UAE consumers may feel the pinch of inflation in gas and electricity prices as a surge in gas costs could prompt authorities to hike rates, according to a Western expert.
Gas rates in the UAE have remained heavily subsidised despite soaring costs and a sharp increase in domestic consumption, said Douglas Caskie, regional manager of the Scottish IPA Energy company. Speaking at a two-day power and water conference in Abu Dhabi on Tuesday, Caskie said higher gas prices mean an increase in the costs of electricity generation in the UAE and could also boost the costs of water output.
“Many power stations in UAE and other GCC countries are gas fuelled… Gas represents 75 per cent to 85 per cent of operating costs. If gas prices increase, this will have a direct and immediate impact on power production,” he said in a study, obtained by Emirates Business on Wednesday.
“Realism on pricing is necessary for both buyers and sellers. As for the UAE, it will be up to the decision-makers to decide whether to absorb the increased costs of gas or pass it on to consumers.”
Caskie said the surge in gas prices over the past few years has not affected prices in the UAE as gas and power rates remained heavily subsidised. He put gas prices in the UAE at around $1.5 (Dh5.5) per million British thermal unit (MBTU), while production costs have reached $5 per MBTU.
He said the price surge had been caused by higher oil prices, a surge in rig hire rates, which doubled between 2004 and 2007, and a sharp rise in the prices of steel and other construction items.
Caskie said gas demand had steadily grown in the UAE and other Gulf states because of higher demand for electricity, expanded use of gas in enhanced oil recovery and setting up of gas-based industries.
But he noted that regional states control extensive gas resources, adding large quantities have remained undiscovered in the UAE and other members. “Significant other reserves exist in the region. undiscovered reserves exist in Saudi Arabia (600+ TCF) and Iran (300+ TCF) followed by Qatar and UAE (40 TCF each). Less potential exist in other GCC states.”
To ensure sufficient gas supplies in the short term, Caskie proposed acceleration of interconnections among GCC countries, import of power from Iran via cable connection, utilisation of dual fuel turbines, operation on oil where gas supplies are unavailable and switching to gas when supplies are available. He also recommended gas price adjustments, efforts to ensure better energy efficiency and demand management, encouragement of thermal recycling and electricity from biomass and use of other energy sources.
- Robust growth in demand for electricity with gas as the fuel-of-choice in electricity generation
High gas costs may affect consumers