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Will reliance on oil become an economic liability?

Standard & Poor’s report suggests that Saudi Arabian oil reserves could last for 70 years

Gulf News

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-sufficiency 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 self-sufficiency”, 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 at current production levels will last for 70 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 70 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 quickly 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.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.