Will re­liance on oil be­come an eco­nomic li­a­bil­ity?

The Pak Banker - - OPINION - Mo­hammed Al Asoomi

AGAIN, facts are in­ter­twin­ing with re­gard to the fu­ture of en­ergy, in­clud­ing oil, which is still and will re­main the main source of en­ergy in the fore­see­able fu­ture, not­ing that th­ese facts con­cern all coun­tries in the world. Yet, the coun­tries that are mainly con­cerned about th­ese facts are oil-pro­duc­ing coun­tries, whose devel­op­ment process is di­rectly as­so­ci­ated with oil rev­enues which are con­sid­ered the main source of fund­ing for devel­op­ment projects.

Lately, it has been re­peat­edly talked about the US oil self-suffi- ciency by 2020, re­ferred to by US Pres­i­dent Barack Obama, among many oth­ers. Th­ese talks are seem­ingly ex­ag­ger­ated.

In his re­marks to the Fi­nan­cial Times, former US en­ergy sec­re­tary Bill Richard­son, said: "The US will not be able to achieve en­ergy self­suf­fi­ciency", ex­press­ing his fear that the US may fall a vic­tim of il­lu­sion. As the in­creased pro­duc­tion of oil and gas from shale in the United States will re­duce US oil im­ports from 13 mil­lion bar­rels per day to 5 mil­lion bar­rels in 2020. How­ever, this will not turn the US into an ex­porter or even oil self-suf­fi­cient af­ter seven years from now.

This co­in­cides with a report re­leased by rat­ing agency Stan­dard & Poor's last week that Saudi Arabia's oil re­serves will last for 170 years, while the UAE and Kuwait's oil re­serves will last for 90 years.

This in­for­ma­tion needs to be clearly ex­plained. First, oil will not re­main the main source of en­ergy for 170 years in the Saudi King­dom, since rapid changes in pro­duc­tion, es­pe­cially the pro­duc­tion of re­new­able en­ergy, will lead to qual­i­ta­tive changes in the global en­ergy bal­ance, in­clud­ing re­mov­ing oil from the top of the en­ergy pyra­mid in favour of re­new­able sources, as was the case with coal.

Sec­ond, the dis­cov­ered oil re­serves will be suf­fi­cient to meet global needs for 40 years only as per the cur­rent con­sump­tion rates or un­til 2050, ac­cord­ing to Bri­tish Pe­tro­leum, which is the cor­rect es­ti­mate on which the life ex­pectancy of oil re­serves can be cal­cu­lated. There­fore, oil-pro­duc­ing coun­tries must in­crease their out­put to pre­vent eco­nomic con­di­tions from de­te­ri­o­rat­ing and save the global econ­omy from a dis­as­ter, as when the GCC coun­tries in­creased their out­put to meet global de­mand when the Iraqi pro­duc­tion ceased and nat­u­ral dis­as­ters af­fected many pro­duc­tion reser­voirs.

This clearly means that oil pro­duc­tion will rise in the coming years to meet the grow­ing global de­mand re­gard­less of pro­duc­ing coun­tries' need for ad­di­tional rev­enues.

The global econ­omy is now closely in­ter­con­nected and its pos­i­tive and neg­a­tive im­pacts are quick- ly felt across the world, as demon­strated clearly by the re­cent fi­nan­cial cri­sis. It seems that the GCC coun­tries are well aware of th­ese facts, ev­i­denced from their two-way ap­proach at present, first of which is adopt­ing the pol­icy to di­ver­sify in­come sources by devel­op­ment of non-oil sec­tors. Although this ap­proach varies from one coun­try to an­other, di­ver­si­fi­ca­tion of in­come sources is given a pri­or­ity by all th­ese coun­tries.

In the mean­time, the GCC coun­tries are in­ten­si­fy­ing their ef­forts to de­velop alternative sources of en­ergy as part of their prepa­ra­tion for the post-oil era.

Over the next four years, nu­clear power plants will be­gin to gen­er­ate elec­tric­ity in the UAE, along­side so­lar power plants, which will en­able the UAE to meet the large por­tion of its en­ergy de­mands from alternative sources.

Three years af­ter the UAE's plants be­come op­er­a­tional; Saudi Arabia will be on the same move, where the nu­clear power sta­tions will be­come op­er­a­tional by 2020 to co­in­cide with work on so­lar power plants, which will en­able Saudi Arabia to meet 50 per cent of its elec­tric­ity and water needs by 2032 through the use of re­new­able nu­clear and so­lar en­ergy. Qatar and the rest of the GCC coun­tries will fol­low suit later.

There­fore, it is im­por­tant for the GCC coun­tries to have their own en­ergy pro­grammes, re­gard­less of what has been pub­lished by some in­sti­tu­tions that are try­ing to in­flu­ence the mar­kets and oil sup­plies and prices by leak­ing in­ac­cu­rate news and re­sults of stud­ies, pos­si­bly based on weak data and in­for­ma­tion. Also, the GCC coun­tries need to set up spe­cialised re­search cen­tres ded­i­cated to analysing the find­ings of stud­ies, data and in­for­ma­tion-which are re­lated not only to the en­ergy in­dus­try, but also to the de­vel­op­ments in the ar­eas of trade, fi­nance, eco­nomic changes and their ef­fects, so as to come up with the proper sce­nar­ios that serve the GCC's devel­op­ment ap­proaches.

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