Abu Dhabi is planning its first oil-fired power plant, a significant change in policy for the energy-rich emirate, which until now has been against the burning of liquid fuels for electricity generation. The move appears to confirm suspicions that gas allocations for power plants are becoming harder to secure in the UAE capital.

The change in policy follows similar decisions by other utility providers in the region, which have also turned to oil-fired power production in response to gas supply constraints.

Natural gas has traditionally been the feedstock of choice for power plants in the Gulf, as it is considered to be more efficient and less polluting than other fossil fuels.

But the economic diversification policies being pursued by governments across the region, which encourage investment in export-oriented, energy-intensive industries such as aluminium and steel manufacturing, and petrochemicals production, are now restricting the availability of gas for the electricity generating sector.

Faced with soaring demand for power, utilities are being forced to consider alternative fuel sources.

The Abu Dhabi Water & Electricity Authority is expected to issue a request for proposals for its planned Taweelah C power and water project by the start of next year.

Power industry sources tell MEED the plant will run initially on crude oil feedstock, with the option of using natural gas at a later stage.

Political decision

Although full details of the facility’s design have yet to be revealed, it is thought the facility will be a steam power plant with a capacity of 2,400-2,600MW of power and 55-60 million gallons a day (g/d) of water.

In March 2008, the UAE federal government rejected the idea of using liquid fuels for electricity production in a policy document  – Evaluation & Development of Peaceful Nuclear Energy – that outlined arguments supporting its plan to establish a nuclear power programme.

“While burning liquids was found to be logistically viable, evaluation of this option revealed that a heavy reliance in the future on liquids would entail extremely high economic costs, as well as a significant degradation in the environmental performance of the UAE’s electricity sector,” the document states.

The government’s most pressing argument for adopting nuclear technology is its looming gas deficit. The known volumes of natural gas that could be made available to the country’s electricity sector will be sufficient for only 20,000-25,000MW of power generation capacity by 2020. Forecasts made prior to the global financial crisis predicted that power demand in the UAE would exceed 40,000MW by then.

Although the UAE is making swift progress on the nuclear front, it is unlikely to be able to bring a plant on stream before 2017, by which time demand in the federation could have reached more than 35,000MW.

To prevent a power shortage, alternative fuels to gas and nuclear have to be employed in the interim. By its own admission, the UAE says that, even with aggressive development, the renewable-energy sector would only be able to meet 6-7 per cent of peak power demand, which leaves Abu Dhabi little option but to make use of its abundant oil reserves to fuel future power plants.

Limited supplies

It is a decision Kuwait and Saudi Arabia arrived at several years earlier. Kuwait has long been reliant on liquid fuels to produce its electricity, owing to its limited supplies of gas.

In 2005, natural gas accounted for just 20 per cent of feedstock requirements for power and desalination plants in Kuwait. Heavy oil, crude and gas oil comprised the remainder. The Electricity & Water Ministry says it expects to continue to rely on liquid fuels until the availability of new gas supplies is confirmed.

In Saudi Arabia, meanwhile, the Council of Ministers ruled in April 2006 that all future coastal power and desalination plants had to use heavy fuel oil as feedstock rather than gas. The western and southern regions already used liquid fuel for power generation, but the Eastern Province and central region used gas.

Although the utilities lobbied hard for the policy to be reversed, arguing that burning oil would lead to increased capital costs for new power stations and higher tariffs being charged by developers, the government insisted it made better economic sense for gas resources to be used to support export-driven industries, rather than heavily subsidised electricity and water production.

As a result, the projects launched since 2006 in Shuqaiq and Rabigh have both been oil-fired, combined-cycle power plants. The $4.5bn Ras al-Zour power and water plant, which is due to be tendered before the end of the year, will, however, be a gas-fired facility. The project has been merged with Saudi Arabian Mining Company’s (Maaden) power project to supply its aluminium complex, which has been granted a gas allocation.

Averting risk

The combined-cycle plant will have capacity of 2,400MW, while the desalination plant will have capacity of 226 million g/d of water. Maaden plans to take 1,350MW of power and 6 million g/d of desalinated water from the plant, leaving utility providers Saline Water Conversion Corporation and Saudi Electricity Company with the rest.

Oman has also included oil in its feedstock contingency planning. Oman Power & Water Procurement Company intends that at least one of its planned gas-fired, combined-cycle power projects will be designed with an option for continuous operation on diesel fuel.

Oman’s Oil & Gas Ministry has committed a gas reservation of 19.5 million standard cubic metres a day for power and water production. But in its 2009-15 forecast, Oman Power says its gas requirements will reach 20.2 million cubic metres a day (cm/d) by 2015, or higher. The sultanate is also planning to build a 1,000MW coal-fired power plant.

The UAE ruled out coal as an option in the document made public in March 2008. It states: “While the evaluation of coal-fired power generation established its lower relative price compared to liquids-fired power generation, its widespread use within the UAE would have an even more detrimental effect on environmental performance, while also raising thorny issues related to security of supply.”

The emirate of Ras al-Khaimah is keen to develop up to 4,000MW of coal-fired generation capacity, and Ajman is considering the findings of a feasibility study carried out by Malaysia’s MMC Utilities for a 1,000MW plant. Dubai has also taken a close look at coal as an alternative feedstock as the Dubai Water & Electricity Authority has been using liquid fuels to supplement its gas supplies.

Oil-fired power projects carry considerable disadvantages compared with gas-fuelled schemes. The initial capital costs of steam power plants are higher, due to the need for a boiler, and oil demands a more complex, and therefore more expensive, exhaust gas treatment system.

Steam turbines also tend to be less efficient than gas turbines, especially when employed in gas-fired, combined-cycle units. “An oil-fired plant will definitely cost more both in terms of up-front capital costs, ongoing maintenance and operating costs and fuel costs,” says Robert Bryniak, general manager of Abu Dhabi-based Golden Sands Management Consulting. “Capital costs alone are likely to be about 40 per cent higher because of the equipment requirements.”

Clearly Abu Dhabi would rather absorb this higher cost than run the risk of power shortages developing in later years or diverting gas away from its industrial projects.

By opting for a dual-fired boiler, it is also building flexibility into its power-generation portfolio, so that it can take advantage of fluctuations in oil prices or changes in the availability of gas.

“The Abu Dhabi government is being very intelligent in how it is approaching things and would like to set up plants in the right way, just in case there is a shortage in the future,” says Roy Dabbous, regional manager for the Middle East at Canada’s Hatch Energy. “Oil prices are low now, but if oil becomes expensive in future you can flip over to gas as feedstock.”

Matching electricity supply with demand has given utility providers across the region headaches over the past decade or so, but with competition for gas intensifying and supplies declining, the problem has intensified.

For now, trading one finite feedstock for another will suffice, but a wider portfolio of energy resources and power-generation facilities is the best solution for any utility provider to protect itself from over-exposure to one fuel source or supplier.

Until alternative energy resources become available, the policy of giving priority in gas allocation to industrial projects is a risky strategy.

Reliable power and water supplies are two cornerstones of the Gulf’s economic development, making power generation, rather than choice of feedstock, the priority for the region’s governments.