Power grid drives regional co-operation

16 November 2007
With the first phase of the GCC electricity network nearing completion, observers predict its success will push forward the agenda for a unified approach linking gas, water and rail projects.

Plans for a power grid have been mooted since the formation of the GCC in 1981. In the following years little progress was made, but the current oil boom has acted as a catalyst for change.

Dynamic growth rates and development levels in GCC countries have greatly increased the need for electricity links, and the first phase of the $1.2bn GCC grid project is on track to become a key part of the region’s energy infrastructure. If the project is a success, it could lead to further co-operation in areas such as water, gas and transportation.
Economic imperatives mean the power grid will be the first of these projects to be completed, as keeping energy costs down is becoming increasingly important in a region where demand growth is rising rapidly. This is a real challenge, particularly in the short term.

“Strong growth in different sectors of the GCC economies has increased electricity demand and the expansion of construction and industrial projects has given a big boost to the energy sector in the region,” says Hassan al-Asaad, head of projects at the GCC Interconnection Authority (GCCIA). “So the power grid has been designed to bring self-sufficiency on the part of member states for the next 50 years.”

Meeting demand

Al-Asaad predicts that electricity demand in the Gulf will grow at an average of 8-11 per cent a year for the next five to six years. Such rapid growth could easily lead to supply problems. Countries such as Qatar are already suffering from a lack of power. There were blackouts in Doha in May 2006 and demand grew by 17 per cent over the year, and by the same figure in the first quarter of 2007.

But Qatar is by no means unique. The UAE’s power production capacity will have to increase by 60 per cent to 26,000 megawatts (MW) over the next five years, according to a recent survey by Emirates International Bank. This is in response to projected demand growth rates of at least 10 per cent to 2012.

It is a similar picture throughout the region. Dubai has the greatest demand potential and is growing at about 12-14 per cent a year, while the Abu Dhabi Water & Electrical Company predicts Abu Dhabi’s electricity demand will double by 2013. Saudi Arabia has one of the largest per capita electricity consumption rates in the Middle East, with a population of about 25.8 million, which is growing at a rate of 2.4 per cent a year. Consequently, the Saudi Industry & Electricity Ministry estimates the country will require up to 20,000MW of additional installed capacity by 2019, compared with current capacity of 35,580MW.

The good news is progress towards completing the GCC grid has been impressive.

“More than 45 per cent of the construction in the $1.1bn first phase was completed by the start of November 2007,” says Al-Asaad. “This first phase will interconnect Kuwait, Saudi Arabia, Bahrain and Qatar by 2009, and the UAE and Oman by 2010. It could be completed and energised by the first quarter of 2009.”

The second phase will link the UAE with Oman. The resulting two megagrids will be joined in the final phase. To make the grid function, each GCC state has been given a load capacity and an allocation to buy power. Once the grid is ready, the six GCC states will be able to provide or receive extra power capacity based on their installed capacity obligations: 900MW for the UAE, 750MW for Qatar, 600MW for Bahrain, 400MW for Oman, and 1,200MW for Kuwait and Saudi Arabia.

In terms of financing the power grid, each country has agreed to provide a level of financing proportionate to its share in the project (see table, page 79). The completed project will reduce the cost of power generation in the six GCC states and provide the inter-connected states with the chance to improve the economic and operational efficiency of their local power systems, while strengthening supply reliability and security.

“If the systems were not connected, the GCC states would need about 12,000MW of reserve capacity, but with the countries sharing their reserves only about 7,000MW would be required,” says Al-Asaad. “The other advantage is the grid can provide emergency back-up that will prevent the kind of shutdowns that some GCC countries have experienced over the past year.”

The GCC says the total cost saving for all six countries over the next 20 years could be as much as $2bn. However, this may prove to be a conservative estimate, given that the network allows for production sharing. This means the individual GCC countries will have an iden-tical form of electricity, while the project will also alleviate the need to set up separate power plants.

Bilateral agreements

Adnan Al-Mohaisen, chief executive officer of GCCIA, says the power grid will also open up possibilities for the energy mix. “It can diversify sources of supply and increase the reliability of the system by importing different types of energy, increasing supply security,” he adds.
The GCC is keen to stress that once the power grid is running, opportunities for trading will emerge as various parties have different prices according to their long-term power purchase agreements.

“Negotiations are going on as we speak but these will be implemented in the near future,” says Al-Asaad. “The idea is that the GCCIA will initially act as a facilitator between the GCC states, who will establish bilateral agreements, and the GCC authority will charge a fee.

“However, as the power sector develops, the authority will evolve to become not only a system operator but the kind of market operator seen on various overseas power exchanges such as NordPool (in Scandinavia).

“The GCC power grid, which is sometimes referred to as the backbone, will not only supply emergency assistance and reduce generations reserves in each GCC state for the next few years, but will eventually pave the way for trading energy within the region and abroad.”

The successful implementation of the GCC Interconnection will eventually boost other co-operative projects, such as the GCC water grid and the proposed railway link. This appears to be happening already. Proposals to build a water grid are far advanced after a feasibility study was carried out by French consultancy Sogreah in 2003. This concluded that a GCC water grid interconnecting Kuwait, Saudi Arabia, Bahrain, Qatar, the UAE and Oman would be technically, environmentally and economically feasible. Indeed, the various ministers involved are already believed to have reached an agreement on going ahead with a joint desalinated water project to alleviate the growing scarcity of groundwater in the region. A regional water grid would greatly reduce the need for each state to build its own power or desalination units. The next step is for the GCC to give the project the green light, and it is likely to be top of the agenda at the GCC summit in Doha in December.

Opening opportunites

The power grid project has also opened the door to other commercial opportunities. “Increasing the capacity of the current fibre-optic cable will provide opportunities to companies in the telecommunications industry,” says Al-Mohaisen. “[They could] take advantage by connecting to the interconnection transmission line.”

Meanwhile, a Gulf gas grid is taking shape with the development of the integrated Dolphin project - one of the largest energy ventures undertaken in the Middle East. Dolphin Energy, which is 51 per cent owned by the government of Abu Dhabi and 24.5 per cent each by France’s Total and Occidental Petroleum of the US, has already signed long-term supply contracts (25 years) with the Abu Dhabi Water & Electricity Authority (Adwea), Dubai Supply Authority and, from 2008, the Oman Oil Company.

The start-up marks the culmination of a nine-year project to link Qatar’s North field offshore gas reservoir with industrial and commercial customers in the UAE and Oman in a regional gas grid. The project is also noteable in that it represents the first exports of pipeline gas from Qatar, which has until now exported gas only in the form of liquefied natural gas. Natural gas from Qatar started flowing to customers in the UAE in the summer via a processing facility in Ras Laffan Industrial City before being piped under the sea to Taweelah in Abu Dhabi. Ethane produced during processing is being sold to Qatar Petroleum on a long-term contract, while other by-products are being sold on international markets. Dolphin plans imports of Qatar gas to the UAE to hit 2 billion cubic feet a day by February 2008, more than double current volumes.

Dolphin is particularly important for the UAE as the federation urgently needs to increase imports of natural gas to meet rising demand. Over the longer term, whether the gas project grows will depend to a large extent on the quantities of gas it receives from Saudi Arabia. But the potential certainly exists for the pipelines to be extended to pump gas outside the region, to Pakistan and beyond.

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