Energy spike benefits exporters – World – Al-Ahram Weekly


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Closed pumps at a gas station in Manchester, England (Photos: AP)

As Europe anticipates an energy crisis this winter, others are satisfied that oil and gas remain the main dynamo fueling the global economy. According to some commentators, this is even more important than any increase in revenues for oil and gas exporters.

Energy contract traders make big profits. Even stock investors are profiting from the surge in stock prices of major oil companies, which have risen above 15% on average in recent days. Meanwhile, industries and consumers are facing rapid and huge increases in energy bills.

For the first time since fall 2018, crude oil prices approached $ 80 a barrel last week; and natural gas prices have more than tripled in Europe since early August. This has forced some countries to return to coal-fired power plants to alleviate the shortage of their power grids. The UK, Germany and other countries have had to turn on power plants that were supposed to be dismantled to meet global warming targets.

But officials in energy-consuming countries, for once, are not blaming Gulf oil and gas producers for the current spike in prices. Rather, the reasons for the price increase are a drop in supply due to shortages accumulated in the year of the pandemic and the need to recharge depleted energy reserves during shutdowns.

In any case, certain political maneuvers cannot be avoided, with the United States and Europe accusing Russia of having turned off the gas taps to Europe. China has also been blamed for the huge increase in Asian energy imports. The latest is part of the imbalance in the supply-demand equation of the energy market that supports price increases.

At least the Gulf exporters and the Organization of the Petroleum Exporting Countries (OPEC) have escaped blame this time around. Previously, any surge in energy prices was quickly and easily blamed on OPEC and the Gulf Cooperation Countries (GCC) in particular as an easy target.

An Oxford-based energy analyst told Al-Ahram Weekly that rising oil prices are also helping to replenish Gulf states’ treasuries after the pandemic. According to official figures from the United States Energy Information Agency, an annual average of 21 million barrels per day (bpd) of oil passed through the Strait of Hormuz in 2018. This includes Iraqi and Iranian oil, in plus GCC exports. countries. By redirecting part of the production and cuts applied by OPEC, the estimate is now around 18 million bpd.

“For those who set their budget estimates around $ 60 to $ 65 a barrel, the latest price hike means a surplus of around $ 2 billion a week for these countries. This is true when you consider Gulf oil exports without even mentioning natural gas exports, especially from Qatar, ”the analyst said.

Demand for energy has grown rapidly this year as economies around the world have started to grow, recovering from the pandemic. The underinvestment in oil and gas production in recent years has resulted in a squeeze of supply. Clean energy trends and investments in producing energy from sustainable resources like sun and wind are growing, but not yet enough to meet much of the world’s needs.

For example, this summer wind turbines in the northern hemisphere shut down due to calm winds associated with rising temperatures. This was also another reason added to the increase in gas prices leading to coal-fired power plants providing between 15 and 20 percent of the electricity.

In recent years, GCC countries have invested in clean energy while providing the global economy with the fossil fuels needed to function and grow. The United Arab Emirates already operates two nuclear power plants and two more will be available soon. Saudi Arabia plans to build its first nuclear power plant. Abu Dhabi also pioneered the solar energy sector by establishing Masdar, a clean energy arm of the Mubadala investment fund, at the turn of this century.

Decades ago, the Gulf countries would have used billions of dollars in revenues from rising oil and gas prices for heavy spending. Today, as these countries diversify their economies to no longer depend heavily on oil and gas revenues, they are becoming more cautious in their spending. The new goal rides the new wave of a strategically important green and smart economy for GCC countries.

With oil and gas destined to remain a primary source of energy for the global economy for many years to come, these countries can use the earnings from exports to reinvest in sustainable development, as one Dubai-based commentator puts it. . Billions of dollars could go into the pockets of oil and gas exporters, but now they are more aware than before that this is an unsustainable source of revenue. Investing in other sectors of the economy is a guarantee for the future, as the commentator notes.

Ambitious plans and projects to diversify Gulf economies needed funding not as available as it might be in the year of the pandemic. Now, if this surge in energy prices continues, it could help close the funding gap for these plans.

* A version of this article is published in the September 30, 2021 edition of Al-Ahram Weekly

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