Gulf leaders have realised that their oil and gas reserves will not last forever and driving production efficiencies and securing alternative energy are becoming more important issues for the power sector
The combination of rapid population growth and accelerated industrialisation is encouraging unprecedented investment in new power generation capacity in the Middle East. The GCC provides a graphic illustration of this trend, with generating capacity expected to rise by 64,000MW to reach 176,500MW by 2020.
The required investment to deliver this expansion is likely to be in the vicinity of $40-50bn, based on 2012 unit costs. It could rise even higher as a result of requirements to replace aging capacity. Unsurprisingly, the world’s biggest energy firms are eagerly eyeing growth opportunities in the region over the coming two decades.
We believe that thermal solar will provide significant opportunities for the region’s power sector
Patrick Kron, Alstom
“The Middle East has been and will continue to be an important market for us,” says Michal Suess, global chief executive officer (CEO) at Germany’s Siemens Energy. “There is huge demand for power due to a young and growing population, massive economic growth and infrastructure demand. Wherever that happens, it represents good business for us.”
The rising value of commodities has emphasised the importance of creating new efficiencies in power generation. The tight gas situation is resulting in Gulf states looking to alternative energy sources such as nuclear and solar to meet future power demands.
In the GCC, much of the demand for new capacity will come from Saudi Arabia, where an estimated 31,000MW will be required by 2020. The recent award of a $3.2bn contract to South Korea’s Hyundai Heavy Industries (HHI) to build the 2,640MW Jeddah South plant is evidence of the significant investment the kingdom is making in its power sector. Abu Dhabi, Kuwait and Oman all require huge investment to meet expected increases in domestic demand.
Outside the GCC, Iraq seems to be the region’s most promising power market as it seeks to rebuild its infrastructure and kickstart its industrial programme. The Levant will also offer opportunities for international contractors, with power shortages frequently afflicting Lebanon, Jordan and Syria.
With the price of oil remaining high, providing the capital expenditure for these power schemes should not be an issue. However, as the region looks to preserve depleting gas resources, increasing the efficiency of existing power generating infrastructure is becoming a key priority for governments and clients.
You can use carbon dioxide for enhanced oil recovery, which will have applications in the Middle East
Philippe Cochet, Alstom
“In the past, the low cost of fuel meant that governments were not placing efficiency at the top of their priority list, but today the situation has fundamentally changed,” says Patrick Kron, chairman and CEO of France’s Alstom, which has been involved in several major power projects in the region. “Our customers in the Middle East, and in the Gulf in particular, are seeking state-of-the-art technologies to drive efficiencies. This is an area we keep working on to improve.”
Many energy providers in the region are looking to increase the efficiency of their power plants by employing combined-cycle technology. Although extensively used throughout Europe and the US, the technology is still a relatively new concept for the Middle East’s power sector.
As opposed to simple-cycle power plants which use the gas turbine for power generation, combined-power plants take the exhaust heat from the turbine to produce steam for the generation of additional power through steam turbines. This technology can improve efficiency by up to 50 per cent for high-powered gas turbines.
“Improving efficiency is important because whatever you save, you can sell,” says Suess. “Gas and oil are precious resources in the Middle East that need to be used as efficiently as possible.”
According to data from Siemens, in 2011, 29 per cent of the region’s total installed power capacity was produced using combined-cycle facilities. By 2030, this figure is expected to rise to 41 per cent.
In addition to installing new combined-cycle technology, converting existing single-cycle plants to combined-cycle will offer lucrative opportunities for power firms and contractors.
In April this year, US-based GE signed contracts to convert Saudi Electricity Company’s PP10 power plant from simple to a combined-cycle operation. The project will add 1,300MW to the plant’s capacity, and when completed in 2015, it is projected to be the largest combined-cycle plant in the world. GE also recently won a contract to convert a simple-cycle power plant in Erbil to a combined-cycle facility.
Future energy technologies
Major power contractors are also busy working on future technologies that will benefit the Middle East’s energy sector and improve the efficiency of plants. Alstom, which built the 1,200MW Shoaiba III oil-fired steam plant in Saudi Arabia, is already working on future technologies to improve the performance of heavy-oil power centres.
“For the future, we are working on increasing steam conditions with heavy oil, which is not easy because burning heavy fuel oil creates a number of issues with corrosion at higher temperatures,” says Charles Soothill, senior vice-president of technology at Alstom Thermal Power. “But improving the technology is vital to allow increased efficiency and to reduce waste.”
Another technological improvement that is currently under assessment in a number of locations around the world is carbon-capture storage. Carbon capture has the dual benefit of reducing carbon emissions, while improving the efficiency of power stations and saving energy.
“Carbon capture presents some interesting opportunities for the Middle East,” says Philippe Cochet, president of Alstom Thermal Power and executive vice-president of Alstom. “We are working on carbon capture that can be used in this region. You can use carbon dioxide for enhanced oil recovery, which will certainly have applications in the Middle East.”
While gas will remain the region’s preferred fuel for power generation in the coming decade, Gulf leaders are looking to other methods of generation to reduce appetite for costly liquid fuels.
While the Fukushima disaster in Japan in 2011 has led to numerous European states deciding to reduce or cease their reliance on nuclear power, Kuwait is the only Gulf state to have shelved its nuclear plans. Abu Dhabi signed the contract to build the Gulf’s first Nuclear Power Plant in 2009, scheduled to be operational by 2020, while Saudi Arabia is following the UAE’s lead.
The King Abdullah Centre for Atomic and Renewable Energy (KA-Care) is planning to develop a 17GW nuclear power programme by 2032. Although still in its infancy, sources close to KA-Care suggest Riyadh’s nuclear plan could include 16 reactors spread around the country, costing $7bn each.
“Saudi Arabia has a very large nuclear programme and we are monitoring developments closely,” says Cochet.
Jordan is planning to develop nuclear power, but has blamed opposition from Israel for lack of progress on the scheme to date.
Saudi Arabia is also pursuing the region’s most ambitious renewable energy programme. The kingdom is targeting 41,000MW of solar energy output and 9,000MW of wind energy by 2030. One of the solar projects planned is an estimated $640m 100MW solar power plant near the city of Mecca.
In the UAE, Abu Dhabi and Dubai are both developing large-scale solar programmes. The Mohammed bin Rashid al-Maktoum Solar Energy Park, planned in the Seih al-Dahal area of Dubai, will cover 48 square kilometres and will have the capacity to generate 1,000MW by 2030.
However, while the solar market appears to be gaining momentum in Middle Eastern countries, not everyone is convinced of the viability and commercial benefits of the sector in the short-term.
In October, Siemens announced that it was pulling out of the solar power sector. Suess points to the rise of shale gas in the US, the Eurozone crisis and the high cost of solar panels from China as all playing a part in the firm’s decision to bow out of the market.
Alstom is more confident of the commercial opportunities in the solar sector. The company is carrying out research and development into using solar thermal-tower technology through integrated combined-cycle projects.
“We believe that thermal solar will provide significant opportunities,” says Kron. “When our customers make decisions on solar, we want to be active in the mix.”
The Middle East’s power sector is shifting dramatically. Governments are waking up to the fact that the region’s vast hydrocarbons resources will not last forever, and that building efficient power infrastructure is vital.
There is also a growing acceptance that renewable energy sources will have an increasingly important role to play in the region’s power plans. While this will present a technical challenge for clients and contractors, with more than $50bn-worth of projects required in the next eight years, it is one the latter will relish.
Riyadh is targeting 41,000MW of solar energy output by 2030