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Myth Busters: Five myths about the energy sector

El Sayed speaks about predictions for the changing energy landscape

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Changing energy landscape, Energy shift, Myths about energy, Predictions, Tarek El Sayed
El Sayed advises businesses to think about how they can position themselves for the 'shift'.
El Sayed advises businesses to think about how they can position themselves for the 'shift'.

Tarek El Sayed is part of a team of consultants who contributed to a new book, Energy Shift. He spoke to UME about predictions for the changing energy landscape

The last decade has seen a change in the public perception of energy and greater awareness of its sources. There’s no doubt that more change is ahead for the regional energy industry. Those with a good view of what’s ahead will be in the best position to act accordingly.

In an effort to shed light on the future of the energy industry, Booz & Co, a consultancy, has developed a series of myth busting opinions outlining what it sees ahead. While these changes are set on a world stage, the Gulf states are at the centre and contractors working in the region need to be alert to  opportunities before they happen.

“Basically, the main idea is that the world is going through an energy shift,” said Tarek El Sayed, a senior associate in the Energy, Chemicals and Utilities Practice. “The structure of the energy business that has been in world for last 100 years is changing. Now, of course it has been the same structure for more than 100 years, trillions have been invested in infrastructure, which will not disappear tomorrow. Whatever shift we talk about will take decades to happen.”

The myth busting breaks down ideas that have currency, but the consultancy claims are without foundation in the current
energy market.

“Understanding how the myths are not correct, helps us get a better understanding of how the shift will happen.”

Impact

The deconstruction of these myths raises important questions for the structure and strategy of the regional energy industry.

“The GCC countries have been using oil and gas as fuels of choice, to ensure security of supply and optimise costs,” said El Sayed. “[They have been] paying limited attention to load tailoring. One of the main challenges is meeting the explicit demand, but also more and more there is a need to meet the increased demand as efficiently as possible. This means also tailoring the source of generation to the type of demand you have; using different sources for base load to semi-base, to peak.”

“This is something that has not been done in the region up to now. Countries also need to try to free up as much oil and gas as possible for two things: export; and also the development of the economy in terms of petrochemical sector.”

Freeing feedstock for the petrochemical sector is a driver behind diversification in power generation. The importance is reflected in moves by some countries to restrict the use of such feedstock in
power generation.

The climate is also on the agenda and rising awareness levels – as well as being a heavily polluted and polluting region – are compelling providers to take this into consideration as they plan future capacity. This in turn lends itself to a regional opportunity, represented by the development of clean and renewable energy supplies.

“This is a very important point about the energy shift in this region,” said El Sayed. “Renewable energy is a sector where leadership has not already been taken. There is an opportunity for GCC countries to position themselves correctly and early enough to take a leading position in this sector and foster the development of the knowledge-based economy in this region.”

El Sayed cites Masdar as the leading example of this approach in practice, describing it as the result of clear awareness of the coming energy shift and a decision to implement developments for the future. Also adding to the UAE’s energy diversification efforts is the official approach to the start of a civil nuclear programme.

“It is an area that is very knowledge based. We believe that it is going to happen at a certain pace, driven by the technological difficulties of starting from nothing. Building [the programme] is not going to be easy, but I believe that it
will happen.”

Although nuclear energy is on the up in terms of public perception, even in these times of economic turmoil, people with the right expertise are in steep demand. According to El Sayed more than 200 nuclear plants are being planned around the globe today and these developments are putting pressure on skilled human resources.

One of the strong arguments likely to ensure nuclear energy’s eventual emergence in the region, focuses on assigning the best technology to the different load requirements. Nuclear would be a good, scaleable, emission-friendly option to take care of the base load requirements of the UAE; semi-base could be taken care of by gas-fired plants and renewable could fill a role providing peak power.

“In this way you are basically allocating the most efficient source to where it will have the most impact,” said El Sayed.

It is a drive to efficiency which may make renewable energies a real consideration for municipal use. With some of the world’s greatest potential for successful deployment of solar power combining with stiff targets for renewable generation levels set by countries such as Jordan and the UAE. In fact, according to El Sayed, the MENA region accounts for some 45% of total world potential for renewables, if large hydropower projects are excluded.

“Ambitious targets show that renewables will not be a sideshow, but a very important part of the overall generation, along with nuclear and gas pipelines,” he said. “In reality solar would have difficulty playing a base load role for simple physical reasons. We don’t have sun all the time and storage technology is expensive.

“One of the other reasons renewable and solar is likely to thrive in the region is how it fits into distributed power generation.”

El Sayed notes that solar is a collective term used to describe many different technologies that use the sun as the primary energy source. As is often the case with the application of new technologies, scale is important both for cost and effectiveness. One of the largest examples in the region is expected to be the Shams 1 Plant, a concentrating solar power (CSP) plant being developed for Masdar. Award of the build, own, operate contract for the project is expected this month.

“You need significant scale to run CSP effectively,” said El Sayed. “But one of the challenges of CSP is that it is water hungry.”

Importance

While renewables will have an increasing part to play, the theories in Energy Shift predict the diminishing importance of oil by 2030.

“Although the importance of oil in the overall energy sector will diminish, it does not mean that the GCC will stop exporting oil,” said El Sayed. “However, it does mean that GCC countries have to prepare themselves by diversifying their economies and building a more knowledge-based economy, improving their intellectual capital.”

For contractors and others at the development end of the industry, the need to prepare effectively for a ‘green shift’ is pressing. This includes the need to verify the green credentials of their supply chain, to ensure the promises they make are carried right the way through their product or service.

“You cannot market yourself green in one day, because it does not only affect the way you are presenting yourself to the world, it affects your whole supply chain credentials,” said El Sayed. “This is why contractors have to start preparing themselves early on.”

“It’s important because [the shift] is already starting and going to be more important in the region. This is an arena where we have very few contractors, so my advice to people is to start thinking about their position, taking into account the shift. Ask yourself ‘how is this shift going to impact us and our industry structure?’”

El Sayed identifies key signs of the energy shift, which contractors can expect to see over the next five years.

Among these will be an increase in incentives from government and a structured regulatory framework aimed at encouraging projects with a green element. When these frameworks are put in place they will have an impact on developers, which will then directly affect contractors. In the utilities sector, contractors can also expect to see governments implementing regulations to enforce greater levels of energy saving.

“There are two ways to react to the energy shift,” said El Sayed. “The conservative will work for a few years, but by doing this they endanger the future for the present. The other attitude is to take a bold position and invest now for the future. It may mean not making a quick return, but it is such boldness that will position the private players and governments to have leading positions in the new energy
order.”  

Myths busted by Energy Shift

Myth 1: the world is running out of oil
The world is not running out of oil, but is moving in a direction where hydrocarbons are going to become less important in the overall energy mix after 2030.

Myth 2: biofuels are a green solution for transportation
The ‘easy ethanol’ myth proposed biofuels as a solution to pricey petrol. However, using corn and sugar for fuel will have a negative effect on greenhouse gas emissions and food prices.

Myth 3: renewables will replace traditional power tomorrow
Renewables are still expensive and further technology innovations are needed to help achieve grid parity, especially on solar. It will not replace traditional power generation tomorrow, but it  will happen.

Myth 4: nuclear is dead
Nuclear is a dependable solution for base load generation. It is also the most scaleable technology that does not have a negative impact on greenhouse gas emissions. Nuclear initiatives in the region demonstrate its importance.

Myth 5: industry alone can bring about the energy shift
The private sector can’t do everything on its own. Although the private sector is important for driving innovation and finding investment, government involvement remains essential.

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