Low oil price puzzle for regional utilities

11 December 2014

Sharp drop in prices has created uncertainty heading into 2015

The sharp drop in oil prices in 2014 has created an interesting conundrum for governments and utilities on their future power strategies moving into 2015 and beyond.

While the Middle East’s developing power sector has lagged behind other regions in introducing renewable energy into its power sector, in the last couple of years there has been a commitment from most governments for renewable energy programmes on some scale. 

The drive to utilise renewable energy was driven by high oil prices, with exporters seeking to benefit maximum returns from their hydrocarbon reserves and importers seeking to reduce rising fuel bills. As a result, most utilities began to introduce renewable programmes, and some began exploring the nuclear power option as part of efforts to meet rising demand while reducing fuel costs.

Since 2010, Abu Dhabi and Dubai started and completed solar energy projects and Saudi Arabia launched plans for one of the world’s most ambitious renewable energy programmes. However, the sharp drop in the price of oil since late September has raised questions over how the region’s governments will proceed with future power generation projects.

If the price of oil remains at current levels or drops even further, it could result in clients having less impetus to move ahead with more expensive renewable and nuclear power projects. Conversely, with governments seeking to balance budgets, selling fuel on the market at lower price, such as $60, is still much higher than providing it for domestic power generation.

With no signs of oil prices returning to more than $100 a barrel anytime soon, governments and utilities will have a lot of major decisions to make in the coming year about how to proceed with power programmes.

Interview with Lucas Hautvast, CEO and president, GDF Suez Energy, South Asia, Middle East and North Africa

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