The gas bottleneck that could halt Gulf growth

31 January 2008

Ras al-Khaimah, the most northerly of the seven emirates of the UAE, has embarked on a development and modernisation programme that might be the Gulf’s most intense.

Its population, estimated at about 200,000 people, could reach one million within a decade. New industrial projects, a port expansion that will quintuple its existing container capacity, the launch of a new national airline and a slew of onshore and offshore megaprojects are converting the emirate from backwater to a new Gulf gateway. They are even thinking of starting space tourism flights.

Ras al-Khaimah's goal is to help the emirate play a full role in the changes sweeping the UAE and the region.

It is a sign that the Gulf boom is affecting parts of Arabia that previous ones did not reach. But a new type of obstruction is emerging. There is not enough energy and the issue is likely to get worse before it gets better.

Ras al-Khaimah imports all its electricity from other emirates. To support the developments that are now being completed, it will need at least twice as much, but there is no guarantee that it will be available in a timely manner. There are worries that some of the big projects will be finished but unusable because of the lack of electricity and water.

The story is being repeated across the Gulf. Electricity demand is growing by eight - 10 per cent a year and is set to continue expanding at this rate for the foreseeable future. This is putting pressure on human and capital resources. Perverse as it may seem, energy shortages could slow and even temporarily halt development in a region of the world that is more richly-endowed with hydrocarbons than any other.

The issue is not yet urgent, but it is pressing. Unless there is a significant increase in gas supplies or other sources of energy that can be used to produce electricity, there will be a problem.

In Ras al-Khaimah, every option is being explored. It includes allowing private power plants, using liquids as feedstock and importing gas from Umm al-Qaiwain and from Qatar through the Dolphin pipeline. The emirate is openly considering a coal-burning power station. The best choice, however, remains importing gas through pipeline from Iran.

The looming possibility of electricity shortages has provoked the usual hand wringing about low power tariffs. These will increase for those based in areas where private power is provided, but it is inconceivable that any Gulf government is yet ready to make all consumers to cover the full cost of power. Pricing is likely to have a limited immediate role in containing demand in the GCC.

Technology may provide part of the answer. French President Sarkozy offered nuclear power to the Gulf in his visit to the GCC in January.

Perhaps inspired by what he had seen of Abu Dhabi’s Masdar initiative during his visit at the start of the month, President Bush called in the annual State of the Union address on 28 January for contributions to an international clean energy fund, which will involve developing efficient power-generation systems. Solar and wind power will help too.

The best way to increase power capacity is to stop waste, which is massive in the GCC. Abu Dhabi is to announce soon a green building code, the first to be tailored to the conditions in the Gulf. Dubai has announced its own green building initiative and others will follow.

The most innovative idea is a virtual power company which would monitor demand by specific users and contact them to encourage savings.

This might entail advising the reduction in airconditioning in a residential tower or suggesting lights could be switched off in a major office block. Given that power price increases big enough to reverse the GCC consumption pattern are an unlikely prospect, quantitative controls form most of the second-best solution. Experiments in the US suggest a virtual power plant paid for saving rather than producing electricity could work in the Gulf.

But is it an idea whose time has now come?

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