Friday, July 26, 2013

Energy Risk and Why Politics Need More Engineers

I learn that 8 out of the top 9 government officials in China are scientists. I make this assumption in good faith that Chinese leaders are not stupid, so this technological giant is poised well for growth. I ask if other nations can do the same and elect more engineers and scientists to occupy office. At least they could understand data.

For many decades since the dawn of the industrial revolution, the world has been enjoying a steady rise in per capita GDP, much of it due to new technology, most of it has to do with cheap energy. Cheap energy makes all things possible. It holds the key to upping quality of life. Its that simple.

However, we're now firmly in the age of huge unsustainable consumption patterns, growing resource pressures and the challenge of finding cheap energy. No explanations needed there. We've found ourselves in a potentially colossal mess and have to think of how to manage risk.

So far in my career that has spanned 4 years, I've been involved in the non-renewable energy industry. What did I do? I provided my skills to companies that manufactured products that either helped extract oil/gas out of the ground or run prime movers that utilized fossil fuels to run vehicles and power generation equipment. Was it fun? Yes, I took a few things home that I can call good experiences. But as a steward of society and going forward into increasingly challenging times with our energy issues, I wonder whether it is time to think about steering my career in other directions.

I've been thinking about this matter quite holistically for sometime, but in effect its like riding a see saw. Your career aspirations change with the tides of time and I'm just about thinking whether I need to stop see sawing and hop off and focus on something that brings a sort of existential element to engineering. Atleast now, I feel like things are clear to me over the horizon.

The GCC region in which I'm currently based as an engineer maybe enjoying its time of substantial oil/gas reserves but the key question is - are revenues from exports guaranteed? I look at data everyday that tells me again that the United States has growing shale gas reserves. It will continue to enjoy a period of cheap natural gas for as long as the economics of production allow it.

I've been in the United States for 10 years. Even the average Joe has ideas, good ideas. What I mean is collectively, they are an industrious nation with ideas; sooner or later I'm assuming they are going to figure out a way to tap oil and gas from new unconventional reserves for lesser cost and reduce their import expenditures from OPEC. What makes you think that it won't happen?

How many more years has OPEC got to continue underwriting the market for fossil fuels? 10? 15? Ofcourse, you can say OPEC will tap into nations that transform slowly over time into net energy importers but internal growth within the OPEC countries is seldom stable. Far from the truth, as these emerging nations are going to be some of the biggest consumers of fossil fuels in the coming years. Past data is a future predictor.

The people of GCC countries have enjoyed subsidized energy for a long time. Many public welfare programs are made possible through the enjoyment of energy import revenues. Infrastructure development has gone on at the speed of sound, metaphorically. 40 years ago, the UAE was desert. Now its arguably at the center of the global map. People really want to come here you know.

Suppose OPEC loses its stronghold on the floor price of oil and hypothetically crashes to market pressures, I'm eager to know what GCC countries will do next?

Fortunately, countries like the UAE are strategic in their thinking, looking to renewables like solar and wind power to balance out their energy portfolio. This is going on world over. China, EU, U.S, Spain, Netherlands you name it. They're all looking to ride this new but thin line of renewables to buffer for uncertainties and venture into new cleaner technologies that just makes plain sense for the future. I mean, one of the things that really surprised me was that the headquarters for the International Renewable Energy Agency is based nowhere else but in Abu Dhabi! How is that for vision?

Nations don't like uncertainty. They certainly don't like a hit on their GDP. The world is operating in a time of Arab Springs, Anonymous hackers and Occupy movements. Surely that in itself is an impetus to do seek change.

If crisis management was ignored and nations went with the business as usual scenario, how in the world would we meet the estimated 100 million barrels of liquids the world could consume each day in 2020 from a realistic supply capacity of around 100 million barrels a day by the same time-frame? Beats me. On the other hand, the conservation approach makes total sense. What-if scenarios modeled by McKinsey & Company for eight industries is shown above.

This is why I have an earnest wish that countries would elect more engineers and scientists to its top government jobs. These are the people who can understand the exponential functions of a rising population and energy demand. They'll be able to understand various technologies and their development challenges and view them in light of policies, subsidies, funding. Armed with technical knowledge, I hypothesize that these are the people best poised to advice their bosses or make better decisions at the negotiating table on world stage.  

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