Book Review
Global Energy Markets: Changes in the Strategic Landscape

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One third of global oil production today comes from the Middle East, and all of the world’s spare production capacity is located in the region. This underpins the lasting strategic importance of the region to global energy markets. Indeed, non-OPEC oil production has stagnated since 2004 and may begin to decline by the middle of this decade, making the world even more dependent on OPEC supply.

However, as Herman Franssen points out in this volume, growing demand in the region itself, alongside uncertainty regarding future upstream investments, have raised doubts about OPEC’s ability and willingness to significantly increase oil production and export capacity. As far as global energy markets are concerned, this only aggravates the general air of uncertainty that has developed in recent years.

At the beginning of 2011, for example, nuclear power’s future role in global electricity markets was brought into doubt following the crisis at Fukushima. As Hans Blix highlights in his keynote address, there are numerous lessons to be learnt from the incident – for instance, about the location of emergency electricity generators and the value of passive systems that offer cooling of reactors without the need for emergency pumps that depend on electricity. Tsunamis are not a common risk across the globe, but at a time when the world is conscious that global warming may bring rising sea levels and extreme and turbulent weather, all such eventualities must be accounted for. Therefore, the European Union has asked member states that rely on nuclear power to undertake various “stress tests” of their installations.

These tests, and the resultant recommendations will be of particular interest to all those countries that seek to develop nuclear power, including the United Arab Emirates; Vladimir Kagramanyan points out that both budding and full-scale nuclear power programs continue to operate in Europe, North America, the Middle East and South Asia. Indeed, nuclear power is set to expand in these regions even according to the IAEA’s lowest projections, which suggests that those factors that made nuclear power an attractive option before the Fukushima accident are no less appealing today: these include increasing global demand for energy as well as concerns about climate change, volatile fossil fuel prices and energy supply security.

The UAE is a case in point; public acceptance of nuclear power in the country continues to be positive, according to H.E. Amb. Hamad Al-Ka’abi, with around 86% of the population favoring nuclear power in general. With its fledgling nuclear energy program underway, as far as the UAE is concerned, the rationale for the use of nuclear power has not changed—it is still considered an efficient, environmentally-friendly and economically competitive source of electricity. Rather than bringing into question the future of nuclear power use, the prevailing trend in the global nuclear industry following Fukushima is characterized by an ongoing drive to improve safety features in order to prevent future accidents; ultimately, it will be nuclear safety that will be fundamental to the success and the long-term sustainability of the UAE nuclear program, rather than general sentiment toward nuclear energy as a whole.

Indeed, the UAE is a perfect candidate, considering the fact that nuclear power technologies are capital-intensive and best suited to economies experiencing intensive growth. James Tulenko details the complexities of the economics of nuclear power, including how intricate financing, construction and operational issues are best managed to achieve the lowest possible power production cost. These factors, which can be subject to wide variation depending on management plans and controls, determine whether or not a nuclear power plant is cost competitive. However, he warns that one should also factor in the environmental or external factors of power production, which in turn could have a direct impact on the overall cost ledger.

As Antony Froggatt points out, all energy sources have an impact on the environment and the wider energy market, and their use is a balance between the risks and benefits that they create; in this sense, nuclear power is no exception. The relative environmental benefits of nuclear power are measurable, as it emits no carbon dioxide at the source of generation. However, this has to be balanced with both the greenhouse gas emissions of the fuel cycle and associated infrastructure construction, and other environmental impacts such as uranium mining, discharges during routine operation and the consequences of small- and large-scale accidents.

Froggatt suggests that the deployment of nuclear power brings fuel diversity and a degree of separation from fossil fuel price volatility, and can therefore increase security of supply and aid market stability, particularly if developed alongside other non-fossil fuel supply technologies, including renewables such as wind power, solar or biomass, as well as by demand-side measures.

Renewable technologies have enjoyed substantial investment growth in recent years, with annual investments quadrupling between 2004 and 2010 to reach more than $271 billion. During this period, investment in solar photovoltaics (PV) increased by a factor of 16; investments in wind energy increased 250 percent; investments in solar heating doubled; biodiesel production increased by a factor of six; and ethanol production doubled. From 1999 to 2004, geothermal electricity systems grew 16 percent and direct use for heating grew by 43 percent. Meanwhile, global installed capacity of wind, solar PV, hydroelectricity, ethanol, and biodiesel continued to grow rapidly. As W. Alnaser and N. Alnaser point out, the global concern regarding greenhouse gases and the growing tendency toward retrofitting cities to become greener will boost renewable energy even further. Architects, engineers and educators will increasingly “go green,” with more courses and higher education degrees in sustainability, and countries will be forced to offer more incentive schemes and legislation to encourage greater use of renewable energy, reduce their carbon footprint, and assure sustainability.

Benjamin Sovacool suggests that the provision of modern renewable energy services can expand income generating activities that can greatly reduce poverty and help diversify the economies of developing countries against oil shocks and price spikes. However, he goes a step further by advocating a price levy on carbon in order to address the principal market failure that has prevented individuals and firms from responding effectively to the damage precipitated by greenhouse gas emissions. Sovacool also discusses complementary policies, including mandatory regulatory standards (“sticks”) that can deliver fairly predictable outcomes but may suffer from issues of equity and efficiency, and voluntary incentives (“carrots”) including subsidies to motivate choices that contribute to energy security and climate mitigation, including support for research and development.

The International Renewable Energy Agency (IRENA), based in Abu Dhabi, foresees that by the middle of this century, renewable energy has the potential to become a leading economic sector in the GCC. According to Adnan Amin, with its endowment of natural resources the GCC can not only meet its domestic energy demand, but could become a major exporter of energy derived from renewable resources. The GCC states could also leverage the skills and knowledge gained from their long experience as global energy leaders in the oil and gas industries by applying them in the growing renewable energy sector. Moreover, renewable energy has countless beneficial spill-over effects: it diversifies economies and energy sources; assists with the creation of sustainable development; protects fragile environments; and allows nations to grow and expand their geo-strategic roles.

While the benefits of nurturing a burgeoning renewable energy sector are clear, there is little doubt that – as Salman and Areeba Ghouri point out in their chapter of this volume – fossil fuels, particularly oil and gas, will remain the dominant sources of energy worldwide in 2050 and beyond, despite significant growth in renewables. Even with a major reduction in their cost, most renewable projects will still require government support to compete with fossil fuels. Ultimately, natural gas is more likely to play a critical role in checking rising carbon emissions in the future; particularly in light of the fact that China and other countries are in the process of developing shale gas, following the success achieved the United States in this area.