Climate Policy and Cross-Border Hydrocarbon Development in the Gulf
This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.
The Gulf countries are leading global producers and exporters of oil and gas. They have long reserves lives at current production levels, well beyond 2050, and substantial potential to increase reserves through field development, enhanced recovery, and exploration. They are intrinsically low-carbon producers measured by upstream emissions per barrel, although this is obscured in Iran and Iraq by high levels of flaring of unused associated gas (a by-product of oil production) and leakage of methane. They have strong involvement of state oil companies in oil and gas production, though this varies from an effective monopoly (Kuwait) to a leading role for international operators (Iraq and Oman).
With the exception of Iraq, they have large domestic petrochemical industries. Saudi Arabia and, increasingly, the UAE, have extensive international investments in refining and petrochemicals across the US, Europe, and Asia. While this is mainly on their own account, Kuwait does have a stake in the important new Duqm refinery in Oman. The region’s oil exporters also make use of the extensive oil storage and bunkering facilities in the UAE and Oman. On the other hand, Qatar is the world’s biggest LNG exporter and has a major expansion programme to be completed during 2026-27, Oman and the UAE are smaller LNG exporters (the UAE also expanding), while Iran is an important supplier of gas by pipeline to Turkey and Iraq.
The role of the Gulf states as oil exporters has limited the potential for cooperation between them. The dominance of the state in the upstream industry means that cross-border hydrocarbon investment is very limited. Mubadala Energy, the energy arm of the Abu Dhabi government strategic development company, has some upstream assets in Qatar and Oman, and utility Taqa has oil operations in the Kurdistan region of Iraq. QatarEnergy recently entered a project in southern Iraq led by TotalEnergies for development of oil, gas, water injection and solar power. Sanctions and political disputes have prevented any GCC investment in Iran’s hydrocarbon sector. There has been some interest, for example, and various plans since the early 2000s for gas and electricity connections, and most recently, discussions between Saudi Arabia, the UAE, and Iran in July 2023 concerning investment and the development of shared fields.
Gas is more promising for cooperation, given that some of the Gulf states are relatively gas-short. The most notable project, Dolphin, exports gas from Qatar by pipeline to the UAE, with small volumes continuing to Oman. Dolphin faced opposition from Saudi Arabia, which argued that the pipeline crossed its own maritime territory. A similar plan to supply Qatari gas to Kuwait was entirely blocked by Saudi Arabia, which did not want the smaller GCC states to be linked beyond its influence. Although LNG exports from Qatar to the UAE stopped during the boycott of Doha between June 2017-January 2021, Dolphin continued operating as normal, a sign of its importance to both countries, and of the promise of energy projects to constrain conflict.
Some oil and gas fields in the Gulf lie across borders. In general, countries have developed them competitively, extracting as much as possible without an agreement with the neighbouring state. The most notable field affected by a boundary dispute is the large gas-field Dorra, known in Iran as Arash, which lies partly in Kuwaiti waters, partly in the Kuwaiti section of the Partitioned Neutral Zone with Saudi Arabia, and partly, in Tehran’s view, in Iranian waters. Kuwait’s shortage of gas leads to heavy domestic use of polluting and expensive oil. An agreement on Dorra, perhaps via a joint development zone without concession of sovereignty, could be a way forward. Such agreements have enabled Saudi Arabia to supply half of the oil from the Abu Safa field to Bahrain as part of a boundary settlement and Qatar and the UAE to divide the resources of the offshore Bunduq oil-field.
The most important cross-boundary field, not just in the Gulf but in the world, is called the North Field in Qatar and South Pars in Iran. It is world’s biggest gas field. The field, which also contains shallower cross-boundary oil resources, has been developed by each side without formal agreement, but there are tacit understandings to avoid one side moving too far ahead of the other on extraction levels. Qatar imposed a moratorium on further development of the North Field in 2005, and lifted it in 2017. Ostensibly this was for technical reasons, more plausibly for gas market management purposes, but it also gave Iran time to catch up to and even exceed relative Qatari production levels. As Iran’s own output from South Pars increased, so eventually Qatar was able to decide to raise production further, without risking tensions with Iran over unfair levels of extraction.
More intra-regional gas trade would enable reducing the use of oil in the power sector. Qatar, Iran (if its gas resources were properly developed), and the Kurdistan Region of Iraq, would be natural gas suppliers by pipeline to neighbours. This would require more regional trust, and transparency to put gas supplies on a reliable commercial basis. Cross-border investment in gas-using sectors such as petrochemicals, multi-country gas networks, and robust arbitration procedures, could create structures that would be more resistant to politically- or commercially-motivated cut-offs. Iran is, for example, a 10 percent shareholder in Azerbaijan’s important Shah Deniz gas field and in the South Caucasus Gas Pipeline from Azerbaijan to Turkey via Georgia, along with BP, Russia’s Lukoil and Turkish and Azeri state entities. But the recent history of Russian gas supplies to Europe, and the interruption of federal Iraqi and Kurdistan region oil exports through Turkey, reveals how even long-standing pipeline deals with strong mutual profitability can be derailed.
As COP28 in Dubai signalled, climate policy will exert ever-greater influence on the oil and gas industry: first through requirements to zero-out its own emissions, second through a longer-term reduction in demand, at least for oil. The Gulf countries present a wide spread of economic and environmental vulnerability, and sophistication of climate policy ranges from the very limited (Iraq) to the relatively advanced (UAE). The Oil and Gas Decarbonisation Charter (OGDC) concluded at COP28 was signed by the national oil companies of Abu Dhabi, Sharjah, Bahrain, Oman, and Saudi Arabia, among others, but not by Iran, Iraq, Kuwait, or Qatar.
With the exception of Qatar, all of the Gulf countries are members either of OPEC or the OPEC+ alliance. OPEC and the OGDC, as well as other structures such as the Oil and Gas Climate Initiative, offer potential to foster cooperation on decarbonisation paths within the petroleum industry, which include ending flaring and methane leakage, improving energy efficiency, electrifying operations, and incorporating renewable and nuclear power, implementing carbon capture and storage, piloting carbon dioxide removal technologies, producing sustainable aviation and maritime fuels, and developing hydrogen and its derivatives.
Specific cooperation would include aligning standards and regulations; sharing technological learnings and best practices; conducting joint studies on regional carbon dioxide storage capacity or satellite monitoring of methane leakage; and possibly some shared infrastructure, though this is more challenging and probably not essential. Joint investments, either within the Gulf countries or in third countries, could include the production of low-carbon hydrogen and sustainable fuels.
This collaboration can also include policy-related and diplomatic endeavours, on areas such as carbon caps, prices or taxes, international carbon trading under the Paris Agreement’s Article 6.4, dealing with the growing use of carbon border tariffs, and appropriate certification and regulation for low-carbon hydrogen.
The global energy market has been evolving rapidly, notably with the rise of Asia as the world’s key importer and consumer of energy and emitter of greenhouse gases, and the evolution of the natural gas business into a truly internationalised market via LNG trade. Most recently, the Russian invasion of Ukraine, the elimination of most of its pipeline gas exports to the EU, and a near-total ban on imports of Russian oil by the EU and other Western countries, have reshaped the global energy market and the patterns of trade in Gulf energy. The increasing US-China tensions, and the moves towards more diversity and robustness in supply chains and greater domestic self-sufficiency in key energy-related materials and technologies, is another emerging and evolving theme.
Greater Gulf cooperation on hydrocarbons, as a part of balanced strategies incorporating climate protection, could manage some of these threats and promote longer-term cooperation solutions to problems facing the region’s critical economic sector.
Photo: Aramco
