The UAE is one of the world’s most richly endowed oil and gas producers, but it has recently signed a contract with a consortium of South Korean manufacturers to build 4 large (1400 MWe) nuclear power plants to supply the electricity baseload in the country. This decision is completely rational. The UAE has a growing, energy intensive industrial base, summer temperatures that frequently exceed 115 F (46 C), and little fresh water (but lots of access to salt water). Every drop of oil or molecule of gas that the country burns to supply internal needs represent a lost opportunity to sell product in the lucrative international energy market.
This same logic, of course, applies equally well to Iran, but the UAE has avoided international pressure in opposition to its nuclear program by clearly abdicating any interest in fuel cycle developments that can raise the issue of nuclear weapons proliferation. (I am pretty sure that there are people in the non-proliferation camp that would love to oppose the project because it actually spreads nuclear knowledge (oh the horror) but they would have a hard time convincing the world that enforced ignorance is morally justifiable.)
The Wall Street Journal published a article titled Joining the Nuclear Club on this very topic that comes complete with a rather interesting sub-title: Despite an embarrassment of hydrocarbon riches, the U.A.E. is having trouble meeting domestic energy demands. (Why would anyone call hydrocarbon riches “an embarrassment”?)
According to the article, the decision to move to nuclear power came after an evaluation of other available options. Renewable energy like wind and solar was recognized to be unsuitable for baseload power generation and
Other options were studied but not considered feasible. Coal-fired power plants were ruled out because of their impact on the environment and the supply risks created by having to ship large amounts of coal through the narrow Strait of Hormuz. Another option, burning liquid fuels such as diesel or crude oil, was also rejected.
“Running power plants on fuel oil or crude oil is expensive and environmentally damaging,” says Mr. Woertz of the Gulf Research Center. “The opportunity costs are considerable. It’s more profitable to sell the oil on international markets.”
For each new nuclear power plant that begins operation, the UAE will be able to export an additional 300 million cubic feet of natural gas per day without doing anything to increase its production capacity.
I am sure that competitors are watching this development very closely; right now, at least a portion of the methane gas that the UAE is burning is being sold by its neighbor in Qatar. That country has been investing heavily in developing its enormous off shore fields, which have been reputed to contain as much as 900 trillion cubic feet of natural gas. (To put that number in context, the US, one of the world’s largest natural gas consumers, burns about 20 Trillion cubic feet of methane each year. Tiny Qatar could supply our entire demand for 45 years.)
Though a major portion of those investments have been aimed at LNG and gas to liquids processing facilities that enable easier export into lucrative Asian, European and North American markets, the prospect of losing easier local sales to the UAE cannot be making the marketing folks at those majors happy. No company – or country – likes to see their sales volumes in previously captive market eroded by newer, better technology.
What is even worse is when a competing business or country has an increasing volume of the same product that you sell available to compete in more lucrative markets. That increased competition has the potential to erode both total sales volume and the available margin for each sale. I may be reading too much into this part of the article, but I see the following excerpt as a subtle warning from the world’s oil producers to the UAE leadership:
“If they sell the oil that they don’t use on the world market for $70 a barrel, then a nuclear reactor is feasible,” says Mr. Rogner. “It’s clear, however, that if oil drops below $30 or $40, then it won’t be as economical.”