By Nicolas Sarkis
Two major new events are bound to have significant consequences on the world’s energy markets. The first is the wind of rebellion that has suddenly started to blow over the countries of the Middle East and North Africa since the beginning of this year, shaking a region that generates one-third of the world’s oil production and fully one-half of its oil exports, as well as more than one-fifth of its natural gas exports. The second is the disaster at the Fukushima nuclear power station, which has quite naturally raised questions about the share of nuclear power in the world energy mix. Nuclear energy currently accounts for 5.8% of global energy consumption and its share was expected to rise to 7.6% by 2035. After the latest catastrophe in Japan, this forecast looks doubtful, and eyes are beginning to turn to other energy sources to fill the gap.
The popular uprisings in Arab countries and the Fukushima disaster have already resulted in a sharp rise in international oil prices, with Brent having soared to US$115/b, and have revived concerns about the security of world energy supplies. Some observers have gone so far as to point to the specter of a new ‘oil shock’.
It is too early to make even a tentative assessment of the future effects of these events. All that one can say for the moment is that, if ever there were another oil shock, it would be very different in nature from those of 1973, 1980, 1990 and 2008. It is significant that, even before the political upheavals in the Arab world and the tsunami in Japan, oil prices were already on a strongly upward path, with the monthly value of the OPEC crude basket having risen from US$72.51/b in July to US$88.90/b in December 2010, a 22.1% increase in the space of five months, despite the very comfortable levels of strategic and industrial oil stocks in consuming countries and despite the existence of some 6 million b/d of surplus oil production capacity around the world.
This development, which gathered speed under the impetus of the Arab revolts and the Fukushima tragedy, was essentially the result of concerns about the long-term supply-demand balance, as well as of massive purchases of ‘paper barrels’ on the futures markets. These purchases, which are often described pejoratively as ‘speculative’, reflect the ‘financiarization’ of the oil market, signifying that the paper barrels have become an asset like any other which investors may put in their portfolios, in the same way as gold, futures contracts on other commodities, real estate assets and hard currency deposits.
In the years and decades to come, the upheavals that have been seen since the beginning of 2011 are liable to alter the landscape and the outlook for world energy markets, especially in the following areas.
Added Boost to Renewable Energies
According to the projections produced in 2010 by the International Energy Agency (IEA), the world’s energy needs were supposed to increase by 36.5% over the 2008-2035 period, rising from 12,271 million tons of oil equivalent (toe) in 2008 to 16,748 million toe in 2035, representing an average increase of 1.2% per annum. Within that total, oil consumption was expected to increase the least, by 0.5% a year, reducing its share of the overall energy balance from 33.1% in 2008 to 27.8% in 2035. The share of natural gas, on the other hand, was forecast to rise from 21.1% to 22.4%. The IEA also suggested that the share of nuclear energy would increase by 2.2% a year and reach 1,273 milllion toe in 2035, 7.6% of world energy consumption at that point. It is renewable energies above all that were supposed to increase their share of world energy consumption the most, rising by 7.9% a year, which would boost their share of the global mix from 0.72% in 2008 to 4.2% in 2035.
It is not surprising that, since the disaster at the Fukushima plant, people have been calling almost everywhere in the world for an acceleration in the develoment of clean and renewable energies to the detriment of nuclear power. Such a change of direction would mean a massive transfer of investments towards unconventional oil and gas resources and towards renewable energies. In production terms, a change of one percentage point in each energy source’s share of the world energy mix corresponds to an average variation of 3.2 million b/d of oil between now and 2035, equivalent to more than twice the crude oil production of Algeria.
New Producer/Consumer Partnerships
As regards Arab countries, the principal source of hydrocarbon exports, there are now question marks hanging over the following;
a) Investments in the Arab energy sector: Before the latest political turmoil, Arab countries were expected to invest US$430 billion over the 2011-2015 period, of which US$330 billion was to be devoted to oil and natural gas and US$95 billion to electric power. It now appears that part of these investments will be deferred or canceled, which means that the region’s production and exports will grow more slowly, giving rise to fresh tensions on oil prices.
b) Whatever the outcome of the upheavals underway, Arab countries’ energy policies and their political programs generally will have to take better account of the social and economic aspirations of people in the region. This change of direction has already begun to take shape through the sometimes improvised measures announced by certain governments, which entail the creation of new jobs and the allocation of tens of billions of dollars to improving the living standards of their populations. The price they are paying to purchase social peace will mean a substantial increase in the financial needs of Arab countries (whether oil exporters or not) and a virtually irresistible trend towards meeting these new needs, primarily by maximizing the revenues per barrel of oil exported.
From now on, no Arab government can ignore the vigor with which the militants behind these Arab revolts have attacked the corruption, nepotism and waste of public funds that have been among the major scourges of the region over the past few decades. Even if not everything were to turn out for the best, it seems more than likely that the policies pursued in the future will be more oriented towards these countries’ economic development. This implies new partnerships with industrialized countries within the framework of mutually beneficial relationships.
These partnerships will involve the development of conventional and unconventional oil and gas resources, as well as the development of new and renewable energy sources, including solar power, through programs such as the Mediterranean Solar Plan, Desertec, Medgrid and specific national plans. This development will be the central theme of the SolarMed conference that will be taking place in Paris in October this year.
Nicolas Sarkis is Chairman of SolarMed 2011 (www.solarmed.com).
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