Losing steam? Solving the ever-looming GCC energy crisis
An important step has been taken by the likes of the UAE and Saudi Arabia to drop power and water consumption by 30 per cent by 2030. This conscious step will be reflected on the economy and the environment of the GCC.
This decision comes about as the demand for power and water sources surpasses levels elsewhere in the world and are brought on by several factors. Among these are rapid population increases and the low cost of utilities, which has led to exaggerated use of both resources by nationals and expatriates alike.
GCC countries’ budgets are thus burdened by the heavy subsidies they have on utilities.
This has led to a point of disparity in power availability, price levels and the volume of consumption, which rises by 10 per cent annually. GCC states have made significant efforts to meet such increases, which has led to a drain on national funds. This is exacerbated as individuals, families, business sectors and manufacturers are exempt from paying any form of tax.
This was acceptable to a large extent in the past, due to the abundance of resources and the limited population size. Gulf economies have achieved levels of growth that places them at the forefront in terms of growth as well as consumption patterns. But matters need to change as the environment within the global energy sector has seen seismic transformations.
Such changes require in return a radical modification of energy policies to suit local economic changes as well as changes in the global energy deficit. This is exactly what GCC countries are trying to achieve by reducing energy and water consumption by 30 per cent over the next 15 years.
This approach is expected to include overall price adjustments so as to bring them closer to international rates, which will lead to rationalisation of consumption and will limit the use of these resources for actual needs and without waste. This will ease the burden placed on state finances.
However, these increases should be gradual, especially as there is an inclination towards uniting energy prices in the GCC. It is necessary to re-evaluate the state subsidy offered to energy and water services, because without restrictions they may not achieve desired goals. This subsidising may be one of the reasons for excessive consumption of energy and water sources.
Additionally, diversification of energy sources has become a matter of necessity to reduce production costs, especially as they rely mainly on hydrocarbon sources and at prices that have doubled in recent years and are likely to rise further.
To increase the effectiveness of both the UAE and Saudi programmes, it is essential that consumers respond to this approach and understand its key purpose.
The setting up of similar programmes in other GCC countries will contribute to speeding up and integrating the components of this trend. It will also result in the integration of the Gulf energy market, considered one of the pillars of development for a common market.
If the programme attains its goals, then consumption rates in the GCC will be closer to global averages. This is an urgent issue requiring the cooperation of everyone to achieve sustainable development.
Additionally, raising prices does not necessarily lead to increasing the burden on consumers, as the rationalisation process will lead to a reduction in consumption and limit use to actual need. This means paying less on bills, and more so if rationalisation of consumption taps advances in thermal insulation and the like.
By Dr Mohammad Al Asoomi