What? No more oil? How will we find our way at night? How will we heat our homes? Will we be doomed in eternal darkness? These were common apprehensions raised in the middle of the 19th century - and also by many of those gathered in Davos last month.
The oil in question in the 1850s was not today's black gold but the sperm whale's, which had fuelled the world for more than a century. At a time when whale oil was running threateningly low due to over hunting and with coal becoming increasingly expensive, people were in search of a substitute to supply the energy that sustained their societies. But 1859 marked a new era when Pennsylvania crude was haphazardly found to be useful. Driven by John D Rockefeller later that century, the oil race soon began.
Not only was it cheaper than its counterparts, but being a heavily concentrated source of energy, it was also more efficient and easier to transport. Most, if not all industrial processes, began to structure themselves around the use of oil and access to it. Oil has been the cause for some of the most radical economic and political transformations in human history. Of course, had it not been for oil, the Middle East would not be of such global importance and a focal point for tensions, nor would the economies of the Arabian Gulf have grown so quickly.
Oil pessimists explain that given its finite nature, the world's growing reliance on oil could soon lead us into a cold, 21st century Dark Age. They are far from the first to believe that they are Cassandra. When Jimmy Carter was in the White House, he warned that the world's reserves would run dry by the turn of the millennium.
The "peak oil" frenzy of the 1970s has reared its head again. The world's increasing demand and a fixed, finite supply should have led us to a point of no return by now. So what happened?
The gross demand for oil has remained well below the amount of the world's oil reserves. In 1971, the demand for oil was at 49.4 billion barrels per year and world reserves were estimated to hold 521 billion barrels, according to the US department of energy. According to the theories of the oil pessimists, this would mean that the world would be out of oil in a little more than a decade. Instead of facing doom in the 1980s as the depletionists predicted, the amount of oil in reserves increased to approximately 700 billion barrels as demand increased. Since 1971, when reserves held 521 billion barrels, the world has consumed 900 billion barrels of oil, and today, reserves are currently at an estimated 1.36 trillion barrels.
As the petroleum geologist Peter R Odell put it, "if anything, the world is running into oil". Just look at last week's discovery of oil in Dubai. Estimating that only 1.5 per cent of the Earth's total physical resource base has been used since 1860, the Intergovernmental Panel on Climate Change (IPCC) declared that since fossil fuels are in abundance, they would not impose limits on carbon emissions during the 21st century.
Some may be inclined to buy into the pessimist's argument, and agree that increased prices are a sign of increasing oil scarcity. However, the flip-side of the phenomenon tends to go unnoticed. These higher prices give incentive for exploring new reserves, which in turn eventually push prices back down, according to the resulting new level of supply.
Nonetheless, environmentalists continue to wail about the effects of carbon emissions resulting from fossil fuel production. Alternative energy sources are proposed to derail the world's dependence on oil and on oil-rich nations.
We mustn't forget what makes the world go round: money. Oil's appeal is merely a matter of how it minimises costs. If alternative energies are to replace oil, it will be on account of their cheaper cost in production relative to others.
As the cost of alternative energy decreases and oil becomes relatively more expensive to extract, the transition will take place with reserves left in the ground. We won't run out of oil; it will just become obsolete. But that won't happen any time soon. Technology is improving but renewable energy still has a long way to go before it is able to compete with oil.
Besides, even if we were to entertain the arguments of the pessimists and assume their depletionist argument, we must not forget that necessity is the mother of invention. A century ago, who would have thought that so much energy could result from the splitting of an atom?
The same way oil replaced its predecessors 150 years ago, human ingenuity will find its substitute. This will not be motivated by the arguments of the depletionists, environmentalists, or politicians, but by the search for efficiency through the market.
Hanan Alawadi is a researcher for the Dubai Economic Council
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
MWTC
Tickets start from Dh100 for adults and are now on sale at www.ticketmaster.ae and Virgin Megastores across the UAE. Three-day and travel packages are also available at 20 per cent discount.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The specs
Engine: 4.0-litre flat-six
Torque: 450Nm at 6,100rpm
Transmission: 7-speed PDK auto or 6-speed manual
Fuel economy, combined: 13.8L/100km
On sale: Available to order now
MATCH INFO
Uefa Champions League semi-final, first leg
Bayern Munich v Real Madrid
When: April 25, 10.45pm kick-off (UAE)
Where: Allianz Arena, Munich
Live: BeIN Sports HD
Second leg: May 1, Santiago Bernabeu, Madrid
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
On sale: Available for preorder now
HOSTS
T20 WORLD CUP
2024: US and West Indies; 2026: India and Sri Lanka; 2028: Australia and New Zealand; 2030: England, Ireland and Scotland
ODI WORLD CUP
2027: South Africa, Zimbabwe and Namibia; 2031: India and
Bangladesh
CHAMPIONS TROPHY
2025: Pakistan; 2029: India
COMPANY PROFILE
Name: Qyubic
Started: October 2023
Founder: Namrata Raina
Based: Dubai
Sector: E-commerce
Current number of staff: 10
Investment stage: Pre-seed
Initial investment: Undisclosed