Related Articles
Forward article link
Share PDF with colleagues

UAE—all hands on deck

The country is adopting a new energy identity which gives emirates, other than kingpin Abu Dhabi, greater and more diverse roles

Six emirates united under the UAE flag at a time when towns were slowly emerging from empty desert, caravans of camels decorated the horizon and agents of foreign energy firms examined dog-eared maps on the heated bonnets of their 4x4s. Since that day in December 1971, the energy paths of Abu Dhabi, Ajman, Dubai, Fujairah, Sharjah and Umm al-Quwain have differed hugely. Ras al-Khaimah joined the UAE a year later. For nearly half a century, Abu Dhabi, and Dubai to a lesser extent, took the lead in fossil-fuel production and consumption.

But now the playing field is beginning to level out as other emirates leverage their natural resources. Three key triggers are spurring change. The first is the need to preserve the UAE's energy security, with a growing population—the Arab Petroleum Investments Corporation expects the country's power demand alone to climb by up to 6% per year until 2021. Secondly, the UAE is seeking to safeguard affordability, especially with lower oil prices. Finally, there's the government's desire to adhere to an ever-thickening low-carbon rule book and very public commitments to the Paris Agreement.

The emirates' roles are various. Dubai is emerging as a low-carbon pioneer of global standing, Fujairah's port is a one-stop global 'parking lot' on the historic east-meets-west energy trade route and Sharjah is ramping up its energy ambitions. Situated in the geographic line of cash flow from China's 'One Belt, One Road' initiative and India's 'Think West' policy means the emirates' plans will likely be buoyed by a reliable slice of the foreign-direct-investment pie.

UAE Minister of Energy and 2018 Opec President Suhail al-Mazrouei is the respected communicator of the biggest overhaul of the country's energy strategy since Abu Dhabi first exported oil in 1962, with Dubai following seven years later. Nearing his mid-40s with a calm manner and a dry sense of humour, with the media at least, Mazrouei adds an air of resolve to the emirates' bold plans.

The Port of Fujairah carried 19% of the world's daily oil supply last year

The UAE launched its 'Energy Plan 2050' in January 2017, with the aim of increasing clean-energy use by 50% and improving energy efficiency by 40%. Under the plan, the UAE's energy mix will comprise 44% from renewable energy, 38% from natural gas, 12% from so-called "clean" fossil fuels (such as carbon capture and storage, and new-generation coal-fired power plants) and 6% from nuclear energy. The latter raises some eyebrows, for fear of opening a Pandora's box of political woes if mishandled. But so far, so good. Situated around 300 km (186 miles) west of Abu Dhabi, the $20bn Barakah nuclear power plant will be operational by 2020. Overall, $163bn has been earmarked for spending on greener energy by 2050.

One need binds the emirates' ambitions: more cash. The UAE's GDP growth took a recent hit, more than halving from 3% in 2016 to 1.3% in 2017, according to last October's International Monetary Fund's World Economic Outlook. But the horizon is brightening, with 3.4% expected this year. Bullish forecasts signal a green flag to international investors, harnessing their attention as competitive opportunities tempt them eastwards, particularly towards China, India and the Philippines. The same applies to the UAE's decision to introduce VAT, alongside Saudi Arabia, for the first time from 1 January. Generating approximately $3.3bn this year and following fuel subsidy cuts from August 2015, the emirates' financial acumen is becoming sharper.

Surging solar power

Dubai has scaled the global league table of low-carbon pioneers at speed over the past five years, adding green superlatives that have become synonymous with the emirate's aspirational ethos. The Mohammed bin Rashid Al Maktoum Solar Park is the largest single-site facility of its kind in the world, based on the independent-power-producer model and will cover 214 sq km when completed in 2030, following a $13bn investment. Wider market influences—both economic and natural—are helping Dubai considerably. Commercially available solar-panel efficiency worldwide jumped from 15% to 22% in the past five years, after two decades of near stagnation, according to the World Economic Forum. And Abu Dhabi-based International Renewable Energy Agency estimates that around 60% of the GCC's surface area has strong suitability for solar photovoltaic deployment. Google maps reveals one of the UAE's geographic bonuses: 117 inhabitants per sq km. Up to 350 days of sunshine a year doesn't hurt either.

But that's only half the journey. Dubai could strengthen its foothold in what's an increasingly competitive space by solving challenges that are hindering projects worldwide. At the top of the list is the need for affordable storage to alleviate intermittency issues and other practical and financial handicaps incurred by weather. In the UAE, dust and humidity are troublesome bedfellows, for example. Dubai is taking steps to overcome obstacles, with ventures. Last October, Dubai Electricity and Water Authority launched an investment subsidiary, Jumeirah Energy International (JEI), in Silicon Valley, California. JEI will focus on research and development and innovative technologies, encompassing low-carbon growth.

50%—Targeted clean energy growth by 2050

On the eastern side of the UAE, a barren but striking introduction to Fujairah through sharp-edged mountains belies the hive of industrial activity that awaits on the coastline—the world's second-largest bunkering hub. Advantageous geography puts the port just south of the Strait of Hormuz, the world's most important oil transit chokepoint. Traffic on the waterway carried 18.5m barrels a day of oil last year, around 19% of the world's daily supply, according to the US Energy Information Administration. The very large crude carrier jetty established at the port in September 2016 was the first on the Indian Ocean coastline of the Arabian Peninsula. A 35-year concession agreement signed in June last year granted Abu Dhabi Ports exclusive rights to develop infrastructure, including berths suited to larger vessels and 300,000 square metres of storage.

But it will be Fujairah's ability to become a key player in the Middle East's budding plans to establish a regional trading hub with global reach that will validate the emirate's logistical, diplomatic and economic mettle. The same applies to conversations to introduce independent oil product price benchmarks for the Middle East and facilitate clients' adherence to the International Maritime Organisation's ruling in October in 2016 to reduce the sulphur cap for bunker fuel. The cap will fall from 3.5% to 0.5% by 2020—a mere two years from now—and consultant Wood Mackenzie estimates that global bunker fuel costs could rise by up to $60bn annually from 2020. Fujairah also needs to keep in mind that just 800 km south on the same coastline, Oman's new flagship port of Duqm is quickly gaining traction with international investors.

Gas for the north

Momentum is also building in Sharjah, the country's third-largest emirate. In November 1978, a team of engineers crisscrossing 600,000 acres (2,428 sq km) of Sharjah's desert pinned down a sweet spot, the Sajaa asset. Drilling on the Sajaa-1 well in May 1980 reached 16,656ft—roughly six times the height of the world's tallest building, the Burj Khalifa tower in Dubai—and heralded the largest gas discovery in the UAE at the time. Three decades later, Sharjah National Oil Company (SNOC) was established and handed the keys to operate and manage the assets and meet the northern emirates' energy needs.

In November last year, a 60:40 joint venture between SNOC and Germany's Uniper completed a feasibility study for the implementation of an offshore liquefied natural gas import terminal in the emirate, which includes a floating storage regasification unit at Hamriyah Port with approximately 180,000 cubic metres of storage capacity. The front-end engineering and design stage is underway, with the project coming online in 2019. A decade-long gas sales agreement with Sharjah Electricity and Water Authority and a few others falls below the regasification capacity of up to 1bn cubic feet a day, leaving plenty of room for Sharjah to widen its customer base. Ras al-Khaimah is also expanding its repertoire, with state-owned RAK Gas expected to launch an oil and gas upstream licensing round in March.

The emirates' efforts come in good time. Pressure to safeguard energy security will only mount, with the UN forecasting a 17% rise in the UAE's population to around 11m by 2030—quite a leap from 70,000 in 1950. Plus, competing energy stakeholders in the Gulf, not to mention nearby Iraq and Iran, are faced with similar challenges and are finessing their strategies. Abu Dhabi can't be expected to keep pace alone, but it remains to be seen how much taller its fellow emirates will become.

Also in this section
Three steps to support good governance
3 July 2020
The oil and gas industry should take action to improve governance and promote sustainable development in Africa
Letter from Canada: Alberta’s oil sands in the rifle hairs
3 July 2020
The Alberta government and Western Canadian oil industry love to blame Prime Minister Justin Trudeau and the federal government for the lack of oil pipeline capacity leaving the region, but in fact they should largely blame themselves
The Kazakh Lion in winter
2 July 2020
Kazakhstan’s former long-time leader is approaching a landmark birthday. But he is resisting any temptation to mark it with a comeback