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Page added on March 17, 2018

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The Middle East and Russia are ill-prepared for a low-carbon future

Production

THE HIGHLIGHT OF a trip to the vast Shaybah oil field in Saudi Arabia’s “empty quarter” is a stroll at dusk to the top of a range of silky sand dunes. There you can watch the sun set over the pride of the Saudi petroleum industry as a muezzin in the mosque below strikes up a call to prayer. Unfortunately, executives from Saudi Aramco, the state oil company, challenged your correspondent to a running race. By the time he reached the top, he was coughing so badly that he missed the sunset; and the banter drowned out the muezzin. “If only we could turn this sand into silicon for solar panels,” one joked. “We’d be rich.”

Like many petrostates, Saudi Arabia, the world’s biggest oil exporter, is aware that demand for petroleum may one day fall victim to solar panels, electric vehicles, more frugal consumption and so on. But how seriously do the big oil producers take the threat? The answer comes in two parts. The first concerns their response to the recent onslaught of American shale production. The second is about their reaction to the prospect of “peak oil” (the beginning of the end of the world’s addiction to oil) over the next few decades. For now, the former appears to carry far more weight than the latter, even though peak oil may eventually cause what some call “the mother of all oil crises”.

Start with the impact of shale. The galloping rise in American oil production up to 2014 caught many traditional oil producers off guard and contributed to a rapid increase in global oil stocks to unsustainably high levels. The subsequent oil-price crash clobbered oil-producing countries that had been spending lavishly on social programmes. They acted swiftly.

A reeling Saudi Arabia unveiled a plan to sell off 5% of the world’s biggest oil company, Saudi Aramco, to raise $2trn for the country’s public-investment fund. This is part of the kingdom’s so-called Vision 2030 strategy, designed by Mohammad bin Salman, the crown prince, to reduce the country’s dependence on oil and diversify the economy to provide new sorts of jobs for a young population. But in the absence of high oil prices it is unlikely to raise anything like the sums he wants.

In late 2016 OPEC and non-OPEC producers, led by Saudi Arabia and Russia, agreed to curtail production by a combined 1.8m barrels a day (or about 2% of global output) to push up prices. So far the plan has not only worked, it has set the stage for an “axis of love” between Russia’s president, Vladimir Putin, and Prince Mohammad. Despite their support for opposite sides in the Syrian civil war, and despite Russia’s long-standing friendship with Iran, they now talk of developing long-term joint projects, especially involving Russian natural gas.

Whether they are seriously preparing for the longer-term threat—of falling oil demand as the world switches to electric vehicles—is harder to answer. Publicly, leaders of Saudi Arabia and Russia dismiss the risk that demand will collapse. They predict that cars, trucks and planes will still consume growing amounts of fuel into the middle of this century, and that plastics and petrochemicals will still use a lot of oil. But some observers think that concern about peak oil is leading them to hedge their bets and may be one reason the Saudis are selling off part of Aramco.

Drill, habibi, drill

What should petrostates do about output if oil demand ebbs? In theory they should pump as hard as possible now so they can bank the money while they can. But that would set off a battle for market share among producers which would drive down oil prices further. Those with the lowest costs, such as Saudi Arabia, which can produce oil for as little as $6 a barrel, might feel that this is a fight they are bound to win.

However, a paper published in January by Spencer Dale of BP and Bassam Fattouh of the Oxford Institute for Energy Studies casts doubt on this idea. It argues that Middle Eastern oil producers should focus not on the cost of extraction but on the “social cost” of oil: their spending on social commitments such as health care, education and public-sector employment. The authors use the oil price needed to achieve balanced budgets as a rough proxy. This is close to $60 a barrel. Mssrs Dale and Fattouh argue that until such countries can shift their economies away from oil, they will need to cover these social costs. So instead of fighting each other for market share, they will seek to maintain long-term alliances, such as the current OPEC-plus arrangement. Yet in the past such pacts have always unravelled because of cheating on quotas. And investors in Aramco might balk at sacrificing short-term revenues for long-term strategic objectives. So perhaps the Aramco IPO will be the high-water mark of Saudi Arabia’s co-operation efforts.

If the producers are not able to control the market, reform will become more urgent. But it will be tough. Saudi Arabia’s Vision 2030 depends almost exclusively on the will of the young crown prince, who has ripped up a long-established model of rule by consensus, with unpredictable consequences. His sense of urgency is not matched by experience, and progress is patchy. Saudi Aramco is taking longer to list than planned.

Other Middle Eastern producers, such as the United Arab Emirates, are also hedging their bets, talking up clean energy but also reaffirming their commitment to using fossil fuels for half their energy needs until at least 2050. Like Saudi Arabia, they are blessed not just with oil but with sun and space, which offer ideal conditions both for large solar-photovoltaic parks, which harvest the sun during daylight hours, and concentrated solar plants, which store the heat generated by the sun in molten salt and release it as electricity at any hour of day or night. But at present Middle Eastern oil producers see renewable energy mainly as a way to use less oil and gas at home so they have more of it available for export. They do not consider clean energy to be an existential threat.

As for Russia, it appears to be even blinder to the prospect of the energy transition. It has given short shrift to renewables. Beyond oil and gas, most of its attention is on nuclear energy. And it is still betting heavily on oil. Partly thanks to global warming, last year it started drilling in the Laptev Sea, in the Arctic Circle, despite low prices and semi-frozen terrain that would put off most Western oil companies.

The wild card for petro-producers is what happens to demand for oil and gas in the developing world, particularly in China. Last year China overtook America to become the world’s largest oil importer, and those imports are forecast to continue growing rapidly for at least a decade. At least for now, China’s energy relationship with the Middle East and Russia is likely to become closer. State companies from all three regions are investing in each other’s assets. Chinese funding has helped Russia finance drilling projects, despite Western sanctions. The same may happen with Iranian gas. Saudi Aramco has invested in a refinery in China’s Fujian province. Russia has offered to sell Arctic gas to Saudi Arabia.

The end of oil will not be linear. If oil prices slump, electric vehicles may look less attractive. Concerns about over-investment in oil may produce unexpected price spikes. But if the producers do not embrace economic reform, they could find themselves in deep trouble very quickly. They need only look at Venezuela to see how rapidly falling oil revenues can force an autocratic state to break its bargain with the people, leading to economic turmoil, social instability and regional tension.

economist



29 Comments on "The Middle East and Russia are ill-prepared for a low-carbon future"

  1. dissident on Sat, 17th Mar 2018 7:40 pm 

    And the Contras were true freedom fighters. That is why they are living in an isolated enclave in northern Nicaragua and Daniel Ortega won free elections to become leader. The Economist can go and eat its own propaganda sh*t.

    Russia is in the process of a massive fast neutron breeder rector deployment. It is also building solar farms using amorphous silicon panels (of its own design and manufacture) that have over 20% efficiency. In spite of Russia’s high latitude location there are a lot of solar power viable locations.

    Saudi Arabia is the one commodity banana republic and not Russia. The retards at the Economist want the world to believe that Saudi Arabia is more advanced. Yeah, more advanced in its Wahabbist degeneracy.

  2. dave thompson on Sat, 17th Mar 2018 9:36 pm 

    “The Middle East and Russia are ill-prepared for a low-carbon future”

    HHHUMMMM I wonder if any other part of the world is any more so prepared?

  3. Cloggie on Sun, 18th Mar 2018 4:09 am 

    It is also building solar farms using amorphous silicon panels (of its own design and manufacture) that have over 20% efficiency.

    Wonderful, that “over 20% efficiency”. But that doesn’t suffice for Russia to bombard itself as the “top 3 global leaders in solar module production”:

    https://www.rbth.com/science-and-tech/326128-russia-solar-energy

    Russia remains THE world’s renewable energy backwater, which is not that strange with their enormous fossil fuel reserves. For Russia is makes sense to avoid their reserves becoming stranded assets (the atmosphere be damned) and simply wait for renewable energy prices to come down further and be one of the last to undergo the energy transition, the entire world will undergo in this century up until 2060-2070.

  4. Kat C on Sun, 18th Mar 2018 4:32 am 

    Those who think we can have plenty of energy without fossil fuels have never yet demonstrated building a solar panel or a windmill with only energy produced by solar panels and windmills. There has yet been a road built or repaired without using fossil fuels. I have yet to see a viable 18 wheeler that runs on electricity that can do a cross country run. Yet to be invented is a combine harvester that runs on electricity. The fleets of clipper ships aren’t being built last I checked. Where are the replacements for rare earth metals used for windmills and electric cars. How do we plan to launch satellites in space with electric motors.
    Those who have more fossil fuels than they currently need to run their economy are the ones who are in the best position. Those who have more fossil fuels and have nuclear weapons are in the very best position.
    Time for Washington to recognize they lost and make peace. That will give humanity a few more years before the methane bomb takes us all out

  5. Cloggie on Sun, 18th Mar 2018 4:51 am 

    Those who think we can have plenty of energy without fossil fuels have never yet demonstrated building a solar panel or a windmill with only energy produced by solar panels and windmills.

    Solar panel and wind turbine factories run on “wall outlets”, that could be powered by wind and solar, but are not yet, because we are in the process of building that renewable energy infrastructure.

    I have yet to see a viable 18 wheeler that runs on electricity that can do a cross country run.

    https://www.youtube.com/watch?v=RIe9gSRBQTk&t=146s

    https://deepresource.wordpress.com/2017/07/22/trucks-on-h2-generated-by-wind-turbines-in-the-netherlands/

    Yet to be invented is a combine harvester that runs on electricity.

    https://www.youtube.com/watch?v=4t-au0p4J08

    https://www.youtube.com/watch?v=ZTY-TNHrlJ4

    Google yourself for e-shipping.

  6. Cloggie on Sun, 18th Mar 2018 5:30 am 

    Yep, Eurasia largely in the green.
    The Americas not so much.

  7. Kat C on Sun, 18th Mar 2018 5:34 am 

    Solar and windmill factories rely on supplies transported by vehicles using fossil fuels that run on roads created by huge machines that run on fossil fuels. They require raw materials from China that are shipped on ships using fossil fuels. Electric transmission lines are produced and installed using fossil fuels. Factories are built using fossil fuels. If you can’t do all that with wind and solar energy it doesn’t matter how many outlets you plug into with electricity powered by wind and solar, you still haven’t produced a single solar panel or windmill without using fossil fuels.

    Plenty of info to show that Elon Musk’s 18 wheeler is not a viable replacement for our current fleet of 18 wheelers … remember I said VIABLE

    https://www.wired.com/2017/06/elon-musk-tesla-semi-truck-battery/

    https://www.ft.com/content/f5593480-d29a-11e7-8c9a-d9c0a5c8d5c9

    “The John Deere 1470E is built for the most demanding of applications; steep terrain and big timber are no match for the awesome power and productivity of Deere’s flagship model.”
    Hmm re the e-harvester. Could that just be a letter like B model, C model. Is an electric engine listed as 9.0 liter or might that actually refer to an internal combustion engine?
    “Powered by a 9.0-liter Deere engine, the 1470E also boasts an 11.7-miter reach boom and an extreme-duty transmission to push the big machine where others can only dream. Operator comfort is guaranteed in the levelling and rotating cabin, while the Timbermatic control system provides the intelligence to optimise your business.” https://tinyurl.com/ycrg28uo

    When I am talking combine threshers I am not talking little tractors like the one in the vid, I am talking about the monsters used to harvest the mid west wheat fields like this one https://www.fginsight.com/news/news/agco-aiming-big-with-new-ideal-combine-24725

    I googled e-shipping and found this https://www.facebook.com/pg/eShipping/about/?ref=page_internal “Mission
    Our mission is to provide opportunities for people to engage in fulfilling their destinies in a way that glorifies God.” Can’t find a thing about using only electric powered vehicles. Maybe they use angels instead of internal combustion engines.

    Putting an e in front of something doesn’t mean it is all electric. It just means there is an e there.

    Show me the fleet of clipper ships that will transport the rare earths from China

  8. Davy on Sun, 18th Mar 2018 5:44 am 

    “Solar panel and wind turbine factories run on “wall outlets”, that could be powered by wind and solar, but are not yet, because we are in the process of building that renewable energy infrastructure.”

    Sorry, “in the process” is not a finished reality. There are still many pieces of the puzzle yet to be finished. The hardest parts are ahead and the parts society likely cannot afford.

  9. Davy on Sun, 18th Mar 2018 5:47 am 

    “I have yet to see a viable 18 wheeler that runs on electricity that can do a cross country run.”
    “Yet to be invented is a combine harvester that runs on electricity.”

    There are no effective and affordable option now commercially ready now. The scale and economics are not there yet.
    BTW, did not watch your redundant YouTubes that gets reposted many multiple times. I use common sense and science

  10. Davy on Sun, 18th Mar 2018 5:50 am 

    “Yep, Eurasia largely in the green.
    The Americas not so much.”

    There is a deeper understanding for how countries compare but you are a black and white type of guy. You are all about winning and losing. You refuse to look at other important contributing variable and comparisons.

  11. dissident on Sun, 18th Mar 2018 9:01 am 

    What is it with you f*cking western chauvinist, closet racist prats. Russia is fully able to deploy solar arrays and wind farms in any quantities it wants. It can use nuclear energy to manufacture this equipment. It does not need your help and it can do it on its own schedule. The only backwaters are the ones you are living in you hubris filled blowhards.

    Only morons can believe that a low carbon energy infrastructure can be had without nuclear power. You will never get the volume and baseload capacity with alternatives that you get with coal and natural gas and nuclear today.

    https://www.indexmundi.com/g/g.aspx?c=da&v=83

    Denmark imports 15 billion kWh and its wind production has saturated at 40%.

  12. twocats on Sun, 18th Mar 2018 9:24 am 

    Even the Vision 2030 plan is anemic. What are we talking about? The revised 2015 is something like 9.5 GW installed by 2030. For perspective 2016 Global installations of renewables was over 160 GW, in one year.

    So no, they are not serious. When he picks up the sand and talks about solar panels he’s absolutely MOCKING the idea and the reporter. They are still the largest emitters of CO2 per capita in the world, they have very little infrastructure built to “accept” renewables, so they’ll need that huge build out, and they are a CIA/US backed inbred nepotistic tribe with very little concern for the planet or other people.

    to saudi arabians work is beneath them – the idea of work is anathema. And a true transformation of the economy and society sounds like a lot of work.

  13. cottager on Sun, 18th Mar 2018 9:56 am 

    Export of Mother Russia looks like export from some highly underdeveloped country from the middle of the jungle.
    63.2% hydrocarbons
    10.2% metals
    6.4% machines (weapons included)
    5.4% chemical products
    5.1% food products
    3.2% wood export
    Actually looks terrible, nobody knows any famous russian producer of anything (for producer I doesn’t mean oil and gas producers, they are just suckers). Exeption is probably Rosoboronexport, the only exporter of cheap oldschool weapons (see those 6.4%). Sad story bro. Hydrocarbon curse.

  14. Boat on Sun, 18th Mar 2018 9:57 am 

    dissident

    Do you track US energy? Coal and nuke are on the slid because of cost. Where there is little wind and bad sun coal and nuclear will still be viable. We are capitalists. The cheapest btu will win the day in the end.

  15. MASTERMIND on Sun, 18th Mar 2018 10:37 am 

    ‘When they smoke it, they almost become zombie-like’

    https://www.indystar.com/videos/news/2018/03/17/when-they-smoke-they-almost-become-zombie-like/32970225/

  16. Go Speed Racer on Sun, 18th Mar 2018 10:48 am 

    LOL !!
    That will make America Great Again !
    Poor Losers smoking bug spray.

    Let’s start a government program to provide
    them with free cans of bug spray.

    Why smoke it. Why can’t they just shoot
    the can straight down their throat.

    Everybody said there’s too many people,
    this is a perfect way to get rid of them
    all, ‘bug spray style’.

    Thanks Mastered Mind for the update.

  17. Norman Pagett on Sun, 18th Mar 2018 11:35 am 

    Saudi has a population of around 30m

    pre oil, the population was about 1 million. give or take.

    this means that the Saudi nation is entirely a product of oil wealth. Without oil, those excess people have no future, and they know it.

    Solar panels and windmills can never replace the energy density of oil.
    We built our entire industrial infrastructure on cheap surplus oil—now there’s none left. All we have is scarce expensive oil which we think of as if it was still cheap.

    It isnt

    In terms of effort needed to get hold of it, oil is getting more and more expensive

    This explains it more clearly:
    https://extranewsfeed.com/no-matter-how-much-oil-is-down-there-it-still-costs-too-much-f7142428849b

  18. Cloggie on Sun, 18th Mar 2018 11:36 am 

    What is it with you f*cking western chauvinist, closet racist prats.

    Huh? I’m competing with JuanP about the question who is the greatest Russia fan on this board.

    Furthermore, I want to see the West dissolved (OK, and reestablished on continental European terms, not those of George S., the devil is admittedly in the detail)

    Russia is fully able to deploy solar arrays and wind farms in any quantities it wants.

    Nobody denies that, it is just that they don’t, thence the renewable energy backwater diagnosis.

    It does not need your help and it can do it on its own schedule. The only backwaters are the ones you are living in you hubris filled blowhards.

    Oh really? Sorry again for the plug, but the small Dutch wind company Lagerweij has been invited by RosAtom to set up a wind energy industry in Russia, with Lagerweij technology:

    https://www.lagerwey.com/blog/2017/06/19/lagerwey-technology-used-to-power-up-russian-wind-industry/

    Lagerwey can’t really compete in Europe with the biggies from Denmark and Germany, so it has to be satisfied with the Russian market.

    And again, NOBODY says that the Russians can’t realize something big very quick, but western help is still appreciated and advantageous.

    Only morons can believe that a low carbon energy infrastructure can be had without nuclear power. You will never get the volume and baseload capacity with alternatives that you get with coal and natural gas and nuclear today.

    That’s an unfounded statement.

    Denmark imports 15 billion kWh and its wind production has saturated at 40%.

    Saturated??!!

    https://planetsave.com/2018/01/06/denmark-smashes-all-previous-wind-energy-records-in-2017/

    Denmark had 44% in 2017.

    https://en.energinet.dk/-/media/Energinet/El-RGD/Miljrapport-2017_EN.pdf

    Page 4: The Danes plan to have 63% in 2026.

    With ZERO nuclear. Or as they say there:

    “Atomkraft, nej tak!”
    (no, thanks!)

    On page 6 you can see that by 2026 oil, coal and gas consumption for power generation will have been virtually vanished and only a considerable chunk of biomass will remain, with storage function.

    This means, that as early as 2026, Denmark will have a near 100% renewable power generation sector, doomers here be damned.lol!

    Can I have a round of applause for Denmark please?

  19. Cloggie on Sun, 18th Mar 2018 11:40 am 

    Lagerwey may be a small player but nevertheless they have one outstanding innovation: the self-climbing crane, using the wind tower in status nascendi to function as a crane, making a real giant crane superfluous. That might come in handy in remote places in Russia.

    The idealized video:

    https://www.youtube.com/watch?v=ZUzwk_Gr-rE

    Reality:

    https://www.youtube.com/watch?v=l6M6ZRYYapM

  20. Kenz300 on Sun, 18th Mar 2018 11:53 am 

    The world is moving away from Fossil Fuels. The only question is How Fast ?

    Oil producers need to start taking steps toward renewable energy production. Those desert producers could supply renewable solar energy for a large part of the world. That would be a long lasting resource that will pay huge dividends for them and the world.

  21. Davy on Sun, 18th Mar 2018 11:56 am 

    “Huh? I’m competing with JuanP about the question who is the greatest Russia fan on this board.”
    Until they turn on you or maybe roll through Amsterdam.

    “Only morons can believe that a low carbon energy infrastructure can be had without nuclear power. You will never get the volume and baseload capacity with alternatives that you get with coal and natural gas and nuclear today.”
    Very realistic statement

    “That’s an unfounded statement.”
    lol

    “Denmark imports 15 billion kWh and its wind production has saturated at 40%.”
    Denmark population is the size of a big urban area and the neder makes them out to be a great big nation like his own small dutchy.

    “Can I have a round of applause for Denmark please?”
    For what being rich and living off the rest of the world like all rich regions do.

  22. Cloggie on Sun, 18th Mar 2018 12:47 pm 

    “Can I have a round of applause for Denmark please?”

    For what being rich and living off the rest of the world like all rich regions do.

    No idiot, for making you and the other energy doomers here look like total fools.

    100% renewable electricity by 2026, with zero resources other than land and wind. All by themselves. Denmark never had colonies. The only ones who are living off the rest of the world (“we print, you work”) are the US, for as long as it lasts (not much longer).

    Meathead is turning into a social justice warrior, one that voted for Trump.lol, because he is very well afraid for the invaders, but on second looks prefers to virtue signal and cry “racism”, the battle cry of the mediocre, as he can always run off to Italy, hide under the skirts of his misses, while sewing a Canadian flag onto his silly MAGA hat.

    I have never seen such a spineless fool like you, meathead. We in Europe only have to lean back and wait for the joint to implode like WTC7 and then pick up the pieces. Not that you deserve it to be integrated into the European world, but otherwise you’ll continue to function as George S. his cannon fodder. Can’t have that.

  23. Kat C on Sun, 18th Mar 2018 4:34 pm 

    Cottager, if you have lots of hydrocarbons to export for cash, you don’t need to export other stuff. You can in fact become internally independent. The sanctions on Russia have made them stronger for they had to start producing things they used to import and they had to work out their own financial system not dependent on the west.
    If you have a small farmer who produces all his own food and everything he needs, he burns wood he cuts, builds his own house, his wife spins wool and knits their clothes, if hard times come he’s still in pretty good shape. The fancy city dweller with lots of money but no ability to provide even one meal for himself rides the rails when a crash comes.
    Heck russia is even building their own internet. https://spectrum.ieee.org/tech-talk/telecom/internet/could-russia-really-build-its-own-alternate-internet

  24. Dooma on Mon, 19th Mar 2018 7:41 am 

    “Can I have a round of applause for Denmark please?”
    For what being rich and living off the rest of the world as all rich regions do.

    What is that ratio per capita for the amount of energy consumed for the US?

    I can’t quite remember it off hand. I do remember that Americans chew through the world’s resources like crazy. It is a good thing that they don’t live off the rest of the world. Especially by force.

  25. cottager on Mon, 19th Mar 2018 12:39 pm 

    The funny thing is that Russia depends on imported oil and gas equipment.

  26. Kenz300 on Mon, 19th Mar 2018 2:36 pm 

    Russia is a one trick pony.

    It is a large fueling station.

    When the world moves away from fossil fuels and it will they will have missed an opportunity to diversify their economy and make their peoples lives better.

  27. Crokkie on Tue, 20th Mar 2018 10:02 am 

    Not true. Russia produces plenty of nerve gas and anthrax as well. Keep it real.

  28. Boat on Tue, 20th Mar 2018 11:07 am 

    Energy is not a race where those with large early amounts of renewable come out way ahead. States that wait 10 years from now will be rewarded by much better tech at a lower price. I like the idea of cleaner energy but as the years go by it will be easier to justify.
    The same 330 billion spent in 2017 got you 25 percent more than 2015. Where is the eroei crowd? Trying to fund a faster computer to keep up with dropping costs.

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