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April 24, 2013 12:13 am
The approach of summer is nothing to celebrate in Kuwait. Temperatures rise to about 45C in August, prompting Kuwaitis to crank up their air conditioners. The rise in power demand puts pressure on the transmission network and the threat of blackouts is never far away.
The electricity sector hit a low point four years ago when its reserve margin was almost completely eroded. Demand for power had risen by about 7 per cent a year and very few power stations had been built since the 1980s.
As one of the world’s richest countries and an important oil exporter, for Kuwait the electricity crisis was an embarrassment.
Blackouts are unlikely this summer for two reasons. First, for the past two years, Ramadan has coincided with the hottest days of the year. This year, it will be earlier. Second, Kuwait has built up its generation capacity. In spite of a continued rise in demand, it will have 14.2GW of operational capacity when demand peaks at about 12.4GW in August.
This is largely because of the expansion of a big power plant at Subiya. “We’re [going to be] OK this year,” says Suhaila Marafi, director of the ministry of electricity and water’s research department.
Although Kuwait may survive the worst of the heat without blackouts, it cannot afford to stop building power plants. Ministry estimates say electricity needs are set to grow by 6 per cent a year.
The ministry plans several big industrial and construction projects, all of which will require electricity.
Demand will continue to be met as long as the power plants are commissioned on schedule. This is far from guaranteed.
“Several projects have been delayed over time and we don’t see a major build-up of capacity until after 2016,” says Leila Benali, Middle East director at analyst IHS Global Insight. “That’s assuming that they are able to get some of these projects on stream.”
Most of the new capacity will be built by private companies. According to a 2010 law, new power plants larger than 500MW must be developed privately.
The Partnerships Technical Bureau (PTB), the body responsible for private-sector relationships, is set to sign agreements for the country’s first independent water and power project (IWPP) at Al-Zour North in June.
This is a first not only for the power industry but also for public-private partnerships in general. Developing the first IWPP has been far from easy and progress has been slow.
The Islamist-dominated national assembly launched an inquiry into the procurement process last year. After the conservative bloc took over parliament in the most recent elections, another inquiry was commissioned.
Nevertheless, the Al-Zour North IWPP and the power plants that will follow it have largely stayed on track, while others have either stalled or been transferred to traditional procurement.
Kuwait’s other pressing problem is its fuel bill, which for a country with a population of only about 3m (including expatriates) is incredibly high. Power plants burn more than 66m barrels of oil a year. Not only does this waste oil that would otherwise be exported or kept in reserve, it also damages the environment. Kuwait plans to shift to more gas-fired power generation. Power plants currently use about 250m cubic feet of gas a year.
While the country produces a lot of oil, the same is not true of natural gas. Nearly half of the gas needed to power the stations is imported as LNG at a cost of KD400m ($1.4bn) a year. Kuwait wants to boost its natural gas production.
“The strategy is to maximise domestic gas production and reduce the use of oil for power generation,” says Jamal al-Duaij, corporate planning adviser at Kuwait Petroleum Corporation. “We are using LNG as a temporary solution until we can use our own gas.”
Kuwait Oil Company signed a contract with Royal Dutch Shell to develop its Jurassic gasfields at Sabriya and Umm Niga three years ago.
“We have big reserves – about 33m cu ft – in the north of the country,” says Mr Al-Duaij. Kuwait hopes to replicate its northern finds with similar discoveries in the south. Even if it manages to do so, it may struggle to develop its resources. The deal with Shell has drawn criticism from parliament and the project has faced significant technical difficulties.
Perhaps the most urgent problem is the cause of its escalating electricity needs. Power is heavily subsidised.
It costs 24 times more to produce every kilowatt hour than the charge levied on customers. Raising electricity prices would be highly controversial.
However, if prices stay as they are, the ministry will have to continue to spend heavily on purchases from the private sector and on new power plants.
It will mean relying on costly imports and squandering natural resources.
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