The oil industry is starting to experience a shift in supply and demand distribution.
Many oil producers, particularly nations in the Middle East and North Africa, are beginning to develop. Citizens are demanding a higher standard of living, energy demand is growing, and domestic resources are stretching thin.
Saudi Arabia is an example of this. Currently the world's largest oil producer, the Middle Eastern nation is feeling the change in dynamic as demand grows. Even the IEA has predicted that the United States will surpass Saudi Arabia's production level in under a decade.
The same is true for other nations as well. When OPEC producers are not struggling to keep up with supply due to geopolitical tensions, their issue is with domestic demand.
But oil and petroleum resources aren't the only options these nations have for energy consumption, nor are they necessarily the cheapest.
Brent crude, the European benchmark, on average sells for more than $110 per barrel. And even though these producing nations have the advantage of subsidized prices, Bloomberg reports that a barrel will still cost them an average of $90 per barrel.
The cost isn't low, particularly for these nations that receive a large portion of their revenues from oil exports. And when they consume the product they rely on selling, the overall cost is much higher.
But First Solar (NASDAQ: FSLR) and Abengoa SA (MCE: ABG) see opportunity for another type of power in the regions. The renewables companies believe solar power, at its now low cost, could hold a great deal of promise in the Middle East and North Africa.
First Solar is a producer of photovoltaic cells, which have plummeted in price recently. The cells and the panels they're built into convert solar power into electricity on contact.
Abengoa's tactic is slightly different with its concentrated solar power (CSP) plants. These plants, which cost slightly more than photovoltaic cells, use mirrors to focus sunlight on a liquid inside a turbine, which turns when the liquid is heated into steam.
And though CSP plants cost more, they're more reliable than solar panels, which can only produce electricity during sunny hours. CSP plants, on the other hand, can make use of natural gas or other sources when the sun isn't out to keep the turbine moving.
But both would bring opportunity to the Middle East and North Africa. Both could reach parity with the prices these oil producers currently pay to consume oil. But they would also allow the nations to send that oil back into their exports.
“The Middle East and Africa are areas where we see opportunities in the short term,” Abengoa Solar Chief Executive Officer Santiago Seage said in an interview the same day. Abengoa Solar's CSP facilities are well suited to the region since gas is available to help run turbines at its plants, boosting generation capacity and allowing for potentially constant supply, he said.
First Solar, one of the few U.S. makers of photovoltaic cells that withstood the price plunge, still took a hit.
But to fix the downtrend, the company has begun to refocus its business on power plant production. Its plants are made for utility use – a big step from its previous business model of just solar module manufacturing.
The company believes oil producing nations overseas could benefit from these types of power plants, and it's noticed higher demand internationally.
Abengoa SA, a Spanish company, has already started projects in these regions. In Abu Dhabi, its Shams 1 power plant is capable of producing 100 megawatts of power. It's also working on closing two deals in South Africa.
First Solar has gained over 100% in the last six months.
That's all for now,
Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.