In the past few months I had been visiting the Gulf area rather regularly, mainly to teach classes as you can determine from the training schedule. I was in Dubai, Sharjah (United Arab Emirates) and also Qatar—all major beneficiaries of the big boom due to high oil prices. Interestingly enough, Dubai does not produce oil or gas, but is booming because of the remarkable policies of its government. These policies have taken advantage of its location, the vast wealth around it, and in advancing a liberal social agenda. Dubai’s neighbors are quickly copying her model and are advancing fast as well. Last year alone, Gulf area oil and gas exports amounted to almost half a trillion dollars. The dilemma, as well expressed in a recent issue by The Economist, is how to spend these monies effectively and creatively!
One significant investment is going to be the project for Masdar City (http://www.masdaruae.com/index.aspx ) which is “a global cooperative platform for open engagement in the search for solutions to some of mankind's most pressing issues: energy security, climate change and truly sustainable human development.” With a budget of $22 Billion, this city will be a fully sustainable environment. But what is more, it is planned to be a true hub for R&D, investment projects, and actual manufacturing of promising sustainability systems and technologies.
A key project in Masdar will be the hydrogen plant that will use natural gas to produce hydrogen and CO2. “The hydrogen fuel would generate low-carbon electricity. Rather than being emitted to the atmosphere, the CO2 would be captured, ready for transportation and injection into a producing oil field where it could replace natural gas currently being injected into the field to maintain pressure. The injected CO2 has also the potential to increase the proportion of Abu Dhabi’s oil that can be recovered.”
But what is the impact of the looming $200/Barrel on the rest of the world. In my opinion, the next several years will be truly years of hardship. This sudden surge in energy prices is truly huge—much bigger than the surge in the early ‘70’s. Global economies will suffer, perhaps shrink. Energy consumption will be curbed, at least in the US and Europe, and attempts to substitute classical sources by wind and solar, will not be fast enough. It will take at least 10-15 years to realize manageable sustainability.
How will the electricity business fare in this growing era of uncertainty? It is clear that consumer prices will have to rise—hopefully in such ways as to promote wise uses of electricity, conservation and the ability to use advanced technologies to allow consumers to manage their energy budgets. Intelligent grids will need to grow very fast—and investments in them will eventually pay off. The utilities had been reluctant to introduce much intelligence at the consumer side as the costs did not justify the benefits. Soon, the benefits will outweigh the costs.
But what about the management of the transition to the new era of sustainability, in a decade or so? Will market forces alone produce the needed results? My opinion is that markets will be very effective, if regulated with great vision from the leadership. Experience has by now amply demonstrated that the “greed” factor in free markets can be of value when the competition is fair, but a curse, otherwise.