Nuclear aspirations deflate in the Middle East

19 July 2012

The race to develop atomic power in the region stalls as technical complexity and costs dampen interest

Back in 2010, Saudi Arabia, Kuwait, Qatar, Jordan, Bahrain and Egypt were seriously looking at developing nuclear power plants and others in the region were also voicing an interest in atomic energy, faced with rising domestic demand for electricity.

Regional governments were spurred on after the UAE signed a $20bn deal in December 2009 with a group led by Korean Electric Power Company (Kepco) to develop four reactors.

Many feared being left at the back of a long and expensive queue to develop civilian nuclear power programmes.

Fast forward to 2012, and after the Fukushima nuclear disaster in Japan and a prolonged global economic crisis, much of the interest in nuclear power in the region has vanished.

Now, only the UAE and Saudi Arabia are expected to join Iran in the near future and become capable of generating electricity using nuclear energy. The UAE’s nuclear programme has moved to construction phase and lenders are being sought to finance the scheme. Meanwhile, Riyadh is close to appointing an advisory team for its plans.

The remaining states are finding nuclear power either too costly or impractical to develop. Even Abu Dhabi and Riyadh face huge obstacles in bringing their ambitions to reality on the ground.

Advanced nuclear power programmes

“The only two nuclear schemes that are going to happen in reality are in the UAE and Saudi Arabia,” says one financial adviser close to both programmes. “The rest are all in a dreamland.”

The UAE is by far the most advanced in developing atomic power, but the process has not been an easy one. Since the initial contract was signed in late 2009, the estimated cost has ballooned from $20bn to $30bn. “Nuclear projects always go over budget,” says one London-based banker, with experience of financing such projects.

The only two nuclear schemes that are going to happen in reality are in the UAE and Saudi Arabia

Adviser to Abu Dhabi and Riyadh

Abu Dhabi also has set itself a tight timetable for developing the project. It wants the first unit online by 2017, around half the time recommended by the Vienna-based International Atomic Energy Agency’s (IAEA) model for developing nuclear power. By 2020, it aims to have four reactors on line producing 5,600MW.Saudi Arabia’s nuclear programme is the most ambitious, however.

The kingdom has established the King Abdullah City for Atomic and Renewable Energy (KA-Care) to develop a range of new energy sources. KA-Care is expected to develop about 17-21GW of nuclear power capacity split across 12-16 reactors by 2032. The first electricity could be produced by 2019. The cost of such a programme would be about $100bn.

At present, rising domestic power consumption in the kingdom is met through burning hydrocarbon resources – a wasteful practice, which although affordable for now, is depriving Riyadh of higher export revenues. Electricity demand is rising by 5-10 per cent a year and is expected to reach 120GW by 2032.

Unless Riyadh gets domestic fuel consumption under control, it is forecast to require an oil price of $320 a barrel by 2030 to finance government spending, according to the local Jadwa Investments.

Nuclear power funding challenge

The UAE faces similar pressures, although not quite as acute. “When you look at the oil situation, [Saudi Arabia] will have no export potential for oil anymore. So they must replace it,” says Hans Holger Rogner, head of planning and economic studies at the IAEA. “It is a purely economic decision.”

Both the UAE and Saudi Arabia have huge financial reserves to finance costly nuclear projects. “Nuclear projects are very big investments that need a lot of time and a lot of approvals, and for a country with any kind of budgetary constraints that will be a serious issue,” says a banker with experience of nuclear schemes in the region and internationally.

Abu Dhabi will spend $15bn developing its private sector-backed gas-fired power plants, which will provide about 18GW of electricity. The nuclear project will cost twice that to build, plus another expected $20bn in operating costs and will produce only around a third of the power of the gas plants. A severe shortage of gas is prompting its move towards nuclear.

But while Saudi Arabia and the UAE can afford the investment, the same cannot be said for Bahrain, Egypt and Jordan, whose budgets are already in deficit.

“Government backing will always be necessary,” says Rogner. “But backing from a government that doesn’t have deep pockets isn’t any good.”

In Kuwait, the problem is more political than economic, with its fractious politics hampering attempts to develop nuclear power. Plans to build reactors were scrapped after the nuclear disaster at Fukushima. Meanwhile, Bahrain’s plans are languishing after more than a year of widespread unrest and Qatar lacks a suitable site for a reactor.

Beyond the GCC, Egypt and Jordan remain keen on nuclear power, but will struggle to match the pace of the UAE and Saudi Arabia. Egypt and Jordan face financial constraints and can ill-afford a project that goes over budget and behind schedule.

Jordan does have one natural advantage: domestic uranium resources. It has spent the past couple of years tendering a contract for its first large-scale nuclear project and shortlisted two groups to build the plant. But progress has been slow. In June, parliament voted to suspend plans to build a reactor and mine uranium over concerns about the economic viability of the projects.

It is not just the issue of financing that is potentially troublesome. Technical challenges can be just as problematic. “Nuclear projects are extremely complex and almost always end up behind schedule,” says the adviser close to the Abu Dhabi and Riyadh programmes.

It is not necessarily the reactors that prove to be the biggest problem, he says. Civil works frequently disrupt the construction of nuclear schemes if they fail to hit the exacting standards required for plant safety.

For example, if concrete used to contain the reactor does not meet safety standards, it must be dug out and replaced. “Delays are almost inevitable,” says the adviser.

The region’s location also poses unique challenges. Cooling a plant in the desert and the higher ambient temperature is a major issue, says a UK-based nuclear specialist.

A broader obstacle is a global shortage of nuclear expertise resulting from a lack of new investment in nuclear power over the past 25 years. Having the cash means that the UAE and Saudi Arabia can buy all the talent they need, but not everyone is so lucky.

The UAE has already lured some of the best nuclear specialists in the world, including several from the IAEA. “They brought in the most prominent people [they] could find,” says Rogner. “If you can buy yourself the best people that the market has, then you have everything you need. If you had to do it from scratch and on your own then it would take longer.”

Political stability key to nuclear projects

Finally, and perhaps most significantly, nations need the political will and diplomatic clout to keep a nuclear project on track in spite of the various obstacles that arise along the way. Politically unstable countries such as Egypt, Jordan, Bahrain and Kuwait will struggle to maintain support for expensive and hazardous projects over the long term.

“You have to put large amounts of government support behind a nuclear project if it is to succeed, and not all countries in the region are in a position to do that,” says the adviser close to Abu Dhabi and Riyadh’s plans.

Furthermore, against the backdrop of Iran’s nuclear ambitions, new programmes are greeted with a degree of suspicion by neighbouring states. “There is always a concern that the application is not for peaceful purposes,” says Rogner.

For now, the UAE has first-mover advantage, but rather than triggering a race for nuclear power, Abu Dhabi’s experience will serve as a reminder of the challenges and potential pitfalls of atomic energy programmes, and will maybe help convince a few other countries to quietly shelve their nuclear ambitions.

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