“SHALE GAS WILL RE­DUCE GEOPO­LIT­I­CAL POWER OF THE MID­DLE EAST”

Qatar Today - - DEVELOPMENT > LOCAL > LISTENING POST - BY SINDHU NAIR

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

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