Sun sets on oil and gas dominance

The heat is on: As the Middle East faces a consumption crisis, solar is an obvious solution
Credit: ABB

The Middle East knows it has a consumption crisis and also knows what it is going to do about it. Following this month’s POWER-GEN Middle East in Doha, Kelvin Ross examines how the region plans to wean itself off hydrocarbons and introduce renewables and nuclear.

The Middle East is not so much at an energy crossroads but instead preparing to drive down an as-yet unbuilt power superhighway.

The region’s astronomical electricity consumption is well known, as is the fact that if left unaddressed, it will impact the region’s vast reserves of oil and gas, which are currently fuelling its power plants. The problem is not that these supplies for domestic use will run out – it is that there will be less of them to export, and the economics of that are stark:”In Saudi Arabia we burn oil for $4 and sell it for $100,” said a speaker at POWER-GEN Middle East this month.

A year ago, the talk at POWER-GEN Middle East was of the region’s consumption crisis: this year, much debate focused onࢀ¦ the region’s consumption crisis.

“The biggest challenge is meeting demand,” said Amer Alswaha, chairman of the IPP unit at Saudi Electricity Company, who added that electricity demand”is doubling every ten years.”

Bander Allaf, senior business development manager at ACWA Power in Saudi, added that the kingdom’s electricity consumption is 2.7-times the world average -“the equivalent of burning two million barrels of oil per day”.

In Saudi Arabia, 58 per cent of its installed capacity is gas turbine-based. By 2022 that will have fallen dramatically to 2 per cent, replaced by steam turbines and solar

The Middle East knows it has a consumption conundrum, however it also knows where the answer to it lies: renewables and nuclear.

What the region also has – for the time being at least – is the time to formulate an action plan, and then the economic clout to deliver it.

POWER-GEN Middle East
VIP visitors at POWER-GEN Middle East in Doha, Qatar. The event moves to Abu Dhabi in 2014

“The big challenge for this region is to plan ahead,” said Qatar’s minister of Energy and Industry, Dr. Mohammed bin Saleh Al-Sada at the official opening ceremony of POWER-GEN Middle East in Doha.

That planning is taking place across the region, with each nation forming a blueprint to meet rising demand while phasing-out fossil fuels and phasing-in low-carbon alternatives.

In Saudi Arabia for example, there is 19,170 MW of capacity under construction, with another 41,322 MW at various stages of preparation. Some 58 per cent of the kingdom’s installed capacity is currently gas turbine-based: by 2022 that will have fallen dramatically to 2 per cent, replaced by steam turbines and solar.

Solar produced in GCC countries will offer European countries the most competitive solution for their energy – better than building fossil fuel plants”

Bander Allaf, Senior business development manager, ACWA Power

Domestic solar industry

That the Middle East will look to solar power for part of its energy solution is a given, however it plans to harness photovoltaic (PV) potential on the back of a home-grown industry. For example, Qatar is already working on a pilot project that is expected to produce between 5-10 MW of solar power.

Saudi plans to unlock its massive solar potential and has set a target of 41,000 MW by 2032.”We can add value tomorrow with solar,” said ACWA’s Bander Allaf.

The appeal of solar is two-fold: firstly, and obviously, there is a lot of it in the Middle East, and secondly, renewables suit the summer-winter consumption swing in the region.

And if the power of solar in the Middle East can be harnessed and stored in abundance, the region is already looking to export some of the resulting electricity to needy European countries via projects such as Desertec, the renewables project already up and running in North Africa.

The scheme’s backers believe that two-thirds of MENA countries can be powered by the region’s abundant desert solar energy, with enough electricity left over to meet 15 per cent of European consumption.

“Solar produced in GCC countries will offer European countries the most competitive solution for their energy – better than building fossil fuel plants,” said Allaf.

If – or when – Gulf countries do establish their own solar industries, it is unlikely to be with the help of feed-in-tariffs (FiTs), a European model that appeared to have few admirers at POWER-GEN Middle East.”The feed-in-tariff structure can never sustain,” said Allaf. He believes the impact that revising FiTs has had on solar markets in the US, Europe and Japan was a warning sign.”Revising a FiT can have direct consequences, with too many companies disappearing.”

Nuclear know-how

Demand dilemma
Demand dilemma: The Middle East’s energy use was a hot topic of debate at POWER-GEN Middle East

However, it is with nuclear that the wait-and-see policy of many Middle East governments will really pay off. The Bushehr plant in Iran remains the region’s only operational nuclear facility, while the UAE launched a nuclear energy programme in 2009, which is proceeding apace.

Indeed, the UAE is considered”the model for expediting the nuclear new-build market in the Middle East” according to Rudiger Tscherning, director of the Energy and Environmental Law Center in Qatar.

He said the Middle East currently has the benefit of watching the successes – and more pointedly – the failures, of nuclear new build across Europe.

He singled out Olkiluoto 3 in Finland, which was due to be online in 2009 at a cost of $4 billion, but is currently mired in setbacks and as of this month was set to be completed in 2016 with a final bill of approaching $11 billion, but he could as easily picked EDF’s Flamanville in France which is also dogged by delays.

The Middle East would make a mistake of gargantuan magnitude if it did not look to nuclear power

Mike Waite, manager, International Business Development, Westinghouse Electric Company

He also noted that issues which have hit the UK nuclear sector in recent weeks – including British company Centrica pulling out of the new- build market and plans for a deep geological waste dump in England being rejected – highlighted the importance of long-term planning and the effect that its absence can have on investors.

Meanwhile, Mike Waite of Westinghouse Electric Company believes that the Middle East would be making a mistake of”gargantuan magnitude” if it did not look to nuclear power as one of the main solutions to its energy demand challenges.

He said almost every country in the Middle East and North Africa has expressed some level of interest in nuclear energy, ranging from 1 GW proposals to 50 GW.

Speaking in a nuclear-focused conference session at POWER-GEN Middle East, Waite added that despite the concerns following the Fukushima disaster in 2011,”nuclear makes as much sense today” as it did then.”Nuclear is several times safer than renewables, 100 times safer than gas and 1000 times safer than oil,” he claimed.

One country going in the opposite nuclear direction to the Middle East is Germany. Almost two years on from the start of its Energiewende – or energy transition – from nuclear to renewables, Lothar Balling, executive vice-president of gas turbine solutions at Siemens, was in Doha to offer an update of where Germany was in shaping its new energy landscape.

Was the Energiewende a role model or a disaster?”A bit of both,” according to Balling.”It was a very public decision and it was not thought through,” he said.

With that in mind, he was asked by Emad Ragaban, business development consultant at Saudi Aramco, if he really believed that Germany would hits its target of renewables providing 80 per cent of its total capacity by 2050?

The answer was a resounding yes, but there is no chance of the Middle East looking to Germany and deciding to shun nuclear. Instead it will bide its time, see which reactors are delivered successfully and also, crucially, be ready to seize the opportunities thrown up by developments in Asia’s nuclear market, which is advancing at breakneck speed.

Tough for contractors

Bushehr power plant
One and only: Bushehr power plant in Iran remains the Middle East’s sole nuclear facility – a situation sure to change
Credit: WANO

If there is one certainty about the Middle East power sector at the moment, it is that it is a buyers’ market.

The considerable challenges of developing power projects in the region were highlighted at POWER-GEN Middle East by senior players in the sector.

Ian French, vice-president of business development in the Lower Gulf region for Siemens, said that”life is tough for contractors in the GCC” because of the number of firms competing for business.

He said as well as EPC giants such as Siemens and Alstom, there were also contractors from the US, Turkey, Spain and Greece trying to break into the market.”More and more people are chasing less and less business,” he said, adding that the picture was equally bleak for developers.”The good days have gone.”

The Gulf nation offering the most opportunities is Saudi – the”shining star of IPPs” according to Hemmat Safwat of Greek firm Consolidated Contractors Company – while in the wider Middle East there are strong opportunities in Iraq, but that was a country for”the brave developer” said French.

Cherry-picking the best

The Middle East is sitting between the established European energy market and the fast-developing power sector in Asia, and is poised to cherry pick the best from both regions to establish its own security of supply.

Sarah Fairhurst, a partner at Hong Kong’s Lantau Group, told POWER-GEN Middle East, that”the Middle East can leapfrog Asia and sustainably grow into the future”.

Yes, the Middle East has a consumption crisis, but the region will not be forced into knee-jerk solutions. It is taking its time to pick a suite of technologies that, with solar, play to its geographic advantages and can offer home-grown industries, and with nuclear give it the options of choosing the best-in-class from around the world.

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