KSA power projects show new emphasis on gas
Qurayyah and Ras al-Zour plants result of increase in supply.
This week’s tender and contract activity shows that Saudi Arabia is making use of increased gas production to meet rising demand for electricity, with power and water plants running on the feedstock.
On Wednesday, the contract for the delayed Ras al Zour power and water plant was finally signed, and the tender for a power and water project was launched. Both plants will be fired by gas.
The projects are made possible by Saudi Aramco’s effort to fast track the development of gas production at the Hasbah and Arabiyah offshore gas fields. The resultant increase in supply will be used to meet rising residential and industrial demand.
“This breathing space in domestic supply means that SEC and SWCC are trying to regain the momentum in developing enough power and water capacity for the kingdom's fast-growing demand, while also supporting some of the important industrialisation projects,” comments Sam Ciszuk, analyst at IHS Global Insight.
Saudi power demand growth has led the majority state-owned Saudi Electricity Company (SEC) to embark on an US$80 billion expansion programme to boost capacity from about 50,000MW at present to 70,000MW by 2020.
There will be more gas projects on the back of a higher supply, says Ciszuk:
“With gas now at the top of Saudi Aramco's exploration and development strategy, the kingdom is nevertheless hoping to be able to move several more gas-fired power projects forward, in a process that is much more economically efficient, and environmentally sound, than having to resort to heavy oil feedstock.”
With the tender for the Al Qurayyah independent power plant (IPP), the Saudi Electricity Company (SEC) is pursuing a strategy to further private sector participation in the power generation sector, as well as the use of natural gas.
The project is valued at US$1.8 billion, and will generate between 1,800MW and 2,100MW once completed in 2014. The financial close for the build, own and operate project is targeted for 31 August 2011, while the submission deadline has been set to February 28.
Also on Wednesday, the contract for the long delayed Ras al Zour was signed, with the Saudi Water Conversion Company (SWCC) formally awarding the $1.8 billion ECP contract for the power plant to Doosan Heavy Industries and Construction and Saudi Archirodon, and the $2,4 billion EPC contract for what will be the world’s largest desalination unit to China’s Sepco III Electric Power Construction Corp.
Ras al Zour had originally been intended as a public private partnership, but the government failed to find a suitable taker due to the tight credit markets in the wake of the global recession.
Saudi Electricity Co (SEC) and Maaden will share the power output between them, while SWCC will share the water produced with Saudi Arabian Mining Co (Maaden).
The increasing use of gas as a feedstock for power generation has been met with the approval of key energy industry figures.
“Countries in the region will have to prioritise gas production in order to meet demand and to retain the region’s position as prime energy provider,” Ahmed Al-Arbeed, CEO of Dana Gas, the Gulf's largest listed energy company, said at this year’s Adipec in Abu Dhabi.
“Natural gas has been too modest about its strength and abilities to provide energy,” said Jeroen van der Veer, the former CEO of Royal Dutch Shell, at this year’s Saudi Arabia Oil and Gas Exhibition in Damman, Saudi Arabia.
As a result of a “supply side discontinuity”, the known reserves of natural gas have gone up by several decades. But this has not yet been reflected in demand, said the former CEO.
“Looking at the demand side of things, natural gas is not doing a good marketing job.”