It has been 50 years since Dubai first struck oil in the Fateh field, but in 2016 the emirate’s determination to ensure it did not become dependent on petroleum wealth is paying dividends. Although the impact on its neighbours of lower global oil prices may have an indirect impact on Dubai’s fortunes in the years to come, in the immediate future its energy policies revolve around reducing consumption and diversifying the mix of primary energy sources it uses to generate power and desalinated water for its citizens.
Technological innovation and commercial acumen are driving the adoption of solar solutions, so much so that in 2016 Dubai’s energy planners announced that they expected renewables to account for 25% of the emirate’s needs by 2030. In 2014 its renewable targets were 1% by 2020 and 7% by 2030.
Oilfields
According to the US Energy Information Administration (EIA), 94% of the UAE’s total oil reserves of 97.8bn barrels are in Abu Dhabi, with the other six emirates sharing the remaining 6%. The EIA estimates Dubai’s proven oil reserves at just over 4% of the total, or 4bn barrels.
An exploration concession was first granted to Continental National Oil Company by Sheikh Rashid bin Saeed Al Maktoum in 1963, and first oil was discovered in the offshore Fateh field in 1966. In 1970 the South West Fateh field was discovered, followed by the Falah field two years later and the Rashid field in 1973. By 1988 Fateh and South West Fateh were producing 2bn barrels of oil a year. The fields were brought under state ownership in 2007 and are managed by Dubai Petroleum Establishment.
BP’s “Statistical Review of World Energy 2016” shows that the UAE has the world’s seventh-highest crude oil reserves and that they have not changed substantially since 2012. The UAE’s share represents 5.8% of global proven reserves. Enhanced oil recovery (EOR) techniques have allowed the country to extend the life of its mature fields, nearly doubling its proven reserves over 10 years, though there have been no recent finds. The UAE has several oil streams, but most of its exports are of a light, sweet crude from the Murban field. In July 2014 it began to export a new crude stream called Das, which is blended from two existing streams, Umm Shaif and Lower Zakum.
According to the BP figures for 2015, the UAE was the world’s eighth-biggest crude oil producer after the US, Saudi Arabia, Russia, Canada, China, Iraq and Iran and the second-largest producer in the Organisation of Petroleum Exporting Countries. The UAE produced 3.9m bpd in 2015, up 5.3% on 2014. Crude oil consumption in the UAE rose by 6.4%, from 832,000 bpd in 2014 to 901,000 bpd in 2015. Petroleum imports include fuel oil, petrol and diesel.
Natural Gas
Although it has the world’s seventh-largest proven natural gas reserves, with 6.1trn cu metres, the UAE has been a net importer of gas since 2008. Around 30% of the country’s gross natural gas production is re-injected as part of EOR techniques, and natural gas is the main fuel used to generate electricity and desalinate water, leaving the country with a trade deficit for the commodity.
BP data shows that natural gas production increased by 2.8% from 54.2bn cu metres in 2014 to 55.8bn in 2015. Consumption grew from 66.3bn cu metres to 69.1bn (4.3%) over the same period. There are relatively high levels of sulphur in the UAE’s natural gas, which makes it corrosive and difficult to process. In the past, the country flared the associated gas at the well heads rather than attempting to separate out the sulphur, but innovative techniques and environmental awareness have helped to reduce this practice. Most of the UAE’s natural gas is imported through the Dolphin Pipeline from Qatar. The pipeline has a capacity of 90m cu metres per day after a recent expansion, and according to the EIA, 51m cu metres per day was exported to the UAE in 2014. Dubai also imports liquefied natural gas (LNG).
LNG Terminal
In 2010 the Dubai Supply Authority (DUSUP) completed construction of Jebel Ali Port’s LNG terminal. Chilled liquid gas is imported via a floating storage and regasification unit, which regasifies the LNG using seawater and a heat exchanger before transporting the gas ashore by pipeline. In 2015 the unit was replaced with a larger ship, the Explorer, which is owned by Excelerate Energy and Exmar, on a 10-year charter agreement with DUSUP. The terminal has a capacity of 3m tonnes per annum (tpa).
The UAE’s minister of energy, Suhail Mohamed Faraj Al Mazrouei, hinted in April 2015 that the Jebel Ali facility might be expanded, and in February 2016 sector news site World Maritime News reported that global marine terminal operator DP World signed two contracts for construction on Container Terminal 4 at the port. The first, with Dubai-based Dutco Balfour Beatty, is for an operational yard with a quay length of 1200 metres and the second, with BAM International Abu Dhabi, is for a 400-metre bridge and adjacent causeway, as well as a 2.2-km quay wall. The UAE already plans to build a 9m-tpa terminal at Fujairah, which is the only emirate with a Gulf of Oman seaboard, meaning ships can call there without having to pass through the Strait of Hormuz into the Gulf.
Refining
According to BP data, the UAE’s crude oil refining capacity increased 1.2% in 2015, but by 61% from 710,000 bpd in 2013 to 1.14m bpd in 2014. This was primarily the result of a substantial increase in capacity at the Ruwais facility, the largest of the country’s five refineries, which went from 400,000 bpd to 817,000 bpd. In addition, the EIA reports that there are plans to build two new refining complexes on the Gulf of Oman. A 200,000-bpd facility is planned for Fujairah by 2020, and by 2018 a 230,000-bpd refinery, jointly owned with Oman, could be completed in Duqm’s special economic zone in Oman. Dubai’s own plans to build a refinery have slipped from the agenda since a memorandum of understanding was signed by the Dubai Supreme Council of Energy (DSCE) and China Sonangol in 2013. The UAE’s significant growth in refining capacity is part of a strategy to focus more on higher-value downstream products and to reduce imports of petrol, diesel and fuel oil.
Lower Prices
Although Dubai benefits from the UAE’s oil wealth as a member of the federation, its wider global reputation is based on its non-hydrocarbons activities, with retail, tourism and transport among the key sectors driving its economy. As global oil prices have since fallen from a peak of $112 a barrel for Brent Crude in June 2014, the Dubai government approved a Dh46bn ($12.5bn) budget for 2016 in December 2015. By that time the price had fallen to a low of $35.98 a barrel. Even so, the Dubai Department of Finance was able to report that in 2014 government revenues had increased by 11% year-on-year, while oil revenues accounted for just 4% of government revenue, down by 5% on the previous fiscal year. The implication was that the budget would be planned with prudence, but not governed by panic. “If the economy doesn’t grow at the predicted pace or you have disruptions in supply, the market can become imbalanced, leading to movements in price,” Christopher Bradley, country chairman for Chevron in the UAE, told OBG. “Most capacity comes onto the market in big chunks, through long-lead-time investments. Over the past few years, supply increased more rapidly than demand partly due to growth in US crude oil and natural gas production from shale that was enabled by technology improvements in the industry,” Bradley continued.
Oil & Gas Firms
Although Dubai’s crude oil production may seem distinctly modest when compared to many of its GCC neighbours, the emirate is an important hub for oil and gas traders and is viewed as a gateway city by many international companies working in hydrocarbons or downstream businesses. This was a point made by a delegation from Jebel Ali Free Zone (JAFZA) at the Abu Dhabi International Petroleum Exhibition and Conference in November 2015. They pointed out that 736 leading oil and gas multinationals have regional bases at JAFZA, and that in 2014 firms from the sector based at the free zone generated Dh52bn ($14.2bn) in business, a 13% increase on the previous year.
“Despite lower oil prices, the chemicals, oil and gas sector in the UAE and the region remains buoyant,” Sultan Ahmed bin Sulayem, group chairman and CEO of DP World and of Ports, Customs and Free Zone Corporation, told the Emirates News Agency. “The oil producing countries in the region have ambitious investment plans to raise production via enhanced oil recovery projects and increased capturing of associated gas. This offers good opportunities for oil and gas companies engaged in the sector not only in the UAE but in all other hydrocarbons-rich countries in West Asia and Africa.”
In 2016 US oil firm C&J Energy Services is due to move into its new regional headquarters at JAFZA, a multi-storey 10,000-sq-metre office tower in the centre of a 50,000-sq-metre site. The company’s founder, chairman and CEO, Josh Comstock, said, “The Middle East is one of our key focus areas for growth. This new facility will allow C&J to provide operational support across the entire Middle East area and give us room to grow as our portfolio of service offerings increases.” C&J Energy Services had total revenues of $1.75bn by year-end 2015, and provides well construction, completions and services to the oil and gas industry, including cementing, directional drilling, fracturing, rig serving and fluids management.
Downstream
For one UAE-based downstream business, lower crude oil prices are actually creating increased opportunities for business. “When oil prices are low it is bad news for crude producers, but for many other companies in the energy sector low crude prices are good news,” Prerit Goel, group director of Gulf Petrochem, told OBG.
Gulf Petrochem was founded by two brothers, Ashok Goel and Sudhir Goyel, in India in 1993, and within five years they had gone from trading in petrochemicals products to establishing a refinery in Hamriyah Free Zone in Sharjah. The company now has six divisions: oil trading and bunkering, oil refining, oil storage terminals, grease manufacturing, transport and logistics, and bitumen manufacturing.
Gulf Petrochem has built a 412,000-cu-metre storage terminal in Fujairah, and has offices in London, Dubai, Singapore and Delhi. From its head office in the UAE, Gulf Petrochem sees itself at the geographical heart of its target markets. “Our geography is very clearly from Singapore to Nigeria, and all of our activities are in this area,” Goel told OBG. The company has production facilities in India and sees huge potential there, but is also planning to use its UAE base as a launchpad for other regions. “We feel that the next decade belongs to Africa,” Goel said. In July 2015 the company acquired Essar Petroleum in Kenya with a view to serving East Africa. The company is predicting that – with the global bitumen market set to increase in value to $95.77bn by 2020, according to Grand View Research – East Africa is set to be a significant growth market in the years to come.
Another key downstream player is Petrochem Middle East. The company exports more than 700,000 tonnes of products worldwide per year, but managing director Yogesh Mehta told Arabian Business that the past two years have been difficult. Petrochem had been working with gross margins of 8-9% and net margins of around 4% until 2014, but net margins have now dropped to as low as 2%. However, the company recently completed a fourth expansion of its terminal in JAFZA, and is now planning to expand into chemicals manufacturing. The plan is to team up with a specialist chemicals manufacturing company, with Petrochem taking over its distribution arm.
Fuel Subsidies
For road users in Dubai, the fall in global oil prices has softened the blow of pricing policy at the petrol pumps. From August 1, 2015, the fuel subsidy was removed from petrol and diesel, with the government announcing how much filling stations could charge on the 28th of each month. In the first month the prices of all vehicle fuels went up with the exception of diesel, but by November 2015 prices for almost all road fuels were cheaper than they had been before the subsidies were removed, as global prices fell over the period. In November 2015 Super 98 petrol was Dh1.81 ($0.49) per litre and by April 2016 it was Dh1.62 ($0.44), while over the same period the price of diesel fell from Dh1.87 ($0.51) to Dh1.56 ($0.42). The move was in response to repeated calls from the IMF for GCC countries to remove subsidies and use some of the money saved in the process to provide more support for low-income citizens.
According to an IMF report, total energy subsidies cost the UAE’s government $29bn a year. The UAE first raised prices at the pumps in 2010, making it the most expensive place to drive in the GCC. Dubai also raised water and electricity tariffs by 15% in 2011. Both measures are designed to reduce government spending on subsidies, but also to encourage more economical use of fuel, electricity and water.
Cutting Consumption
The UAE has some of the world’s highest per capita consumption figures for energy in general, and for electricity and water in particular. A study conducted by Strategy& in August 2015 showed energy usage in the UAE had increased by 4% per annum over six years, and predicted it would grow by 5% a year until 2020. In a country with very little natural drinking water, and with stifling temperatures and high humidity levels in the summer months, two of the biggest drains on water and electricity are desalination and air conditioning.
The desalination process uses 30% of the country’s total annual power consumption, and water consumption in the UAE is 740 cu metres per capita per annum, almost 50% higher than the 500 cu metres world average. Per-Ola Karlsson, a senior partner with Strategy&, said, “For decades, the abundance of hydrocarbons resources meant that energy efficiency was not a pressing topic in the UAE. However, the steady population and economic growth have changed attitudes. Today, sustainability is a critical issue, and the UAE government needs to reinforce its efforts to create a more sustainable future for the country and for generations to come.”
Water resources are also essential for food security, and sustainable, efficient technologies such as hydroponics are playing a greater role in the agriculture sector as well. “Hydroponics as an agricultural solution helps solve three main problems: it saves water, enables us to feed more people by growing crops in places where it was not possible to do so before, and it gives self-sufficiency to regions that previously depended on imports,” Mahmood Almas, chairman of Pegasus Agriculture, told OBG.
DEWA
Dubai Electricity and Water Authority (DEWA) is the body responsible for supplying the two utilities in the emirate and for promoting awareness campaigns designed to reduce consumption. Its 2014 report revealed that DEWA has 9656 MW of installed capacity, including 13 MW at the Mohammed bin Rashid Al Maktoum Solar Park. There were seven cogeneration plants at Jebel Ali producing both desalinated water and electricity, and the three units at Al Aweer Power Station, which are solely devoted to producing electricity. Of the installed capacity, 7104 MW was produced by gas turbines and the remaining 2542 MW was generated using steam turbines. Peak load in 2014 was 7233 MW, up 9.8% from 6587 MW in 2013. The total system energy requirement for electricity was 39,599 GWh. Commercial premises used 47.9% of the energy, residential customers used 28.2% and a further 8.5% was used as an auxiliary source for desalination and power plants.
In April 2015 DEWA signed a Dh1.47bn ($400.1m) contract with Siemens to boost the capacity of its Jebel Ali M-Station by a further 700 MW. M-Station is the newest of DEWA’s cogeneration plants and currently has the capacity to produce 2060 MW of electricity and 140m gallons of water per day. The plant extension is due to be completed by the end of the first quarter of 2018. At the end of 2014 DEWA’s installed capacity for desalinated water was 470m gallons per day, while peak demand rose by 6.8% from 296m gallons per day in 2013 to 316m in 2014. Overall desalinated water demand rose from 100.11bn gallons in 2013 to 106.18bn, up 6%. Households were by far the biggest consumers, accounting for over 80% of customers and almost 60% of consumption.
Supreme Council
The DSCE is responsible for administering energy policy in the emirate. Representatives from several bodies in the sector have a seat on the council, including DEWA, the Dubai Petroleum Establishment, Emirates National Oil Company (ENOC), Dubai Nuclear Energy Committee and Dubai Muncipality. Collectively these bodies and others promote the Dubai Integrated Energy Strategy (DIES), which includes targets for the primary fuel energy mix to meet the emirate’s electricity generation and desalination needs. The DIES aims to diversify fuel sources, which have been almost entirely natural gas in the past, and set targets for the adoption of new fuels. In 2015 those targets were revised drastically, particularly the role of solar energy. The Mohammed bin Rashid Al Maktoum Solar Park currently constitutes 0.1% of Dubai’s installed capacity, but by 2020 the DSCE wants solar to be contributing 7% of the total, and 25% by 2030. Phase 2 of the solar park was originally to have been capable of producing 100 MW, but in February 2015 this was doubled to 200 MW, and a third phase was announced that will have installed capacity of 800 MW. As he made the announcement, DEWA’s managing director and CEO, Saeed Mohammed Al Tayer, said, “We are right on track to achieve the solar park’s total capacity of 5000 MW.”
Two other sources of power have been factored into DEWA’s equation, and progress is being made on both of these. In October 2015 DEWA announced that a consortium had been chosen as the preferred bidder to build and operate a new 2400-MW (for phases one and two) clean coal power station. The Hassyan clean coal plant will be built by Saudi Arabia’s ACWA Power and Harbin Electric of China. The first 1200 MW is due to be on-stream by 2020, with the remaining 1200 MW coming a year later. DEWA said it expects to double the capacity of the clean coal plant in a second phase of construction, so that it will ultimately have the capacity to generate 2400 MW.
By 2030 DEWA expects that over 7% of its energy requirements will be met by clean coal. The DSCE is also looking forward to receiving its first nuclear energy deliveries by 2017 and expects this source of power to match clean coal’s contribution to the energy mix by 2030, providing another 7%.
Nuclear
Emirates Nuclear Energy Corporation (ENEC) is responsible for the UAE’s nuclear power programme, and is overseeing the construction of Barakah Nuclear Power Plant (BNPP) in Abu Dhabi. BNPP will consist of four nuclear generating units housed in two plants with a combined capacity of 5600 MW. In September 2015 ENEC reported that Barakah Unit 1 was 75% complete, while Unit 2 was 53% complete. BNPP’s first 1400-MW unit is scheduled for completion in 2017, with the remaining units coming on-stream at 12-month intervals. This means that Dubai and the other six emirates should have access to a share of the UAE’s nuclear-powered electricity from 2020, pending regulatory reviews and licensing approval. This will make the UAE only the second country in the region, after Iran, to have a nuclear power generation capability.
Distribution Networks
As more electricity generation capacity and desalinated water becomes available, there is also an increased challenge to distribute supply more efficiently. If the other six emirates are to benefit from Abu Dhabi’s investment in nuclear generation, the grid connecting them will need to be upgraded to keep pace.
The 2015 full acquisition of Dragon Oil by ENOC is likely to have a major impact and means that the firm is now a vertically integrated oil and gas business. Through this acquisition, Dubai now possesses producing assets of over 100,000 bpd of oil, as well as reserves of 660m barrels of oil in the Commonwealth of Independent States. The company’s portfolio of downstream products includes jet fuel, gasoline, diesel, marine diesel, fuel oil, bitumen, lubricants, liquefied petroleum gas and compressed natural gas (CNG). In addition, ENOC is working to ensure it can meet demand in line with the emirate’s sustainability and clean energy initiatives by investing in CNG as its clean and green fuel of choice, as well as operating a green service station in Dubai. The company is also considering an expansion of the refinery to increase capacity from 140,000 bpd to 210,000 bpd. Saif Humaid Al Falasi, group CEO of ENOC, told OBG, “We are building an infrastructure to cater to the huge growth in jet fuel consumption of Dubai International Airport and the Al Maktoum International Airport.”
In its 2014 sustainability report, DEWA also said it was negotiating the terms for importing power from the new nuclear facility and was also looking at the feasibility of Dubai building its own nuclear power plant. The report also noted that the Emirates National Grid (ENG) had been established to interconnect the electricity transmission grids of Abu Dhabi Water and Electricity Authority, DEWA, the Federal Electricity and Water Authority, and Sharjah Electricity and Water Authority. Through ENG, the four national grids are connected to the GCC electricity grid, enabling them to share power at critical moments with Gulf neighbours.
Within DEWA’s own electricity transmission network, it is building 48 132-KV substations and associated underground cabling. A new substation at Dubai Academic City cost Dh89m ($24.2m), while associated cabling cost Dh17m ($4.6m). In 2014 alone DEWA also spent Dh278m ($75.7m) on 113 km of 400-KV overhead cables for the main grid network.
The authority is also working on smart programmes to support Dubai’s Smart City plan. For example, the Smart Applications via Smart Grids and Metres initiative will enable DEWA to build an integrated smart grid for Dubai Expo 2020. Al Tayer, managing director and CEO of DEWA, told OBG, “DEWA has undertaken a major strategic review to identify and establish its strategy for the next decade in the light of the trends and developments currently being felt in the local, GCC and global markets.”
Smart Grid
DEWA has committed Dh7bn ($1.9bn) to developing its smart grid, which uses machine-to-machine communications technology to interconnect its generation plants, transmission lines and substations so that the grid can automatically react to, and predict, changes in demand. In April 2015 it announced it had signed a deal with Etisalat, which will lead to the installation of the telecoms provider’s gigabit-capable Passive Optical Network in all of its 29,000 substations. The first phase of installation covered 3200 substations in four zones across Dubai.
Smart Meters
DEWA is also helping its consumers monitor their use of electricity and water by installing smart meters in homes. DEWA has more than 750,000 electricity consumers in 2016, and almost half a million of them were domestic customers. By January 2016 the company completed its first wave of 200,000 smart meter installations, and it plans to install 1m more by 2020 to meet the needs of the growing population. The smart meters will enable consumers to see how much they are spending and also to measure how much they might potentially save by raising the thermostat on their air conditioning by only a few degrees.
DEWA has also recognised that in addition to investing billions of dirhams in improving its systems and building new power stations, it can also save huge sums of money by informing and persuading customers to be more economical in their consumption habits. Its “Set your AC to 24C” campaign has drawn attention to the savings that can be made by adjusting the dial on thermostats from 18°C or 21°C to a slightly warmer 24°C. DEWA believes this campaign and others helped it to save Dh752m ($204.7m) from 2009 to 2015, reducing demand on electricity by 1012 GWh and on water by 5.4m gallons.
District Cooling
More efficient use of utilities has also been made possible by the widespread use of district cooling in larger mixed developments, where a single centralised cooling facility is used to supply air conditioning to several buildings. In its optimal application, district cooling serves buildings with complementary demands on air conditioning, such as office buildings with high daytime usage and hotels where the demand may be strongest at night. “Increasing energy efficiency is key to a sustainable future and we must get creative – for example, by using treated water in district cooling plants,” Xavier Joseph, CEO of Veolia Middle East, told OBG.
Green Buildings
In Dubai green regulations became mandatory in 2014. The rules are designed to improve the sustainability of buildings throughout the life cycle, from design and construction through to operation, demolition and waste disposal. From January 2016 Dubai Municipality is also introducing an energy efficiency ranking for buildings and a new law setting minimum standards for the retrofitting of properties based on international Leadership in Energy and Environmental Design certifications standards. Etihad Energy Services was set up as a subsidiary of DEWA in 2014 to help improve the energy usage of Dubai’s existing buildings. Stephane Le Gentil, CEO of Etihad Energy Services, told OBG, “If you consider the different stakeholders involved in a building retrofit project, one of the most challenging parts is getting access to financing. Nonetheless, a ground-breaking collaboration with National Bonds Corporation is solving this issue through the use of Islamic finance, a growing segment in Dubai’s economy.” According to the Emirates Green Building Council, of the 120,000 existing properties in Dubai, 30,000 have been identified by the government as having a high potential for energy efficient retrofits. Saeed Al Abbar, chairman of the Emirate Green Building Council, told OBG, “The sector has evolved very fast over the last 10 years. There are in place advanced regulations for green buildings across the Emirates, which includes the Dubai Green Building Regulations and the Estidama framework in Abu Dhabi. In 2015 the UAE ranked eighth in the world according to its number of LEED-certified buildings. Moreover, this is an even greater achievement given the size of the country, as the measure is taken in absolute terms.”
Outlook
The guiding blueprint for Dubai’s energy sector envisages a smart, green city populated by environmentally aware consumers. Billions of dirhams are being invested in this vision, and the emirate has taken bold steps to back new innovations to diversify the energy sources it relies upon, and to educate and persuade its residents to curb demand for electricity, water and fuel for their cars through awareness campaigns and the removal of subsidies.
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