The world is unlikely to switch substantially to renewable fuels for decades. Instead it will enter a phase in which renewable and fossil sources coexist.
What the future holds for alternative energy
Leading figures from the global energy industry gathered in Abu Dhabi last month to discuss the challenges of rising energy demand at the third World Future Energy Summit. As the event in Abu Dhabi highlighted, there is an increasing realisation that traditional forms of energy such as coal, oil and gas are finite and, in many cases, have long-term negative effects on the global climate. The drive towards a greener UAE is central to Abu Dhabi's 2030 plan, and as the city was recently chosen as the centre for the International Renewable Energy Agency (IRENA), such ambitions are sure to be aided by a move towards renewables. However, this is not to say that the adoption of renewable energy would be at the expense of traditional energy.
Of course, the region is rich in traditional energy resources. Alternative energy, even with the technological developments that have been made, is still more expensive than oil and gas. Oil, gas and coal remain the most widely consumed, low cost, readily available fuels and will continue to be key energy sources for decades to come. They also remain a highly efficient source of fuel (particularly for transportation), providing outstanding energy output per gallon or litre. Humanity has yet to find a proven alternative to fossil fuels (for transportation) that is as convenient and practical. Global energy consumption is set to grow by more than 30 per cent between now and 2030, according to the Energy Information Administration (EIA). It will be many decades before there is likely to be a "silver bullet" to replace fossil fuels, and it is likely that a combination of energy sources will be key to our future. This combination of energy sources to be used as power could include wind - onshore and offshore - solar, geothermal and wave, also known as tidal. Coal-bed methane could be used as an alternative source of gas, and bio-energy sources could be used for fuels with crops and algae converted to ethanol, harnessed as a fuel or fuel supplement. In addition, carbon capture and storage (CCS) could be used as the means to harness coal resources without contributing to global warming. This is an area where Senergy has been actively supporting offshore operators and onshore power generators. For example, we have completed more than 40 CCS and carbon dioxide enhanced oil recovery (EOR) projects over the past five years.
The signs are already there. The global renewable industry is already worth about US$150 billion (Dh550.96bn) per annum, and investment in sustainable energy innovation is already substantial, with just under $25bn spent worldwide in 2008. Many people ask me why we need alternative forms of energy. In the long term, alternative, or renewable energy, will contribute to addressing the ever increasing demand for energy driven primarily by population growth and economic development. There is also the issue of security of supply; many countries have limited access to fossil fuels but have untapped renewable resources. In such cases, alternative energy may be viewed as nationally important for security. Alternative energy is, in the longer term, also likely to contribute significantly to maintaining the affordability of energy supplies. With increasing demand and traditional energy resources of a finite nature, there is potential for cost escalations and price volatility, which in themselves are significant reasons for developing alternative sources sooner rather than later.
So what is the motivation for oil companies and governments to pursue alternative energy? This is open to debate, but in some cases I believe oil companies have been, and still are, pursuing alternative energy purely for commercial reasons. It is also probably true that some see it as a corporate social responsibility (CSR) project, while for others alternative energy has been a public relations exercise with many riding the news agenda focused on "saving the planet".
For Senergy, it is much more than that. Alternative energy is a real solution and is increasingly important for the sustainability of our economies and societies. If companies have been viewing alternative energy as a CSR project, in a certain way, this is a positive step, as they have been demonstrating concern for issues and priorities outside pure financial return. However, if the driver for companies has been purely for public relations purposes, this can be potentially damaging to their reputation.
For governments, I think it's quite a different story. Several countries (including the US) are seeing the enormous benefits of pursuing alternative energy strategies; these include the economic benefits linked to the emergence of new industries and technologies. The extent to which different countries are making faster or slower progress on alternative energy is undoubtedly down to a combination of factors. Sometimes it may be due to a lack of commitment from politicians and other leaders, but there are sometimes more complex factors such as the shape and structure of a country's power industry, the sophistication and maturity of the planning regimes, the state of power transmission and distribution infrastructure, the abundance or shortfall in local oil and gas resources and the need to diversify a country's economy.
I see traditional energy and alternative energy working side by side and not against each other. There are obvious mutual benefits in working together such as sharing skills, supply chain infrastructure and technical know-how. For instance, there are a number of skills that are immediately transferable from the offshore oil and gas industry to the offshore wind sector. Similarly, there is room for sharing skills and technology between onshore oil and gas and carbon capture and storage, coal-bed methane and geothermal; and in areas such as geoscience, reservoir engineering and drilling.
Just as there are areas of opportunity, there are also potential challenges on the horizon. There will be competition for the same equipment and people. Increasing oil and gas prices would benefit renewable energy by raising overall energy prices and making renewable energy a more economically viable solution. However, increased demand for oil and gas also increases the demand for skilled personnel such as drilling engineers, geophysicists, as well as equipment. This highlights how the cost for developing resources such as geothermal can increase rapidly when oil and gas prices climb and therefore offset the potential benefit that higher energy prices would bring to the renewables sector.
What is required is a concerted effort to increase the efficiency and effectiveness of alternatives. In many parts of the world with little or no oil and gas, there are large volumes of untapped renewable energy and the potential to establish generation and power supply where it would be difficult to set up oil and gas import infrastructure. Importantly, there is no "fuel cost", therefore future cost of production is more predictable as there is no exposure to global commodity market price fluctuations.
The whole industry, and indeed the world, will benefit from having sustainable sources of energy. To many, alternative energy here in the Middle East is unnecessary, given the abundance of traditional energy resources in the region. As demonstrated by the World Future Energy Summit, the Middle East, and the UAE in particular, has the opportunity to make use of its existing position as a leader in world energy to also become a world leader in future energy. This process already seems to be gathering momentum with the designation of Abu Dhabi as IRENA's global headquarters.
As is well documented, oil and gas will not last forever and the region will need industries and sectors that live on beyond the end of traditional energy resources. With the world urgently seeking a balanced portfolio of energy solutions, there is a real opportunity for the UAE to position itself not as an impediment to change, but as a key player in the future of energy. James McCallum is the chief executive of Senergy, an international integrated energy business based in Abu Dhabi