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By Jaber Mohammed Al-Sabah
Energy, the cornerstone of civilization, powers nations and fuels their economic engines. Nowhere is this more evident than in the Middle East, a region bestowed with an abundance of oil, gasoline and natural gas. These resources, exported to global giants such as the United States, China, the United Kingdom and Japan, have transformed the geopolitical landscape. This story of energy and influence began with George Bernard Reynolds’ discovery of oil in modern-day Iran in 1908.
In Kuwait, the narrative took a decisive turn in 1938 with the Kuwait Oil Company’s discovery in the Burgan field. By 1946, under the reign of HH Sheikh Ahmad Al-Jaber Al-Sabah, the tenth Amir of Kuwait, the nation proudly commenced its first crude oil export, marking a new era in the region’s history. Kuwait is now seen as one of the leading countries in oil production, with Kuwait’s oil reserves accounting for 8 percent of global oil reserves.
However, Kuwait’s oil and gas reserves are finite, meaning there will ultimately come a day when the country’s production levels reach naught. The finiteness of our domestic resources is a forewarning not only to diversify Kuwait’s economy for the benefit of future generations but also to export and sell today’s oil and gasoline and harness a renewable, consistent, and if sufficiently developed, superior energy source.
As Kuwaiti people, we are eagerly awaiting the policies on oil and energy the current Amir, HH Sheikh Mishal Al-Ahmad Al-Jaber Al-Sabah, will make following the passing of the late Amir of Kuwait, HH Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah. With his inauguration speech about his duty to eliminate corruption in Kuwait along with the appointment of Sheikh Dr Mohammad Sabah Al-Salem Al-Sabah as Prime Minister, a visionary, modernizer and ambitious political and economic leader, we can expect their Highnesses to be the main driving forces of Kuwait’s efforts for economic success, especially with their high expectations for the country and their avidity for Kuwait to return as the hub of Arabian trade and the epitome of a thriving Arabian economy, like our sister countries of Saudi Arabia, the UAE and Qatar.
However, this eagerness and determination by their highnesses does not come without challenges. One challenge is the current subsidizing of electricity in Kuwait to households, which carries an enormous burden on the economy, where the cost of electricity generation exceeds the price households and industries pay. Since the electricity generation cost is astronomically higher than what is paid for, it leads to an opportunity cost for the government, as there is no possibility for an increase in the price of electricity due to a suppressed subsidy and parliamentary regulations.
The main challenge and predicament in Kuwaiti energy consumption, however, is the opportunity cost set in the power generation itself. Kuwait’s primary power source is oil and natural gas, which could be exported. This opportunity cost is one of the leading causes of Kuwait’s decreasing GDP.
Furthermore, the ever-so-clear decrease in oil prices is a forewarning to the Ministry of Electricity, Water and Renewable Energy (MEW), that, in order to maximize economic efficiency in Kuwait, the correct consumption of oil for energy regulated by the MEW and the Ministry of Oil, in proportion to its distribution, is necessary. In the Kuwaiti Assembly’s analysis of ministries’ expenditure in the financial term 2022-2023 and its estimated expenditure for the financial term 2023-2024, the MEW was a standout as opposed to Kuwait’s 32 other ministries. The MEW has spent about KD 3.24 billion in the 2022-2023 financial term and has an estimated expenditure of about KD 4.1 billion for the 2023-2024 financial term, leaving the ministry with an expenditure increase of about KD 860 million and about a 27 percent increase between the two financial terms.
The MEW’s expenditure increase can be seen as a means to decrease oil dependence for energy generation in Kuwait’s power plants, specifically the Shagaya Renewable Energy Park (SREP). SREP has seen significant developments in its renewable energy generation sectors, mainly made up of photovoltaics (the conversion of light into electricity) and wind turbines, with its estimated capacity being 3.5 GW by 2040, an estimated 3.0 GW of which being generated from photovoltaics.
This estimation of SREP’s capacity by 2040 would save Kuwait about 8.8 million barrels of oil, “equivalent in the year 2040,” as the Kuwait Institute for Scientific Research states. This will alleviate Kuwait’s opportunity costs set by the subsidies imposed on electricity and the use of oil for energy, as these 8.8 million barrels could then be exported, which would be the start of economic strengthening in Kuwait.
According to the Energy Information Administration, “by 2040, the global benchmark Brent crude oil spot price averages $73 per barrel in the low oil price case, $136 per barrel in the reference case, and $230 per barrel in the high oil price case.” Kuwait’s oil produced within its domestic borders is usually about 10 percent more expensive than Brent crude oil.
This means Kuwait would save at least $640 million (KD 200 million) in the low oil price case, $1.2 billion (KD 370 million) in the reference case, or $2 billion (KD 615 million) in the high oil price case. The annual saving of oil and resources when SREP is fully commissioned in 2040 will eventually relieve Kuwait of its decline in economic growth, where its fluctuating GDP and lack of developments on infrastructure relative to other GCC countries could be improved.
This would be done by exporting the oil saved by SREP in addition to using the funds from the exportation of the saved oil to improve any lacking areas in Kuwait. Harnessing the sun could provide a brighter future for Kuwait, its economy, and most importantly, its people. Moreover, with the MEW’s many power plants developing renewable energy sources similar to SREP, we can expect today’s economic costs and losses to be mended by the decisions made by the MEW and Kuwait’s oil and petroleum companies tomorrow.
Furthermore, we can picture a more prosperous, developed Kuwait and, most notably, the revitalization of a geopolitically mighty Arabian Peninsula, where the implementation of photovoltaics partnered with oil spearheaded by Kuwait would lead the world.
