Abstract
Electricity reforms are not in contradiction with a fuel diversification policy, but introducing new fuels and new technologies (renewables for instance) would require the State to intervene directly or indirectly. Regulation will play a critical role and changes in fuel offerings will require a delicate balancing act. They will test all already established market models in the region and will challenge decisions to deregulate further. Out of the 18 countries in MENA, 12 are hydrocarbons exporters (8 of which are OPEC countries). Hydrocarbons dominate the fuel mix, and natural gas has been considered as the fuel of choice for power generation. But natural gas will need to be complemented by other fuel sources. In some countries, oil-fired generation continues to prevail, while other alternatives are considered: renewables, nuclear and coal. Evolving fuel prices could be viewed as challenging for any introduction of an additional degree of deregulation. The transition is meant to accompany the country as it transforms from a fuel exporter to a fuel monetizer and then to a mature economy.
Energy companies do not determine the energy mix, governments do, through granting permits, imposing or lifting taxes and providing subsidies. The energy mix is a government decision
Jeroen Van der Veer, former CEO Royal Dutch Shell, the 10th International Oil Summit, April 2009
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Notes
- 1.
Asian countries are becoming important players in providing services, sometimes technology and even investment to build generation plants or other electricity projects, as part of their effort to improve ties with Middle Eastern countries. With special financing and other incentives on offer from Asia, and in some cases fuel to supply the power sector, Middle Eastern countries could have limited incentives to establish open competitive power markets, with the rise of Asian players.
- 2.
These new local actors investing in power assets include examples like TAQA and Liwa Energy (Abu Dhabi), Oman Oil Company and Gulf Investment Corporation.
- 3.
Shuaiba, in Saudi Arabia, is the largest oil fired plant worldwide (conventional steam oil 11 × 400 MW, operational in 2008). It benefited from integrated design and EPC components as well as from lower operating costs.
- 4.
Morocco for example still plans to launch its 1320 MW coal IPP at Safi, on a 30 year BOT basis. According the a ONE study, a clean coal power plant will produce electricity at less than $0.05 per kWh, compared with $0.06 for coal gasification, more than $0.06 for wind and more than $0.08 for marine wave energy, and less than $0.04 for nuclear.
- 5.
In recent power plants, the operator simply needs to push a button to switch from gas to distillates.
- 6.
The regret cost here refers to the regret of making a decision to use coal which later turns out to have been unnecessary since a cheaper alternative became available.
- 7.
The aviation industry was an important contributer. The technology that made turbines more efficient came from military aircraft and efforts for jet engines’ cost reduction was an outcome of the US deregulation of airlines.
- 8.
It is becoming more difficult for these countries to secure gas from their resource-rich neighbors. Qatar for example seems to be less in a hurry to conclude additional pipeline exports contracts to gas-tight neighboring countries. It rather prefers LNG exports even for such short distances. There are multiple reasons for this preference. Qatar could play a strong regional role without necessarily being the pipeline gas hub provider. Moreover, regional pipeline gas contracts have been “negotiated” at low levels. Although the “$1 per MMBtu gas” mindset has changed, securing higher prices will be easier through LNG. LNG is flexible and allows for cargo trading and switching (particularly given counter-seasonal regional needs from Qatar’s main LNG customers). Most GCC countries have embarked on the same industrialization policy as Qatar using low gas prices as a competitive advantage as well. Pipeline gas projects are at the mercy of political tensions, particularly given the numerous unclear territorial or maritime demarcations in the Gulf region. Even the primary Dolphin concept has partly broken down (prices, costs, nominal “exclusive” supply rights and finally Abu Dhabi developing its own sour gas potential). The project was originally meant to move to further phases and turn Qatar and Abu Dhabi into a regional hub, but this is highly reliant on Qatar increasing its commitments.
- 9.
One example outside of the region is the Nam Con Son/Phu My gas/power project developed by Petrovietnam and a BP-led consortium.
- 10.
A successful example of gas strategy definition is the Egyptian one as this country clearly emphasized its gas-exporting strategy and its long-term goals.
- 11.
A good illustrating example of “economies of scale” is the 3000 MW–740,000 t/a Phu My Power-fertilizer complex in Vietnam, which is part of the Nam Con Son gas project developed by Petrovietnam. However, the Phu My project is more the exception than the rule as most integrated gas projects that assumed a large power (and a large power off-take) component remained on the drawing board, e.g. the Southeast Asian Gas pipeline network; and most successfully completed gas initiatives that involved foreign investment actually assumed more modest sizes of power generation capacity building (e.g. The Bilbao terminal, operated by the Bahia de Biskaia (BBG) consortium—Iberdrola, the Basque Energy Agency, Repsol and BP—is integrated with an 800 MW power plant. It is Europe’s first integrated regasification and power complex and aimed to link gas reserves in Trinidad to a commercial outlet in Spain).
- 12.
Nuclear ambitions are not new to the region. The first efforts date back to the post World War II period, and some continued during the cold war. Some were officially linked to power generation; others were suspected to be for less-peaceful purposes.
- 13.
The research reactor at Tehran University was reportedly a project under Eisenhower’s Atoms for Peace program and was built by American Machine and Foundry Company. It intended for the study of isotopes and other peaceful/medical purposes. Originally, it had highly enriched fuel but apparently in the 1980s was altered to use 20% enriched fuel. The US negotiated intermittently with the Iranian government over a period of about 5 years on a new treaty on the peaceful uses of nuclear power so as to join other countries in constructing power plants under the Shah’s nuclear power program. The final accord on the text was reached in 1978, but in view of the political instability at the time was not submitted to the Senate. The revolution froze the talks.
- 14.
The November 15 2007 report from the IAEA’s Director General to the Board of Governors indicates Iran had finished installing 18 164-cascades (around 3000 centrifuges) in Natanz. It reports a level of enrichment of 4%, while Iran has stated it reached 4.8% U-235. The report certifies that the Agency has been able to verify the non-diversion of declared fuel material in Iran, but raises different issues around its own knowledge of the Iranian nuclear program, the non-suspension of enrichment activities, the reactive rather than proactive cooperation, and the non implementation of the Additional Protocol of the NPT.
- 15.
Historical examples include Urenco (a consortium of the British, German, and Dutch governments) and Eurodif (European Gaseous Diffusion Uranium Enrichment Consortium).
- 16.
The GCC leaders reiterated their call for a peaceful resolution of the Iranian crisis, called on Iran to continue dialogue and cooperation with the IAEA, and to consider the environmental aspects of the issue. They renewed their call for a Middle East free of weapons of mass destruction, commissioned a joint study on the use of nuclear technology for peaceful purposes according to international criteria, and urged Israel to sign the Nuclear Nonproliferation Treaty. When asked about this declaration, The US Department of State stressed that the United States and the GCC have “a very close working relationship and one that has actually become increasingly close over the past months as they perceive the same kind of threats to the region that everybody else has seen.” In addition, the US Department of State noted that the United States supports the right of countries to develop peaceful nuclear energy. It also stated that the United States has a great interest in working with individual states that have expressed an interest in developing peaceful nuclear energy. It then cited Egypt as an example.
- 17.
Lithuania, in the framework of its EU membership negotiations, committed to totally shut down its Ignalina plant by the end of 2009. Given Baltic countries’ concerns about gas supplies from Russia and high hydrocarbons prices, they have launched the idea to build a new nuclear plant. A working group was formally set up in July 2007 and started the work on establishing a national investment company with Estonia, Latvia and maybe Poland participating in it.
- 18.
In Shell’s long-term “Scramble” scenario, little attention is paid to environmental issues in the early years, with coal being used to plug the gap caused by a lack of easy to develop oil and gas supplies. In the near-term, this would satisfy a “step-change” in energy demand growth caused by the rapidly growing appetite of developing nations. But after 2020, logistical constraints and escalating environmental problems result in a shift in emphasis. Various demand levers must be pulled and new technologies come in, especially second generation biofuels as climate stress becomes apparent. But, even then, neither the demand side measures nor renewable energy supplies are sufficient to avoid surpassing 550 parts per million (ppm) of atmospheric CO2 by 2050.
To avoid the dangers of the energy security driven Scramble scenario, Shell uses an alternative called “Blueprint” in which incentivized energy efficiency, more renewables and carbon capture and storage are recognized as necessary in the next few years. This is where proactive government intervention comes into play, and the oil industry on its own cannot make the changes that are required. The reduction in energy intensity associated with starting these programs in 2010–2012 should result in lower CO2 emissions by 2020, making long-term sustainable carbon levels below 550 ppm feasible. Renewable fuels will play a bigger role, but nuclear power will struggle to stay even because of the need to compensate for massive de-commissioning of existing plants over the period. Blueprint scenariois seen as beneficial to Shell as it allows the company to take advantage of its technology edge.
- 19.
Source IEA. This investment figure is usually compared with the $545 billion earmarked for the hydrocarbons sector during the same period. Although the renewables investments appear to be minimal, it is important to note that several countries in the region are hydrocarbons exporters. Therefore, we argue that the two figures are not comparable.
- 20.
Abu Dhabi’s active involvement allowed it to host the headquarters of the International Renewable Energy Agency (IRENA). It pledged to spend $136 million to fund the Agency.
- 21.
Source: IEA 2000.
- 22.
For example, Saudi Arabia emitted in 1998 around 250 million tons of CO2, and that represented at the time only 1% of global CO2 emissions and 18% of emissions in the Middle East and North Africa. Source: Earth Trends.
- 23.
The Emirates Wildlife Society-World Wide Fund for Nature was created in 2001 and is under the patronage of Cheikh Hamdan bin Zayed al Nahyan.
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Benali, L. (2019). Prospects and Future of Reforms: Fuel Mix Options. In: Electricity-sector Reforms in the MENA Region. Perspectives on Development in the Middle East and North Africa (MENA) Region. Springer, Cham. https://doi.org/10.1007/978-3-319-96268-9_9
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