Friday
Jun102011

The UAE Petrol Shortage

Petrol has been this week’s number one news topic in the United Arab Emirates. Not the rising international oil prices, nor the failed OPEC meeting behind them, but events at the local pump. For the third time in a year, petrol stations across the northern emirates have faced supply restrictions and many have sold out. According to the official explanation, "upgrading work" in Dubai, Sharjah, Ajman, Ras Al Khaimah, Fujairah and Umm Al Quwain is the cause. These emirates, where around two-thirds of the population lives, also happen to be the ones that together own 6% of the federation’s oil wealth (while Abu Dhabi owns the rest).


On the federal front the shortages may lead to yet another behind-the-curtains power struggle between the increasingly wealthier emirate of Abu Dhabi and the increasingly resource scarce rest. They are also a symptom of something deeper. Throughout the Arab Middle East -- with Qatar as the exception -- the economic limits of natural resource wastage have now been reached (environmental limits, on the other hand, have long since been crossed). In the Gulf monarchies there may still be oil left, but there is a shortage of natural gas,  a precious resource burned for absurdly wasteful water and power consumption. Action of course is a different story.


Observing the petrol shortage reporting unfold, I remembered a conversation with my doctoral thesis supervisor on natural resource consumption patterns in the Gulf. I had argued that, due to the harsh climate, high energy and water use, to some extent, was a precondition for life in this region. My supervisor pointed out that it is not just any kind of life, but in many cases a very opulent one. It's not that Gulf residents shouldn't have their air conditioning, desalinated water and four-wheel drives. Western consumption patterns aren't all that different, by comparison. In my home country of Finland, we very much like our +23°C indoors during wintertime. Due to the sparse population, a car is still the choice of most metropolitan area commuters despite the existence of a top-notch public transportation system.


The problem is mindless waste. You can't really blame people when a litre of petrol costs 32 euro cents and water and electricity are provided either free or almost free of charge. Societal structures and urban framework are also to blame. Buildings leak heat like sieves, and people inside are forced to nearly wear thermal underwear due to the automated air-conditioning that is invariably set too low. (This is something I never understood: who is this magical White Witch in charge of setting the temperature at +15°C in all the buildings?) A colleague working in Qatar told me about an office where people bring their own personal heat radiators to work.


Water conservation, until recently, has not been tangibly encouraged: awareness campaigns, home-installed saving devices, incentivising and educating farmers (who use up the groundwater), even symbolic fines, are mostly new measures. I won’t even begin with irrigation of grass in the desert-like conditions.


Public transport (with the exception of the Dubai metro) has had a bland start, compared to the speed with which other changes occur in the emirates.  Much like it is in the US,  the car is still king and no self-respecting resident would suffer the multiple discomforts of a crawling bus journey.


Recycling, at least, has raised its head. In Abu Dhabi, the government's rising environmental awareness has coincided with a situation in which waste mountains and neglected hazardous waste dumps across the country are getting out of hand. This has prompted the government to start working on proper infrastructure and turning recycling into a profitable business. Not a bad idea.


Money matters, and many Gulf Cooperation Council consumers have so much of it that, in financial terms, cutting natural resource subsidies wouldn't be a big issue. For the governments, however, it could make a difference: with current oil prices, for each litre of petrol sold, the UAE government loses 1.7 dirhams (0.32 euros). At daily consumption rates of five million litres, this translates to over half a billion euros a year. There are a lot of cool, green things the government could do with this - building another 100 MW solar thermal plant or enhance the public transport system, for example. Higher petrol prices also curb consumption, and save even more oil for export.


Then there are the problems of achieved benefits and peer comparisons (so much cheaper in Saudi), as well as the Arab Spring. So for the time being, the near term stability-seeking UAE government is set to continue business-as-usual with its subsidy policies. Nevertheless, it will be interesting to see how the current pump crisis is solved. As in previous years, the summer is also expected to bring along power shortages in these very same northern emirates.


In a way, Abu Dhabi’s resources are a curse, since it will be the one paying for the new demand and capacity expansions in its neighbouring emirates (one billion euros were already pledged in March this year). But since there is no such thing as a free lunch (or air-conditioning), the ride ahead will be bumpy as Abu Dhabi starts seeking compensation.

Reader Comments (2)

The article ignores the shortage of refinery capacity in UAE and the need for Dubai suppliers to source supplies on the open global market, hence paying market price and absorbing the loss between that and Government imposed pricing at the pumps.

Not too sure how Nationals and Expats would react if market prices were to rule.

Jun 11, 2011 at 5:52 | Unregistered Commenter@rupertbu

Another advantage to reducing gasoline subsidies is having less reckless driving on the roads and less traffic accidents and jams!

Jun 11, 2011 at 6:23 | Unregistered CommenterNedal Alomari

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