Nigel Blackaby, Associate Editor
Over the last decade we have become accustomed to gas being the fuel of choice for the majority of new power plants being erected in the Gulf region. One of the exceptions has been in Saudi Arabia, where the availability of cheap oil and the need to direct gas to energy-intensive industries, has meant oil has often been the chosen feedstock for power projects. But now many other countries in the region are looking at alternatives to gas, which could well result in a much different fuel mix in the future.
The assumption that gas will always be available at relatively low and stable prices in the GCC countries and surrounding area no longer holds good. The competition for gas has intensified worldwide and although the Gulf is still a major producer, demand is now outstripping supply. There has been a growth in demand for natural gas worldwide driven by the need for many of the world’s power producers to increase capacity and meet tougher environmental regulation in pretty short order. Gas fired power stations are a quickest response to this.
Meanwhile, the Gulf’s gas resources are increasingly being diverted to their own industrial development as regional governments seek to diversify and bolster their industrial base, to a large extent with energy-intensive sectors like aluminium, steel and petrochemicals. Also, the temptation is there to export any available gas at high prices to a variety of markets around the globe, rather than use it for power generation at home.
Reports of potential black-outs in the UAE this coming summer due to a lack of available gas have brought into focus this issue and have resulted in Abu Dhabi opting for an oil fired unit for the expansion of its, currently entirely gas fired, Taweelah facility. Yet as recently as March this year the Abu Dhabi government was arguing that the cost of using oil as a fuel for power plants was considered too high. They are not alone in eschewing gas with Kuwait and Saudi Arabia also announcing new oil fired projects.
In some cases the decision to choose oil over gas has been driven by the absence of natural gas pipelines to bring the gas to exactly where it is needed. Despite the UAE’s very sizable gas reserves, the country must now import LNG to meet its gas needs. As gas markets tighten, the prospects for alternative fuels and technologies improve.
The pressure on gas supplies and a desire to diversify fuel supplies has prompted planners in the region to consider coal as another alternative. Despite the much higher upfront capital cost, the abundant supply and stable price of coal on the world markets make it an increasingly viable alternative. Oman, which has its own coal resources, is planning to build a 1000 MW coal fired power plant by 2015 and both Abu Dhabi and Dubai have investigated coal as an option for power generation. The emirate of Ras al-Khaimah plans to build the first entirely coal fired power plant in the UAE by 2012, using coal supplied by Indonesia while the fellow northern emirate of Ajman is working with a Malaysian power producer to develop a $2bn coal power project.
Longer term the region knows it cannot rely on fossil fuels for power generation, hence the flurry of interest in some countries, notably UAE, Oman, Egypt and Iran in developing a nuclear generation capability.
Not surprisingly, most countries in the Middle East are exploring ways in which they can exploit the renewable energy resources at their disposal, with the sun’s rays being the most obvious. The Abu Dhabi Future Energy Company (Masdar) is planning a 100 MW solar power plant as well as what it describes as the world’s first zero-emissions city. It is also looking to establish a manufacturing base for renewable energy technology in the Emirate. Saudi Arabia, Jordan and Qatar have announced similar plans and possibly the world’s most ambitious renewable energy initiative, the Desertec solar and wind power scheme, is being proposed for the Sahara desert, from where power generated will be transmitted across the Mediterranean into southern Europe.
Therefore there seems every likelihood that we will see a much more varied generation fuel mix across the Gulf region in the coming years. Coal is likely to feature as part of that mix, as will nuclear, although not for a few years yet. Renewable energy will be there far sooner, but its share of the pie is going to be fairly modest until technology is developed to scale up output from the plentiful solar resources. In the meantime, oil looks most likely to fill the gap left by reducing use of natural gas. This does not paint a very attractive picture as far as the region’s carbon footprint is concerned and with environmental impact fast moving up the agenda, this will present a significant challenge for those tasked with planning and implementing power policy in the region.