The Future of Energy in Mena Region

The Future of Energy in Mena Region

Introduction

Energy has long been firmly established as a major issue of global politics. The ongoing processes in the energy sector often have a major impact not only on the economy but also on politics and international relations. In recent years, the world energy outlined major changes that are inevitable in terms of growth of the world population. Without a clear analysis and forecasting processes in such an important area as energy, an objective picture of the future world is not clear. Therefore, there is a risk that people will not have enough time to prepare for future challenges. Obviously, in the future, energy issues will become increasingly important. It is possible to reach them only through a broad dialogue, one of the main participants of which are rightfully considered the countries of the MENA region. The MENA region is a landmark in the oil industry. However, price fluctuations and high uncertainty in the markets forced many members of OPEC to reduce profits drastically in order to maintain market share. At present, the MENA region has an opportunity for establishing a very important cooperation in the development of alternative energy sources. The aim of the paper is to study the possible opportunities of future energy development in the MENA region.

Oil in the MENA Region

MENA is a geographical region that unites Maghreb and the Middle East countries. Its total population is more than 350 million people. The striking development of most countries in the region is primarily caused by the huge oil reserves discovered there in the 20s of the last century. Oil export revenues have allowed the countries to raise their international prestige and become the leaders of world politics. The main wealth of the MENA region is vast oil reserves. Nevertheless, their deposits are distributed very unevenly in the region, as well as profits. Saudi Arabia is the largest supplier of oil, followed by the United Arab Emirates, Iran, Iraq and Kuwait. Qatar, as well as North African countries – Algeria, Egypt and Libya, export less oil.

Due to oil and gas reserves, the countries of the MENA region have become an extremely important global supplier of energy raw materials. In the mid-1990s, there was concentrated approximately 60% of the world’s explored oil reserves and approximately 40% of the world’s natural gas reserves. “The MENA region accounts for over 60% of world oil reserves and 30% of world crude oil production”. Unfortunately, due to uneven distribution of wealth between countries, there is political tension in the region. It often develops in armed conflicts. “Conflicts and instability affecting other major energy exporters could also cause a serious interruption in the flow of global energy exports”.

The countries of the MENA region have developed different approaches to the development and exploitation, as well as sales of oil. Most countries have already passed the early phase when the rate of oil production increased sharply. It was followed by slower growth of oil production and, in many countries, its sharp decline. Such tendency is caused by several reasons. The first reason is caused by the fact that the leaders of oil countries have realized that the local economy cannot absorb all the foreign exchange earnings from oil exports. The second reason is that the growing concern of fuel conservation for a long time dictates the need for a high price, in order to prevent overproduction.

Countries of the region intend to develop their oil resources at different speeds. Saudi Arabia, the largest oil producer and exporter, is not inclined to increase production. Its ability to use the oil revenues is limited due to poor soil, lack of water and a small population. Iran, by contrast, has a large population, developed agriculture and industry that can absorb investment. In such way, it tends to boost the development of its oil resources to stimulate the economic growth.

The global energy system cannot justify the hopes and expectations entrusted to it. According to estimates by the International Energy Agency (IEA), global demand for energy will grow by 37% by 2040. However, at the same time, population and economic growth will be less energy intensive than before. In such case, the best way is to find another source of energy. Therefore, the people from MENA region look for renewable energy. The technical potential of renewable energy is much higher than global energy consumption. Solar radiation on the Earth is approximately 7.000 times greater than global energy consumption at the moment.

Internal Budget

MENA countries, such as Saudi Arabia, are among the world’s largest oil producer and the largest exporter among OPEC members. Despite the fact that at the moment some of them can afford to restrain oil prices, it will be difficult to ensure internal budget. All the countries of OPEC decided to reduce the prices for retaining their market share. It means a reduction in profits and internal problems, the countries may have.

Another major concern of the largest oil producers is the increase consumer demand in given countries. “It must accept the fact that MENA states do face limits on their future energy export capacity and will act according to their perceptions of their own economy interests and not some theoretic model of global need”. In recent decades, the region could support a luxurious standard of living in the background of the completely ineffective energy policy due to state subsidies. However, prospects for energy development in the region are changing rapidly. Population growth, the growth of the middle class and consumption, as well as diversification of production, made the most of the MENA’s countries the largest energy consumers. In Saudi Arabia, oil accounts for more than 60% of the total electricity production, in Kuwait – 70% and in Lebanon – 95%. It indicates on ineffective and unsustainable energy policy.

Saudi Arabia is the largest regional consumer of petroleum products and the second largest consumer of the world total primary energy, 60% of which is based on the oil stock. Moreover, it indicates on the negative future tendencies of oil exports in the region. If consumer demand continues growing, it will lead to a declining trend in the export of oil. Without a strong and effective energy balance in the region, it will inevitably end with lower profits of producing countries alongside with the weak export prospects.

The Long-term Dynamics

Considering such competitors in the oil market as Russia and North America with its shale deposits, such long-term dynamics may deprive the MENA region a dominant position in the global energy industry. However, the potential contained in the development of solar energy can change the outlook for the region. Investments in the development of solar energy became cheaper. Substantial investment in solar energy will act as a shield for more valuable commodity in the region – oil. For example, in 2013, Saudi Arabia could receive 43.8 billion dollars of additional profits from the sale of oil, which was prevented by the rapidly growing domestic consumption. In addition, it will serve as a thorough incentive for a state financial system. The national oil company Saudi Aramco has announced that it considers investments in the development of solar energy as an attempt to diversify the country’s energy supply routes. In such way, the company hopes to preserve the oil resources of the country primarily for export purposes. Anyway, the process proceeds slowly, though, it is important for the future of solar energy. One of the major components of any project success involving solar power is not only investments but the location. Solar energy in the MENA region is one of the most economically viable. Moreover, it is the best means of saving oil resources in the region.

Renewable Energy

In order for renewable energy to match its potential, the political conditions should promote and stimulate the increase of competitiveness of the energy sources. To realize the full potential of renewable energy with the purpose of the energy supply of the entire region, a long-term general consistent energy strategy and cooperation of the member states of the MENA region are necessary.

Renewable energy sources, as part of the alternative energy sources, received wide support in the MENA region due to the environmentally friendly nature. They are also considered from the point of view of the important role they play in ensuring the diversification of supply. Currently, there are different renewable energy technologies in the region, which are capable to provide clean and accessible energy. Accession to cheap and clean energy supply is an important element of sustainable development. The major benefit of renewable energy sources is that they can be created in the form of distributed power – little-dispersed units constructed in close proximity to the end users. “There is direct appeal to MENA governments to support the large-scale deployment of solar power plants on the basis of energy security, economic development and the production of desalinated water”. It reduces the costs associated with the transportation, energy losses and problems of networks reliability. Moreover, it provides the maximum use of local development benefits in the form of new jobs. It is the best option for providing energy to rural people with low-income in some countries of the MENA region, where 80% of the population have no accession to modern energy services. “Oil wealth is the most obvious distinction among the countries”.

The abundance of sunlight, which means solar energy, gives energy companies of the MENA region the opportunity to take an advantage of a pioneer in the market. It will likely determine the future of energy in the years ahead. Considering the recent disasters in the oil markets, the importance of alternative, as well as renewable energy sources are becoming increasingly apparent. The fall in oil prices has forced all producing countries to join the race for the efficiency of energy production. For example, the US oil companies try, by all means, to improve their efficiency and maintain vitality. In Europe, there is a new surge of interest in renewable energy. Some countries, such as Britain, also consider nuclear power as a long-term solution. States of the MENA region take measures to improve their competitiveness in the energy market. To accomplish this task, they increasingly turn to solar energy.

Until 2008, the cost of renewable energy production was extremely high in the MENA region. However, in recent years, the rapid growth of the global renewable energy market has lowered the price of the technology, especially in photovoltaics, making energy production extremely competitive. It has opened new scenarios even in those places, where the energy issue was never a problem, as the MENA countries rich in oil but richer in the sun. The development of renewable energy will allow the region to continue generating revenues from the export of energy, meet the domestic demand in an environmentally friendly way and create new jobs at the same time.

Nowadays, the entire MENA region strengthens investment in solar energy in an attempt to diversify energy supply and add to the income from the sale of crude oil. The United Arab Emirates is one of the most active countries in terms of alternative energy. The government of the country has already spent more than $ 300 million on numerous internal projects, as well as on the construction of plants in developing countries– Seychelles and Mauritania. In the capital, there is the International Agency for Renewable Energy. In the past, it often was the venue for significant international events in the industry. If the countries of the MENA region – the main suppliers of oil in the world – plan to invest in alternative energy on a large scale, the possibility to slow down the climate change will increase.

Solar Energy in Saudi Arabia

Nowadays, the market of solar energy is one of the rapidly developing in the world. “The MENA region has one of the highest solar energy potential in the world”. Most countries in the region have large unpopulated areas subjected influenced by the intense sunlight. At the same time, solar energy is not used widely enough in the region. Speaking about the potential of the region, many experts highlight Saudi Arabia. By 2032, the country plans to generate approximately a third of the electricity from solar energy. Local authorities plan to construct solar power stations in Mecca with the capacity of 100 MW. There are applications for the construction from large corporations. Local IDEA Polysilicon Company plans to invest $ 1.1 billion in the project Yanbu. It will produce 10.000 tons of solar wafers per year. Overall, the country plans to attract more than $ 100 billion in solar energy. It is not much less than all countries in the world combined invested into the solar energy in 2011.

Major oil exporters of Saudi Arabia and the United Arab Emirates also invested in the construction of small solar power plants. However, existing projects in the field of solar energy are still extremely rare. In Saudi Arabia, for the last three years, panels with a total capacity of less than 100 MW were constructed. According to Bloomberg New Energy (BNE), the market of solar energy in the country will develop greatly. Such development will lead to the domination of the country in the solar market in the MENA region over the next 20 years.

Solar Energy in Israel and Turkey

Israel has long been an expert in the field of solar technology. It is estimated that 85% of households in Israel already have solar water heaters. As a result, nowadays, the country has installed 300 MW of capacity. By 2020, it is planned that solar power will make 1.700 MW.

Development of the solar energy market in Turkey will depend on two key factors. The first one is the growing demand for energy accompanied by the growth of GDP per capita. The second factor is the growth of electricity tariffs. Existing electricity rates significantly exceed the cost of electricity production with the help of outstanding solar resources of the country. Turkey is the second largest electricity market in the MENA region. The rise in electricity demand from the population is projected to exceed 6% per year over the next five years. Furthermore, there is a possibility to export a significant amount of energy in Europe. Such factors suggest that Turkey has a sufficiently large market potential of solar energy.

Conclusion

Solar energy begins to occupy a niche in the electricity markets of the MENA region. In the long term, there are no doubts that solar energy will play a very important role in the energy balance of the region. The scale and timing of the solar market growth depend on many factors. Taking into account the uncertainty that is present in the markets of solar energy in the MENA region, it can be said that many organizations will be successful and will do everything possible to plan appropriately the long-term development of the energy segment.