Companies Prepare for Post-Oil Future

For Nils Zimmermann, the pain threshold has already been exceeded. Zimmermann owns a parquet floor installation business in the Hamburg district of Bramfeld. He has 11 employees, and with the exception of the secretary, they are almost constantly on the road. He explains that his total gasoline costs came to about €30,000 last year, compared to costs that were about a third lower five years ago. "We had to think of something new," Zimmermann says.

At the beginning of the year, Zimmermann added an electric car to his company's fleet of vehicles: a refitted Fiat 500. The electric car costs him €4.50 per 100 kilometers, says Zimmermann, adding that his SUV is five times as expensive to operate. He plans to gradually phase out his other vehicles and replace with more fuel-efficient alternatives. "That's the future," says Zimmermann.

In many other industries, the transition isn't going quite as smoothly. High oil prices are a serious blow to airlines, for example. Lufthansa has already imposed a strict conservation program. The German airline's kerosene expenditures increased by €1.3 billion to €6.3 billion last year, and this year it expects fuel costs to go up by another €1.2 billion.

Indeed, skyrocketing energy costs are causing problems for the entire transportation sector, forcing freight forwarders, shipping companies and package-delivery businesses to recalculate their costs. For a company like the German postal service, Deutsche Post, with its 50,000 vehicles, each additional cent it pays at the gas station affects the bottom line by millions. Deutsche Bahn, the German national railroad, is another case in point. It spends more on energy -- €2.5 billion last year alone -- than any other German company.

Sticker Shock

The sticker shock is striking at the nerve center of the entire economy. Germany, with its broad industrial base and its flagship industries of car manufacturing, machine-building and chemical production, is more dependent on energy than any other country in the European Union. Germany's spending on oil has increased dramatically, growing by more than €23 billion within two years -- an increase equivalent to almost 1 percent of the country's gross domestic product. This translates into lower profits and less investment.

In addition, Germany, as the world's top exporting economy for many years, suffers more than most countries when shipping expenses become a significant cost factor again. The screws, sheet metal and other primary products that German companies buy on the world market are usually shipped by sea or air, and the finished products are then sold around the world. In times of three-digit oil prices, shipping goods halfway around the globe becomes prohibitively expensive, says Canadian economist Jeff Rubin. A former investment banker, Rubin expects to see a growing trend back to regional and location production. He predicts that our world "is about to get a whole lot smaller."

A world that is smaller in this sense doesn't have to be worse off. But there should be no room in it for those excesses of the international division of labor that are only possible because of a low oil price. An example is the shipping of crabs from the North Sea coast to Morocco, where they are shelled, and then transported back to Germany on trucks.

Cheap oil helped fuel globalization. More expensive oil would hardly stop it, but it might slow it down -- at least until the day alternative fuels replace fossil fuels. "Economic history teaches us that hardship sparks invention," says economist Rubin.

This is the alternative that would lead the consuming countries out of the fossil-fuel trap. The oil-producing countries, for their part, appear to be the winners at the moment. This spring, they were paid more for their mineral resources than ever before.

But easily earned petro-dollars have made countries like Russia, Venezuela and Nigeria corrupt and lethargic. The oil billions have not stimulated economic development. In fact, they have tended to achieve the opposite effect, because it didn't seem necessary to develop other industries.

Planning for the Long Term

So far, only a few oil and gas-producing countries are beginning to realize that they have to develop a broader base for their economies. The search is on for sources of affluence beyond oil -- even in countries like the United Arab Emirates, where reserves are still plentiful and could feed at least another generation. But what would happen after that?

Perhaps it has something to do with the country's Bedouin traditions that the Nahyan ruling family has even asked itself such a question. Those who have learned to survive in the desert have also learned to stock up and plan for the future.

About two-thirds of oil revenues in the UAE are saved, primarily through Abu Dhabi's ADIA sovereign wealth fund. With worldwide assets of $627 billion, the ADIA represents the largest financial cushion of any country, and is larger than similar sovereign wealth funds operated by China, Norway and Saudi Arabia. Where the other third of oil revenues goes, becomes apparent on the outskirts of Abu Dhabi.

The main building of the new Zayed University, with its curved, futuristic-looking roof, stands on the outskirts of the city. Abu Dhabi's leaders built the university as a place where a young generation of Arabs could study at a top international institution. Across the street is the lens-shaped headquarters building of the Aldar investment company, which operates the future financial center and various tourism-related projects. Beyond that is the Yas Island Formula 1 racetrack. Next to the racetrack, in the desert dust, construction cranes mark the spot where Masdar City, the ultimate showcase project for a post-oil future, is being built.

Masdar, the Arabic world for "source," is practically an alchemistic venture, where $22 billion dirty petro-dollars will be transformed into a clean, zero-emissions city, designed by British architect Sir Norman Foster. The new city will also be a center for research and production related to eliminating the fossil-fuel economy.

The students' powerful cars are in parked in the underground garage, but they reach the campus on magnetically controlled electric vehicles known as "pad cars." At the campus, a "wind tower" disperses cooling breezes, and the streets and alleys are designed to take advantage of shade and drafts, as in the traditional old cities of the Arab world.

So far, the project is little more than a showcase for visiting foreign leaders, a fig leaf for a country in which every tree has to be watered with artificially desalinated sea water. But the country is planning for the long term, as Masdar Capital invests in renewable technologies worldwide.

A company from the Emirates is producing solar modules in the eastern German state of Thuringia. Abu Dhabi is a shareholder in Gemasolar in Andalusia in southern Spain, the world's first commercial-scale solar power plant. It has also invested €120 million in the Finnish wind turbine manufacturer Winwind and, in a joint venture with the German utility E.on, is building the world's largest offshore wind farm in the waters off the Thames Estuary.

A 'Clean' City

Masdar may be geared to a time without oil. Nevertheless, this environmental utopia in the desert sand is highly dependent on the price curve. When oil prices collapsed after the 2008 financial crisis, the project had to be trimmed considerably.

The concept of a building that produces more energy than it consumes was abandoned, and the entire city was connected to the dirty electric grid. Instead of being referred to as "CO2 neutral," Masdar is now being called "clean."

Many German companies, including Bayer, BASF and Bosch, are involved in the development of Masdar. Electronics giant Siemens is building its headquarters for Asia and the Middle East in the experimental city. These are all companies that ran their businesses on the basis of fossil fuels for decades, and did very well as a result.

Now that conditions are changing dramatically, they are trying to turn adversity into a virtue.