“SHALE GAS WILL REDUCE GEOPOLITICAL POWER OF THE MIDDLE EAST”
Nader Sultan, Senior Partner of Fawzi and Nader Consultancy, was given the responsibility of introducing the winner of the Abdullah Bin Hamad Al Attiyah International Energy Awards for the advancement of the Organisation of Petroleum Exporting Countries, Dr Adnan Shihab-Eldin. With Shihab-Eldin's credentials, the job at hand proved to be much more difficult than Sultan had anticipated.
Sultan deliberated on the delicate matter of introducing someone who has been in the energy development field for over five decades, with pages of credentials penned on just his roles in various fields and finally went with his instincts and skipped through the prolific career within the time allocated. A very difficult proposition when you go through the breadth of work Shihab-Eldin has been involved in; from being the acting head of OPEC to being director of the Division for Africa, East Asia and the Pacific at the International Atomic Energy Agency (IAEA) in Vienna to being the director of the UNESCO Regional Office for Science and Technology and currently in the role of Director General of the Kuwait Foundation for the Advancement of Science. In a life steeped in sciences, it is something of an anomaly that Shihan-Eldin was given an award for the advancement of OPEC, when he is both an expert in nuclear energy and a prolific supporter of the renewables. But this further underlines his expertise in the energy economics of the region. In an exclusive interview with Qatar Today, Shihab-Eldin says that he continues work on pertinent energy issues with the hope that his work will contribute toward a sustainable energy future for the region.
He says, “Personally I felt very good because this is not simply any award, but from a foundation named after HE Al Attiyah whom I have known for a long time. He is a veteran in the international energy business which makes this award even more valuable. When you receive a lifetime achievement award, all the people who have contributed to your achievements throughout your lifetime run through your mind. So whenever an award like this is given, it honours not just the people who receive it but everyone who touched them. I want to thank them; a good number of them are from OPEC, and also my home country, Kuwait, and Gulf countries."
How serious should the GCC countries be about renewables? How plausible is it that the governments will consider subsidies to encourage this sector when oil and gas is so easily available?
Solar radiation in GCC necessitates the cooling of buildings, which is the largest component of domestic energy consumption. Building efficiency is the primary mitigation. But solar resource is also strong and corresponds seasonally and daily with load. It will inevitably play an increasing role in meeting the mitigated demand. New low-rise buildings can be low energy intensive with more than 20% of the energy use generated by integral solar systems. About 20% of total utility generation can be from solar farms. The GCC has been very slow to grasp this opportunity, primarily because
of perceptions of hydrocarbon abundance, but now there is general consensus on being very serious about solar energy.
In Kuwait we had an early start at Kuwait Institute of Scientific Research (KISR) in the 1980s; but the nascent programme was abandoned due to the 1990 war and there were false perceptions that solar energy threatens the oil and gas resource value. It is essential that governments encourage and promote the development of this sector. Subsidies are certainly necessary for pilot plants to confirm the data necessary to determine the extent of deployment and to form the contractual basis for the first commercial distributions.
However, the criterion for the extent of deployment of any mix of technologies should be minimum total cost of generation, which in turn should lead to minimising overall subsidies in the long term. This must include alternative values of available fuels and in the case of renewables, costs of storage and back up necessary to counter intermittency and daily resource or load mismatch. Thus an optimised deployment will not increase subsidies. The caveat will be the value government places on emission reductions, employment opportunities and industrial diversification resulting from renewables. In fact solar may reduce total energy subsidies by shifting current waste-generating subsidies to smarter ones that encourage saving and redirect them to more productive and green economic activities.
It is incorrect that oil and gas are easily available. For most states, oil, and for Qatar, gas, provide a high proportion of government revenues. Diversion from export must be minimised. For most states, gas availability is limited, primarily because domestic low pricing policies have inhibited non associated resource development.
How important is US shale gas to the geopolitical scene of the Gulf or the Middle East region? Will the price of oil reduce with more supply from the US?
Broadly, shale oil and gas are potentially transformative, in the sense that they diversify and loosen the world energy market. Production is now concentrated in the US because of specific characteristics and the capability of the national industry, but worldwide resources are huge and other countries will also be capable of producing them as and when economics dictate. China is already progressing in this direction. The significance is a reduction of geopolitical power of the Middle East.
Shale oil increases supply, opposing uncertain demand growth but is contingent on high production costs. It will thus support high marginal costs of additional oil supply. In the medium term, downward pressure on price will be small but significant on quotas. The long term is dependent on the diffusion of shale production technology beyond the US.
Some experts have said that the US shale gas will not affect the region’s oil and gas sector as now the world will be divided into two segments; one area that will be fed by the US and the other Asian region which will need Middle East oil to meet its demand. What do you feel about this?
There are interactions between the uses of oil and gas for energy and petrochemicals; therefore US shale gas will no doubt have some effect on the region's oil and gas sector. Because of logistics and infrastructure issues, the demarcations in pricing and flows of gas to consumers for secondary energy production between US, European and Asian markets will erode, but only slowly. Effects on relative petrochemical product competitiveness will be more immediate and severe. The oil market is more integrated and although flows will be in sectors as suggested, the effect on the regional oil industry and on revenues will be as mentioned before. In summary, shale oil and gas should reduce market volatility while maintaining prices close to current levels on account of the expected high marginal cost of shale oil and gas.
Touching upon the most current issue of the Saudi and the UAE stance on Qatar, do you see this escalating to a bigger issue, and if there is Saudi closure of land borders with Qatar, what will the implications be? How will it affect OPEC? (The issue was resolved before Qatar Today went to press)
I do not wish to comment on intra-regional politics but wish to express regret that this might threaten the great potential of the GCC for synergism in science, technology, and economics between its members and for their collective world status.
The current dispute I am confident will not escalate and most likely will be resolved soon. What is common between GCC countries is far greater than their difference in views on current local and regional geopolitics. Nonetheless, OPEC throughout its long history has managed to go about its business of looking after the interest of its members and, in general, all producers as well as consumers, not affected by disputes amongst its members, not even by wars between some of its member countries (eg the Iran-Iraq war, the Iraq invasion of Kuwait).
I therefore expect OPEC will continue to be successful in realising its core business, safeguarding the interest of its members and maintaining the stability of the oil market.
What are the options for nuclear power in the Middle East? Why should the oil-exporting countries look at nuclear power?
In principle, if optimally located, regional nuclear power and waste repositories could be the best but the history of the pace of regional cooperation renders them long-term at best. Individual countries must therefore proceed on the basis of their individual economic cases and consensus.
Options for the implementation of world class infrastructure are limited to those adopted by the UAE, outsourcing of sufficient expertise to establish world entities and organisations, with parallel citizen human resource development to assume national responsibility as fast as possible. Financing options for the GCC countries are B.O.T with low financing costs ensured by strong financial positions. For less wealthy countries B.O.O options have been offered. The rationale for the exporters is clear. As I discussed in the context of renewables, an optimum technology mix minimises overall generating cost to the nation. Unless sufficient domestic gas at netbacks of less than $10/Mbtu are available, under the financing possible for the GCC, nuclear is unquestionably the lowest cost base load generation available. Further benefits are energy security and minimum environmental impact. However nuclear has stringent institutional and legal requirements and poses serious and demanding challenges related to establishing and maintaining high safety in operation, and adequate waste treatment and management. It requires, therefore, long term national commitment and enduring public acceptance.
Which countries in the Middle East are actively pursuing the addition of nuclear energy to their portfolio? How safe is it, considering the accident in Japan?
The UAE will definitely achieve its nuclear goals and, although not yet confirmed, I believe that aversion to escalating domestic energy consumption will ensure that Saudi Arabia also does the same. Beyond the GCC, I believe that Turkey and Egypt, motivated by energy security, will also succeed. Jordon, with similar but stronger motivations, has difficulties of opposition in the legislature and public dissent while it is uncertain if Iran will slowly expand. Kuwait and Bahrain cancelled their nuclear plans due to limitation of sites, lack of national consensus and public acceptance. They may be part of bilateral arrangements with the UAE and KSA as a first step towards a regional nuclear programme. Jordan should also consider a bilateral approach with KSA.
The economic case for the exporters and energy security case for others is strong. The history of world nuclear power demonstrates its inherent safety. The Three Mile Island accident demonstrated the effectiveness of containment and the lack of public harm in a near-worst event for early reactor technology. Safety culture has now been greatly improved and Chernobyl and Fukushima were the result of willful disregard of this culture. Yet human health consequences were very limited and almost not measurable. Thus the arguments for nuclear is clear. However its history, even in first world, continues to be determined by entrenched extremism unrelated to logic. It should, and is, being pursued in countries where the government has the confidence to confront such extremism and create consensus for it.
Looking at Qatar, and the GTL initiative taken by the country, what do you have to say about the methods it has taken to make the most of its abundant gas reserves?
The GTL initiative extends ubiquity of application, and together with the prioritising of serving LNG over piped gas markets, Qatar has demonstrated prudence in maximising national revenue from resources. Hopefully, in a better climate of cooperation and mutual assistance, a regional gas grid could be served at prices which are mutually beneficial, taking into consideration overall generating cost and costs of alternative energy supply.
What will be the future of OPEC? What do you predict for these countries? Any major change due to the move to renewables?
As oil supply diversifies and the producers' population, national development and citizen expectations increase, the role of OPEC in maintaining price as near member fiscal prices as possible becomes increasingly challenging and vital. We have been fortunate over the past 10 years to see fiscal prices stay close to the marginal cost incurred in the move to exploit more difficult and complex resources (deep, off-shore and, now, shale). But in the longer term, under increasing consumer-efficiency, action to mitigate climate change and local pollution, well-chosen collective policies will become necessary to maximise oil income during the trajectory of reduced hydrocarbon dependence. These are probably best designed by OPEC mentored collaboration. For renewables to meet the targeted 20%+ of national energy demand will be very expensive; thus I feel that we will see a coexistence between fossil and renewables for the remainder of this century; most likely around 20-30% generated from renewable sources, alongside some nuclear, until more technological breakthroughs make the marginal cost of new renewables well below that of the marginal cost of oil and gas
HE ABDULLAH BIN HAMAD AL ATTIYAH handing over the Lifetime Achievement Award for Advancement of OPEC to DR ADNAN SHIHAB-ELDIN
HE ABDALLA S EL BADRI with DR SHIHAB-ELDIN and HE DR IBRAHIM IBRAHIM at the ceremony