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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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The Most Successful Oil Economy That’s Moving Away From Oil

A discussion about oil-dependent economies often calls to mind an image of some anonymous Middle Eastern country almost entirely dependent on its oil exports to generate revenues. But there is one Middle Eastern country that plans to celebrate the last barrel of oil that it will one day export.

The Emirati Khalifa University last week announced that it had installed a first-of-its-kind solar concentrator in the smart city of Masdar, boasting that the facility had the concentration ratio of a thousand suns and could generate temperatures of over 1,000 degrees Celsius. The United Arab Emirates does not plan to go down in history as only an oil producer and nothing else.

In fact, for decades, the UAE has been actively investing its oil money into projects that would ensure the sustainability of its economy in the long run, even if oil demand eventually dies. It is already home to some of the most remarkable luxury real estate, including the world’s tallest building and the Palm Islands, but the UAE is also betting big on technology and renewables.

True to its tradition of doing things with a flourish, the UAE has become the home of one of the first smart cities in the world. Masdar City was planned as a sustainable community with a capacity for 50,000 people. Currently, there are 2,000 inhabitants of the smart city but by next year, the company behind the project, Abu Dhabi’s investment vehicle Mubadala, plans to double that, writes Ken Silverstein for Forbes.

The city boasts 40 percent lower water and energy demand compared to regular buildings in Abu Dhabi, a 10-MW solar farm that generates 17.4 GWh annually, offsetting 15,000 tons of carbon dioxide, and a wind tower that is used to capture cool winds and direct them to a public space in the city. Related: The 1.2 Million Bpd Outage That Oil Markets Are Completely Ignoring

The place houses a lot of large businesses already, has an artificial intelligence research center, and houses the Khalifa University of Science and Technology, along with the associated residential space. Ultimately, Masdar City could create 40,000 jobs and student placements, according to the website of the project.

“We have to be ready to celebrate the last export of a barrel of oil,” the executive director for sustainable real estate at Masdar, Yousef Baselaib, told Forbes’ Silverstein. “It is cheaper to produce solar than to use a conventional gas plant. But it is not 24-7. No matter how many megawatts, we still need backup and we are investing in research and development such as energy storage.” 

Indeed, more and more people with a stake in the renewable energy business are waking up to the realities of storage. Some solar and wind power tenders already include storage as an obligatory part of the project. To stay ahead of the curve, the Emirates are focusing on storage early on.

But would it be really possible to replace oil revenues with revenues from smart cities? OPEC data for 2018 says that the UAE pumped around 3 million bpd of oil and exported 2.3 million bpd of this, which was worth some $75 billion. Emirati government data from the previous year shows oil and gas exports accounted for almost 30 percent of GDP. Bringing this to zero, if we are talking about last barrels, would be a challenge.

Yet it seems the UAE is ready for it. The country expects its economy to pass the $500-billion mark in a few years thanks to generous fiscal stimulus programs and a diversification drive with an emphasis on technology. The government last year approved a budget of $16.7 billion (61.35 billion dirhams) for this year, with zero deficit stipulated in the document. Close to a third of this would go into social programs. Related: This Emerging Oil Hotspot Threatens The OPEC Deal

That the Emirates are indeed working on their diversification rather than talking about is also evident in the top most in-demand jobs for this year. A survey by a recruitment consultancy has showed the most in-demand jobs in the UAE this year will be related to information technology in some way including digital transformation managers, artificial intelligence developers, and security analysts, The National reported earlier this week.

Meanwhile, growth in the UAE’s non-oil industries is seen to rise from 1.3 percent in 2018 to 1.6 percent in 2019 and 3 percent this year, according to the International Monetary Fund. Oil sector growth, on the other hand, will slow down. Indeed, it looks like the UAE is serious about moving away from oil.

This will certainly take more than a couple of years. All the industries that the UAE will rely on to replace oil revenues—tourism, retail, hospitality, real estate, and construction—are all dependent on healthy demand for what they offer, meaning they need a strong global economy. Yet it is undoubtedly better to rely on more than one industry for your economy’s wellbeing. However long it takes the UAE to get to a point where it does not need oil to keep its economy going, it is going in the right direction.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on January 23 2020 said:
    The UAE is the most successful economy among the Gulf Cooperation Council (GCC) countries and also the most diversified.

    The UAE has accumulated so many accolades that no other country in the world could have done so in such a short period of its history. It has the world’s eighth largest proven oil reserves amounting to 97.8 billion barrels (bb) and is the sixth biggest exporter of oil after Canada, Russia, Saudi Arabia, United States and Iraq exporting some 2.3 million barrels a day (mbd). It also has the seventh largest proven natural gas reserves in the world estimated at 209.7 trillion cubic feet (tcf). Moreover, the UAE’s economy is the second biggest in the Arab world after Saudi Arabia with GDP projected to hit $451 bn in 2020.

    The country owes its spectacular economic growth and fast development to two great visionary leaders: Its former president and ruler of Abu Dhabi the late Sheikh Zayed Bin Sultan Al Nahyan and the late ruler of Dubai Sheikh Rashid Bin Saeed Al Maktoum. The late Sheikh Zayed is credited with overseeing the development of the Emirates and steering oil revenues into healthcare, education and infrastructure. Likewise, the late Sheikh Rashid Bin Saeed Al Maktoum had a bold vision for Dubai and foresaw the future not in oil alone but also in other industries. In fact, Dubai has become a diversification model for the GCC countries and also other countries of the world.

    Abu Dhabi’s Economic Vision 2030 and Dubai Strategic Plan are leading the drive towards diversification. The strategy is to increase investment in industrial and other export-oriented sectors, including heavy industry, transport, petrochemicals, tourism, information technology, telecommunications, renewable energy, aviation and space, and oil and gas services. Much has already been achieved in these fields, especially in satellite and telecommunications, the aviation sector and in renewable energy.

    In fact, for decades, the UAE has been actively investing its oil money in projects that would ensure the sustainability of its economy long after the last barrel of oil has been produced from its oilfields. It is also betting big on technology and renewables.

    Nothing exemplifies the UAE’s commitment to diversification and tackling climate change than the smart city of Masdar. The place houses a lot of large businesses already, has an artificial intelligence research centre, and houses the Khalifa University of Science and Technology.

    Even with full diversification, oil will continue to play the most decisive role in the UAE economy and also the economies of the other GCC countries but with far less adverse impact on their economies.

    Diversification of the GCC economies would be judged a success when they could balance their budgets at $40 a barrel or less rather than the current $85-$90.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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