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Christian Hoffmann |

Market Analysis Middle East: On the road to diversification, efficiency improvement and resource savings

After concluding the passage through the fast growing Chinese and Indian economies last month, we will open a new chapter on the Road to Daegu as we start our journey into the Middle East: An important region with growing economies and rising electricity demand, fueled by oil and gas abundant resources, and facing key challenges ahead in terms of power generation diversification and efficiency.

Throughout history, the Middle East has been at the core of several world events, in terms of economics, politics, culture, religion and energy development. In fact, the role that the Middle East has in shaping the energy markets is crucial in understanding the fuel price dynamics.

In the last century, the rise of the oil industry brought a distinctive characteristic to the region, which now has 54 percent of the world´s conventional oil proven reserves. Another aspect, the region has over 90 percent of its electricity powered by fossil fuels, particularly oil and gas. By achieving this position, it is clear that the role the region plays in the worldwide energy supply will remain strong in decades to come.

But other events in other corners of the world may have an impact on the Middle East status quo. For example, the recent unconventional oil and gas developments in the United States and Canada are adding an additional flavor to the global energy markets. It is expected that, along with the current oil production and the Iraqi output growth, the additional North American production will contribute to exceed the global oil demand. This, in turn, may drive prices down and the Middle East may have to reduce its production and increase its oil spare capacity. Analysts forecast that these developments will push oil prices down from the current high level. On the other hand, the political instability in some countries may cause variations in this assumed trend.

It is a fact that the Middle East is very resource-rich such as oil and gas and will continue to be for many years. But resources like oil and gas, considering the world energy appetite, may not last forever. It is expected that world’s oil production from existing fields will be reduced by two thirds by 2035 and will have to be replaced, either by new fields or by new sources of energy.

This is an important alert toward energy efficiency measures. As the population grows, income levels rise, access to air conditioning systems increases in warm environments and rising industries push electricity consumption up, the countries in the Middle East have a key task to improve its efficiency and save resources for exports and for the generations to come.

There are many ways that these efficiency measures could be implemented. One would be by replacing oil-fired steam power plants with efficient combined cycle power plant; another would be by converting existing simple cycle power plants into combined cycle power plants. Finally, including renewable resources into the grid could minimize the use of oil and gas for power generation. This would enable additional oil and gas export capacity. Moreover, renewable resources would reduce the carbon footprint in the Middle East.

According to our estimations, oil and gas will definitely still play a predominant role in the countries´ power generation mix, but renewable power generation will grow fast. By 2030, almost half of the current installed capacity - over 350 GW - will have to retire, which will require over 600 GW of new additions:

• Combined cycle power plant installed capacity (in GW) will increase its participation in the power matrix from 30 percent to almost 40 percent by 2030, fostered in countries like Egypt, Kuwait, Qatar and Saudi Arabia.
• Engines will have a larger decentralized generation role wherever there is no central generation. By 2030, it is expected to reach over 100 GW of installed capacity.

Clean power generation will also add diversification to the power mix (percentage of total installed capacity):

• Additions in solar power may reach 10 percent of the installed capacity and will be driven in countries like UAE, Iran, Kuwait, Qatar and Saudi Arabia.
• Wind, fostered mainly by Egypt, Pakistan and Saudi Arabia, will play a minor role despite the fast growth that will make the source represent 5 percent;
• Nuclear may represent a minor share by 2030, fostered by UAE, Iran, Kuwait, Pakistan and Saudi Arabia.
• A minor role will also be played by hydro, mainly in Pakistan. In fact, water can be a crucial bottleneck for the power generation development in the Middle East.

In the power transmission side, robust grid interconnections will be necessary to integrate the growth of renewable sources and the additional fossil power generation capacity. It is unclear, however, how a regional coordination will be worked out in terms of regional grid interconnection, considering the different stakeholders´ interests and political instability in some countries.

All in all, by shifting inefficient power plants to highly efficient combined cycles and introducing new power generation sources, the Middle East will be preparing its country to be more competitive worldwide, to diversify its industry which is highly concentrated in the oil and gas business, and, last but not least, to save oil and gas for exports.

For this purpose, top notch technologies will have to support this important transition in the Middle East countries.

Dear readers, 

How do you see the developments in the Middle East energy markets? How strong will the Middle East be impacted by the unconventional oil and gas development in other regions? What other paths could the Middle East take to save resources, improve efficiency and reduce its carbon footprint?


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