When Energy Subsidies Will be No More in the Middle East – The Day is Coming Sooner than You Think!
Since the late 1970’s, the countries bordering the Persian Gulf have enjoyed subsidized energy prices for fuel and electricity. This national assistance program supported the development and growth of the economies in each of the Gulf Cooperation Council (GCC) states. In practice, over the short term, this was a beneficial initiative, but four decades later global economic factors have dramatically changed. Early on crude oil and power generation feed stocks were inexpensive commodities, so subsidizes imposed little strain on the Persian Gulf state economies. That has all changed! Crude oil and finished product market prices have risen sharply by as much as ten fold. Ongoing subsidizes for these vital, everyday needed energy sources are now putting a huge financial strain on the GCC countries. Profits which are obtained from increased oil prices are quickly siphoned off and lost to fund these subsidies. This problem is exacerbated by the ballooning populations of nationals and expats residing in these territories. More people demand more energy. An unfortunate side affect of these subsidies has been the entrenched mindset in the region that responsible energy use is a problem that the rest of the world contends with, but not the GCC: energy prices are dirt cheap here; we have all that we need!
Both of these factors are now compelling the governments of the GCC states to make changes. The attitude towards the true cost of providing electricity and gasoline, and its responsible use, now needs to be borne by the people. To this end, subsidies are now being reduced in some countries by as much as 30% and this trend will only continue. As has been the case with the United States, a Great Awakening is starting to take place in the Middle East. Energy sources are still plentiful, but their increased value is now encouraging individuals to think differently about how they are used. Energy efficiency is now starting to be talked about in all sectors like never before. This responsible attitude is needed to support the GCC’s long term ambitions to cultivate other domestic industries to increase the local value added and employment opportunities, thereby keeping more profit within the region. To achieve this goal, enormous investment will be needed. The funds will come from the energy sector; therefore, the subsidies must decline and ultimately they will need to be phased out to make this a reality. Individuals and businesses that acknowledge this inevitable change will start to reprogram their behavior and processes to be more profitable now and ultimately solid and sustainable in the future.
So how does all this relate to the world of fluid-handling and pumps? It’s quite simple, engineers in the Middle East need to start making better technical choices based on energy consumption! In the not so distant future, this increasing overhead cost will erode your profitability. Power saved is profit you get to keep now and for the foreseeable future. It’s a potential investment source at your fingertips that you can infuse into the upgrading of your operations.
Drop me a comment. I would be interested to hear about some of the processes that you feel could be present some worthwhile savings. I would be happy to share some of my experience with you.
Mike Moore - Director, Global Oil and Gas Marketing
