Towards Benchmarking Sustainability of the UAE Petroleum Industry

Introduction

Sustainability is a broad term encompassing the idea of being able to sustain oneself over a long period of time with a limited amount of natural, economic and social resources. In the light of the most recent climate changes that are considered by most to be caused by humans’ thoughtless waste management and excessive CO₂ emissions, the concept only grows in popularity. The adjective sustainable can be applicable to both humans, trying to reduce their annual waste and carbon footprint, and various corporations abiding by the same principles but on an industrial scale. The academic discourse around the topic often revolves around the so-called three pillars of sustainability: environmental, social and economic (Purvis, Mao and Robinson, 2019). In other words, corporate sustainability is a balance of the positive environmental impact, managing expectations of the community of people, both employees and customers, associated with the business, and trying to remain profitable.

In turn, any country with significant industrial development and resources, including the United Arab Emirates (UAE) and its petroleum industry, can be treated as an organisation. The UAE try to present themselves as a country who cares about the environment, stating that “By virtue of Vision 2021, the UAE is striving to diversify its income resources by moving away from oil” (The United Arab Emirates’ Government portal, 2022, para. 1). However, one can argue that such a large organization is not doing enough in terms of sustainable development when compared to its closest competitors like BP company and Shell. The former has announced “providing greater transparency on how its business is aligned with the Paris climate agreement”, while the latter “taking responsibility, over time, for reducing the net carbon footprint of the fuels it produces” (Sheppard, 2019). This paper will cover the existing academic literature on the UAE petroleum industry and benchmark the UAE regarding its sustainability progress and achievements on the merit of compliance with the three pillars of corporate sustainability.

Main Statement

The UAE and its petroleum industry do comply with the social and economic social pillars but lack in compliance with the environmental pillar. By managing UAE expenditures and energy intensity, investing in sustainable R&D projects, and gradually transitioning to renewable energy, the ecological footprint can be considerably reduced.

Literature Review

As mentioned in the introduction, the prime driving force of the current sustainability agenda is humanity’s concern with climate change and the potentially irreversible damage that it can cause. According to Hák, Janoušková, and Moldan, “transforming global society, environment and economy to a sustainable one is one of the most uphill tasks…. since it is to be done within the context of the planet’s carrying capacity” (cited in Mensah, 2019, p. 5). Therefore, companies are interested in promoting the image of sustainable awareness as it allows them to build trust with their consumers and further increase their profits. In order to achieve that, the businesses are expected to comply with various sustainable development goals (SDGs). Those can be defined and interpreted depending on the particular business, ranging from incremental steps towards social, technological and ecological transitions to tectonic shifts challenging the status quo of production and consumption (Scoones, 2020). Consequently, the UAE, being dependent on the rather unsustainable revenue stream from oil production and petroleum sales, aims to be perceived as a country with high levels of environmental awareness and tries to implement appropriate SDGs.

Moving forward, it is not only the public image the UAE is concerned with but also the potential competitive advantage in the petroleum market that the shift towards sustainable development can bring. To support this statement, Hermundsdottir and Aspelund (2021) argue that while sustainable transformation can require significant expenses, sustainability innovations do have a positive impact on firm competitiveness. In particular, the research done by the authors suggests that there is a long-term positive correlation between the implemented sustainability innovations and companies’ value creation, associated costs and non-financial assets. Furthermore, considering the potential environmental damage that can be caused by the petroleum refinery industry, Hasheminasaba et al. (2018) conduct research regarding the metrics of sustainability of such projects. The authors argue that “refinery projects are socially sustainable and environmentally unsustainable”, and that corporations often have to decide how to balance the two depending on the particular regional concerns (Hasheminasaba et al., 2018, p. 17). Hence, apart from minimizing the environmental damage caused by its petroleum industry, the UAE is focusing on and implementing sustainability innovations that benefit the economic and social pillars of corporate sustainability.

As far as the supply chain of the UAE petroleum industry is concerned, this is another area that requires efficient sustainable solutions in order to increase compliance with the environmental pillar of sustainability. Notably, Shqairat and Sundarakani (2018) study the agility of the UAE petroleum industry value chains along with various disruption, outsourcing and management strategies. The authors come to the conclusion that the UAE value chain “has moderate significant degree of supply disruption when outsourcing strategies in place that are synchronized with the overall management strategies” (Shqairat and Sundarakani, 2018, p. 1). On the other hand, Alawadi et al. (2019) argue for the positive effect of the currently implemented value chain analysis (VCA) and activity-based costing (ABC) techniques on the UAE petroleum industry. The authors suggest that smaller petroleum companies benefit from VCA and ABC more than large companies and highlight the importance of R&D for all organizations alike. Therefore, although the UAE petroleum industry implements competent practices and methods for value chain development, the results of those innovations are yet to come into full force.

In turn, the supply chain of the UAE petroleum industry can also be regarded in the context of a global sustainable supply chain which is a quite idealistic but extremely potent and promising concept. Moradinasaba et al. (2018) research the possibility of creating a sustainable competitive petroleum supply chain (SCPSC) that would minimize environmental damage and maximize profits. Moreover, Zhang and Yousaf (2020) build on the idea of SCPSC and propose a two-part tariff (TPT) system that would simultaneously allow global optimization of the petroleum supply chain and to mitigation of the environmental impact. TPT model is based on the assumption that “the retailer needs to pay a lump-sum fee to secure the lower wholesale price” and regards government intervention as a valid instrument for achieving SCPSC (Zhang and Yousaf, 2020, p. 11). In conclusion, the authors reiterate the ideas of Hermundsdottir and Aspelund (2021), saying that for the best possible results the petroleum industry should focus on green R&D and utilize the demand caused by the implemented sustainable improvements.

With regards to the technologies and sustainability initiatives, there is a pool of R&D projects that the UAE petroleum industry already employs as well as can potentially borrow ideas from. First of all, Rahmanifard and Plaksina (2019) review the application of artificial intelligence in the field of petroleum exploration and production (E&P) industry where numerous algorithms are used for various purposes including monitoring oil extraction and storage. Furthermore, Varjani et al. (2020) research the latest methods for the treatment of wastewater produced in the petroleum E&P processes, highlighting bioremediation – the process of detoxification utilizing microorganisms decomposing organic matter. Raya et al. (2020) explores the challenges of petroleum demulsification, stating that “major purpose is to speed up the interfacial film thinning process as well as impeding the adsorption of emulsifiers at the oil–water interface”. Finally, Avvaru et al. (2018) emphasize the importance of cavitation technologies for efficient petroleum extraction, predicting the widespread use of enhanced oil recovery (EOR) and ultrasound-assisted oxidative desulphurization technology (UAOD). As previously mentioned, while the UAE petroleum industry is at the forefront of adopting some of those innovations, there are some technologies, such as petroleum demulsification, that they are yet to perfect.

As for the social pillar, the concept of organizational culture directly affects the happiness of the workers which, in order, influences the productivity of the business. To begin with, Mazrouei et al. (2019) consider the significance of corporate culture in the context of safety in the UAE petroleum industry. The authors highlight the role of leadership to encourage a sensitive attitude toward safety measures at work. In other words, the leader sets the safety standards for the employees by promoting the agenda as they tend to follow the authority’s lead. The other important aspect of corporate culture, which is employees’ happiness, is examined by Al-Ali et al. (2019). The study shows that “happiness plays a mediating role between job satisfaction and employee performance and turnover intention” (Al-Ali et al, 2019, p. 103). It means that satisfied employees are more productive and successful whereas unsatisfied ones tend to quit the job. All in all, the given insights are vital for the UAE petroleum industry to provide beneficial results of the work as well as efficient safety measures.

With regard to the environmental pillar of the UAE petroleum industry, it is necessary to discuss the specifics of managing natural resources and elaborate on particular approaches to doing it most effectively. According to Mahmah and Kandil (2019), the price volatility in oil pricing influences not only the industry but non-oil enterprises as well. For instance, the study illustrates that the price fluctuation of petroleum resources “has a significant impact on banks’ liquidity, domestic credit and foreign direct investment” (Mahmah and Kandil, 2019, p. 77). This means that non-oil-related businesses can be supported as well as the overall growth of the UAE economy owing to the oil price shocks. In order to achieve the mentioned growth, Al-Hanshi et al. focus on the resource-based view theory that describes resourced as “‘Valuable’, ‘Inimitable’, ‘Rare’ and be able to draw on ‘Organisational support’ (‘VIRO’)” (2020, p. 1). The authors argue that whereas such characteristics as valuable and inimitable show the correlation with the competitive advantage, the other should be reconsidered as unique exploitation and timely availability to show more evolution. To conclude, by choosing to manage strategies and resources of the petroleum industry, the UAE is able to impact the whole country’s economy which makes it especially important to work on.

With respect to the economic pillar of sustainability, the UAE has successfully taken advantage of and invested the money produced by its petroleum industry for decades. Kalaitzi (2018) notes the bi-directional correlation between the increase in primary imports of the domestic petroleum industry and the economic growth of the UAE. Specifically, the author proves that the UAE investments in R&D and sustainability innovations do have an effect on the expansion of imports and vice versa. Faheem et al. propose a fiscal neutrality hypothesis with regard to the correlation between oil prices and the UAE public expenditures, stating that “determination of government expenditure and government revenue for long-run economic growth reflects a neutral” (2021, p. 2). In turn, the authors suggest that in order to mitigate the effects of oil price fluctuation, the UAE should continue the diversification of investments of the profit from its petroleum industry into other sectors of the economy. Hence, it can be said that the UAE does a successful job of managing the economic pillar of sustainability and will continue doing so by further investments of its petroleum industry’s oil money into R&D and other sustainability initiatives.

Whereas the combination of economic and social pillars is discussed in the UAE context, it is crucial to further elaborate on the environmental pillar. It is especially important for the UAE to prioritize sustainability as it is known as one of the countries with the most advanced economy. According to Modarress et al. (2020), despite the economical context of the UAE, the country experiences a significant ecological deficit. While the increase in GDP positively correlates with human development, there is an opposite correlation between UAE’s GDP and ecology. The authors claim that economic progress is actively stimulated with limited natural resources such as petrol and consider it a major problem for the country in today’s realities. It is explained by the absence of effective strategies in politics and economic sectors toward sustainability. “This has pushed the country toward the brink of ecological bankruptcy” argue the authors to emphasize the critical position of the UAE in terms of the environment (Modarress, 2020, p. 1). Overall, the UAE has an undeniably large economy but mostly ignores sustainable practices. It illustrates the dependence of the UAE on natural recourses that allow the country to re-evolutionize.

Finally, the ecological footprint of the UAE will be considered with regard to the country’s petroleum industry’s income and the adoption of renewable energy. In the most recent study by Shah and Dogan (2022), research has revealed the negative correlation between the increasing urbanization and energy intensity of the UAE and the levels of environmental pollution. However, the authors argue that “increases in the real income increase environmental pollution, while increases in renewable energy and advances in technology lower the level of emissions” (Shah and Dogan, 2022, p. 1). The article concludes by highlighting the importance of the UAE investing in R&D programs working on energy intensity management and renewable energy in order to minimize its ecological and carbon footprints.

Conclusion

To sum up, the UAE and its petroleum industry excel in supporting the economic and social pillars of sustainability but lag behind when it comes to the ecological pillar. The UAE government manages to successfully re-invest the money it receives from the petroleum industry to boost the country’s economy as well as to sponsor various R&D programs regarding sustainability innovations. However, there are plenty of issues that need to be dealt with, especially in terms of petroleum E&P, in order to minimize the country’s ecological footprint and enhance the support for the third sustainability pillar. Specifically, this can be done by further investments in sustainable R&D projects, the management of the UAE expenditures and energy intensity and gradual transformation towards renewable energy.

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