Dark days ahead?


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The energy-rich Gulf faces a power shortage of unprecedented proportions, as rapid growth in consumption has left producers unable to keep up with demand.

When proposals for a large retail development in Ajman were scrapped earlier this summer, property consultant Ritu Chopra was left counting the heavy cost of cancellation.

The manager of retail leasing at Colliers International was forced to break the bad news to developer clients - that the new project could not be hooked up to the emirate's power grid due to insufficient capacity.

The region has got to get over the notion that it doesn't pay for energy... there's a culture of energy export rather than import.

The aborted Ajman project cost Chopra's firm months of lost revenue, and she is now worried that other schemes she works on in the future may be wrecked by power shortages.

"I have already heard of other projects that have been put on hold because of this problem," she says. "Power shortages could become a real issue, and it's something we are getting more and more concerned about."

As the Gulf's power grids buckle under the pressure of soaring demand caused by high population growth, industrial expansion and a thriving construction sector, a scarcity of electricity could become a severe problem and even inhibit economic development across the region.

Economic forecasting company Global Insight predicts that while power consumption is expected to rise by 50 percent in the Gulf over the next five years, power generation will only increase by 30 percent over the same period.

In Dubai, rows of gleaming new high-rise towers have been left unoccupied for anything up to a year after construction was completed, because of insufficient electricity supply.

"There's a lot of construction happening where they are not very well connected with Dubai Electricity and Water Authority (DEWA)," says one well-placed source within the emirate's building industry. "There are high-rise towers ready and the power infrastructure is not there from a period of a few months to up to a year."

"In new areas it may become very common to see whole areas of new buildings not inhabited because of this," he adds. "Personally it is a concern and from a construction point of view when you have finished a job and could be away, it's frustrating when the power is not in place."

Even Saudi Basic Industries Corporation (SABIC), one of the Middle East's biggest manufacturers, has not been immune to the problem, with power outages caused by interruptions to the electricity supply forcing the temporary shutdown of the petrochemical giant's polyethylene and polypropylene plants in Al-Jubail, Saudi Arabia last month.

High consumption rates and sizzling summer temperatures were blamed by the Saudi government for the recent blackouts across the country, with deputy minister of electricity for Electricity Affairs Dr Saleh Al-Awaji admitting last week: "Despite everything we do, power outages are inevitable."

Further signs of a worsening power crunch have come from Kuwait, where hospitals were among energy consumers hit by blackouts this summer. Meanwhile in Oman, industrial projects have had to be shelved because of gas shortages.

Analysts warn that if the issue of unreliable energy supplies is not addressed soon, the problem could start to hold back the pace of development in the region.

Vicente Raurich, head of Group Business Development at Siemens Building Technologies, says that despite massive investment in energy capacity there is already a "five or six year" divide between the growth in power generation and consumption - and the gap may widen.

"In the Gulf, increasingly in Qatar, Saudi Arabia and UAE and Bahrain the economic growth is huge and although there is a massive investment in capacity, that's still outperformed by economic growth and demand for power," he warns.

Peter Barker-Homek, CEO of Abu Dhabi National Energy Co (TAQA), says that although the UAE has typically maintained a 15 to 20 percent reserve margin in power supply to avoid interruptions, Dubai is lagging behind in building its supply because of the sheer pace of growth in the emirate.

"Central planning around energy intensity is as much art as it is science, and given the rapid development of structures around here, each of which has thousands of people that each have equipment, it is going to be lumpy as you bring power on," he warns.

"I don't know that it is necessarily anything wrong with Dubai's central planning, I just think that when you are in a rapid environment where petty much everything is growing in double digits, all you need is one delay and it starts to throw your reserve margins out."DEWA maintains that there is sufficient electricity capacity in the emirate to meet demand, and that it is committed to building new power stations to ensure there are no shortages in the future.

Last year's official figures show that the authority had 5448 megawatts of electricity capacity in place, enough to meet a peak demand that reached 4736 megawatts.

The obvious irony is that the Gulf is blessed with a wealth of natural resources. It holds about 30 percent of global oil reserves and around 8 percent of gas reserves - two of the main ingredients for generating electricity.

However the region is suffering from a shortage of one of these components, gas, as high oil prices encourage oil-producing nations to rely heavily on natural gas for domestic consumption, reserving more oil for export.

Samuel Ciszuk, a Middle East energy analyst for Global Insight, believes that in the drive to diversify their economies away from oil dependency, GCC countries have underestimated the amount of gas they require for power generation.

"The Gulf has been suffering from power problems for a couple of summers, especially in peak demand periods, and this goes back to the gas crunch where a lot of countries are failing to produce enough gas to meet growing power needs," he says.

"The main problem is that everything is built to work on gas power," he continues. "GCC countries have converted old oil plants to gas so they are completely reliant on gas in Saudi Arabia, UAE and Kuwait, but then they have failed to secure a sufficient amount of gas. There could be major problems during peak demand.

"In Kuwait it is clear that the situation is hurting growth, and in Saudi Arabia this will be one of the tests of its economic future," he adds. "Whether it will be able to source its energy will be a big question."

Barker-Homek believes that as the Gulf economies grow, part of the increased demand for electricity will be met by the $1.6bn multilateral GCC power grid, a project which will supply electricity to Qatar, Saudi Arabia, Kuwait, Bahrain, the UAE and Oman.

"The first phase of the project connects Muscat to Abu Dhabi, Dubai and Sharjah, but eventually it could run all the way through Bahrain and Doha and into Kuwait City," he says. "That would be better for all the countries involved, as they would have a lot more energy security."

Ciszuk says the UAE was among the first states to realise that it would have to import gas to fuel its development. Furthermore, those countries that do not make the move to importing the resource may find rapid growth difficult to maintain.

"There will be a move towards countries having to become energy importers and a greater willingness to look at alternative energy gas sources like sour gas and tight gas," he says.

"It is a bold move as there is a culture of energy export rather than import, and the region has to get over the notion that it doesn't pay for energy."

"It is happening though: in Oman they have been exporting less gas, Dubai is an LNG importer and is using regasification to take gas and reconvert it back into fuel suitable for power plants, and Kuwait has also taken this step," he adds.

To address the long-term supply issue, some Gulf states including the UAE are considering building nuclear power stations. However, the government does not expect its first atomic power plant to be completed before 2016.

Faced by serious delays in the connection of residential and commercial property projects to the power grid, Ajman has signed a $2bn deal with Malaysian power producer MMC to build the Gulf's first coal-fired power station. It will generate one gigawatt of electricity from early 2012.

In the immediate future, power shortages mean that Gulf nations may be forced to follow the route taken by South Africa, China and some Latin American countries.

There, scheduled blackouts are agreed between utility providers and big consumers like industrial clients, hotels or residential blocks, to avoid unplanned energy shutdowns caused by a demand overload.

Load shedding, as it is known, could involve consumers in different areas of a city agreeing to suspend energy usage for a few set hours each week.

"What's happening in South Africa today could happen in the UAE in two or three years' time, so there could be a negative role model there," says Raurich. "You can play it down in the UAE and say it will not happen, but in the future this is a realistic scenario."

*Additional reporting by Dylan Bowman

RELATED LINK:Could it be lights out for the Gulf?

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Posted by: Sarah

I suspect that any elected government would be extremely worried about their job future for failure to provide ?on tap? basics like electricity . It my own business it would be an instantly sackable situation

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