleet in the region with solar PV would require around 250 gigawatts of new solar PV capacity, an amount that would take several years to deploy, at a cost of around USD 220 billion. This would free up 150 billion cubic metres of natural gas a year, either to be used in more productive ways or exported. This would generate USD 150 billion per year at current continental European wholesale prices, implying an investment payback period of just 18 months if prices remain elevated3 and underscoring the low cost of solar PV in the region relative to the high opportunity cost of continued use of natural gas in low-efficiency power plants.

Boosting upstream natural gas production by the same amount (150 billion cubic metres) would require investing more than USD 120 billion across the region. While this is considerably less capital than would be required to scale up renewables, investments in natural gas fields are intrinsically more prone to volatile energy markets and risk becoming underutilised in a future where the clean energy transition gathers pace and demand for natural gas declines. It would also risk prolonging economically wasteful and environmentally harmful consumption of natural gas in low-efficiency power plants. Furthermore, large solar PV projects typically have shorter lead times and can be deployed much quicker than new upstream projects and even expansions of current gas fields.

Major international efforts are needed to ensure that all the world’s regions make progress on their clean energy transitions in ways that are equitable and affordable. Quick deployment of renewables and significant reduction in the use of low-efficiency gas power plants in the Middle East and North Africa would require concerted action not just from the countries concerned, but also from their international partners. Countries looking to reduce their imports from Russia, especially in the European Union, could play a significant role in mobilising capital and investment, for example through the EU’s Global Gateway initiative. And the returns are potentially huge. The region stands to gain gas export revenues while boosting local economies and clean energy supply chains. That’s a deal well worth making.

Source: IEA