Ambitious climate and renewable energy targets worldwide present an opportunity to companies in the Middle East as decarbonising its energy export portfolio could help the region achieve its own net zero pledges by around mid-century, a new report said on Thursday.

The Middle East could play a key role in decarbonising the global economy given its abundant natural resources, both fossil-based and renewable. It has the potential to carve out new niches, industrial manufacturing and generate hubs for emerging technologies, energy research firm Wood Mackenzie said.

"Saudi Arabia and the United Arab Emirates have set sights on becoming energy transition leaders as they look to carbon capture, utilisation and storage (CCUS), and low-emissions fuels such as hydrogen, ammonia and methanol, as well as green steel, cement and aluminium,” said Prakash Sharma, Vice President, Scenarios and Technologies Research at Wood Mackenzie.

However, large oil and gas reserves in the Middle East have resulted in especially low domestic energy prices and provide little incentive to transition to low carbon alternatives, the report noted. The region’s energy mix consists of 97% hydrocarbons today, with renewables share expected to grow to just 15% by 2050, the report said.

Many of the largest oil producers are in the region, including Saudi Arabia, the UAE, and Iraq. Saudi Arabia is the world's largest oil producer and accounts for 13% of global output. Qatar is one of the largest producers and exporters of natural gas.

“Countries importing oil and gas from the Middle East are seeking low carbon alternatives, so broad diversification is required to de-risk oil dependency. The region is fully aware of the challenge and is investing in the petrochemical industry, hydrogen production and CCUS projects. Several countries in the Middle East have announced Hydrogen and CCUS roadmaps and looking to develop projects. COP28, taking place in Dubai, could fast track the decision-making and invite foreign investments needed to secure a sustainable energy future,” Prakash added.

The region’s emissions are still forecast to remain at current levels of 2 billion tonnes (Bt) CO2 through to 2050 in Wood Mackenzie’s base case, with the Middle East expected to reach net zero by 2065 according to the pledges set by countries there.

(Writing by Brinda Darasha; editing by Daniel Luiz)