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Sun 4 Nov 2012 08:40 AM

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Siemens interview: Michael Suess

The Middle East needs to turn the tide away from oil as the primary feedstock to fire its power stations, says Michael Suess, of German energy giant Siemens

Siemens interview: Michael Suess
Michael Suess, of German energy giant Siemens.

Two months ago Citigroup said Saudi Arabia, the world’s biggest producer of oil may become a net importer of the black gold by 2030. To put things in perspective, oil exports account for 90 percent of the kingdom’s exports, and 45 percent of the country’s gross domestic product. By 2020, Citi forecasts US production could reach as much as 15 million barrels per day, with the US overtaking the kingdom as the top producer. As consumption in the Gulf and wider Arab world rises in tandem with growing populations and higher demand, the argument to turn to alternative forms of energy is becoming more compelling.

Enter Michael Suess of Siemens AG’s Energy Sector. The Arab world should move away from its dependence on oil for generating electricity and look towards gas as a primary source of energy and renewables as a future alternative as the global power mix continues to grow, he says.

“I believe this part of the world should stop burning oil for electricity and focus much stronger on gas and put some solar and wind around,” Suess says in an interview with Arabian Business. “Oil is easier to transport on the one hand, [but] with gas if you do it right you have efficiencies of 61 percent.”

Hydro power and wind energy will remain the major renewable contributors to the global power generation mix in the future, he says. Siemens predicts that energy from renewable sources will account for 28 percent of the global power mix in 2030. According to Siemens’ estimates, global power consumption will rise from 22,100 terawatt-hours (TWh) in 2011 to 37,100 TWh by 2030. Hydro power and wind energy will continue to contribute the largest share of energy from renewable sources.

“In the [Middle East] region there is so much potential to work on efficiency where you have a very quick benefit on the resources which you save, and by that saving, the additional volume you can sell to the oil-hungry countries in the world,” Suess says. “A lot of the power plants in the Middle East were built 20 to 30 years ago when no one had an outlook on efficiency.”

Last month at the Global Economic Symposium in Brazil, Prince Turki Al Faisal Al Saud said he would like to see “Saudi Arabia using 100 percent renewable energy within my lifetime.” The 67-year-old member of the ruling family in the kingdom said: “Oil is too valuable to be burned and should rather be used for other purposes.”

Solar and renewables can help reduce carbon emissions while also providing power generation and desalination for the Gulf countries and in turn limit the use of fossil fuels as part of a renewable energy mix.  Saudi Arabia — like other Gulf states — suffers from a fresh water shortage problem and produces more than 24 million cubic metres of water per day from desalination plants, which have largely been fuelled by oil or gas, a process that is costly and can vary depending on the price of fuel. The higher oil prices are, the more expensive the cost of desalinated water is.

If Saudi Arabia, which is burning between fifteen and 20 percent of its oil production for electricity was hypothetically able to halve that, it would save 1 million barrels, equivalent to $100m, Suess says.

“For oil-producing countries it’s a no brainer, to buy gas and sell oil they have a much better ratio,” Suess says.

To meet rising power demand, Saudi Arabia and other countries have looked towards nuclear energy. The kingdom plans to build sixteen nuclear reactors at a cost of about $100bn by 2030, with its first plant scheduled to start producing electricity by 2019. The UAE plans to build four reactors, the first of which is scheduled to deliver electricity by 2017.

There are about 435 nuclear reactors running worldwide, another 400 will come into operation and about 150 will be phased out, Suess says. He estimates the share of nuclear power of the overall power mix will stay between eleven and thirteen percent. A nuclear power plant costs as much as ¤7bn ($9.07bn) and takes about fifteen years to build and operate from the time a decision is made by a country to have one.

“Then you operate it 50 to 60 years, then you have a decommissioning of another ten to fifteen years, so the decision you are taking today will lock you in for 80 to 90 years,” Suess says. “You exclude yourself with that decision by 80 years from innovation cycles.”

Following the Japan tsunami disaster in March 2011, Siemens pulled out of the nuclear business, planning only to supply components such as steam turbines for nuclear power plants. The future of nuclear technology post Japan fallout and Germany’s decision to exit from nuclear power, is gas and other types of unconventional oil and gas, Suess says, as nuclear power is capital intensive.

“I personally believe that one of the game changers is gas in the next 100-150 years,” Suess says. “It’s not just shale gas or other types of unconventional gas and oil. These are game changers in addition to even better exploration methodologies. In the next 100-200 years fossil fuels in a very efficient way will be a significant part of power generation. In the end each country will mix up its portfolio.”

Jordan, which has no natural resources, imports 96 percent of its energy, and is battling Israeli efforts to undermine its plans of attaining nuclear energy, is looking to shale gas to meet its future energy needs. The kingdom has the world’s fourth-largest reserves of oil shale, an organic-rich, fine-grained sedimentary rock from which liquid hydrocarbons (shale oil) can be produced. Shale oil is a substitute for conventional crude oil, and the oil can also be burned directly for power production similar to coal.

Oil shale represents a significant resource in Jordan — approximately 60 percent of Jordanian territory contains oil shale deposits, which amount to an estimated 40 billion to 70 billion tonnes of oil shale available in the kingdom, according to Andres Anijalg, project director of Estonia’s Enefit, which is operating in the kingdom.

If Jordan was to fully leverage its oil shale resources, it would be able to satisfy its domestic energy needs and be in a position to become a net exporter of energy to neighbouring countries, according to Enefit.

The Middle East accounts for about ten percent of the annual revenue of the energy division of Siemens, with Saudi Arabia being the biggest market.

As countries in the region vie to adapt, refine and restructure their infrastructure, Munich-based Siemens believes it’s in a well placed position to tap the opportunities even beyond the oil-rich Gulf states and in countries affected by the wave of protests over the past two years like Tunisia, Libya and Egypt.

“Power and electricity is something everybody needs despite what government is there,” says Suess.

“These are regions with a heavy growing population... In the end these people need electricity as a base to grow a society. With this heavy growth of population there is a market for us because the infrastructure, electricity, energy are directly touched with the solutions we are offering.”

Siemens technology around the Gulf

In October, Siemens confirmed it had signed a AED400m ($109m) contract to build a new substation in Abu Dhabi.

The company said the new facility will help meet an increase in load electricity demand for new infrastructure and industrial areas in the eastern region of the emirate.

Under the contract, Siemens will build the Shamkha 400/132/33kV substation on a turnkey basis for Abu Dhabi Transmission & Dispatch Company (Transco), which is fully-owned by Abu Dhabi Water & Electricity Authority (ADWEA).

The deal follows last year’s signing of a contract with Transco for the construction of the 400kV Mahawi substation, the first of its kind to be developed solely by Siemens in the UAE.

In July, Siemens won a contract to build a tram system on the campus of Qatar Foundation for Education, Science and Community Development in Doha.

The transport system, which is part of plans to create a car-free site, will serve 25 stations.

When completed, the Avenio trams will run on 11.5km of track without the need for any overhead contact lines.

They will be equipped with the Sitras Hybrid Energy Storage system from Siemens, with energy being supplied at the tram stops. The system will become operational in 2015, a statement said.

In March, Siemens signed a land lease agreement with Saudi Industrial Property Authority for the construction of a manufacturing and service facility in Dammam to serve as a technology hub for knowledge transfer.

Under the agreement, Siemens Energy will lease a 220,000 sq m plot of land in Dammam Industrial City and invest a three-digit million dollar figure in building a centre for the local manufacturing of gas turbines, compressors and heat recovery steam generators as well as repair shops and service facilities for the Saudi market.

East meets West: The Qatari connection

In May this year, Qatar accumulated a small stake in Siemens, Germany’s most valuable c ompany, worth roughly ¤2.4bn ($3.08bn), adding to the natural gas-rich country’s portfolio of minority investments around the world.

In a regulatory filing, the German industrial group said that a subsidiary of the state-owned Doha Insurance Company (DIC) had exceeded the three percent threshold in voting shares on 7 May, which triggered the mandatory disclosure.

The Gulf nation’s immense supply of natural gas have made it so rich, it has been snapping up assets at a breakneck pace as it struggles to find enough attractive investment opportunities to keep up with its constantly growing cash pile.

As a result, Qatar has been the most active of the Gulf region’s sovereign investors in recent years, buying stakes in companies including Credit Suisse, Barclays, Agricultural Bank of China, Santander Brasil as well as London’s famed Harrods department store.

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