The rise of shale has posed a rare challenge to Middle Eastern oil, culminating in a global oil price war and moving OPEC members to slash profits to retain market share. But at a time when OPEC’s hegemony over the oil markets has been challenged, let us not forget there is another abundant natural energy resource the Middle East possesses – the sun.
The abundance of sunlight (and therefore solar power) offers Middle Eastern energy producers an opportunity to achieve first-move advantage in a market that appears to be the longer-term future of energy. In light of recent instability in oil markets, the importance of alternative renewable energies, particularly solar, has become all the more pronounced. The drop in oil prices has precipitated an efficiency rush in energy production in all producer nations. In the US, oil producers are leaving no stone unturned in the hunt to become as efficient and sustainable as possible.
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In Europe, there is a renewed push for renewable energy and some countries like the UK are also pursuing nuclear energy as a longer-term solution. In the Gulf, there are similar measures taking place to become more efficient in a more competitive energy market, and increasingly, they are turning to solar to achieve it.
The Gulf states remains one of the biggest oil producers in the world, and make up the biggest exporting members of OPEC, especially Saudi Arabia. While some of these countries can afford to swallow current oil prices for now, they will nonetheless find it difficult to maintain their domestic budgets – all OPEC countries chose to cut prices in order to hold onto market share, this means slashing profit. It would not be unprecedented for these countries to encounter domestic trouble.
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The other, more serious concerns for these major oil producers, is the increasing consumer demand in their own countries. In past decades, the region has been able to sustain luxury alongside completely inefficient energy policies through government subsidies. But the entire energy outlook for the region is changing rapidly.
Rising populations, a growing middle class, industry diversification and increasing consumerism has turned a number of countries in the Gulf region into major energy consumers. In Saudi Arabia, oil accounts for over 65 percent of all electricity production, in Kuwait it is 71 percent, in Lebanon it is 94 percent and in Yemen it’s an astonishing 100 percent. This represents an energy policy that is inefficient and in the long run – unsustainable.
Saudi Arabia is the biggest petroleum consumer in the region, it is the world’s second biggest consumer of total primary energy, 60 percent of which is petroleum-based. But most importantly, it paints a distressing future for the region’s oil export industry. If consumer demand continues to grow, it will eventually result in downward pressure on oil exports and could start affecting subsidies. Without a robust and efficient energy balance in the region, it will inevitably lead to these producer nations becoming less profitable with a weaker export outlook.
And with competitors in the oil market like Russia, Iran and the North American shale, this is a long-term dynamic that will undermine Middle East’s global energy dominance.
However, the possibilities associated with harnessing Middle Eastern solar energy could be a game-changer. Solar is becoming much cheaper to invest in, and now has an established and ever improving infrastructure. Substantial investment in solar will act as a shield for the region’s more valued commodity; oil. Saudi Arabia alone for example, could have made $43.8bn in additional oil revenue in 2013 were it not for its spiralling domestic consumption.
The possibilities associated with harnessing Middle Eastern solar energy could be a game-changer. Solar is becoming much cheaper to invest in, and now has an established and ever improving infrastructure.
It also would have acted as a massive stimulus to the country’s finances. Earlier this year, Saudi Aramco, the state oil company, announced it would be making solar energy investments across the country in an attempt to diversify the country’s energy supplies. It is also expected to conserve the country’s oil resources primarily for export.
It has been a slow process but is nonetheless an important one for the future of the solar energy sector. One of the biggest success variables for any solar energy project is not just investment, but location. The Middle East’s solar industry is one of the most economically sustainable and acts as the best conserver of the region’s oil resources.
It is also a very strong investment opportunity for those looking to invest in a sustainable, long-term energy sector with a ready market and significantly lower start-up costs then depleting energy exploration.
But these new developments would also have another important advantage for the Middle East; a cleaner environment. The use of petroleum for electricity generation has made the Middle East’s air quality one of the poorest in the world. Twenty-nine of the world’s most polluted cities are in the MENA region.
Recent energy challenges could have very costly consequences for the region if left unaddressed, but they could also reap huge rewards if met with robust energy reforms and additional investment in alternative energies, especially solar. And there are positive signs for the region. Saudi Arabia alone has announced a $109bn investment plan to generate a third of its electricity. Qatar has also made solar energy agreements with major renewable energy companies as part of its commitments to the Solar GCC alliance.
How these measures materialise over the next decade or so remains to be seen, but there is room for optimism. What’s more, the Middle East’s unrivalled solar potential means that theoretically, it can become more then a just a world leader in fossil fuel production, it can become a world leader in renewable energy production as well.
Vicente Lopez-Ibor Mayor is a former commissioner of the National Energy Commission of Spain. He is chair of one of Europe’s largest solar energy power companies, Lightsource Renewable Energy Ltd.