Natural Gas: Powering the Dubai Overshoot 47 comments
- Gregor Macdonald's articles on Seeking Alpha
- Visit: Gregor.us
- Gregor's Premium Newsletter
an article to
-
Font Size:
-
Print
- TweetThis
You’ve seen the before-and-after pictures, like a Vegas slug of glass rising in the desert. And, you’ve read the stories about indebted foreign workers leaving their Range Rovers behind, as they flee. Perhaps you’ve seen video of the indoor ski arcade? Or, caught the gaze of the photographer’s eye on the poor, underpaid migrant workers constructing the Burj Dubai. Welcome to today’s obligatory Dubai blog post. Brought to you courtesy of some very hot, sovereign default action as the UAE’s most glittery city announced overnight a request for a stay on debt payments from Dubai World. How could a country so rich in energy resources have gotten itself into such a mess?
It’s generally assumed that just about every Mid-East oil producer is a big, net exporter of oil and while that’s also true for the United Arab Emirates what’s worth noting, or retelling today, is the means by which the UAE, principally because of Dubai (an Emirate within the UAE), started to become a net importer of natural gas. Let’s start with a chart of electricity demand (click to enlarge).
As in the rest of the world, though primarily in Asia, the Mid-East is now finally in the process of transitioning away from using industrial diesel for its power generation–though in many cases starting from very high levels. You can understand why that practice lingered in places like Saudi Arabia for so long, when the cost of oil extraction was effectively near zero.
However, Saudi Arabia has now elected to build more NG fired power generation (and even adding Solar) and in places like the UAE, natural gas power generation has now become well established. But in a nice portrait of demand outstripping geology, the UAE now must import LNG to fund its parabolic growth in electricity demand. (part of that demand is also for water desalination). And this is despite the UAE’s very sizeable reserves of natural gas. Worse, at times the UAE has even had to switch back to oil-fired power generation, owing to infrastructural limits to the NG-fired portions of the power grid. This too offers an insight: it’s easier and faster to put up buildings and build roads than it is to develop oil and gas for production.
Now, let me just pause here and say one of the implications of this story that I really like is that human beings, universally, are overshooters. And the people of the UAE have now shown themselves to be overshooters in classic fashion. The UAE obviously looked at its considerable resource inheritance of oil and gas and then got about the business of attaching as much possible debt to this wealth and future growth as the world could stomach. This is yet another example of an infinite debt philosophy on both the part of the borrowers, and the lenders. And by the way, if you think humanity is going to collectively decide to build sustainable, low-growth economies on a voluntary basis then I say dream on. We’re all overshooters now. (this post continues below the theoretical street level limits of the Al Burj, the not-yet-built rival to the now completing Burj Dubai).
To get the latest data on the UAE’s thirst for LNG, I had to go to the CIA Factbook as the EIA in Washington currently has nothing but a hole to show, for all 2007, 2008, and 2009. I should also mention that Jeff Rubin when he was at CIBC was among the first to really highlight the structure of domestic energy demand among the Gulf State oil producers. You can read a July 2008 piece by Rubin here, just on this subject.
According to the CIA Factbook, the UAE in 2008 “only” consumed 18% more natural gas than they produced. Now, it’s probably the case that when the data arrives for 2009 on UAE total energy demand we’ll see some form of a crash in electricity consumption. Perhaps in the next few years the great Dubai buildout will largely halt for a time and the Emirates will return to developing their natural gas resources. If the economy crashes hard enough, perhaps their NG balance could get back to even.
Finally, I’m thinking of another state that has to import a large amount of energy, has severe water problems on which it has to spend additional energy for conveyance and treatment, and is also in deep fiscal trouble. The State I’m thinking of has also overbuilt for many years, has an opaque government, and is hoping to be bailed out by its overseeing government. The state I’m thinking of now struggles with vast, empty housing stock. And, like UAE, has an enormous “sovereign-wealth fund” (actually a pension fund) that has suffered large losses. Oh, and this state is also filled with lots of overshooters who think there’s no limit to either physical growth, or the growth of debt. Name that state!
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,
as ranked by their peers-
1
User 353732
-
2
Moon Kil Woong
-
3
doubleguns
-
4
optionsgirl
-
5
Mayascribe
Top Commenters » -
1
-
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
That state overshot while handicapping the use of it's own, mostly plentiful resources. It abuses those resources, through overuse of autos and water. While imposing a stifling, extravagant and overpaid bureaucracy to administer their mistake-laden mandates and to screw up former success, notably education.
Dubai is more of a one-trick pony. The US and California have messed up in countless ways by never phasing out a failing bureaucracy, law or mandate and by constantly adding countless others. Not yet held back by reality, bailouts and public debts are increasing exponentially, one of the few ways the US and California still lead the world.
reality"................. Oil production, debt forgiveness, and
payment restructuring with rescheduling, will make this a large "blip" in the news down the road.................
For the full, sad, absurd story see:
www.cwsx.org/21darts.pdf
Just as Modesto, CA was the canary and the U.S. subprime mortgage CDS market was the coal mine in 2007.
Just as Pets.com was the canary and the Internet tech stock market was the coal mine in 1999.
If you think this is the beginning of the end remember...this is just the end of the beginning.
Government bond investors take cover.
On Nov 28 07:23 PM DeepValueLover wrote:
> Dubai is a canary and the emerging sovereign bond market is the coal
> mine.
Dubai hasn't defaulted, let's be clear about that. But it's worth asking WHICH ETFs or FUNDS hold Dubai in their portfolio(s)?
No "DubaiWorld" in Powershares' Emerging Markets Sovereign Debt Portfolio (PCY) nor Templeton Emerging Markets Income Fund (TEI) nor the intl equity SPDR DJ International Real Estate (RWX):
tinyurl.com/y8o2evc
tinyurl.com/ybmwusw
tinyurl.com/yjuvvln
So who got burned?
Interesting stuff about Dubai's LNG imports... very unexpected.
mazamascience.com/OilE...
> The state is California, but China meets a lot of those criteria
> as well... Overbuilt, imports energy, water issues (potable water
> anyway), opaque government, and seems hell bent on growth at any
> cost... They don't seem to expect a bailout, but I think the question
> of what they do think will come of what they are doing is a fair
> one.
>
> Interesting stuff about Dubai's LNG imports... very unexpected.
Yes you are right about those similarities between China and Dubai. BUT there is a major point of difference - China is a net creditor nation.
China allocates a high proportion of its GDP to investment in manufacturing and wealth producing infrastructure, which combined with unlimited cheap labor gives it its high growth rate.
And China suppresses consumer spending by (amongst other ways) artificially undervaluing its currency.
Gregor MacDonald is also a brilliant energy economist. I hope that he finds someone to lecture to, and if not he should buy a good soap box and head for his local park.
Incidentally, in the great world of neo-classical economics, Dubai is in wonderful shape. I've said why in some of my papers, but apparently my way of expressing myself isn't always appealing to the scholars in the cheap seats.
The other problem is the ruling class and senior businessmen trusted in the "consultants" who told them do not listen to people who question what we have suggested they are just jealous. The group that should be punished are the consultants who pushed them own toward projects that were both technically and fiscally irresponsible.
However the end story is playing out and Abu Dhabi were provide the "standby guarantee " to save Dubai and the banks from the trouble of non payment.
A curious situation since if you owe a bank money and try to leave DUBAI they put you in jail. I guess only the non Dubai citizens a will be penalized!
On Nov 29 08:55 AM lorddarley wrote:
> Gee, I wonder why a city without gambling and liquor doesn't take
> off as a playground for the region? I'll bet on Vegas.
Gregor, you are so far ahead of the curve, you are feeding back onto yourself.
Wouldn't it make more sense to capture and pipe this "waste" with
the wealth that Dubai had? Or convert that NG to electricity?
I guess we aren't the only dumb a**es when it comes to energy!
SLDI Newsletter - July 2009 - www.sldi.org/newServic...
...stressing the general unsustainability of current land development practices all over the earth...the film HOME makes the point about the need for sustainable land development best practices by comparing the failed historical example of Easter Island to modern day monument-raising practices around the world, culminating in the tallest building in the world in Dubai. The point is that history shows us that civilization has reached its current lofty perch before, only to collapse because of fundamental flaws in our understanding of the true relationship between humans and nature.
This unprecedented technological ability to transfer knowledge around the world now sets the stage for a quantum leap in global consciousness that will hopefully allow our civilization to avoid repeating the mistakes of the past while moving forward towards a sustainable future.
Your participation and comments are welcome.
Terry Mock
Executive Director
Sustainable Land Development International - SLDI.org
On Nov 28 06:41 PM Davewmart wrote:
> In an effort to avoid tackling the consequences of coming oil shortages
> and high prices, and to so over-estimate gas reserves that they are
> supposed to be the band aid which will fix everything, the authorities
> have now resorted to the same mark to fantasy standards which they
> have used to cover the disastrous financial losses.
> For the full, sad, absurd story see:
> www.cwsx.org/21darts.pdf