November 18, 2007
MENA, Oil, Pricing, Dollars
I should discuss this on the main page, but first some initial thoughts.
I have no clue - for all MENA - OPEC seems to be playing a price max game that suggests to me they think they will have a demand decline over the 5-10 yr frame and want to max current revenues.
At the same time, non-OPEC MENA is suffering - although appears to be getting ore investment via petro-dollars. This is very hard to track, as there are "PR Announcements" by the Khalijis that often are .... vapour dollars ... then there are the monies they invest via other vehicules that are non-PR.....
There is also the "green" or alt Energy opp... and frankly this is the wild wild wild west. But for some portions of MENA with good profiles this may work.
Posted by The Lounsbury at November 18, 2007 07:24 PM
Filed Under: Biz - Private in MENA
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A few random thoughts...
I remember reading that a line of solar panels between Noukchott and Cairo would be enough to cover the EU's energy consumption. Economically speaking oil is (was?) cheaper, but scaling up that solar energy use and developing its technologies would definitely bring down its price. Non oil MENA countries should look in that direction a bit more than just subsiding remote villages or homes who want to heat their water with it.
Perception of yours truly is highly priced oil is good for all MENA in absence of real large scale substitutes and in presence of current unfriendly climate (or perception of such) for Arab cash in the West. Maximizes cash in oily MENA, which is later channeled to non oil MENA. MENA-MENA investments have never been higher AFAIK (correct me if I'm wrong), and Arab investors (and more generally consumers, tourists, etc. too) are less easily scared away from MENA than their Western counterparts. Plus increasing economic integration can only strengthen common interests.
Non-OPEC oil is a dying breed, their small supply is being exhausted extremely rapidly.
I've been hearing such to the effect that "green" will be the next IT, as in a new mega-profit fad. Anything to that? If nothing else there seems to be a lot of big fat government contracts in it. How far even the US has gone in embracing it over the last 7 years has been unbelievable.
Why don't the big box desert countries in MENA embrace more solar/wind energy, other than the normal redtape, etc.? Put some of that vast desert wasteland to good use. Certainly some western capital would be interested in such things?
Posted by: Djuha at November 19, 2007 02:23 AM
Of course on the subject of energy/everything I'm an amateur, but at least I know that the problem with wind and solar is not so much as price as stability. At which they suck. Denmark presently produces 16% of its electricity by wind power, yet consumes only 8%, since half is wasted. The entire energy grid is built around coal/gas plants kicking in when wind power fails, which it does all the time. At the moment the politicians are blabbering about pushing wind power share of total electricity consumption from 8% to 16%, which is giving engineers a massive collective headache. It's just that difficult to ramp substitute fossil fuel power up and down according to the whims of the wind or the sun.
The idea of someone investing tens of billions in solar panels in North Africa for super-high-cost and super-high-maintenance, super-high-exposure-to-damage/terrorism (you can throw a rock at a solar panel and disable it) energy is laughable at best. See Lounsbury's triple wild west. There are physical limits that make solar had to "scale up" the way you can scale up microprocessors (so far anyway).
Non-OPEC oil? Alberta tar sands. Still cheaper than that solar panel line there. Unless the Canadian public finally awakens to the environmental monstrosity that's happening there, but there's little chance of that happening. Are Russian reserves close to extinction?
Klaus: the Danes need to invest batteries that get only charged when there's this extra electricity kicking around. They can then use the batteries in electric cars.
I'm such a genius.
Posted by: Frandroid Atreides at November 19, 2007 06:19 AM
frankly, I won't debate economic viability of solar energy or its perspective because I really know too little about it. That said, it's interesting that you mention the tar sands. Their cost has gone down a lot this last decade since technology for oil extraction from tar sands has seen a lot of innovations.
When it comes to solar energy, there has been serious experiments where it was chosen for economic reasons. Is that significantly reproduceable, scalable and improvable? I honestly don't know. But I wouldn't laugh at the idea before I hear real experts comment on the matter.
klaus -- Eight percent isn't so bad, is it? If other countries did the same, that would have a substantial impact on pollution levels, and since Denmark is the pioneer, I would expect better & cheaper performance further down the road. On the other hand, the country looks like a windmill theme park, but I've always found that a bit charming. And it works as intended, too: you've shamed us out of Barsebäck, economic calculations be damned.
Coming to think of it, a rare upside of the Bush presidency may be that more countries are scared into developing solar/wind/wave power as their alternative to oil/gas, instead of locking themselves into nuclear energy. So the neocons really are saving the world, and the whales too.
Posted by: alle at November 19, 2007 06:46 AM
The reduction in costs in tar sands is often overstated. A huge amount of energy must be consumed to extract oil from them, meaning that the cost of production increases as oil and gas prices rise. That's apart from the fact that extracting them leaves behind a contaminated, blasted, lunar landscape.
Regarding solar in MENA - solar PV is too expensive and too fragile for that level of deployment. It's much more useful as an adjunct to existing buildings.
Solar thermal power generation is a different kettle of fish, however - see this project in Spain: http://en.wikipedia.org/wiki/Solar_Tres
There's work that needs to be done to perfect the technology, but it's much more feasible - particularly in MENA - than solar PV as a powergen solution.
Fortunately, power demand profiles in MENA are well suited to solar powergen, because the biggest power draw is to power aircon units.
Posted by: yinshuisyuan/waterboy at November 19, 2007 11:26 AM
Re some other options -
On the price levels: I'm not really sure if OPEC is uniformly behind a price max strategy. The Saudis have been trying to talk the market down as much as they can, but the problem is that they no longer have the same kind of swing production capacity that they once had and their credibility is not what it once was, so their comments are heavily discounted by the market.
Which is intensely ironic because ever since I first started writing about the energy markets, I've found the Saudis to be the most accurate commentators on market dynamics - the talking heads at the banks just chat BS to time-pressed journalists who need a quote, any quote, so long as they can get it past their editors, and all in all they generate much more heat than light.
The leftist OPEC governments are quite keen on the revenue maximisation strategy, not least because their whole perpetual revolution way of looking at the world means that they're not particularly afraid of the prospect of a global economic meltdown. They're also elected (after a fashion), and so work to shorter time horizons.
The conversative Gulfi royalty, on the other hand, want to manage things more judiciously so that they can maximise their long-term leverage rather than their current revenues.
I think that reflects the fact that they have a much narrower base for alternative development - the Latin Americans have agriculture and minerals; the Iranians have quite a lot of scientific nous and an economy to speak of, it's just horrendously mismanaged. The Gulfis, on the other hand, have massive consumption and very little production outside the O&G sector.
Final point is not to discount the effect of the weakness of the dollar in terms of headline (psychological) benchmark prices - have a look at these two posts:
Broadly speaking we are indeed in a high price situation, but it's hard to tell whether it's higher than last year's price spike. One thing is sure, though - which is that US hyperventilation about psychological barriers continues to be given far more credence than it's worth.
Posted by: yinshuisiyuan/waterboy at November 19, 2007 11:50 AM
Frandroid, alle: The driving force for alternative energy is cost, not climate change or anything else. The windmills are, naturally, heavily subsidized, which makes their broad use a bit of an economic pain in the rear end. It's expensive and unstable, and that's why they're not used more widely. Barsebäck - a silly old nuclear power plant - still makes more sense economically than all the windmills in Denmark put together. And that's why nuclear power is a realistic alternative to fossil fuels, whereas wind/solar is not.
Energy storage, also not economically feasible. At least 95% energy - depending on method - is wasted putting it into storage as electricity, or out of storage into electricity, which is why electric cars are not good for the environment. That depends on the original source of energy, of course.
A lot of promising technologies on the horizon, but I wouldn't put money in anything but nuclear at the moment, sorry to say.
Considering how colossal a factor energy is in on the world stage, it's amazing how little money is funneled to research compared to, I don't know, militarily occupying oil-heavy countries.
Nukes have the same problem wind/solar has, but in the other direction - no variability hence no ability to deal with fluctuating demand.
Posted by: Tom Scudder at November 19, 2007 10:33 PM
True, but unlike wind/solar it's very very stable power, and can be built close to cities where it's needed. Expensive to build, but produces very cheap power once built, CO2 neutral as well. Only that snag with the waste, which I don't consider much of a problem anyway, compared to climate change.
Nuke doesn't work out that cheap when you factor in waste disposal actually. It's only good for base load power because of the invariability, so it's only ever going to be one part of the energy mix.
Wind and hydro have worked very well in sync in Denmark/Norway - when the wind's not blowing in Denmark, they run the hydro plants in Norway, and balance the energy supply that way.
Wind and solar prices have been coming down a lot as a direct result of all the subsidy, actually, and quite a few utilities see wind as a good part of their portfolio given that (in Europe at least) gas prices are somewhat unpredictable.
Posted by: waterboy at November 20, 2007 03:45 PM
Hydro is not an option to most countries out there, Norway's just lucky, the bastards. And bringing wind power share of electricity consumption up above 10% is going to be very difficult because of instability, technical term "intermittency". That means 90% at the very least is fossils. So wind can only go so far, no matter how cheap and efficient it gets to be.
Nuke costs compared to fossils compared to wind, tricky stuff. What I've seen - mostly old surveys, that's about three years old at least - is that fossils beat everything, with respect to both price, ease of use and construction, and how quickly they start producing a proper output. However with the vast price increases of past few years everything else looks more attractive now. Nuke beats alternative, though costs for both wind and solar have plummeted the past 20 years, and may plummet further.
Since cost determines everything in emerging economies where the growth in consumption mainly is, I assume the answer to increases in oil/gas prices will be to use coal instead, never mind the environment. China is only thinking green-ish because the pollution is so heavy it impedes the economy in places. Until decent energy storage technologies arrive, wind and solar can only be a supplement to fossil or nuclear, and nuclear is so expensive upfront that they don't do very well in free markets, far too long-term and unsafe an investment.
Posted by: Klaus at November 23, 2007 06:44 AM