The global economy, with growth mainly in emerging markets, still holds a strong role for oil and particularly gas in the energy mix, says Majid Jafar, Chief Executive Officer of Crescent Petroleum. For the coming half century at least, he argues, oil and gas will still play a major role in energy, with gas, as a comparatively clean and abundant energy source, is the real opportunity for the necessary savings in carbon emissions and fuel costs. Global demand for energy, he points out, remains strong.
Currently the world consumes around 250 million barrels of oil equivalent per day – but almost half of this consumption is in the developed world. If the rest of the world were to move towards EU level of per capita energy consumption, global primary energy demand would more than double. Continued economic development and population growth are the key drivers of rising global energy consumption – especially in the developing world. A fifth of the world’s population remains without electricity.
As we bring the so-called Bottom of the Pyramid into the modern global energy system, it will be critical, Jafar argues, in tackling poverty and promoting global stability. But he cautions against expecting overnight switch: transitions in global energy system take time. Coal took a century to replace biomass as the world’s primary fuel, and oil took 70 years to replace coal – all despite low costs and huge efficiency gains associated with these transitions, advantages that do not apply to renewables today.
Today it is the oil industry that needs to meet the challenges, he says. The world now needs to recreate the productive capacity of Saudi Arabia every two years. For the oil industry, this is largely insurmountable. But gas is starkly different: global gas resources could supply the world’s current needs for 250-plus years. Moreover, he says, gas is affordable and relatively environmentally clean. The region most focused on greenhouse gas emissions reductions in the world, the EU, is failing to meet its carbon targets as it increasingly chooses to burn coal over gas. Ironically, the region least interested in emissions reductions, the USA, has reduced its emissions to 20+ years lows and made the most material carbon emission reductions of any country in the world by switching from coal to gas in power generation.
This is thanks in large part to cheap gas supplied from the shale gas revolution. The Middle East, despite being at the very centre of global oil and gas production, remains highly inefficient in energy use – and inefficiency largely the result of an energy subsidy and price regulation regime which does not provide the price signals to ensure energy consumption is efficient and energy production is sufficient. Jafar argues “None of this regime helps to meet the growing domestic energy demand in the region, with energy price regulations resulting in the perverse outcome that oil use is favoured over gas in power and other sectors because gas production is not sufficiently incentivised to deliver the gas demanded by the economy. This creates huge opportunity costs for the economy today and could damage export revenues directly in the longer term”.
The winners will be those that can be competitive, he argues. Europe, already uncompetitive in terms of labour costs, is choosing to become less competitive in energy than countries – especially the USA, which by contrast, although it was losing competitiveness to Asia in terms of labour costs, has regained overall competitiveness by now having amongst the lowest energy input costs in the world. The result has been a re-shoring of industry to the USA. A low gas price is the biggest stimulus package to the US economy of all. Finally, it is the private sector that can really help the MENA region, Jafar claims. Intercountry gas infrastructure and trade within the Gulf region is still limited but would bring huge benefits by ensuring that gas could be delivered to where it is needed most.
The private sector is best placed to take the risks and make the investments necessary to deliver a regional gas grid. All of these observations are among those that Jafar will be making on a panel discussion covering “Energy Innovations and Solutions: Oil and Gas”, at the World Energy Forum in Dubai on Wednesday 24th October. The heading for the World Energy Forum 2012 is “Safe, Accessible, Sustainable Energy For All” – something Jafar believes is impossible without a strong role for gas – and a crucial place for the private sector in the MENA region.