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The Gulf’s known unknown

The Gulf’s known unknown

We all know the oil is running out. But the GCC is struggling to devise a collective approach to energy security for the future, reports Trends magazine.

February 7, 2010 5:12 by

That means income from energy exports will meet budgetary requirements and generate handsome financial surpluses. “These need to be managed wisely in order to ensure sustainable long-term development in the Gulf region and also to enhance world energy security,” he says. Proponents of alternative energies prefer to focus on cost rather than security. And even though oil is cheap in the Gulf, some advocates of alternative energy claim it’s best to look past fossil fuels. “Every barrel of oil saved in the Gulf is pure profit for these countries,” the chief executive of Philips Middle East, Louis Hakim, says. “Today, power generation is fossil fuel-based, which produces high levels of carbon dioxide when converted into electricity. By going into alternative energy, the Gulf states will benefit both financially and environmentally.”

According to the head of economics and research at Arab Petroleum Investments Corporation, Ali Al-Aissaoui, it’s critical to focus on oil prices for reasons of energy security. He says he thinks that oil-importing countries are differently affected by higher oil prices and have different coping mechanisms.

“This may explain why, as a group, they have been intentionally vague about their price preferences. In contrast, the oil-exporting countries have been more forthcoming in revealing their own preferences. In the case of the GCC countries, this is probably due to their relative economic similarities and their disproportionate vulnerability to lower oil prices,” Al-Aissaoui says.

The dramatic rise and fall of oil prices – $150 a barrel in the summer of 2008 to $35 the following winter – is attributed to this state of disconnectedness. Yet it prompted Saudi Arabia and other GCC countries to announce their price preference, a $75 a barrel fair price target.

According to Al-Aissaoui, given the inherent inability of the general oil market to reveal price preferences, oil prices are set at the confluence of the economic cost of frontier petroleum projects and the expected fiscal value of petroleum assets. “Our preliminary finding is that while these price preferences should be sufficient to support worldwide energy investment requirements, they might fall short of achieving long-term fiscal sustainability for the GCC region as whole,” he says.

The Right Mix

With contradictory views on where the focus should be going forward, the other challenge that confronts producers and consumers alike is finding the right mix of energy choices. The Gulf, for its part, is confronted with challenges and opportunities as to the future energy mix.

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