Tuesday, November 20, 2012

Oil and gas-rich MENA countries look to nuclear and renewables

 Abu Dhabi aims to have 7% of its energy from renewables by 2020

What are the prospects for the development of nuclear power in countries of the Middle East and North Africa? And why has progress on renewable energy been relatively slow there, despite rapidly increasing energy needs? Paul Cochrane, in Beirut, and Mark Gao, in Istanbul, report.

First published in the July/August 2012 issue of Energy World from the Energy Institute,

Most states in the Middle East and North Africa region (MENA) have mulled developing nuclear power over the past decade, from Morocco to Egypt, and Jordan to Saudi Arabia, but only the United Arab Emirates (UAE) is coming close to embarking on the nuclear option thus far. Energy consultancies are often optimistic – arguing that the MENA region, including Saudi Arabia, the UAE, Jordan and Egypt will account for $300bn worth of nuclear new builds up to 2030.
That is based on plans for nuclear new builds in the region. But the real question of course, as is usually the case with nuclear energy, is which projects will see talk converted into split atoms? Also, with the region full of sun and sea, plus empty desert where wind turbines would disturb few bar some wandering camels – what role could renewables play in this energy rich region in the future?
These are not hypothetical questions. While the region is famously rich with hydrocarbons – its oil and gas producers usually make more money by exporting than by selling cheap energy at home.
And with economic development proceeding apace, especially in the Gulf, the region really does need alternative energy sources. Nuclear is some way ahead of renewables in this regard, although this far there has been more talk than action.

Nuclear prospects for Egypt, Jordan, UAE, Saudi Arabia

Australia-based WorleyParsons in 2009 secured a $160mn, eight-year contract to advise the Egyptian Nuclear Power Plant Authority on building a reactor in Al- Dabaa, a Mediterranean site first selected in 1983 but shelved post-Chernobyl. With politics still far from stable in Egypt, progress on such a sensitive file as nuclear power is not likely in the short term. Meanwhile, the Jordan Atomic Energy Commission (JAEC) in 2010 announced it would build a single 1,000 MW reactor in Mafraq province, in the middle of the country. However, a final deal is awaited here too – although the smart money appears to be on a French-Japanese ATMEA1 unit, supplied with fuel by France’s AREVA, which has a uranium mining joint venture with the Jordanian Energy Resources. JAEC chairman Khaled Touqan has said that Jordan has no option but to investigate nuclear, given extreme energy shortages and political uncertainty in the region undermining faith in the reliability of international gas pipelines.
But here too, there are plenty of obstacles, even though Jordan remains relatively stable politically for now. An energy investment conference scheduled for November in Amman will help decide how these reactors are funded: $5bn estimates exclude a required revamp of the electricity grid. Site selection may prove the biggest headache. Residents of the site have protested, pointing to shortage of water. The local arm of the Muslim Brotherhood warned against Jordan building reactors ‘for selling others clean energy at cheap prices and on their terms.’
Kenneth McKellar, an energy and resources leader for the Middle East at consultants Deloitte in Saudi Arabia, sees potential problems with both countries’ plans: ‘Egypt has been talking about the initiative the longest and the Jordanian initiative has been bubbling along but there is still a way to go. I see regulatory issues further down the page, which I think is critical for any energy source in the region,’ he said.
His view is that the Gulf is where the non-fossil fuel energy action will be in the near future: ‘Which NPPs [nuclear power plants] stand a real chance of being built? It has to be those with significant amounts of capital available, and the priority is then the Gulf countries.’
The UAE is certainly the region’s leader here. It has a reactor deal which might actually go ahead. This was picked up by a consortium led by South Korea power plant supplier Kepco in 2009: it has been contracted to supply four reactors worth $20bn to the UAE national nuclear utility ENEC for four new units. ENEC says it will build 12 more units, and Kepco has said it will begin talks later this year on building four of these. ENEC said last month that it hoped to start building the first plant by December this year, assuming regulatory approval was secured by September. The UAE aims to generate 25%, or 5.6 GW, of its power needs from these first four nuclear power plants, which are scheduled for completion by 2020.
The other big potential Gulf market is Saudi Arabia, which wants to build 16 units, according to Saudi government sustainable development agency the King Abdullah City for Atomic and Renewable Energy (KA CARE). It aims to build a zero-emission city run on nuclear and renewable energy. A $250bn project includes 16 reactors. Furthermore, the Saudi Arabian government has said it wants the country’s first reactor brought online by 2020, with 60 reactors in total online by 2030. That would mean six reactors would be installed annually between 2020 and 2030. But the Saudis are far behind the UAE in working out the details – formal tenders are awaited by the end of the year on even reactor number one. A Saudi consultant said: ‘Finance won’t be a problem but the legal framework and the expertise are two shortcomings that require a lot more detail.’ 

The Middle East is increasingly developing renewable energy, such as at Masdar in Abu Dhabi.

Three Russian reactors for Turkey?

There could be slower but steadier progress away from the Gulf – in Turkey – which in 2006 announced a plan for three reactors producing 4,500 MW to be built between 2012 and 2015. The Ankara parliament in 2007 passed a bill legislating for construction and operation of the reactors as well as energy sale. The three locations are Akkuyu, on the Mediterranean coast; Sinop, on the Black Sea; and Igneada, near Bulgaria. The Akkuyu deal (four 1,200 MW VVER pressurised water reactor units) was won by Russia’s Rosatom which has been contracted to put the first reactor into service in 2018. According to Turkish energy minister Taner Yildiz the three separate plants will be operational by 2023, although talks with Kepco to build the Sinop plant have been inconclusive.
Turkey certainly needs to diversify its energy sources though. ‘An energy crisis is coming. Turkey will need more than 60 billion cubic metres (bcm) of natural gas in the next five to ten years. There are contracts for 52 bcm, and some liquefied natural gas (LNG) contracts, but there is a need to find new energy. Turkey gets 10 bcm of gas from Iran but if that stops, then Turkey is in a catastrophic situation,’ said Dr Tugce Varol, a scientific advisor at the 21st Century Turkish Institute in Ankara.

Meeting growing demand, protecting exports

Pushing all governments in the region to consider the nuclear option is the sheer growth in energy demand, driven by economic growth and in particular by demographics, which is only set to become more pressing over time, with an estimated 50% of the MENA region under the age of 30 years old. Indeed, energy demand has been so significant that the World Bank estimates that energy consumption between 1980 and 2009 grew faster in the MENA than another other region on earth, with energy intensity increasing 14% between 1990 and 2005, some 60% above the OECD average and 40% above the global average.
McKellar says the key issue is a shortage of other fuels to fuel conventional power plants – rather ironic given the huge domestic fossil production in the region (much of which is exported). ‘Gas is in quite short supply for domestic consumption, and heavy fuel oil or diesel is environmentally unsustainable and can be exported for a high price and refined for more marketable products,’ he noted. Big money is to be gained from exporting gas for power production elsewhere in the future, with ‘demand in particular for electricity generation ... to go through the roof.’ And, meanwhile, many Middle East and North African countries have yet to be converted to the benefits of renewables, despite plentiful sunshine: ‘So, the primary motivation for NPPs is simply there is no alternative for a rapidly growing population and high electricity demand.’
McKellar’s view is echoed by other analysts – economic necessity requires export sales by developing NPPs and venturing into renewables. ‘I think the reasons are for oil and gas exports. It is not a green argument but to protect revenues and the integrity of reserves as a long-term strategy,’ said Phil Dominy, a senior executive at consultants Ernst & Young. And yet energy demand continues to soar, especially in the six Gulf Cooperation Council (GCC) countries (Saudi Arabia, the UAE, Oman, Bahrain, Qatar and Kuwait), with domestic demand growing by an estimated 8.5% annually.
The issue is particularly problematic in Saudi Arabia, with domestic demand for its own oil and gas growing at an estimated 7% per year, double the rate of GDP growth, while a third of the kingdom’s population of 27mn are below the age of 14 years. Current electricity generation capacity has doubled in Saudi Arabia over the last decade to 50 GW, and demand doubles in the scorching summer months when air conditioning accounts for around 52% of total consumption.
Currently the kingdom consumes over one-quarter of its total oil output, some 2.8mn barrels per day (bpd), according to BP, and its total primary energy consumption is around 4mn bpd, similar to the UK, despite the UK having double Saudi Arabia’s population. All natural gas in Saudi Arabia is consumed domestically, accounting for 38% of power generation, with the remaining 62% from diesel, heavy fuel oil, crude oil and LPG.
At the trajectory of consumption based on the BP figures, according to a Chatham House report: Burning Oil to Keep Cool: The Hidden Energy Crisis in Saudi Arabia, published in December 2011, Saudi Arabia will become a net oil importer by 2038. As a result of such demand, the kingdom aims to have 7–10% of electricity from renewables by 2020, according to Saudi Aramco figures, and for 16 nuclear reactors by 2030 to provide 20% of demand.
Seth Grae, CEO of Lightbridge Corp, a US-based consultancy and technology developer, underlined the trend, noting that states in the region ‘don’t want to consume oil internally when there’s a feeling there’s a limited timeframe to be able to export these.’ Grae also points out that some countries in the region lack either oil or gas, while hydro is ‘not an option’ for most states in the region.
There’s also a regional wish, particularly in Saudi Arabia, to keep pace with nuclear development of Iran – with whom relations are frosty – and Israel.

Filling a self-inflicted energy gap

Given these pressures – it is worth asking what role renewables can play in helping the region bridge its own self-inflicted energy gap. At present, this role is not large. While many renewables initiatives have been announced over the past several years in GCC countries, the financial crisis has slowed their roll-out.
‘It boils down to a very uneven energy regime in many of the GCC states, and I am quite cautious about how quickly renewable energies will develop,’ said McKellar. Potential political instability has also drained renewable energy budgets, with the region’s generally undemocratic governments seeking to purchase support through increased social spending. This is particularly important for renewable energy, which is grant and capital intensive – and hence commanding juicy budgets that have been transferred to areas such health, education and defence because of the Arab spring.
Leading United Arab Emirate Abu Dhabi is one hopeful for green energy – it aims to have 7% of its energy from renewables by 2020, with developments currently underway two 100 MW solar power plants and a 28 MW wind plant.
Meanwhile, neighbouring emirate Dubai plans to generate 1 GW of solar power by 2030. But even in property rich Dubai, this is not a sure bet. So, with renewables not able to provide enough energy, and nuclear reactors taking years to build once legislation is passed and tenders agreed, more conventional fossil fuel-based power will be needed.
In the GCC zone, an estimated $45bn is to be invested until 2015 to boost capacity by 32 GW, and some $252bn is to be spent over the next decade on new power plants and upgrades of all kinds, according to research by the Kuwait Financial Centre and Ventures Middle East respectively. Some 361 power projects – with an average size of 500–600 MW – are under construction or upgrades in the GCC area, with 161 in Saudi Arabia and 70 in the UAE, according to regional business intelligence service MEED. However, an estimated 14% have been put on ice or cancelled due to the financial crisis.
Presenting a further obstacle to any energy solution is the lack of cooperation between states, creating a kind of European energy market that would enable the sale of power across borders. That has yet to occur and is impeding project finance and development, said McKellar. And, with the Arab Spring making the unreformed traditional monarchies of the Gulf nervous, this kind of liberalisation is highly unlikely – governments need to make sure there is no surge in electricity prices. ‘We have seen that around the GCC when oil companies have been forced to provide long-term energy contract prices to energy companies overnight on what is basically a spot price, so they end up losing money,’ noted McKellar. This does not foster confidence amongst energy investors. In the short term, whatever the energy source, the likely winners in MENA energy diversification drive will be consultants – private advisers such as WorleyParsons and Lightbridge who can for instance help navigate the labyrinth of International Atomic Energy Agency (IAEA) rules and regulations. Lightbridge, for instance, has bagged a consulting contract with the GCC ‘to assess regional cooperation in the development of civilian nuclear power programmes.’
Lightbridge has partnered with US utility Exelon, consultants Rizzo & Associates as well as international law firm Winston & Strawn to evaluate GCC members’ approaches on legal issues and liability as well as nuclear regulation, site assessment and training. Lightbridge, whose associates include former Westinghouse Energy Systems CEO Charles Pryor, also advises on human resource capacity building and fuel cycle and nuclear waste management.
And there is a long way to go in terms of creating the necessary reserves of local expertise and supply chains. Noticeably, Turkey is addressing the skills issue by sending 600 students to the Russian National Nuclear Research University in Moscow: the students will, after graduation, staff the Akkuyu NGS Power Production Corp. Meanwhile, Abu Dhabi Polytechnic has started a new atomic energy training programme. And Saudi Arabia has signed agreements with China, France, Argentina and South Korea on nuclear cooperation, which include the transfer of knowledge and know-how.

Photos by Paul Cochrane

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