December 2007

Oil and gas in the capitals

A new Mideast energy vision

Vol. 228 No. 12
Oil and Gas

A new Mideast energy vision. Go nuclear, export more oil and gas, and transport renewable energy from Africa to Europe. No joke: Egypt is repositioning itself to be one of the biggest energy hubs in the world.

Arab energy integration is moving forward. Believe it. Notorious for their failed attempts to integrate and tendency to disintegrate, and for their chronic disagreements, various Arab countries envision energy integration as the way to the future. Some of the most successful integration projects in recent Arab history are the Arab Gas Pipeline and electrical grid connections.

If energy supplies are cut off, who can block the sun, especially in the Middle East? Go solar. This is for real. As Israel continues its weeks-long restriction of fuel into the Gaza Strip and debates cutting electrical power, Palestinians are going solar. Sixty-five percent of Palestinian homes use solar power for water heating, and the Palestinian Authority (PA) aims to expand that use to hospitals and public institutions. The policy is expected to save the government $90 million.

Also, the PA recently signed an agreement with the American company Naanovo to establish a 100-MW solar power station in Ariha (Jericho) to produce electricity. The cost of the project is estimated at $300 million. The West Bank and Gaza Strip consume about 600 MW, which is currently covered mostly by electricity imports from Israel, Jordan and Egypt. The solar project has received international support and is expected to be financed mostly by European countries.

The new reality. Despite abundant oil and gas reserves, the Middle East has already started to suffer from power shortages. Oil and gas supplies cannot keep up with domestic demand without jeopardizing exports and export revenues. Revenues, as well as sufficient and stable electricity supplies, are critical for political stability.

Middle Eastern countries must find alternative domestic energy supplies that keep the lights on, keep the peace and create jobs. No other alternative can do as much as nuclear energy does, at least for the present time. Thanks to Iran, several Arab countries are looking at nuclear seriously. Egypt has taken the first step; it announced last month that it is going nuclear.

Egypt: The genius of location. The late Egyptian writer Jamal Hamdan coined the term “genius of location” to describe the importance of Egypt’s geographic setting throughout history. He would be happy today to see Egypt’s new energy vision, which indicates that the country has realized once more the importance of its geographic location.

Egypt’s policymakers are convinced that domestic fossil fuel supplies cannot sustain Egyptian economic development. They are also convinced that the world’s fossil fuel supplies will decline after 2050. In the long run, nuclear is the most feasible option. In the short run, increasing fossil fuel supplies along with renewable energy, especially wind, can help Egypt make the transition to sustainable energy.

Egypt plans to be a regional and world energy superpower. Significant amounts of crude and petroleum products pass through the Suez Canal and the Sumed (Suez-Mediterranean) pipeline. The Suez Canal will play a major role in LNG trade in the next three decades. Egypt already exports gas to Jordan, and it will soon export it to Syria, Lebanon and possibly Europe. Egypt’s electrical grid is connected to Syria and Jordan. Soon it will be connected with grids in the Gulf, North Africa and Europe.

With grid connection, it is no surprise that Egypt wants to build nuclear power plants. Even when Egypt can no longer export oil and gas, it can export electricity. Given the political situation in the Middle East, countries that cannot develop nuclear power will be able to import nuclear-generated electricity from Egypt.

Policymakers in Egypt hope that, with the support of the European Union, it can provide the expertise to develop Africa’s renewable energy and then transport that energy through Egypt to Europe. Egypt has already started several training programs in various energy technologies, including renewable energy. It has plans to expand these programs. It also hopes that the success of its nuclear program will enable it to provide expertise and technology to other developing countries to enable them to develop their own nuclear power plants.

Egyptian policymakers envision a country that:

1. Maintains its current oil production and increases gas production by 5% a year, while increasing gas exports

2. Enlarges the Suez Canal to enable very large oil tankers to pass through it

3. Exports oil from the Gulf region to the Mediterranean via pipelines through Egypt

4. Transits power from renewable energy sources in Africa, especially hydro, to Europe

5. Connects its power grid to the grid in the Gulf, North Africa and Europe to export excess electricity to these regions

6. Builds nuclear power plants to become a major exporter of electricity to the rest of the world

7. Builds wind power plants to support and diversify energy supplies and increase the share of renewable energy to 20% by 2022

8. Provides energy technology and training to developing countries, especially in Africa.

In short, Egypt wants to be an energy superpower in the region. Energy superpower status combines control of various energy sources with the “genius of location.” The Gulf region has only oil and gas and lacks the advantages of Egypt’s location.

It is a great vision that requires great steps. Egyptian policymakers need to live up to the new vision, not only because they owe its successful implementation to their own people, but also because people in the Middle East have long memories; they don’t easily forgive failure. They have always adored accomplishments and are fascinated by achievers. WO


Dr. A. F. Alhajji is an associate professor of economics in the College of Business Administration at Ohio Northern University in Ada, Ohio. At Ohio Northern, he holds the George W. Patton Chair of Economics, specializing in international and energy economics. Previously, he was an award-winning, visiting professor of economics at the Colorado School of Mines. He is a regular contributor to this column.

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