Averting Crisis: Managing Energy Use in Abu Dhabi

Lara El Saad

Recognised as one of the world’s largest oil producers, Abu Dhabi, the capital of the United Arab Emirates, holds 94% of the country’s proven oil reserves and 90% of its natural gas, making it the wealthiest of the seven emirates in the federation. In recent years, and despite the recent economic downturn, Abu Dhabi maintained a steady pace of development that was accompanied with steady increases in energy demand and consumption.

This growth of energy demand and consumption has been as result of a number factors. Prime amongst which is economic growth and the demographic pressures of a growing population. But equally important to these factors are the heavy subsidies on the domestic energy market, which encourages overconsumption, and the heavy subsidies on domestic water use, which play a major factor in the growth of energy use in Abu Dhabi.

Energy Cost of Desalination

With very limited renewable water resources of its own, the UAE government has turned to desalination, an energy- intensive process that uses electricity or steam to remove dissolved solids from sea-water to produce water suitable for human consumption and agricultural use.  The United Arab Emirate has the third largest capacity of desalination behind Saudi Arabia and the United States.

Yet while most desalination plants in the UAE are combined with power plants for higher efficiency  – combining reverse osmosis units with the thermal distillation process that uses steam to drive the turbine and generate electricity – the relative size of the desalination operations presents an energy challenge for the future.  In a recent interview, the Abu Dhabi Water and Energy Company (ADWEC) confirmed that 3%-3.5% of total electricity produced in the emirate goes towards desalination, with every 1 million imperial gallon (MIG) of desalinated water produced per day requiring 1MW of power. With the UAE’s water consumption expected to increase at 5% annually, so will the need to increase desalination capacity and the amount of energy consumed.

A future Energy Crisis for a Major Oil Producer

Despite the UAE holding the world’s fifth-largest gas reserves at 6.4 trillion cubic meters (Tcm), with Abu Dhabi alone being home to 5.62 Tcm, Abu Dhabi would not be able to provide enough natural gas to meet the 7%-10% yearly growth in electricity demand continuing up to 2020 (According to ADWEC Global Peak Electricity Demand Forecast for 2010-2020). As illustrated in Figures 1 and 2, the emirate has reached a point where consumption and demand for natural gas has exceeded production and continue to increase.

Figure 1, UAE Natural Gas Production and Consumption, Source: BP, 2011

Figure 2, UAE Natural Gas Production and Demand 2000-2020, Source: Dargin, 2010

Thus while there might be ‘enough resources to meet future demand’  in terms of oil (OPEC’s 2011 World Oil Outlook), Gulf countries including the UAE appear to be facing their own ‘energy crisis’ due to their dependence on natural gas as the primary fuel for electricity generation. According to 2008 estimates, natural gas accounts for 98% of the fuel feedstock for electricity generation in the UAE with the remaining 2% covered by oil (figure 3).

Figure 3, Total electricity production by generation type 1972-2008, Source: IEA, 2010

Generating Electricity in Abu Dhabi

According to the Abu Dhabi Water and Electricity Company (ADWEC), electricity is predominantly generated in Abu Dhabi using gas turbines, steam turbines as part of the combined cycle gas turbine (CCGT), and diesel engines (although the use of the latter has become minimal over the years).  In order to power the turbines, Abu Dhabi receives its natural gas from two sources: The Abu Dhabi National Oil Company (ADNOC); and Dolphin Energy Limited of Abu Dhabi.  ADNOC is a government owned oil and gas company that is responsible for managing and overseeing the production of 2.7 million barrels of oil nationally a day, while Dolphin Energy, an Abu Dhabi financed gas production company, produces and processes non associated natural gas from Qatar’s offshore North Field, transporting the gas via a subsea pipeline to Abu Dhabi.

In terms of fuel provision for generation, ADWEC is responsible for purchasing fuel gas from ADNOC and Dolphin Energy, paying the full economic cost of gas on behalf of the Independent Water and Power Producers (IWPPs) and the Power and Water Producers (PWPs).  ADWEC also oversees any financial settlements as well as supplying the power generators with gas for the turbines.  The fact that ADWEC pays for the fuel gas does not create any financial incentive for the power generators to consider efficiency measures or to consider alternative sources of energy that might reduce their fuel costs.

ADWEC has forecasted that Abu Dhabi alone will need to meet 28,188MW of electricity demand by 2020, yet, according to a statement by the Policy of the United Arab Emirates on the Evaluation and Potential Development of Peaceful Nuclear Energy,“…known volumes of natural gas that could be made available to the nation’s electricity sector would be insufficient to meet future demand, providing adequate fuel for only 20,000-25,000 MW’s of power generation capacity by 2020”. This means that a mere 71%-89% of electricity demand can be met, and that  unless natural gas use is managed or alternative electricity production options are developed, Abu Dhabi could experience the same electricity shortages experienced by Sharjah in the Northern Emirates.

It was also suggested by ADWEC that recent gas shortages in Abu Dhabi have also increased the consumption of oil sold locally at the world oil price; a direction which the government would choose to avoid due to its high marginal cost and its impact on increasing the price of electricity. The government stands to benefit more to conserve oil for export rather than making a loss to meet local power generation needs, and to reinvest the petrodollars into developing the city’s trade, finance, industry, and infrastructure.

Having recognized these concerns, the Abu Dhabi government has recently begun taking steps to diversify its economy and energy mix from a sole dependency on fossil fuels, and to create a market and an industry for renewable energy that will create opportunities for technology transfer as well as job creation.

Understanding the Subsidy

As suggested above, the price of electricity in Abu Dhabi is a major contributing factor to its unsustainable consumption. Electricity is sold to consumers at a heavily-subsidized standard tariff, that is much lower than the total economic costs of electricity. Consumers are charged a subsidized unit rate per kilowatt hour (kWh) that is constant all year round, with domestic Emirati nationals and farms receiving the most generous energy subsidies. Current tariffs paid by Emirati and non-Emirati consumers can be seen in table 1, with lower tariffs implying that a higher subsidy is applied.

Table 1, ADWEA Electricity Tariffs for Final Customers, Source: RSB 2011

Further examination of the data published by the Regulatory and Supervision Bureau (RSB) on electricity use during the hot summer period, shows that if the subsidies were removed, the cost of electricity would increase by nearly 40% for expatriates and 80% for local Emiratis, as shown in tables 2 and 3.

Table 2, Price of electricity Actual vs Subsidized for Expatriate households. Source RSB, 2011

Table 3, Price of electricity Actual vs Subsidized for Emirati households, Source RSB, 2011

Supply and Demand Management

The impact of this released data – which is part of an awareness campaign – on consumer behavior towards a more efficient use of energy and water is yet to be seen. Yet it represents one part of a coordinated educational campaign for public awareness, which includes initiatives such as Heroes of the UAE which aims to make the UAE population more energy conscious.

In addition, the Abu Dhabi government has taken other proactive measures to drive supply-side management and to support the efficient use of electricity, as part of the long-term Abu Dhabi 2030 Plan. The Estidama program, which includes energy efficient building codes and a semi-mandatory green building rating system, represents a major effort to reduce building’s demand for cooling, heating, and lighting by encouraging more efficient designs. The government is also implementing a national requirement for energy labeling of appliances.

Encouraging consumers to use energy more efficiently through such programs, coupled with encouraging sustainable and efficient buildings through Estidama’s Pearls certification, will utimately pave the way for a more energy conscious and sustainable society.

Lara El Saad is an MSc graduate from Imperial College London, specializing in Energy Policy.  Lara currently resides in the UAE and carries five years of energy industry experience.

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