Energy is the backbone of modern life and the most significant driver of development. The transition from one cultural phase to another was primarily associated with the tapping of new energy sources. Huge global investments that have been injected in research, development, and innovation to find alternative energy sources that are more efficient and environment-friendly. The UAE enjoys a great significance as a big actor in the global energy markets, an urgent question, therefore, arises as to: where the global energy market will be heading to in the future? What can be done to preserve our position in these markets and to enhance our future development process?
Regardless of the historical development of the energy sources and their effects, it can be said that the global “energy revolution” began actually with the discovery of fossil fuels (coal, oil, and gas) which paved the way for the industrial revolution. At the beginning, coal was the main generating source of energy needed to operate the machines and steam engines that had been invented in the 18th century. When oil was discovered, the global energy map had changed dramatically. Then, oil evoked a tremendous revolution in manufacturing, production, consumption and development. The modern global economy is so closely associated with oil to the point that our current time is being called the “age of oil” and that the world is now undergoing the stage of “oil addiction”. Natural gas was also discovered parallel to oil and was being used as an energy source before it witnessed an important development in the past few years, whereas it became an integral part of the global energy mix.
These three sources of fossil fuels (oil, gas, and coal) have made out the main components of the global energy mix until today despite a relative regression in the past few decades whereby their contribution has declined from 95 per cent in 1970 to 85 per cent in 2016. It is a regression that began with the increased global trend towards developing alternative energy sources in the aftermath of the first global oil shock in the 1970s, after the Arab-Israeli war of 1973 when oil shipments to countries supporting Israel in the war had been stopped. This trend gained momentum with the increasing interest in the environment, the search for new energy sources, global pledges to reduce pollution and dependency on fossil fuels as happened in the Paris Climate Agreement which was concluded in late 2015.
There has been an increasing talk in the past few years about the world nearing the “peak fossil fuels” stage and that the end of the “oil era” is approaching. This was consolidated by a number of significant changes in the global energy markets. They indicate in their entirety that we might actually have reached the “peak fossil fuels” stage. The fossil fuels, especially oil and coal, would gradually lose their dominant position in the global energy mix and enter a new energy era that is driven by modern technologies. The first of these changes, and may be the most important one, is evident in the huge global investments that are being injected to develop renewable energy sources, especially solar, wind, and hydroelectric power. A report published by Bloomberg New Energy Finance (BNEF) in July 2016 indicates that the renewable energy sources would attract about $7.8 trillion (Dh28.6 trillion) of investment by 2040. It also predicts that the world would witness important leaps in this field due to the accelerated advances in the modern technologies which will contribute to increase the generation capacity of the renewable energy sources and reduce the cost.
According to a report by the International Energy Agency (IEA) entitled World Energy Outlook 2017, the rapid widespread of clean energy technologies has reduced the cost of new solar power facilities, wind power, and batteries by 70 per cent, 25 per cent, and 40 per cent respectively. The report also indicates that renewable energy sources would dominate two thirds of the global investments in electricity power stations which would be the cheapest recourses used in the new power generation stations in many countries. The World Energy Outlook 2018 report points out that the renewable energy sector would drive growth in the field of electric power generation by about 64 per cent in 2050. The second development is shale oil and gas “revolution”. Then, the shale oil and gas production techniques, in particular hydraulic fracturing and horizontal drilling, have enabled new producer, especially the US, to access an ever-increasing reserves of shale oil. This development would have two-fold effects on the global energy markets, first, it would increase the crude oil supply and consequently pushing the global oil prices downward. The discovery of innovative techniques would reduce the cost of this type of oil and gas. Second, it would change the map of the dominant powers in the global markets. The US, for example, has undergone a transition from a gas importing to gas exporting country thanks to its increasing shale oil production. It is expected to become a net oil exporter during the second decade of the current century. The third development is the increased global reliance on electricity in the field of energy instead of fossil fuels. The aforementioned International Energy report 2017 stresses that the future in the energy field lies in the electricity which would constitute 40 per cent of the increase in the final consumption by 2040.
Electric vehicle industry
One of the significant developments that the world is witnessing in this field is the expansion of spending on and investing in electric vehicles; the automobile manufacturing companies allocate huge investments to develop, reduce the production cost of, and raise the efficiency of this type of cars. The International Energy Agency (IEA) expects that the number of electric vehicles worldwide to increase from currently two million to 280 million by 2040. Bloomberg New Energy Finance (BNEF) predicts that electric vehicles would acquire 54 per cent of car sales and make out 33 per cent of the of the total number of cars in the world by the same year.
In 2015, Opec estimated that the global electric vehicle sales would reach 46 million cars by 2040, but went to greatly correct its estimations in 2016 whereby the figures reached 266 million cars. This reflects the accelerating changes in electric vehicle industry which is expected to gain momentum in the upcoming years, especially with the steady decline in the production cost of this type of cars (the production cost declined by 70 per cent in 2016 compared to 2008).
In this context, the world is also witnessing important development in the industry of rechargeable energy storage batteries, as their storage capacity has improved significantly. Such progress can greatly push the electric vehicle industry forward further than expected. This can include other fields and industries that can depend on electricity rather than fossil fuels in the future; given that the produced batteries can store great quantity of energy and the problems currently plaguing the battery industry, especially in terms of efficiency, lifespan, and safety, have been solved.
However, all this does not mean that the importance of fossil fuels, especially oil and gas, will decline in global energy mix in the near future, i.e. in the short and medium term. The most pessimistic estimations indicate that the share of the fossil fuel in the global energy mix will not be less than 50 per cent in 2050. Additionally, there are a number of considerations that need to be taken into account when speaking about the end of the “oil era” and the “age of fossil fuels” in general: First, despite the expanded production of alternative energy sources, the global demand for energy will increase with time as a result of the increased high rates of urbanisation, industrialisation, population growth. Consequently, there will be a constant demand for more energy from conventional as well as renewable sources. Second, there are still numerous technical and practical problems facing the renewable energy sources. Therefore, it would be extremely difficult to rely mainly on them to meet the growing global energy needs. For example, despite the investments injected in this sector, its contribution to the electricity production in the world does not exceed 8 per cent, with the exception of hydroelectric power.
While solar power, which attracts more attention in this sector, does not contribute more than 2 per cent of the global electricity production according to some statistics. Third, the advances in the electrical vehicle industry, despite its significantly negative impacts on oil prices, does not pose any great risk. If the transport sector consumes 60 per cent of the oil production, then the car consumption is just 20 per cent. In other words, if the car oil consumption declined due to the advances in the electric vehicle industry, other transport sectors such as ships, aeroplanes, trains as well as the petrochemical industries will depend mainly on oil, as it is very difficult to rely on electricity. British Petroleum (BP), an oil and gas company, argues that the rate of increase in electric vehicles will not exceed 10 per cent of the total number of vehicles worldwide in 2035. Fourth, current and future estimates indicate that the global dependence on natural gas, which is one of the fossil fuel sources, will continuously increase in the future because it is a very clean and environment-friendly fossil fuel source. This comes in the light of the huge expansion in production of natural gas (new discoveries in the Eastern Mediterranean and expansion projects in Australia and Russia) and shale gas (especially in the US).
According to the current situation, the fossil fuels, in particular oil and gas, will remain important components of the global energy mix until at least 2050. This does not mean to take this conclusion for granted, as the situation may change at any moment. Then, in the light of the accelerated technological advancements and the heightened global race for developing alternative energy sources, we cannot exclude the occurrence of a technological breakthrough, the emergence of a new invention, or an innovation that might shake up the global energy markets. Another success could be the invention of efficient batteries that safely store electricity for a long period of time and diminish the importance of oil and gas in transportation and other sectors, the development of modern techniques that make the alternative energy sources more efficient and effective, or any other achievements that could change the exiting equations.
Within the overall context, the UAE is one of the countries that are fully aware of the nature of the ongoing changes in this field. Therefore, the UAE was proactive in heavily investing in clean alternative energy sources. It has achieved great progress in this field, especially since Masdar city was established in 2006 as a sustainable carbon-free town, and the UAE also hosts the headquarters of the International Renewable Energy Agency (Irena), which was established in January 2009. Many ambitious solar projects have been launched such as Shams-1 in Abu Dhabi and Mohammad Bin Rashid Al Maktoum Solar Park. The UAE has entered the field of nuclear energy production through its ambitious peaceful nuclear programme. It plans to build four nuclear reactors in Barakah site in the Western Region of Abu Dhabi emirate, and they would produce 1,400 megawatts. These nuclear energy plants are expected to start production in 2019. Thus, the UAE would be the first Arab country to use nuclear energy for peaceful purposes.
The UAE has endorsed many ambitious strategies in response to changes in the energy sector such as the “UAE Energy Strategy 2050” which was announced by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minster of the UAE and Ruler of Dubai, in January 2017. The strategy aims to increase the contribution of clean energy in the total energy mix to 50 per cent by 2050. The UAE Green Economy for Sustainable Development initiative was launched in 2012 beside many other projects and ambitious plans.
The importance of all this comes from the underlying profound philosophy, as the UAE believes that oil and fossil fuel sources are going to be depleted. Therefore, it is imperative to make early preparations for the post-oil era by joining the global race for the new energy sources so that the UAE remains a major actor in the global energy market. This philosophy was clearly and transparently articulated by His Highness Shaikh Mohammad Bin Zayed, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces in his historic speech at the Government Summit in Dubai 2015 when Shaikh Mohammad said: “In 50 years, when we might have the last barrel of oil, the question is: when it is shipped abroad, will we be sad?” he asked. “If we are investing today in the right sectors, I can tell you we will celebrate at that moment.”
Dr Jamal Sanad Al Suwaidi is a UAE Author and Director-General of the Emirates Centre for Strategic Studies and Research.