The Politics of Energy Policy in the Gulf Arab States: Shortage and Reform in the World s Storehouse of Energy

Transcription

1 The Politics of Energy Policy in the Gulf Arab States: Shortage and Reform in the World s Storehouse of Energy Jim Krane Cambridge EPRG presentation June 11,

2 Contents 2 Motivation and Overview Gulf Energy Consumption Dynamics Theory Research Plan Preliminary Results

3 3 3 The six Gulf Cooperation Council (GCC) states

4 Section 1 MOTIVATION and OVERVIEW 4

5 Overview GCC is expected to supply the world with hydrocarbons Regional consumption threatens that assumption Consumption is exacerbated by government subsidies Five of the six states are short of natural gas Three are importing now. Four soon. Five possible. Theory is pessimistic about reform So are prevailing opinions I want to ask: Why have the Gulf monarchies been unable to reform energy subsidies, even as rising domestic consumption threatens their exports? 5

6 Section 2 GULF ENERGY CONSUMPTION DYNAMICS 6

7 7 Saudi Arabia Depletion profile

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9 Kuwaitis pay 5% of electricity cost 40 Kuwait Electricity: Government's Cost vs. Consumer Price (MEW) fils per kwh Cost of electricity Price of electricity 9

10 GCC countries rank high among global subsidizers Per capita fossil fuel subsidies in USD 2009 (IEA) Fossil Fuel Subsidies by country and type, 2009 (IEA 2010) $3,000 $70 $2,500 $60 $50 $40 $30 $20 $10 $0 Iran Saudi Arabia Russia India China Egypt Venezuela Indonesia UAE Uzbekistan Iraq Kuwait Pakistan Argentina Ukraine Algeria Malaysia Thailand Bangladesh Mexico Turkmenistan South Africa Qatar Subsidy value (US$ bn) $2,000 $1,500 $1,000 $500 $0 Kuwait UAE Qatar Saudi Arabia Iran Turkmenistan Venezuela Libya Uzbekistan Iraq Algeria Russia Kazakhstan Ecuador Egypt Malaysia Ukraine Argentina Thailand Azerbaijan Oil Gas Coal Electricity 10

11 Section 3 THEORY 11

12 Rentier State Theory (RST) RST is the chief construct used to examine GCC regime behavior and state-society relations Useful macro-level explanation that remains surprisingly resilient Rents substitute for democracy in the social contract State unable to tax or extract from citizens (without triggering democracy quandary) Social contract won t allow it is frequent refrain in the Gulf Subsidies difficult to reform in autocratic no-tax context Theory and popular opinion (conveyed in survey results) holds that cheap energy is a right Legitimacy-versus-sustainability dilemma 12

13 90 80 Oil rents in GDP vs GDP per capita (World Bank) High oil rent in GDP High GDP per capita Low oil rent in GDP High GDP per capita % oil rents in GDP GDP per capita (USD) High oil rent in GDP Low GDP per capita Oil rents % of GDP (LEFT scale) GDP per capita (US$) (RIGHT scale) Low oil rent in GDP Low GDP per capita 13

14 Section 4 RESEARCH PLAN 14

15 Research objective Document evidence (or likelihood) of subsidy reform, especially on electricity delivered to citizens, in a way that confronts domestic energy demand Frame the results in terms of RST and expected regime (and citizen) behavior Contrast behavior of Gulf monarchies with that of other hydrocarbon exporters (including those facing depletion) This serves two purposes: To document attempts to preserve HC-export economic models To test Rentier State Theory 15

16 Datasets 1. Statistical Data: National and international sources 2. YouGov Public Survey: 800+ respondents - Status: Collection complete 3. Expert Elicitation 1: Predictions of energy policy - Status: Collection complete in Summer 2012; 82 responses 4. Expert Elicitation 2: UAE policymakers predictions - Status: Collection complete; 35 responses 5. Interview Data: Several dozen subjects in key sectors; four countries - Complete in Summer/Fall Focus Group Data: In-depth public attitudes in Kuwait and UAE - Two complete. A third may be attempted 16

17 Section 5 PRELIMINARY RESULTS 17

18 Expert Elicitation demographics* 124 Responses by Country; 79 Respondents who chose 1 6 countries UAE 38 31% Bahrain 5 4% Kuwait 20 16% Bankers 6 Academics 11 Journalists 9 Consultants 8 Economists 4 Government/Ministry 6 Regulator 1 Minister 1 Saudi Arabia 26 21% Qatar 22 18% Oman 13 10% Government (research) 2 IPPs 4 IOCs 3 NOCs 6 Analysts (Think Tank) 4 NGOs 4 Utility operators 4 *As of May EE is ongoing. 18

19 Expert Elicitation demographics II Are you a GCC citizen? No Yes Bahrain 0 0% Citizenship of 23 GCC respondents UAE 8 35% Kuwait 4 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% Oman 6 26% Saudi Arabia 3 13% Qatar 2 9% 19

20 20 EE results: Tariff hike by 2020? Will rising consumption trigger residential electricity tariff hike? (lower score=more likely) Will rising consumption trigger comm'l/industrial electricity tariff hike? (lower score=more likely) 7 7 1=Virtually certain; 7=exceptionally unlikely =Virtually certain; 7=Exceptionally unlikely Bahrain Kuwait Oman Qatar KSA UAE GCC 1 Bahrain Kuwait Oman Qatar KSA UAE GCC

21 EE results: Economic threat and oil price =Strongly agree; 7=Strongly disagree Does energy consumption growth threaten the economy? (lower score=stronger threat) Bahrain Kuwait Oman Qatar KSA UAE GCC Expert Oil price 2020 Ed Morse (Citibank) $51 - $100 Mehdi Asali (OPEC) $101 - $150 Mustafa Babiker (ARAMCO) $101 - $150 Mike Wood (Kuwait MEW) $101 - $150 Mohammed al-rumhy (Oman Minister of Oil and Gas) $101 - $150 Simon Williams (HSBC) $101 - $150 Caroline Bain (EIU Commodities Editor) $101 - $150 John Cunneen (Electricity Regulator, Oman) $151 - $200 Bruce Smith (Abu Dhabi Water and Electricity Authority) $151 - $200 Badr Jafar (Crescent Petroleum) $251 or more

22 22 Public Survey: Demographics Number of responses Public survey responses by country/ population Respondents by country population (m) population (m) 40% 30% 20% 10% 0% 35% 30% 25% 20% 15% 10% 5% 0% Public survey responses by age GCC Bahrain Kuwait Oman Qatar KSA UAE Income of public survey respondents (YouGov only) Bahrain Kuwait Oman Qatar KSA UAE GCC

23 Perspectives on subsidy rationale: Experts vs. the public Why did the government pay a portion of your electricity bill? 80% 70% 60% 50% 40% Why did the government pay a portion of your electricity bill (UAE)? 80% 70% 60% 50% 40% 30% 30% 20% 10% GCC citizens Experts 20% 10% UAE citizens UAE policymakers 0% 0% 23

24 Willingness to pay more for electricity (scenario 1, no explanation) How willing are GCC citizens to paying full electricity cost (EE and public survey) How willing are UAE citizens to paying full electricity cost (UAE policymakers and public survey) 60% 60% 50% 50% 40% 40% 30% 20% GCC citizens Experts 30% 20% UAE citizens UAE policymakers 10% 10% 0% Very willing Quite willing Neither willing nor opposed Quite Very opposed opposed Don t know 0% Very willing Quite willing Neither willing nor opposed Quite Very opposed opposed Don t know 24

25 Public Survey: Combined results Willingness to pay cost reflective tariffs under all three scenarios (GCC) Willingness to pay cost reflective tariffs under all three scenarios (GCC) 30% 30% % 25% % 15% Full cost only 20% 15% Strongly support Tend to support 10% 5% Full cost with explanation Full cost with compensation 10% 5% Neither support nor oppose Tend to oppose Strongly oppose 0% Strongly support Tend to support Neither support nor oppose Tend to oppose Strongly oppose 0% 2.30 mean 25

26 Arab Spring effects and sensitivity to citizen opinion on tariffs in UAE Have the recent events of the Arab Spring made the UAE government... (25 responses) More willing to raise electricity and water prices 1 Neither more nor less willing to raise electricity and water prices 9 Less willing to raise electricity and water prices 15 Text response: Frankly, much, much, more sensitive and less willing to raise prices or antagonize anybody, anywhere,at any time. From a policymaking perspective, how sensitive is the UAE government to citizen opinion on these issues? (26 responses) Not at all sensitive (government pays no attention to citizen opinion) Very insensitive Neither sensitive nor insensitive Very sensitive Extremely sensitive

27 Future orientation of the public vs. implications of current gov t spending Saudi citizen spending priorities versus experts' assessment of government spending UAE citizen spending priorities versus experts' assessment of government spending 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% Spend all now Spend most now, save little for future Spend half, save half Spend little now, save most Save all for future 0% Spend all now Spend most now, save little for future Spend half, save half Spend little now, save most Save all for future Saudi public Saudi experts (EE) UAE public UAE experts (EE) UAE policymakers 27

28 Expert assessments of government spending and citizen preferences for government spending do not match 60% 50% 40% 30% Omani citizen spending priorities versus experts' assessment of government spending Includes Oman's energy minister Future orientation: Citizen preferences vs expert assessment (lower score=spending focused on current consumption) 20% % % Spend all now Spend most now, save little for future Spend half, save half Spend little now, save most Save all for future Bahrain Kuwait Oman Qatar KSA UAE Omani public Oman experts (EE) citizen mean experts mean 28

29 Conclusion: Findings Theory RST is holding in GCC Arab Spring is buttressing it Governments more beholden than citizens Cracks are showing below the macro level The UAE most likely to reform (Dubai already started) Wide divergence among countries expected to act in unison The big question: Will the theory lose explanatory power before the demise of the Gulf rentier economies themselves? Upended by government reforms? Or by the end of the Gulf monarchies?

30 THANK YOU! QUESTIONS? 30

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32 32 Rising oil price needed to balance gov t budgets GCC 2012 breakeven oil prices (IIF) KSA Breakeven Oil Price (IIF) $120 $120 $100 $100 $80 $80 $60 $60 $40 $40 $20 $20 $0 BAHRAIN KUWAIT OMAN QATAR KSA UAE $

33 SUMMARY Quick Hits Citizens believe cheap electricity is their share of the national resource 2. Experts: UAE most likely to reform tariffs by 2020 (Qatar least) 3. Experts say Saudi Arabia faces direst economic threat 4. Experts more pessimistic about public acceptance of tariff increases than the public itself 5. Citizens more willing to pay cost-reflective tariffs when given an explanation 6. Arab Spring effects increased gov t caution 7. Citizens more future-oriented than experts assessment of government policy (albeit less likely to support CR tariffs)

34 Willingness to pay more (scenario 2: to preserve resources for export) 45% 40% 35% 30% 25% 20% 15% 10% Support rises Public Survey result: Willingness to pay full cost of electricity to conserve energy for export Strong opposition drops Kuwait Oman Qatar KSA UAE GCC 5% 0% Strongly support Tend to support Neither support nor oppose Tend to oppose Strongly oppose Don t know 34

35 Future orientation 60% How best to distribute resource benefits? (public survey) % 40% % % 10% % Bahrain Kuwait Oman Qatar KSA UAE GCC 2.00 Spend it all now Spend half, save half Save it all for future generations Spend most now, save a little for future generations Spend a little now, save most for future generations Mean (RH scale; higher = more future orientation) 35