Gulf seeks entry to the atomic club

04 September 2009

Plans for shared, regional nuclear power plants offer a potential solution to the Middle East’s growing demand for energy, and would help to allay Western concerns over the use of uranium.

Despite being the world’s primary source of oil and gas, the GCC states have struggled to satisfy their own energy requirements over the past five years. A regional shortage of electricity has sparked debate in the GCC as to how best to meet this energy shortfall.

Faced with rapid urbanisation and booming population growth, electricity and water consumption is soaring. Over the past five years, annual electricity demand has grown by more than 15 per cent in some areas, prompting an unprecedented wave of gas-fired power station and desalination plant construction.

This has coincided with a concerted effort by GCC governments to diversify their economies through greater industrialisation, leading to a sharp increase in demand for gas for industries such as petrochemicals and aluminium. With most readily accessible gas supplies already allocated internationally or domestically, additional quantities for new power generation and desalination projects are difficult to come by, prompting governments to consider building non gas-fuelled power stations.

Growing needs

According to the UAE’s Electricity Ministry, the country only has enough gas to provide 20,000-25,000MW of electricity, but peak power demand is forecast to climb to 40,000MW by 2020.

In Oman, the Oil & Gas Ministry has committed 19.5 million cubic metres a day (cm/d) of gas for power generation and water desalination. But in its 2009-15 forecast, the Oman Power & Water Procurement Company (OPWP) says its gas requirements will reach 20.2 million cm/d or higher by 2015. Power demand is predicted to rise from 3,291MW in 2008 to at least 5,900MW by 2015.

Rather than sell gas to local utilities at subsidised prices, Gulf governments are increasingly seeking to sell it on the international market at higher prices, or allocate it to high-value, export-driven industries. In response, utility providers are being forced to introduce alternative fuels into their energy mix. Oman, for example, is considering building a 1,000MW coal-fired power plant. This would reduce its predicted gas requirements in 2015 by about 1.2 million cm/d.

In the UAE, Abu Dhabi is considering building oil-fired power plants. It has rejected the idea of coal on environmental grounds, although other emirates are pursuing this option.

Saudi Arabia already uses liquid fuels. In 2006, the Council of Ministers (cabinet) ruled that all future coastal power and desalination plants built in the kingdom must use heavy fuel oil or crude instead of gas.

Gas has long been the preferred fuel for power plants as it produces much lower nitrogen oxide emissions than oil. With the Gulf states already among the heaviest polluters in the world, relying on liquid fuels can only be a short-term solution if the states’ aspirations to improve their environmental ratings are to be successful. And since it is widely accepted that renewable sources will be unable to produce sufficient quantities of energy to meet the power demand in the region, nuclear energy has emerged as the only viable alternative to natural gas for power and desalination plants.

“Nuclear is very much on the agenda of most of the Arab states,” says Joseph Huse, partner at UK law firm Freshfields Bruckhaus Deringer. “The feeling is that gas is better off being monetised in other ways than giving it to consumers at subsidised rates.”

Each of the Gulf states has hinted at plans to set up a civilian nuclear energy programme over the past two years, signing co-operation agreements with the governments of countries that possess nuclear technologies.

The agreements have addressed issues such as the training of specialist personnel, tech-nology transfer and creating a legislative framework for a nuclear power industry. In May, Abu Dhabi signed an agreement with the US, securing expertise in building a civilian nuclear power industry. In January 2008, the emirate signed an agreement with France, which provides a framework for co-operation between the two countries.

Unsurprisingly, given its looming gas shortage, the UAE has made the most headway with its nuclear power plans. At the end of August, two bidders will be shortlisted for the contract to build its first nuclear plant, with the contract award expected to follow on 16 September. The UAE initially plans to build three reactors with a combined capacity of 4,500MW by 2020, but a further 11 are proposed, according to the World Nuclear Energy Association. The first plant is expected to be operational by 2017.

To fast-track its atomic programme, Abu Dhabi has said it wants no involvement in the enriching and reprocessing process of nuclear power generation, and will instead rely on long-term uranium purchase agreements with suppliers. It is also buying in technological and regulatory expertise to meet its 2020 deadline.

It remains to be seen how many of the other Gulf states will go on to build nuclear power plants despite initiating their atomic energy programmes. “It is not obvious that nuclear power is right for all of the Gulf states,” says Huse. “It is a long-term major commitment to put in place the infrastructure. Some of the grids today are not ready for nuclear power.”

Joint initiatives

In 2006, the six GCC member states agreed to undertake a regional nuclear and desalination programme. However, this was subsequently overtaken by individual country initiatives. In common with other pan-GCC projects, such as a GCC water grid, it was thought to have fallen off the agenda. But now, as the GCC electricity grid nears completion, discussions about the feasibility of joint nuclear projects are resurfacing, albeit in a slightly different format.

With the grid in place, it would be feasible for a Gulf state to build a nuclear power plant larger than its own base-load requirements and sell the electricity onto a neighbouring country under a long-term power-purchase agreement. A collaborative effort such as this would be especially attractive to the smaller GCC states such as Bahrain, Oman, Kuwait and Qatar. Muscat reportedly said in 2008 that it would consider investing in a nuclear plant in another GCC country.

After signing a co-operation deal with Bahrain in 2008, Russia said the kingdom was interested in low-capacity nuclear power plants. Qatar too has said it would only be interested in 300-600MW reactors, yet one of the key advantages of nuclear power is the economies of scale it can bring. Yemen has also expressed an interest in being involved in a regional scheme. Sanaa began exploring the potential for a nuclear power programme more than a decade ago, but has lacked the funds to achieve this, and its grid is currently too small to support a large plant.

“The rule of thumb is that you cannot introduce a new power plant into a grid if it exceeds 10 per cent of the grid capacity,” says Moustafa Bahran, vice-chairman of the Yemeni National Atomic Energy Commission and former minister of energy and electricity. “If you had a power plant that was 50 per cent of the grid capacity when you shut it down for maintenance, you would shut down half the country. Saudi Arabia and the UAE can have nuclear power plants, but we and the others do not have large enough grids, unless it is on a regional basis, meaning the power plant is connected through the GCC grid.”

Although Yemen is not yet connected to the network, there are firm plans in place to link it with Saudi Arabia. A feasibility study on the interconnection has been conducted and work was supposed to begin in 2009. The project has experienced setbacks due to the global financial crisis, but expectations are that it could be in place by 2011. Yemen is also discussing a possible interconnection with Oman.

Bahran is a strong advocate of joint nuclear projects built using the independent power project (IPP) model, with power sold across countries using the GCC grid.

“It would be very feasible if, for example, Saudi money was used to build a power plant in Yemen, or a plant was built in eastern Saudi Arabia to send power to Bahrain,” says Bahran.

With the infrastructure for GCC electricity sharing more or less in place, there is much to be gained for the Gulf states by building fewer, larger nuclear power plants jointly. Aside from the cost savings, by working together they could pool resources and reduce the competition for nuclear expertise in the region.

“The Gulf states lack a nuclear culture,” says Huse. “Specialists will have to be brought in and if you imagine that [happening] in the UAE and other countries, you may find in a very short period of time that there are manpower shortages.”

Furthermore, the Gulf’s interest in nuclear power comes amid a worldwide renaissance in atomic energy. Today, close to 50 nuclear power plants are under construction and technology suppliers have long order backlogs.

Using an IPP model would also alleviate many of the concerns Western powers might have over Middle East countries setting up nuclear power programmes, with the international operators bearing responsibility for the plant. When the region first publicly discussed its interest in nuclear power, there was much suspicion over the Gulf states motives for buying uranium. Their arguments for investing in atomic energy are now much clearer, although they could resolve their energy problems by reducing exports of raw hydrocarbons. However, that would neither serve their interests nor those of the energy-hungry industrialised nations that buy the Gulf’s gas.

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