Maximising oil exports from the GCC will hinge on the region importing more gas, the Scottish consultancy Wood Mackenzie says. Wood Mackenzie has belatedly realised what makes Gulf residents hot and bothered: a lack of gas to power air conditioners and electric fans. Calling the situation "ironic" in a region with the world's biggest concentration of crude oil and natural gas, the firm concludes that leaving the situation as it is would result in 1.5 million barrels per day (bpd) of oil being diverted from the export market by 2030 to meet regional electricity demand.
"For countries like Saudi Arabia, this would have significant ramifications on economic growth," it said in a recent report entitled The Arabian Irony - Increasing Imports to Maximise Exports. This is not news to the Abu Dhabi officials who laid the groundwork for the UAE's nuclear programme three years ago; the Omani leaders who in 2008 proposed building the region's first coal-fired power plant; the Kuwait authorities that imported liquefied natural gas (LNG) from Russia last year; or the Dubai residents who in 2005 warned of worsening regional electricity shortages after a citywide power cut.
A proposal to create a GCC-wide electricity grid for sharing power to avoid shortages also dates back to 2005. The project is nearing completion but is unlikely to resolve the region's growing gas and power shortages. But the Wood Mackenzie study presents what may be the most detailed analysis to date of the effects of inaction. According to the company's forecast, the GCC is on track to commission 39,000 megawatts of new oil-fired power generation capacity by 2030, more than doubling domestic oil demand from 2008 levels unless the region diversifies its energy sources.
The 1.5 million bpd cost from foregone oil sales exceeds the crude exports of Qatar, an OPEC member. Those reached a record 1.38 million bpd in 2008, before OPEC cuts, and brought the emirate about US$46 billion (Dh168.82bn) in foreign revenue that year - more than twice the GCC's $19.6bn consolidated fiscal surplus last year. "Importing energy and fuel switching to non-oil alternatives within the power sector offers a credible solution to overcoming the gas constraint, whilst maximising oil exports," Wood Mackenzie suggested.
That means the UAE's nuclear programme is on the right track, despite its disadvantages of requiring a long lead time and high construction and maintenance costs. Wood Mackenzie predicts the nation will commission its first 2,000mw of nuclear capacity by 2020, representing about a tenth of the total atomic power envisaged in its programme. The consultancy also reported that, as of last February, Kuwait had a long-term option to import LNG, while Dubai would start importing the fuel to support peak summer electricity demand later this year.
"The development of shale gas in the US will free up LNG that was previously destined for the US for other markets - Arabia being the prime candidate," it said. While not ruling out the possibility of coal-fired power plants in the GCC, Wood Mackenzie said they would not be the most economical long-term solution for the region due to problems with the security of coal supply and the low cost competitiveness of imported coal compared with alternative fuels such as gas.
Nevertheless, the firm predicted Oman would start importing coal in 2014 and would build 6,350mw of coal-fired power capacity by 2030. The consultancy was guarded in its assessment of renewable power development in the GCC. "There is currently no large-scale commercial solar, wind, geothermal or tidal capacity operational within the region. "Solar is a suitable option for every country within the region but it will be insufficient in terms of electricity generation potential to meet rising demand."
Wood Mackenzie said it expected oil and gas to remain the primary fuels consumed by all sectors of the GCC economy, with no substantial introduction of other energy sources to the market until at least 2014. "The period over which the regional gas constraint remains in place remains uncertain," it added. Unpredictable scenarios that might eventually remove the need for regional fuel switching and LNG imports, according to Wood Mackenzie, included: the development of large-scale Iraqi gas exports; the expansion of intra-regional energy trade; or a sharp increase in the market value of gas, making it more profitable to export the large gas volumes that are currently injected into ageing GCC oilfields to push out more crude.