The Gulf Exporter s Paradox: Should cheaper oil abroad mean more expensive energy at home?

Transcription

1 The Gulf Exporter s Paradox: Should cheaper oil abroad mean more expensive energy at home? Glada Lahn, Senior Research Fellow, Energy, Environment & Resources Department 2015 International Energy Workshop, IRENA, Abu Dhabi, 3-5 June 2015

2 Dollars per barrel 120 Falling price = falling revenue Falling prices = exporting country budget crises Brent and WTI Crude Oil Spot Prices, in dollars per barrel, June April Statoil and service companies cut 1000s of jobs in Norway Venezuela protests; President Maduro seeks finance from China and Qatar Opposition in Nigeria complain as govt draws down foreign reserves to meet spending WTI Crude Oil Price Brent Crude Oil Price Russia rouble loses half its value against the dollar in 6 months, Central Bank raises interest rates by 17% Angola introduces austerity budget, President says fuel subsidy and infrastructure spending must be cut Iraq passes austerity budget, halts some IOC investment plans, introduces taxes on some goods Iran introduces austerity budget

3 Even the golden child The decline has been stronger and gone faster than we had expected [what] we re seeing is a reminder that we re in a cylical industry, and that we need to have a cost level in this industry that can sustain these types of cycle and let us be competitive over time CEO Statoil Norway

4 Volume What role oil and gas play in the economy over time matters Depletion-led development Transition phase Decline Extractives production Extractives export Extractives consumption

5 Chatham House The Royal Institute 5

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7 Have exporters used windfall revenues to diversify their economies?

8 Using below-ground assets for above-ground growth Heavy industry Extraction Refining Transport Power & desal Water treatment City Agriculture Dair y Food industry Groundwater Gas Chatham House The Royal Institute Oil 8

9 Cost of water versus price in Bahrain Average price paid per cubic metre of water sold Average cost of supplying one cubic metre of water Ave. financial cost of water: 2012/13 $1.89/m3 Govt. absorbs 80%of cost Cost of gas to 2015: $2.25 mmbtu Water lost in distribution = 30% Chatham House The Royal Institute Source: Waleed Zubari for Chatham House (2014) 9

10 Million US dollars US$9.2 Mounting costs over time billion cost 15.9 Municipal water consumption, (million m3) Cumulative financial and treatment and reuse costs billion m 3 natural gas 78 million tonnes Co Based on Zubari 2014 Axis Title Chatham House The Royal Institute Damage to sea ecology 10

11 Why is the UAE having to import more and more gas? Exhibit 16: UAE Gas Production Injection and Cycling DOMESTIC MARKET Shrinkage Gas Export Commitments 2.5 (27%) 1.1 (12%) 3.8 (40%) UAE Gas Production (2013) 9.4 Billion Cubic Feet per Day (Bcfd) 0.6 (6%) 1.4 (15%) Losses: Fuel and Flare 2.5 (53%) 2.2 (47%) UAE Gas Demand 4.7 Billion Cubic Feet per Day (Bcfd) UAE gas Production that meets Domestic Demand Gas Import (Pipeline a/lng) Source: UAE Ministry of Energy in CPC/MoFA White Paper on Natural Gas Chatham House The Royal Institute 11

12 Prices of natural gas in the Gulf and global comparisons Price of gas in US$/mmBtu Price rise for industry Planned price rise for industry (to 2021) Price falls since Sept 2014 Range of cost estimates for new gas in the GCC (tight & high sulphur) or additional pipeline imports from Qatar Saudi Arabia UAE Qatar Iraq Oman Kuwait Bahrain Henry Hub spot (US) Chatham House The Royal Institute Imports of Qatari LNG to Kuwait* Russian pipeline gas average to Europe Asian market LNG 12

13 $US per barrel ay: Qatar aises 80 diesel rice by 50% Price reform plans begin to be implemented in the GCC Falling price = falling revenue FEWA (UAE) raises electricity and water tariff for expats, commercial, industrial and govt. sectors UAE Federal National Council approves Green Growth Strategy for roll out Abu-Dhabi increases electricity and water tariffs. Bahrain increases industrial use gas prices WTI Crude Oil Price Brent Crude Oil Price Sharjah increases electricity and water tariffs for commerce and industry Oman increases industrial use gas prices by 100%, Kuwait increases diesel 300% and kerosene prices (then reverses price increase on Feb1). Bahrain announces it will phase out power and water subsidies; help farmers to harness solar Dubai increases solar target from 5 to 15% by 2030

14 Consumer incentives for cutting wasteful use Qatar: $0 Kuwait: $20 Saudi Arabia: $60 Dubai expat: $180 Jordan: $660

15 Total Monthly Water Bill (USD) The potential for new business models: water Monthly residential water bill for household of 6 people, 54.75m3/month (300litres/person/day) Sewage Access Charge Water Access Charge Sanitation Fee Water VAT Block 4 Block 3 0 Block 2 Chatham House The Royal Institute *Subsidised $0.027/m3 (Block 1) + cost (Block 2) **Rate set for Casablanca 15 and includes VAT and

16 Cost-benefit case for investing in efficiency Abu Dhabi national Abu Dhabi expatriate Old savings New savings Chatham House The Royal Institute 16

17 What would be competitive today with different prices or shadow prices? KAPSARC study, 2014 Saudi Arabia: Capacity built in the power sector under price-deregulation scenario Chatham House The Royal Institute 17

18 Does energy have to get more expensive? There are options Per unit, the full costs and externalities should be made transparent Once this is clear, government can decide what it is worth investing today in order to save tomorrow Or pass on some or all of those costs to the consumers, using the savings to help offset bills or provide other benefits Shadow pricing is another option to help increase efficiency and create a more level playing field for RE The lower oil price signals an opportunity to rework economies away from depletion-led diversification Chatham House The Royal Institute 18

19 Thank you Chatham House The Royal Institute