RIYADH, Sept 10: Are oil producers preparing for the post-oil era? That is question baffling many economists in the region. There are question marks about the reforms process.
The oil producers of the region could not be oblivious to the fact that by all means oil is limited in supply. There is a growing discussion and debate in the energy fraternity about the longevity of the oil era. Various view points have been put forward.
Interestingly, despite this ongoing debate, the global consumption continues to rise. People who can afford, generally termed gas guzzlers, are not ready to mend their ways and change their consumption-oriented life style.
The situation is getting bad to worse as far as oil consumption is concerned. According to available estimates, it took the mankind 125 years to use the 1st trillion barrels of oil, whereas it was going to take us hardly 30 years to use the next trillion barrels of oil. Some hence go to the extent that the capitalist economy is based on consumption. And with capitalism holding sway all over the globe, consumerism –- in all sectors including energy –- is not going to evaporate over the next few years. People thus appear to be ready to forego their future at the altar of their current lifestyles.
The current scenario and the precarious demand-supply balance in the oil markets have made the prices of this precious commodity touch new heights. Consequently the oil producers are having a field day. According to some, the oil producing countries of the region were passing through a period that was being dubbed by some analysts today as the “third petro-dollar boom”.
The combined oil revenue of Gulf Cooperation Council countries in 2004 was a staggering $190 billion -– 40 per cent increase over the 2003 period. In 2004, the average oil price was $42 a barrel. Now with oil currently staying in the $70 per barrel vicinity and still on the upswing, the total revenues this year are definitely going to be much higher than the year before. According to one regional economist, the total revenue of the Gulf Arab oil producers was to exceed the $265 billion mark this year. And even this estimate was based on an average price of $50 per barrel and the combined exports of 14.5 million barrels per day. Out of this Saudi Arabia alone is currently producing in excess of 9.5 million barrels a day, and is ready to go even beyond -– indeed if required.
These are wonderful times for the oil producers of the region. The hydrocarbon resources bestowed in the region are a gift of nature in the real sense and these have to be used prudently, for the next coming generations. This sector is the single largest contributor to the GDP for all the GCC countries.
However, oil has been a cyclical business. It has seen its ups and downs. Analysts feel it would still be passing through these phases. Further, ultimately the era would come to an end and the producers also need to plan for a continued prosperous future for the next generations.
The world’s third largest oil producer, Norway, has set precedence in this regard. It places virtually all of its oil revenues in a fund created in the 1990s to take care of the future generations, in a post oil era.
At the end of June this year, its Petroleum Fund, which invests in international stocks and bonds, was valued at almost $183.7 billion, making it one of the biggest funds in the world. With the rising oil prices, the value of the fund has already ballooned by $26 billion since the beginning of the year.
This increase was attributed mainly to transfers from the state’s oil revenues. In fact the use of the oil income is very strictly regulated in Norway. The government is only allowed to use the returns on fund, which in theory is about four per cent. In fact to meet the recurring expenses of the state, the Norwegian petrol prices, despite being a major oil producer, are among the highest in the world. The Norwegians pay almost $1.85 a litre at the petrol station to fill up their tanks.
However, in sharp contrast the countries of the oil producing Gulf are faced with a much more difficult situation. On one hand they have a growing young population with increasing aspirations and on the other, their economies are basically a single product economy. For meeting their galloping expenses, evident from the life style of the region, they need to use the revenues from oil.
The Gulf of today is much different from the Gulf of the mid-seventies. Their high living standard entails a cost of itself. Gone are the days when King Faisal had the audacity to tell Henry Kissinger: “We would put our oil wells on fire and would go back to tents.” Ever since Faisal days things have gone too far. To reduce the current expenditure and hence change the way of life would be monumental if not impossible.
The planners in Riyadh and the other GCC capitals thus have a major assignment in hand — to take care and insure the prosperity of the future generations by saving today for tomorrow. There is no harm if a cue is taken from Norway in this regard.
The oil age is still far from over. But plans need to be operational throughout the region for the ultimate — the post-oil era. And there could not be a better time than the current to seriously initiate the project.
