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29 March 2024

GCC power investments put at $53bn

Gulf oil producers are expected to pump nearly $53 billion into projects over the next five years to expand their power generation capacity to meet growing domestic demand. (SUPPLIED)

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By Staff

Gulf oil producers are expected to pump nearly $53 billion into projects over the next five years to expand their power generation capacity to meet growing domestic demand, according to an official Arab report.

The investments account for nearly half the total required capital for electricity development projects in the Middle East and North Africa (MENA), said the report by the Arab Petroleum Investment Corporation (Apicorp).

The six Gulf Cooperation Council (GCC), which control over 40 per cent of the world’s proven oil resources, will also add nearly half the expected additional power general capacity in the region, said the report, sent to Emirates 24/7.

Apicorp, an affiliate of the 10-nation Organization of Arab Petroleum Exporting Countries (OAPEC), estimated the total capital in power generation in MENA at $117 billion during 2011-2015 to add about 98.9 GW of electricity.

“This increment, which represents 45 per cent of the 2010 estimated aggregate capacity of 210gw, justifies the huge capital investment of $117 billion found in the present review,” the Dammam-based group said.

“A regional breakdown shows that 49 per cent of that expansion is expected in the GCC, which remains the fastest growing area.  This should come as no surprise, taking into account its record rates of urbanization and the massive requirements for water desalination and air conditioning.”

The study put investments in such projects at around $53 billion in the GCC, $25.1 billion in Mashreq (east) Arab nations, $24.1 billion in Iran, $13.7 billion in Maghreb (west) Arab countries and nearly $1.7 billion in other Arab states.

“As a result of high population growth rates and fast expanding urban and industrial sectors, many countries in MENA region have been struggling to meet rapidly increasing demand for power,” the study said.
“However, compared to recent trends, projected demand is expected to be slightly curbed as a result of current economic contraction.”

It said expectation of better load management and gradual phasing out of price subsidies could also help rein in excess demand growth.

“Accordingly, power generation capacity is projected to grow at a relatively subdued rate of 7.7 per cent for the period 2011-2015, resulting in an additional capacity of 99gw over that period,” it said.

But it noted operators would face challenges as they pursue electricity expansion plans, including high cost, feedstock and funding.

The report showed the GCC is projected to record the highest demand growth of around 8.5 per cent. Growth was put at 7.5 per cent in Mashreq, 7.2 per cent in other Arab states, seven per cent in Iran and 6.5 per cent in Maghreb.

Additional capacity was estimated at 48 GW in the GCC, 20.2 GW in Mashreq, 18.5 GW in Iran, 10.9 GW in Maghreb and 1.3 GW in other Arab nations.

“The cost of an average energy project, which has risen almost three times between 2003 and 2008, is expected to increase again, after having slightly dropped in the last review. The 25 per cent upward trend underpinning the current review may be explained by two factors,” Apicorp said.

“The first is that project sponsors will be focusing on important projects, which mostly entail higher costs. The second factor is related to anticipated cost inflation, which is still tentative.…furthermore, as the global credit crisis has forced an up-pricing of risk, we should expect project risk premiums to remain relatively high. Hence it is hard to infer how up and for how long the overall cost trend is likely to be again, when combining all cost components.”