In Theory: Focus on alternative sources of income

Developed nations, who are the main consumers of oil, are into research designed to find alternatives to crude oil in the next few decades. Special emphasis is laid on developing uses of hydrogen as a cheap and alternative energy resource.

In this regard, the US, being the biggest energy consumer in the world, has produced an integrated programme for production and conversion of hundreds of thousands of vehicles to be fuelled by hydrogen.

Japan and European countries have plans for developing similar programmes which means that there is a significant shift in the world energy balance that is not favourable to the oil wealth.

Meanwhile, there is a remarkable development of other energy resources such as natural gas, solar and wind energy.

Obviously this represents a real challenge to the Arab countries, especially the oil-exporting nations whose economies rely almost totally on oil revenues as a source of foreign currencies and financing the state budget.

Why the increased interest in such alternatives at this time in particular?

It is clear that the Arab oil reserves, especially in the Gulf, will be the primary source of supply for all countries of the world in the next few decades, as the alternatives are extremely limited.

The US and European reserves in the North Sea are expected to run out in the next ten years. In addition, the Caspian sea reserves that have often been suggested as an alternative to the Gulf do not exceed 25 billion barrels and daily output from that source does not exceed 1.6 million barrels daily.

At best such output will reach 4.5 million barrels daily by the year 2010, as the total of such reserve and output equals that of an average Opec member state. It should be noted in this context that this does not prevent the possibility of discovering additional reserves in the future.

Since this huge treasure of oil wealth is situated in an unstable region that is exposed to all sorts of possibilities, the economically developed countries of the world have been drawing up strategies for some time that will enable them to reduce to a minimum the dependence by their economies on Arab energy sources, especially oil.

Such efforts have continued and are yielding significant results.

So how can the Arabs deal with such a shift and with these earnest trends designed to change the world's energy balances? These are crucial questions that are still dealt with by the relevant research centres and organisations in the Arab world with a notable degree of indifference.

In addition, studies published in the West concerning such changes and successive scientific achievements are published like any ordinary news report that is forgotten once one finishes one's morning coffee when reading the newspaper.

I do not claim that such a shift will take place in the next 10 or 20 years but the change could take about three decades. However, the change is inevitable. The crude oil share of the global energy balance has dropped over the last three decades from 65 per cent to less than 40 per cent at present.

However, the next 20 years will see the world's increased reliance upon the Gulf region which will provide additional wealth and funds that will bring along a new and perhaps rare opportunity for the oil-exporting developing nations to diversify their economies and to exploit oil earnings to find alternative sources of income.

There will be considerable resources for achieving these tasks that will require relatively long periods of time. The required diversification achieved by some oil-producing emirates in the UAE took two complete decades to accomplish but it eventually created a diversified economy where the share of oil production does not exceed 10 per cent of the total GDP.

Although it is not essential to repeat the same regional experiences, diversification can pursue several avenues that take into account the peculiarities of every country and every transitional stage.

Meanwhile, the strategic trend should aim in all cases at finding alternative sources of income as others are seeking to find alternative sources of oil to ensure stability and economic growth in the oil-producing nations.

The writer is a UAE economic expert.