Oil producers are turning to the Sun

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There is a global oil price war going on because shale is posing a challenge to Middle East oil. OPEC members are cutting profits in order to keep their share of the market. Middle East energy producers are noticing that the abundance of sunlight in the region is an opportunity.

The oil market is getting more and more unstable and the relevance of alternative renewable energies has not been lost on those in the game. The drop in prices has encouraged an efficiency frenzy in every nation which produces oil. The US is a great example. The UK is pursuing nuclear energy as an alternative to oil. The Gulf producers understand that they need to take similar measures to maintain a competitive edge in the energy market, so they are turning to solar power.

The states in the Gulf, especially Saudi Arabia, remain the largest producers of oil in the world. They make up the biggest exporting members of OPEC. So, for many of the countries, swallowing oil prices will be ok in the short term even though it will hurt their domestic budgets. The fact of the matter is that all OPEC countries chose to slash their profits in order to hold onto market share. This is usually a marker for civil strife.

The consumer demand in their own countries will definitely make a difference. In the past decades, the Middle East has sustained top level luxury while also sustaining completely inefficient energy policies. The variables which make this situation important to those in the region are: the population is rising, the middle class is growing, the diversification of industry and the increasing consumerism. In Saudi Arabia, oil accounts for almost 70 percent of all electricity production. In Kuwait it is over 70 percent. In Lebanon it is 94 percent, and in Yemen it is 100 percent. Obviously, the elites never studied what efficient energy policy is and now they realize that it will be unsustainable.

This is the problem: if consumer demand continues to grow, downward pressure on oil exports will start messing with government subsidies. This means that without an efficient energy policy in the region, producer nations like Saudi Arabia will become less profitable and will be unable to export. With Saudi being the largest petroleum consumer in the region and the second biggest consumer of total primary energy in the world (60 percent is petroleum-based), those variables together feel like a recipe for future civil discord.

Let’s paint a brighter picture though. With competitors like Russia, Iran and North American shale, this means the Middle East’s global energy dominance could eventually end. Solar energy is cheap to invest in and has an established and progressively improving infrastructure, however. Earlier this year, Saudi Aramco, the state oil company, announced its intention to diversify energy supplies by investing in solar energy. The kingdom is also making a push to conserve its resources for export only.

For those looking for an investment opportunity, investing in a sustainable, long-term energy sector with a ready market and low start up costs makes solar power attractive. A tangential part of this development which is massively important is the advantage in having a cleaner Middle East. Using petroleum has caused twenty-nine of the world’s most polluted cities to be located in the MENA region. So, ultimately, there are two sides to this coin.

On the one hand, if this problem is left unaddressed then the cost of the consequences will be overwhelming and they could very likely create a recipe for more revolution and more civil strife. On the other hand, huge rewards could be reaped with energy reform and investment in alternative energy like solar power. There is room for hope. Saudi has the intention of investing $109 billion in an investment plan that would generate a third of its electricity; and Qatar is in the midst of making solar energy agreements with major renewable energy companies. The Middle East has an unrivaled solar potential. The region could theoretically become a world leader in renewable energy production as it has in fossil fuel production. If they do it right, all things are possible.

To learn more about this subject, follow Vicente Lopez Ibor Mayor‘s writing. He is a former commissioner of the National Energy Commission of Spain and is chair of Europe’s largest solar energy power companies, Lightsource Renewable Energy Ltd.




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