UAE - Energy gap
Published 22 December 2014
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0.1 This publication was archived on 5 August 2016.
This article is no longer current. Please refer to Overseas Business Risk - United Arab Emirates.
0.2 Summary
The UAE is the world’s eighth largest oil producer, but it exports almost all it produces. It meets most of its domestic energy demand with gas (some its own, some imported), which is cheaper than oil. But its energy demand is growing. The UAE is trying to meet this challenge by increasing domestic gas production, diversifying sources (nuclear, renewables) and constraining demand. Opportunities for UK exporters and IOCs; and for more investment in the UK as the UAE tries to become a global player in clean energy.
0.3 Detail
Global leader in oil and gas production…
The UAE’s reserves of both oil and natural gas rank in the world’s top 10.
Oil:
• The UAE holds the seventh largest proven oil reserves in the world (7% of global proven oil reserves, about 98 billion barrels), which is expected to last 81 years.
• It is the eighth largest oil producer: daily production averaged 2.8 million bpd in 2013 - coming almost equally from onshore and offshore fields. The UAE intends to increase average production to 3.5 million bpd.
• The UAE remains OPEC’s second largest oil exporter. In 2013, they exported 96% of their average daily production, most of it to refineries in Asia. Exports rely significantly on the Strait of Hormuz and so could be at the mercy of any troubles with Iran. To reduce this dependence, the UAE has built a pipeline running from the main field in Abu Dhabi’s western region to Fujairah (one of the northern Emirates) on the other side of the Strait. This pipeline opened in July 2012 and channels close to 50% of the UAE’s overall production.
Gas:
• The UAE is endowed with the world’s seventh largest gas reserves (215 trillion cubic feet), which are expected to last 100 years.
• It is the sixteenth largest gas producer - 1978bn cubic feet (bcf) in 2013.
So why is the UAE importing gas?
Over 99% of power generation in the UAE is fuelled by gas. Importing gas is cheaper and cleaner than using oil. While the UAE produced 1,978 bcf in 2013, it actually needed 2,412 bcf, broken down as follows: 50% to meet domestic energy demand; 40% to facilitate oil extraction; and 10% for liquefied natural gas (LNG) exports, almost all to Japan under a 10-year contract which will expire in 2018 and will not be renewed.
So the UAE has a gas shortfall of around 450 bcf and expected to rise. To fill this gap, the UAE imports natural gas from Qatar via the Dolphin Pipeline
Dubai has built an LNG terminal at Jebel Ali port next to a major power plant. An LNG terminal is also being built in Fujairah, outside the Strait. While LNG is more expensive than piped gas, it provides some resilience.
A further source of piped gas will come on stream if the long running contractual dispute with the National Iranian Oil Company (NIOC) over the supply of gas to Sharjah is resolved. But the infrastructure is in place and maintained.
Future supply/demand: a growing gap
As one of the world’s fastest growing economies (5.2% in 2013), the UAE’s domestic energy demand is growing exponentially. Power consumption is projected to rise to 40GW by 2025, from roughly 22GW at the end of 2011. This would hugely increase the gap to be filled either by gas imports or by other energy sources.
Filling the gap
The UAE is taking steps both to increase and diversify energy supply, and to constrain demand:
• Gas: domestic gas production could be increased by exploiting the country’s large sour (high sulphur) gas deposits. Capital costs are steep and the high sulphur content presents major challenges. But production from the first sour gas processing project is due to come online at the end of this year, adding a further 177 bcf p.a. to the UAE gas network..
• Nuclear: in December 2009, the UAE awarded a $20 billion contract to the Korea Electric Power Corporation (KEPCO) to construct four nuclear reactors, with a total capacity of 5.6GW. All four reactors are scheduled to be operational by 2020, delivering up to a quarter of Abu Dhabi’s electricity needs. As of now, the first reactor is 61% complete and expected to come online in 2017. This is currently the most developed nuclear power programme in the region. British companies have been at the forefront of winning work in the UAE nuclear supply chain: at least eight companies have won contracts with a total value in excess of £37 million.
• Renewables: the UAE is seeking to increase renewable energy production (mostly solar). Two solar power plants are already operational: 100MW in Abu Dhabi and a 13MW in Dubai. Further projects worth about USD 1 billion are under execution. Dubai’s target is to have around 30% of power from clean sources by 2030 (5% solar, 12% from Abu Dhabi’s nuclear, 12% clean coal). Waste-to-energy is another area for development, not least because residents of UAE produce an average of 2.5kg waste per person daily. So far, only Sharjah have commissioned a plant, to be delivered by the UK’s Chinook energy. (The UAE is also aiming to become a global player in renewable/clean energy technology and investment. Masdar, owned by the Abu Dhabi government, is investing over £1bn in offshore wind in the UK, and claims that its current projects will generate 1GW clean/renewable energy worldwide.)
• Tariffs: the UAE government trying to encourage more efficient energy usage. For example, following a recent announcement, Emiratis in Abu Dhabi having to pay for water for the first time, and face slightly higher costs for electricity. And expatriates in Abu Dhabi will see their water bills increase by at least 170% and electricity by 40%.
• Technology: the UAE is beginning to implement Carbon Capture Utilisation and Storage (CCUS) as an alternative means of gas injection in the oil recovery process. Injection is expected to start in 2016, freeing up natural gas as well as reducing carbon emissions.
Energy Strategy
Energy management, supply, and power generation are devolved to the seven individual Emirates. They have varying balances of supply and demand, and export/import energy to/from each other. .
0.4 Comment
Steps are being taken to diversify energy sources, improve resilience, increase the proportion of renewable/clean energy and constrain demand. But the development of an energy gap will remain a risk. Lower oil prices will reduce the surplus available for purchase of other energy sources. The development of new energy sources brings major opportunities for UK companies. We should continue to pursue UAE investment in renewable/clean energy in the UK. The World Future Energy Summit and Sustainability Week in Abu Dhabi next month will provide strong opportunities to demonstrate the value of the UK as a partner in this field.
0.5 Disclaimer
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