World can't close eyes to Gulf energy supplies

With a push for greater investment in alternative energy sources worldwide, particularly nuclear and renewable technologies, many are arguing that the role of oil and gas in the energy supply mix will be sidelined in the near future. This is unlikely to be the case.

In 2007 oil and gas accounted for 55 per cent of the global primary energy supply mix, a market share that oil and gas have held almost constant over the last 50 years, even as global energy demand has increased by a factor of three. I do not see this changing drastically anytime soon, and indeed with economic growth remaining strong in the much of the developing world, the International Energy Agency (IEA) expects the absolute level of demand for oil and gas to grow significantly over the next two decades, on average by 0.9 per cent and 1.5 per cent per annum respectively."

Alternative energy sources simply cannot be developed at the scale and pace required to sideline oil and gas in the medium term and the Gulf region will therefore assume an even more crucial role in contributing to the world's energy mix.

Renewable energy

In Europe, the USA and China there has been a strong push to expand renewables capacity, primarily wind and solar power generation. Yet despite rapid growth for several years, these sectors still account for less than 2 per cent of these three regions' energy needs. Ambitious plans to expand capacity several times again are starting to run up against physical constraints relating to grid capacity and system balancing which are not easily solved.

Furthermore, the financial cost of such policies may be prohibitive. The IEA estimates that to increase the global share of renewable in global primary energy demand from 0.6 per cent in 2007 to just 5 per cent by 2030 could require more than $2.4 trillion (Dh8.8 trillion) worth of capital investment, even before one considers the financial cost of such policies. As a result, further expansion is likely to be affected by the law of diminishing returns, and stated expansion targets such as the EU's 20 per cent renewables target by 2020, look difficult to achieve.

Consequently, renewables are unlikely to materially cut into oil and gas' market share even in those markets where alternatives are being pushed most aggressively. In markets such as Asia, where renewables have not yet played a major role in government energy policy, they will have minimal if any impact at all.

Nuclear power

Alongside the growth in renewables there has been a revival of interest in nuclear power of late, after two decades of relative neglect. In the Gulf region itself over the last four years, many nations have announced plans to develop nuclear power. Further afield in parts of Europe, the USA, China and India there are now plans for a huge build-up of nuclear capacity. Despite these plans, nuclear power is still not likely to undermine oil and gas' share of primary energy demand.

The time taken to approve the design, construct and test a nuclear plant is much longer than that for any other source, due to the safety concerns nuclear power raises.

The Gulf region plays a critical role in driving global supply of oil and gas, and will continue to do so, especially as new discoveries elsewhere face major extraction difficulties which don't apply to the giant fields here in the Middle East.

Inasmuch as investment in and encouragement of alternative energy sources is important and necessary, it would be a great mistake to neglect development of oil and gas productive capacity because of a perceived future threat to demand from alternative fuels. We are proceeding at full speed with our oil and gas supply projects here in the Middle East and North Africa because we are fully confident that there will be a market which needs them for the foreseeable future.

The writer is Executive Director of the Crescent Petroleum Group.