But the bad news for us is by the time this collapse in oil prices would hit the economies of the Middle East oil exporting countries decisively which is expected to happen soon, Pakistani overseas workers, most of who are employed gainfully in these countries would be losing their jobs in quick order seriously affecting the volume of annual inflow of remittances which has in the meanwhile been averaging around $20 billion annually and shoring up our balance of payments position significantly.
In the mid-1970s the steep escalation in world oil prices while opening up job opportunities for Pakistanis by the thousands used to more than neutralize the national income from remittances from overseas Pakistanis. This co-relation between world oil prices and inflow of remittances from oil exporting countries had remained almost unchanged until about 2013 when the prices started declining.
With Pakistani overseas workers losing jobs in the oil exporting countries because of economic compulsions in these countries following oil price declines the size of annual inflows of remittances would also shrink drastically neutralizing the gains expected to be accruing to Pakistani economy due to the anticipated fall in oil import bill. So we need to be looking for a way out from the impending economic crisis.
The main driver of the world oil price collapse is the so-called shale revolution. According to By David G. Victor and Kassia Yanosek (The Next Energy Revolution-Essay on Natural Resources July/August 2017 Issue of Foreign Affairs Magazine), starting around 2005, companies began to unlock massive new supplies of natural gas, and then oil, from shale basins, thanks to two new technologies: horizontal drilling and hydraulic fracturing (or fracking). These technologies have helped to make supply become much more responsive to market conditions, undercutting the ability of Opec to influence global oil prices.
He says that was just the beginning. Today, smarter management of complex systems, data analytics, and automation are remaking the industry once again, boosting the productivity and flexibility of energy companies.
These changes, according to him, have begun to transform not only the industries that produce commodities such as oil and gas but also the ways in which companies generate and deliver electric power.
"A new electricity industry is emerging-one that is more decentralized and consumer-friendly, and able to integrate many different sources of power into highly reliable power grids. In the coming years, these trends are likely to keep energy cheap and plentiful, responsive to market conditions, and more efficient than ever," adds Yanosek.
This is good news for developing oil-importing countries like Pakistan. They would do well to keep a close watch on these developments and adopt the new systems as they become available so as not be left behind once again.
The author of the essay under discussion points to three trends driving the new energy revolution: smarter management of complex systems, more sophisticated data analytics, and automation.
Smarter management of complex systems, according to him is also reshaping the electric power industry. For decades, centralized, base-load energy generators-mainly coal, nuclear, and large hydroelectric plants-dominated the industry. But in the last two decades, governments have subsidized wind and solar energy and pushed them into the electricity system, in the hope of diversifying their countries' energy sources, creating new jobs, and reducing emissions. Until recently, these new sources were too small to have much of an effect on the overall system.
Today, however, as the cost of renewables is plummeting and their share of the power supply is rising, they have begun to transform electricity markets, says Yanosek and adds that in Germany, wind and solar power account for almost 30 percent of the power mix; in Hawaii, they account for about a quarter.
Traditional utilities are said to have struggled to adapt. In March this year grid operators in California are said to have shut down 80 gigawatt-hours of the state's renewable power because the grid couldn't handle the afternoon solar surge; without more capacity to store power, even larger curtailments are expected to occur.
In Texas, among many other places, for example, prices are said to occasionally turn negative when the wind is blowing hard but people don't need too much electricity-in other words, companies are said to be paying customers to use the electricity they generate. Utilities that have failed to see these changes coming are said to have floundered.
Renewables are said to be just one part of this transformation. In the coming years, according to experts, utility companies may face an existential challenge from smaller and more decentralized energy systems known as "microgrids." Microgrids, according to Yanosek, first emerged decades ago, driven by customers, such as the US military, that prized reliability above all else and that did not mind paying more for it: military bases have to keep functioning even if the bulk power grid failed.
Early adopters also included remote communities, such as in Alaska, that are far from the conventional grid. But now, microgrids are spreading to other places, such as university campuses and hospitals, where they generate reliable power and are often designed to save money by using waste energy to heat and cool buildings.
New technologies, such as fuel cells and battery storage systems (to store extra power produced by renewables), along with more sophisticated software, are said to have led to even smaller systems called "nanogrids," which Walmart and other megastores have begun to adopt. And picogrids are said to be next.
As more and more people rely less on the traditional grid for power (while still interconnecting with it to help ensure reliability), policymakers and companies are increasingly feeling the need to create new regulatory systems and business models.
The second major source of innovation, according to Yanosek, is better data analytics. Oil companies, for example, have begun to use complex algorithms to analyze massive amounts of data, making it easier for them to find oil and gas and to manage production. In April 2017, for example, BP announced that, using these methods, it had identified another 200 million barrels of oil in an existing field in the Gulf of Mexico. According to BP, data crunching that used to take a year now takes just a few weeks. And cloud processing is said to make it possible to generate millions of scenarios for developing an oil field. When firms can evaluate more options, production from fields can rise by five percent, with a 30 percent cut in the investment required to drill holes and begin producing oil.
The industry is said to have also begun to use data analytics for "predictive maintenance," reducing unplanned downtime by analyzing historical data to predict equipment failures before they happen. This practice is said to be helping cut costs on oil and gas rigs, where compressors and other rotating equipment can cause costly interruptions when they fail.
The third and most important trend is said to be automation. In remote offshore oil fields, robots are said to have already begun to perform dangerous tasks, such as connecting pipes during drilling operations, a job traditionally carried out by the versatile workers known as "roustabouts." Soon, intelligent automated systems are expected to enable remote drilling, controlled almost entirely by a handful of high-tech workers in onshore data rooms hundreds of miles away. At the moment, offshore oil rigs typically employ 100-200 workers, a figure that could fall.
Quoting a McKinsey study, the author of the essay says that within ten years, oil and gas companies could employ more data scientists with PhDs than geologists.
Automation is said to have already changed the power industry, where smart meters have all but eliminated manual meter readings. In the future, automation, along with better data analytics, will make it easier to manage the variation in supplies that comes from using renewable sources such as wind and solar energy and more complex, decentralized grids.
The grids are also becoming more reliable. The inability of grid operators to understand what is happening in real time plays an important role in many power outages; automation and improved human-computer interaction is expected to make blackouts much rarer.
Already, huge benefits from the technology revolution in energy are said to be reaching consumers. The 92 million barrels of crude oil that the world economy consumes every day costs about $2 trillion less annually than that amount did a decade ago. In the United States, the energy revolution has helped sustain economic growth: from 2008 to 2014, lower prices are said to have saved the average household over $700 a year. The era in which energy policy focused on the security of raw resource supplies-access to barrels of crude oil, tons of coal, and volumes of natural gas-is said to be over. Today, the task for policymakers is to manage the implications of a new world of cheap, plentiful energy.
It is about time that Pakistan set up a cell of experts in the public sector to glean from this technological revolution and put to beneficial use the knowledge gathered. We could invite Pakistanis with the right kind of expertise employed in decision-making positions in related international corporations and teaching related subjects at reputable academic institutions to man this cell.
Copyright Business Recorder, 2017