Technology

The bridge to post oil future?

 By Criselda Diala-McBride

The Global Business Forum-Commonwealth of Independent States recently held in Dubai has explored how oil-exporting countries in the CIS (former Soviet Union states) and Gulf Cooperation Council regions are coping with the current environment of low oil prices, and what they need to do to retain their status as energy hubs. In an era of low oil prices, in fact, keeping their economies afloat and maintaining their competitive advantage requires a firm commitment from governments to explore avenues where they can strengthen their core competencies, develop industries that are both directly and indirectly related to the oil and gas sector, and introduce reforms that will encourage foreign investment…

As the once-indomitable crude continues to lose its clout, hydrocarbon economies are being forced to accept that a post-oil future is no longer theoretical. National strategies that embrace this reality are already being formulated, but stiff challenges remain for these governments.

At the first Commonwealth of Independent States (CIS) Global Business Forum held recently in Dubai, energy experts highlighted the urgency for oil-exporting nations in Central Asia and the Gulf Cooperation Council (GCC) region to diversify their economies away from oil and gas.

“The critical point is to start now, whether oil is at $20 a barrel or at $100 a barrel [because the] transition of countries [from heavy dependence on oil] will take decades and there really is not a lot of time to lose,” warns Steven Geiger, president of Innova Partners, USA and former co-founder of UAE renewable energy company Masdar.

World energy consumption (source: BP 2015)...
... and global energy scenario (source: World Energy Outlook)

The collapse of crude oil prices has dealt a serious blow to countries in the CIS and GCC regions, whose economies are still heavily dependent on hydrocarbon revenues. The International Monetary Fund, in its October 2015 economic forecast, notes that collective real GDP growth in the oil- and gas-exporting nations of Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan has slowed to 3.8 percent in 2015, from 5.4 percent in 2014. Although the GCC region was not as badly hit, its growth was stagnant at 3.3 percent in 2015, compared with 3.4 percent the year before.

Christopher Hopkinson, first deputy chairman of Kazmunaygas in Kazakhstan, says a high-oil-price environment could easily be a double-edged sword. “A few years ago we were making a lot of money. It was good for [Kazakhstan] and there was really no incentive to move away [from oil]. And now we’re in a situation where the CAPEX [capital expenditure] required to move away from the dependency on oil and gas is very difficult to find.”

In an era of low oil prices, keeping their economies afloat and maintaining their competitive advantage requires a firm commitment from governments to explore avenues where they can strengthen their core competencies, develop industries that are both directly and indirectly related to the oil and gas sector, and introduce reforms that will encourage foreign investment.

Geiger cites Masdar’s experience as an example. “It went through a learning curve over the last 10 years, and found that certain things were difficult to be competitive in, such as the manufacturing of solar panels, [which is now dominated by] China.

“But the company realized it has the skillset and expertise to compete at a global level in terms of renewable-energy project management – the building of solar, wind and biomass power plants.”

Alternative energy sources will also play an important role during the post-oil age. Kazakhstan, for example, is aiming to obtain 50 percent of its electricity through renewable energy by 2050.

“That’s a long way away,” says Hopkinson. “The point is that going the renewable energy route is not going to push oil and gas out overnight.” He believes oil will remain dominant at least for the next couple of decades, as governments work towards developing the renewable energy sector in a bid to diversify their energy mix.

Crude oil price since 1985 (source: Bloomberg)
Steven Geiger, president of Innova Partners, advises oil-exporting nations to use this period of low oil prices to drive inherently painful reform processes that will liberalize their economies, develop their talent base, diversify their energy mix and reduce red tape so they can attract investors

According to the EnergyWatchGroup, there is a massive disparity between technical and installed renewable energy capacity in Central Asia – a testament to the region’s potential. Countries like Tajikistan, Uzbekistan and Kazakhstan have technical capacity in the solar-energy field, ranging from 195,000MW to 3,760,000MW, but installed capacity stands at less than 1MW.

“Kazakhstan also has plans to develop a wind farm that can generate 1,000MW of energy. Around 10 to 15 percent of the country has an average wind speed of six meters per second, which makes it ideal for wind power and this is a big [part of] the country’s 2050 strategy,” adds Hopkinson.

In the GCC, Kuwait and Oman are piloting projects using solar technologies that produce steam to power their heavy oil industries, according to Geiger. The initiative will not only lower the countries’ carbon footprints, but will also develop their expertise in solar-powered steam, which has various industrial applications.

Geiger advises oil-exporting nations to use this period of low oil prices to drive inherently painful reform processes that will liberalize their economies, develop their talent base, diversify their energy mix and reduce red tape so they can attract investors.

“Countries can decide to wait for the prices of renewable energy equipment to drop even further, [over the next] five years. But the question is, will there be a seat at the table for them [by then]?” he says.

about the author
Criselda Diala-McBride
Dubai-based journalist with 20 years of experience writing and editing finance, aviation, tourism, retail, technology, property and oil and gas articles for a range of print and online publications.