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Middle East Gulf's nuclear shift begins

The UAE is leading the way as the GCC states look to nuclear power to meet surging electricity demand and preserve valuable oil and gas for export, writes Ian Lewis

FACED with spiralling electricity demand, all the Gulf Cooperation Council (GCC) countries are studying the potential of nuclear power. But, so far, only the United Arab Emirates (UAE) has surmounted considerable logistical and financial hurdles to push ahead with a fully fledged programme.

The attractions for Gulf economies are clear. Once built, nuclear power offers decades of cheap electricity that can provide a substitute, or supplement, for dwindling hydrocarbons reserves, with the bonus that they would also be able to export increasingly valuable oil and gas for longer, if they are burning less of it at home. "From many perspectives, the Gulf states have made quite a compelling case for developing nuclear power," says Samuel Ciszuk, senior energy analyst for the Middle East and North Africa region at IHS Energy, a consultancy.

Certainly, the region is in urgent need of more power-generating capacity. Demand is forecast to rise at nearly 10% a year over the next few years, fuelled by economic growth and the need to power the raft of electricity-hungry water-desalination projects being built across the region – at present it costs around $0.50-1.50 to treat one cubic meter of seawater, depending on the desalination process.

Some of the rising demand will need to be met by greater use of hydrocarbons and by renewables, such as solar energy (see box), but nuclear power looks increasingly likely to play an important role.

Initially, the potential of nuclear was investigated at a regional level. The GCC – which groups Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE – said in 2007 that it was studying a joint nuclear-energy programme. But the main impetus is now coming from national, rather than regional initiatives.

The UAE is pushing ahead with its first plant in conjunction with a South Korean-led consortium; Kuwait has drawn up a blueprint for the sector; and Saudi Arabia, which has its own uranium deposits, is examining how much of the full nuclear cycle it is feasible to be involved in.

This trend towards national projects is likely to be maintained, despite progress towards completing the GCC grid, which already links the power sectors of Saudi Arabia, Kuwait, Qatar and Bahrain. (The UAE and Oman are scheduled to complete the regional network in 2012.) Regional observers say the grid is generally regarded as a useful back up during power shortfalls, rather than the basis for a joined-up regional power programme, although it could yet fulfil that role in the future.

Abu Dhabi takes the lead

The UAE, and in particular Abu Dhabi, has been the Gulf leader on nuclear power and, indeed, is the only country in the region with an active programme. "The UAE is the real fast mover in the Arab world," says Ciszuk. Faced with electricity demand forecast to rise to 40 gigawatts (GW) in 2020, compared with 15 GW in 2009, the UAE has acted not only quickly, but also in somewhat unexpected fashion. French and US hopefuls were surprised when, earlier this year, Abu Dhabi selected a consortium led by South Korean state-controlled utility Korea Electric Power (Kepco) to build its first nuclear plants.

Under the contract, worth around $20bn, the consortium will build, commission and provide the initial fuel loads for four third-generation pressurised-water reactors. The consortium also expects to be awarded another $20bn contract to operate the plants for 60 years and hopes to build more plants in the Emirates in the future. The first of four 1.4 GW plants is scheduled to start supplying electricity to the UAE grid in 2017, with the rest operational by 2020.

Kepco's consortium beat a group led by France's Areva and another led by General Electric, despite months of lobbying by the French and US governments and South Korea's much weaker political clout in the Gulf. There is US representation in the winning consortium, however, which includes Westinghouse Electric, now a unit of Japan's Toshiba. Other members include Hyundai Engineering and Construction, Samsung C&T and Doosan Heavy Industries.

Although Abu Dhabi's rulers have some of the world's deeper pockets, the main reason for Kepco's selection seems to have been price. Its bid is believed to have been around $16bn lower than that of the French group. South Korean government support may also have been significant in this regard, but at least some of the cost differential comes largely from the varying specifications of the plants on offer. While Kepco's plant design is considered to be highly robust, the French and US designs are built of even tougher materials designed to withstand the biggest of security threats (see p10) – but, while that may be desirable for some buyers, it comes at a much bigger price.

Abu Dhabi's reluctance to pay that extra cost may trigger a design rethink among western nuclear-plant constructors, worried that potential buyers in the Gulf and elsewhere in the developing world may be keener on cheaper options.

Unless a country is prepared to take on the international community, as Iran has done, developing a nuclear power programme also requires a comprehensive and transparent regulatory system, which satisfies the country's partners in the sector.

Here, the UAE has an edge over some of its neighbours. Its track record of successfully importing internationally recognised legislative frameworks virtually wholesale – for example in the running of its free zones – has helped persuade the International Atomic Energy Agency (IAEA) that the sector will be well managed and transparent.

The UAE is also establishing training facilities for the nuclear industry and the country's wealth ensures it can import personnel with experience in the nuclear sector, notably from Egypt, which already has a nuclear industry staffed by Arabic speakers.

The UAE has also simplified the process of winning international acceptance by deciding not to enrich its own uranium, or reprocess spent nuclear fuel. That reassures its partners that its nuclear programme is peaceful and, crucially, helps win the co-operation of the US, without which trade in components and fuel becomes much more difficult. A nuclear co-operation pact with the US also adds weight to that relationship.

Kuwait's new plans

Kuwait could become the second Gulf state to build a nuclear power plant, if plans drawn up by the National Nuclear Energy Committee (NNEC) can win support of the government and parliament. Ahmad Bishara, the NNEC's secretary general, says Kuwait may build four 1 GW nuclear power plants by 2022 and that nuclear power would be viable if oil prices remained above $45-50 a barrel.

The state has urgent need of fresh power sources, as it is predominantly an oil exporter and produces very little gas. Kuwait is already struggling to find capacity to meet present domestic demand of around 11 GW. By 2030, demand could necessitate capacity of 25 GW.

Friendly ties with foreign partners could help the nuclear programme. Kuwait has signed co-operation treaties with France, the US, Japan and Russia in recent months. The 20-year agreement with France covers the supply of nuclear material, equipment and facilities, as well as information exchange, training and research. Kuwait has been involved in talks with France's Areva on the possible export of nuclear technology to the country. The US pact covers legislation, regulations and radioactive-waste management.

However, the plan will need to surmount potential domestic and international political hurdles if it is to succeed. At home, an expensive nuclear programme will need to be approved by a notoriously combative parliament. Meanwhile, potential western partners will want to be certain any nuclear development in a country bordering Iraq and close to Iran will be secure.

Attention in Kuwait has also focused on nuclear developments elsewhere, as Iran's controversial Russian-built reactor at Bushehr lies directly across the Gulf. Russian and Iranian officials have been keen to reassure worried Kuwaiti officials that the plant, where the first uranium shipments arrived in August, should not present environmental concerns, as its safeguards have been approved by the IAEA.

Saudis look at enrichment

Saudi Arabia could yet beat Kuwait in launching its nuclear programme. But proposals there may herald more protracted negotiations with international partners, as the kingdom is considering enriching uranium from its own deposits in the longer-term, rather than relying on more easily accountable imports.

As the GCC's largest economy, Saudi Arabia has more reason than most to turn to nuclear power. The country needs to find at least another 20 GW of generating capacity by 2020 to add to its existing 40 GW, if it is to meet projected demand growth (PE 8/10 p32). Funding will not be in short supply – Saudi Arabia has earmarked $80bn to increase capacity and expand its transmission network in the next decade. But it is unlikely that nuclear power will provide much, if any, new capacity in the next 10 years, as the Saudi programme is at a much less advanced stage than that in the UAE. In the short-term, conventional power plants and possibly solar energy will need to make up the shortfall.

While plans remain on the drawing board, there have been clear signs of intent over recent months. In June 2010, the kingdom commissioned Finnish management consultancy Poyry to advise on its strategy for nuclear and renewable energy use – to study the economic and technical feasibility of becoming involved in all aspects of the nuclear power chain, including uranium enrichment. Earlier in the year, the government said it planned to build a new technology centre, the King Abdullah City for Nuclear and Renewable Energies, in Riyadh.

Meanwhile, US engineering firm Shaw Group has teamed up with Japan's Toshiba and Exelon Nuclear Partners to investigate opportunities for winning nuclear power business in Saudi Arabia. Shaw already advises the kingdom on aspects of its existing power infrastructure.

French firms will also be hoping to gain contracts in Saudi Arabia, after losing out in the UAE. Their cause will have been helped if a nuclear power co-operation pact between France and Saudi Arabia is signed – something the Saudi government has said it wants to do. The US and Russia are also interested in strengthening their links with Saudi Arabia in the sector.

Wait and see

The other three GCC states are adopting a wait-and-see position on whether to proceed with nuclear power, although they have all looked at the possibility. Bahrain has been in discussions with the US, Russia, the IAEA and others on safeguards and regulatory issues, but has yet to enter into full agreements. In Qatar, an official at Kahramaa, the state-owned power company, said in 2008 that the country's interest in nuclear power had receded with the fall in oil and gas prices. Oman has also decided against pursuing a national programme, though it says it could participate in a regional initiative.

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