Monday, November 4, 2013

THE OTHER SIDE OF THE STORY

What to do? Life is like that. One man's poison may be the other man's food. The environmentalists want an end to the use of fossil fuel. But the thinking on the other side goes like this... extract from Arab News



Oil and gas prosperity: Exciting years ahead


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It is well known to all that countries of the Gulf Cooperation Council (GCC) have been blessed with hydrocarbon resources, which have afforded them a standard of living way above that of other countries in the Middle East and Africa as long as the price of oil remained above $70 per barrel.
Is it possible to make that prosperity last even if the price of oil dips to half its present level or lower?
And does the public at large know what hydrocarbon resources are and how they can prepare to prosper from them starting today?
We would attempt to present an accessible understanding of what hydrocarbons, or indeed what fossil fuels are and what we can do to convert them to tangible benefits in the daily lives of ordinary citizens.
We’ll start by introducing hydrocarbons, specifically coal, oil and gas: these are formed literally over millions of years as sediments’ accumulation of plants and animals — aquatic as well as terrestrial — that are pushed underneath the earth’s surface where high levels of heat and pressure alter their composition to organisms rich primarily in carbon, and that could contain hydrogen, sulfur, oxygen and nitrogen.
Today, such fossil fuels make up around 86 percent of the global feedstock of energy and despite intensive scientific research to find suitable and sustainable substitutes the advanced world has been left with little choice other than to find more efficient ways to recover these depletable resources, particularly oil and gas, and use them for the widest myriad of applications: energy generation being only one of them as derivatives of oil and gas substitute for older material like metal, glass, wood, paper, carton, cotton, silk, etc., in fields ranging from telecommunications to automotives to avionics and space shuttles and space stations to construction and maritime transportation to clothing, furniture, textiles, food packaging and the list goes on as innovation powers research and development, and substitution.
It might be pertinent to note that nuclear energy, which accounts today for around 6 percent of energy generated in the world, could witness a decline owing to advanced countries realizing in the aftermath of the Tsunami nuclear leaks in Japan that such technology is unsafe for countries with high population density.
This could create more demand for the depletable fossil fuel resources, which will have to be used to satisfy the yearly growth in demand for energy consumption estimated at around 3 percent.
Of the three fossil fuels mentioned, natural gas is the most suited for energy generation as it is the least costly and least polluting.
Natural gas, however, is likely to grow in importance in energy generation, its use as feedstock to create petrochemical and chemical products must be emphasized: its major component methane is increasingly being used to generate methanol.
The direct catalytic conversion of methane to methanol using cu-zeolites or other catalysts is an efficient process for the production of methanol, which can then be processed into products as diverse as plastics, plywood, paints, fertilizers, etc., etc.
Other natural gas components, albeit lesser in percentage, such as ethane and propane can be processed into the highly profitable ethylene and propylene derivatives — butane is typically used as a blending agent for gasoline and fuel for energy generation.
Oil is best utilized to generate valuable derivatives (referred to as the TBX chain: toluene, benzene and xylene), which feed into the widest range of industrial and consumer applications leading to a multiplier effect in job creation and economic growth.
The proven global reserves for oil, gas and coal are estimated to last 50, 70 and 150 years respectively.
As the technology of resource recovery becomes more efficient, thanks to enhanced oil recovery (EOR), hydraulic fracturing or fracking and horizontal drilling, more resources will become available for exploitation although be it at a higher cost taking into consideration the costs of R&D and the equipment needed to drill offshore for these resources, which on a global scale tends to cost more than on-shore drilling.
It is generally estimated that the global average cost to extract an oil barrel will average roughly $70 over the coming decade and the demand for it will continue to grow at around the pace of the global economy (2.5 to 3 percent a year).
This fact augurs an era of price levels of oil above what is needed by the GCC countries to meet social obligations and conduct ambitious construction projects to reinvigorate their economies, and provide employment to their young populations.
Countries in the GCC — indeed all countries with abundant resources in the Middle East and Africa — can look forward to immense government revenues and can now identify opportunities to emancipate their economies out of the one product trap by putting to sound use the plentiful flow of hard currency into their government vaults.
It is worth noting here that countries of the Middle East and Africa have over 70 percent of global oil reserves and over 50 percent of global gas reserves but this fact alone has not been enough to lift them to prosperity, indeed, many an OPEC member still lives in abject poverty: Angola, Nigeria and there are others… Yet, on a manmade island of 30 square kilometers — Jurong Island — of a country with the largest oil refining capacity per capita in the world and without a single drop of oil underneath its soil over 5 million tons of chemicals and petrochemicals help afford Singapore one of the highest per capita incomes in the world ($60,000/Y) and employ nearly a quarter of a million people.
Contrasting with the Singaporean model, our part of the world (Middle East and Africa) — which boasts most of the earth’s proven precious oil and gas resources — contributes less than 10 percent to the world economy and this can be attributed to a number of main factors:
1. The underdevelopment of downstream industries and of oil refining capacity. Most extracted oil is shipped to the Far East, Europe and other destinations to be processed into finished products, which are then sold worldwide at a much higher value added.
2. Oil is still used in the Middle East mostly for energy, which is a complete waste of resources and carries the opportunity cost of foregone jobs and sustained wealth creation.
3. Most accessible gas reserves have already been allocated and their derivatives committed to foreign markets rather than to locally established industries. This serves to create wealth away from the supply source of natural gas.
4. In most of the resource-rich Middle East and Africa, an education system that is by and large out of sync with the needs of the petrochemical industry which ends up sourcing skills from outside the region for labor as well as management level positions. Despite multi-billion dollar investments upstream too few jobs are created, since downstream and small-size investments employ more people per dollar invested than mega projects.
5. Too few financial institutions specialized in evaluating loans specific to downstream industrial projects exist in the Middle East and Africa. Interest rates on business loans in our part of the world remain exorbitant as compared to developed countries.
It is worthwhile noting that Saudi Arabia has differentiated itself from most other GCC countries — and indeed other Arab and African countries — by taking steps over the last decade to harness economic diversity and growth to massive expansions in the petrochemical field in particular.
Some of these steps are:
1. Increase its oil refining capacity steadily so that more oil derivatives become available locally to spur domestic industries and lead to import substitution.
2. Implement Foreign Direct Investment laws, which are now attracting over $40 billion a year. Key differentiating clauses in Saudi FDI laws are 100 percent foreign ownership and lower corporate taxes than in the UAE. These laws also apply to hydrocarbon exploration by foreign companies.
3. Avail sources of financing such as the SIDF and efficient government institutions to provide investors with key information (SAGIA & others).
4. A world class telecommunication infrastructure, which includes fiber optic transmission.
5. Water and electricity infrastructure provided at competitive rates that are among the lowest in the world. A superb road infrastructure as well.
6. Academic institutions are being created at several levels that offer curriculums for graduate and postgraduate degrees covering not only traditional disciplines such as petroleum engineering and chemical engineering but areas of expertise centering on polymer science, polymer engineering, thermoplastics engineering, energy engineering (including renewable energies), etc…
Similarly, technical schools and vocational schools are being expanded in several areas of Saudi Arabia to teach new generations of Saudi nationals on operating the software of machines to manufacture a wide range of consumer and industrial products.
7. Six economic cities in each of Madinah, Tabuk, Hail, Jazan, Rabigh and the Eastern Province, slated for completion by 2020, will stimulate the Saudi economy with an estimated $1 trillion and are being built across the Kingdom. Chemicals and petrochemicals will be at the core of some of these economic cities. Each city will have its own: Industrial zone, sea ports, dry ports and airports, residential areas, central business districts, etc…
As our populations become increasingly aware of the paramount importance of oil and gas derivatives to global economy, they will take more interest to prosper from this field through academic studies, investments, professional occupations, consultancies etc…
Years ahead are sure to be exciting for our industry as it expands and we learn more about it in depth and seize lifetime opportunities to prosper from it starting today.
— Adeib Jafari is the author of “Prosperity in Saudi Arabia Today” — available at major bookstores.

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