Report No. 53047-MNA Exploring the Potential for Electricity Trade and Interconnection among Yemen and GCC Countries October 2009 Sustainable Development Department (MNSSD) Middle East and North Africa Region (MNA) Document of the World Bank The Energy Sector Management Assistance Program (ESMAP) is a global knowledge and technical assis- tance trust fund program administered by the World Bank and assists low-and middle-income countries to increase know-how and institutional capability to achieve environmentally sustainable energy solu- tions for poverty reduction and economic growth Acknowledgement The Financial and technical support by the Energy Sector Management Assistance Program (ESMAP) is gratefully acknowledged. ESMAP-a global knowledge and technical assistance partnership administered by the World Bank and sponsored by official bilateral donors-assists low and middle income countries, its "clients," to provide modern energy services for poverty reduction and environmentally sustainable economic development. ESMAP is governed and funded by Consultative Group (CG) comprised of official bilateral donors and multilateral institutions, representing Australia, Austria, Canada, Denmark, Finland, France, Germany, Iceland, the Netherlands, Norway, Sweden, the United Kingdom, and the World Bank Group. We would like to express our thanks and appreciation to the Arab World Initiative for co- financing the core team's deskwork and supervision of this study. This Report has been prepared by Economic Consulting Associates (ECA) under contract to the World Bank to explore the potential for interconnection and electricity trade among Yemen and the countries of the Gulf Cooperation Council (GCC). A World Bank task team supervised the consultant work in respect to both technical and economic analysis. The task team comprises Waleed Alsuraih, Husam Beides, and Khalid Boukantar. The task team is grateful for the guidance provided by Xavier Devictor and Jonthan Walters, comments provided by peer reviewers: Hossein Razavi (consultant, DC), Pedro Sanchez, Jonathan Coony, Luiz Maurer, and World Bank staff and consultants who contributed with information and advice: Joseph Saba, Nadereh Chamlou, Vladislav Vucetic, Pierre Audinet, Michael Hamaide, Hayat Al-Harazi, and Soren Krohn (consultant, DC). Contents Contents Executive summary i 1 Introduction 1 1.1 Scope of the study 1 1.2 Location of the six GCC countries and Yemen 2 1.3 Outline of the Report 3 2 Regional GCC electricity and gas projects 5 2.1 GCC electricity interconnection project 5 2.2 GCC gas interconnection project 8 2.3 Other natural gas trade 10 3 Kuwait 12 3.1 Energy resources 12 3.2 Electricity demand 15 3.3 Power generation capacity review 16 3.4 Electricity and gas transmission review 17 3.5 Supply-demand balance for electricity 19 3.6 Electricity development plans 19 3.7 Demand for natural gas 20 3.8 Review of electricity and gas pricing 21 3.9 Legal and regulatory framework 22 4 Saudi Arabia 23 4.1 Energy resources 23 4.2 Electricity demand 26 4.3 Power generation capacity review 27 4.4 Electricity and gas transmission review 29 4.5 Supply-demand balance for electricity 35 4.6 Electricity development plans 35 4.7 Demand for natural gas 36 4.8 Review of electricity and gas pricing 38 4.9 Legal and regulatory framework 39 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 i Contents 5 Bahrain 41 5.1 Energy resources 41 5.2 Electricity demand 44 5.3 Power generation capacity review 45 5.4 Electricity and gas transmission review 46 5.5 Supply-demand balance for electricity 48 5.6 Electricity development plans 48 5.7 Demand for natural gas 49 5.8 Review of electricity and gas pricing 50 5.9 Legal and regulatory framework 52 6 Qatar 53 6.1 Energy resources 53 6.2 Electricity demand 56 6.3 Power generation capacity review 57 6.4 Electricity and gas transmission review 59 6.5 Supply-demand balance for electricity 63 6.6 Electricity development plans 63 6.7 Demand for natural gas 63 6.8 Review of electricity and gas pricing 65 6.9 Legal and regulatory framework 65 7 UAE 67 7.1 Energy resources 67 7.2 Electricity demand 69 7.3 Power generation capacity review 71 7.4 Electricity and gas transmission review 71 7.5 Supply-demand balance for electricity 74 7.6 Electricity development plans 74 7.7 Demand for natural gas 75 7.8 Review of electricity and gas pricing 76 7.9 Legal and regulatory framework 79 8 Oman 81 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 ii Contents 8.1 Energy resources 81 8.2 Electricity demand 84 8.3 Power generation capacity review 86 8.4 Electricity and gas transmission review 86 8.5 Supply-demand balance for electricity 90 8.6 Electricity development plans 91 8.7 Demand for natural gas 93 8.8 Review of electricity and gas pricing 94 8.9 Legal and regulatory framework 95 9 Yemen 97 9.1 Energy resources 97 9.2 Electricity demand 98 9.3 Power generation capacity review 99 9.4 Electricity and gas transmission review 100 9.5 Supply-demand balance for electricity 106 9.6 Electricity development plans 107 9.7 Demand for natural gas 108 9.8 Review of electricity and gas pricing 108 9.9 Legal and regulatory framework 109 10 Opportunities for trade: within the GCC region 111 10.1 Benefits of reserve sharing 112 10.2 Benefits of bulk energy trade 118 10.3 Benefits of electricity trade in general 123 10.4 Constraints on electricity trade through the GCC interconnector 126 10.5 Specific opportunities for electricity trade 127 10.6 Opportunities originating in Saudi Arabia 132 10.7 Conclusions on electricity and gas trade 133 11 Opportunities for trade: Yemen and Saudi Arabia 137 11.1 Saudi-Yemen electrical interconnection 137 11.2 Re-assessment of the Saudi-Yemen interconnection 142 11.3 Saudi-Yemen gas interconnection 144 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 iii Contents 12 Opportunities for trade: Yemen and Oman 145 12.1 Electricity 145 12.2 Natural gas 146 13 Next steps 149 13.1 Benefits of regional energy integration 149 13.2 Analysis necessary to confirm the net benefits 150 13.3 Pre-conditions necessary to realise the benefits 152 13.4 Other trading possibilities 154 Annexes 155 A1 Earlier demand forecast for Saudi Arabia 155 A2 Electricity interconnection study ­ Saudi Arabia 157 A3 Gas flaring 160 A4 International premium for LNG 161 A5 Electricity load patterns 162 A5.1 Kuwait 162 A5.2 Saudi Arabia 163 A5.3 Bahrain 163 A5.4 Qatar 164 A5.5 United Arab Emirates 164 A5.6 Oman 165 A5.7 Yemen 166 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 iv Contents Tables and Figures Tables Table 1 Kuwait proven natural gas reserves - Kuwait 12 Table 2 Kuwait natural gas production 14 Table 3 Projections of peak electricity demand - Kuwait 15 Table 4 Existing generation capacity (MW) - Kuwait 16 Table 5 Electricity supply-demand balance, Kuwait 19 Table 6 Historical natural gas consumption - Kuwait 20 Table 7 Gas consumption forecast - Kuwait 21 Table 8 Electricity prices in Kuwait (2009) 22 Table 9 Proven natural gas reserves - Saudi Arabia 23 Table 10 Natural gas production - Saudi Arabia 25 Table 11 System peak demand and energy forecast - Saudi Arabia by region 26 Table 12 System peak demand and energy forecast - Saudi Arabia aggregate 27 Table 13 Electricity generation capacity 2007 ­ Saudi Arabia 27 Table 14 Existing power generating capacity ­ Saudi Arabia 28 Table 15 Intereconnections, current and planned - Saudi Arabia 32 Table 16 Electricity supply-demand balance, Saudi Arabia 35 Table 17 Generation investment plan (MW capacity) ­ Saudi Arabia 36 Table 18 Gas consumption - Saudi Arabia 37 Table 19 Forecast gas consumption ­ Saudi Arabia 37 Table 20 Electricity tariff structure - Saudi Arabia 38 Table 21 Proven natural gas reserves - Bahrain 43 Table 22 Bahrain gas production 43 Table 23 Production of associated and non-associated gas, Bahrain 44 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 v Contents Table 24 Key electricity statistics, 2007- Bahrain 44 Table 25 Electricity Demand Forecast (2003-2020) - Bahrain 45 Table 26 Electricity supply-demand balance, Bahrain 48 Table 27 Historical gas consumption (2000-2006) - Bahrain 49 Table 28 Gas consumption forecast - Bahrain 49 Table 29 Electricity tariffs (2007) - Bahrain 50 Table 30 Historical and projected gas prices by sector - Bahrain 51 Table 31 Proven natural gas reserves - Qatar 53 Table 32 Natural gas production - Qatar 54 Table 33 Demand projections - Qatar 57 Table 34 Electricity supply-demand balance, Qatar 63 Table 35 Historical natural gas consumption - Qatar 64 Table 36 Gas consumption forecast - Qatar 64 Table 37 Proven natural gas reserves- UAE 67 Table 38 Natural gas production- UAE 68 Table 39 Medium term baseline scenario - UAE 69 Table 40 UAE Historical electricity demand and consumption 69 Table 41 UAE electricity demand projections 70 Table 42 Gross generation capacity 2003-2007 (MW) - UAE 71 Table 43 Electricity supply-demand balance, UAE 74 Table 44 UAE gas consumption 75 Table 45 Gas consumption forecast - UAE 75 Table 46 Standard tariffs for electricity ­ Abu Dhabi, UAE 77 Table 47 Large user tariffs for electricity in 2007- ADWEA, UAE 78 Table 48 Electricity tariffs ­ DEWA, UAE 78 Table 49 Proven natural gas reserves - Oman 81 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 vi Contents Table 50 Gas production - Oman 83 Table 51 Gas production and consumption ­ Oman 84 Table 52 Historical electricity generation and sales - Oman 84 Table 53 Expected power and energy demand - Oman 85 Table 54 Generation capacity (2008) ­ MIS, Oman 86 Table 55 Electricity supply-demand balance, Oman 91 Table 56 Generation capacity (MW) ­ MIS, Oman 91 Table 57 Generation capacity (MW) ­ Salalah system, Oman 92 Table 58 Additional generation required, Oman 92 Table 59 Gas demand projections (BCM) - Oman 93 Table 60 Electricity tariffs (2007) - Oman 94 Table 61 Recent estimates of gas reserves (BCM) 97 Table 62 Historical electricity demand - Yemen 98 Table 63 Forecast electricity demand - Yemen 98 Table 64 Power generating capacity (2009) - Yemen 99 Table 65 Electricity supply-demand balance, Yemen 106 Table 66 Generation investment plan - Yemen 107 Table 67 Gas demand projections - Yemen 108 Table 68 PEC electricity tariff - Yemen 108 Table 69 Load shape characteristics of the GCC countries 114 Table 70 Benefits of GCC interconnection 117 Table 71 International energy market impacts on GCC trade 122 Table 72 GCC interconnector import capacity 126 Table 73 Yemen`s eastern oil concessions 148 Table 74 GCC domestic gas feedstock prices, 2007 153 Table 75 Gas prices in GCC countries, 2008 153 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 vii Contents Table 76 Earlier electricity demand forecast ­ Saudi Arabia by operating area 155 Table 77 System peak demand and energy forecast - Saudi Arabia aggregate 155 Table 78 Interconnections between operating areas ­ Saudi Arabia 157 Table 79 Generation investments in unfied grid ­ Saudi Arabia 158 Table 80 Estimated gas flaring (BCM) 160 Figures Figure 1 GCC countries i Figure 2 GCC electricity interconnection scheme ii Figure 3 Dolphin gas project map iii Figure 4 Natural gas resources ­ Saudi Arabia v Figure 5 Proposed interconnection with Saudi Arabia vii Figure 6 Interconnection of Yemen`s isolated grids ix Figure 7 Oil concession map of Yemen xi Figure 8 GCC countries 3 Figure 9 GCC electricity interconnection scheme 6 Figure 10 GCC electricity interconnection phases 8 Figure 11 Dolphin gas project map 11 Figure 12 Kuwait gas resources and infrastructure 13 Figure 13 Kuwait electricity network 18 Figure 14 Forecast for gas reserves - Saudi Arabia 23 Figure 15 Electricity map - Saudi Arabia 30 Figure 16 Schematic electricity map of Saudi Arabia showing the operating areas 31 Figure 17 Oil and gas Infrastructure in Saudi Arabia 34 Figure 18 Oil and gas map of Bahrain 42 Figure 19 Map of electricity grid of Bahrain 47 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 viii Contents Figure 20 Gas reserves forecast (TCF)- Qatar 54 Figure 21 Natural gas production forecast (BCF) - Qatar 55 Figure 22 Qatar LNG Exports 56 Figure 23 Qatar LNG infrastructure, 2007 56 Figure 24 Electricity map of Qatar 60 Figure 25 Oil and gas map of Qatar 62 Figure 26 Gas Consumption forecast (BCF) - Qatar 64 Figure 27 Natural gas reserves forecast (TCF)- UAE 68 Figure 28 Electricity map of UAE 72 Figure 29 Oil and gas resources and supply infrastructure- UAE 73 Figure 30 Forecast committed electricity generation capacity and demand- UAE 75 Figure 31 Oman electricity map ­ Main Interconnected System 88 Figure 32 Oil and gas map of Oman 90 Figure 33 Oil concession map ­ Yemen 97 Figure 34 Yemen`s main electricity grid 101 Figure 35 Interconnection of the eastern grid - Yemen 104 Figure 36 Yemen: Route of the pipeline to supply the LNG terminal 105 Figure 37 Planned pipeline route 106 Figure 38 GCC Geographical Route of the Electrical Interconnection 111 Figure 39 Annual peak load dates and times, GCC countries, 2003 114 Figure 40 Natural gas resources ­ Saudi Arabia 133 Figure 41 Detailed oil concession map ­ Yemen 147 Figure 42 Seasonal load pattern in Saudi Arabia`s operating areas (2006) 158 Figure 43 Daily load pattern in Saudi Arabia`s operating areas 159 Figure 44 Monthly Electricity Consumption, 2003 - Kuwait 162 Figure 45 Daily load on the day of maximum demand, 2008 - Kuwait 162 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 ix Contents Figure 46 Seasonal load profile, 2006 - Saudi Arabia 163 Figure 47 Daily load curve ­ Saudi Arabia 163 Figure 48 Monthly peak load (2008) - Bahrain 164 Figure 49 Monthly electricity demand, ADWEC 2006 - UAE 164 Figure 50 Monthly electricity load - SEWA, UAE 165 Figure 51 Montly electricity load - DEWA, UAE 165 Figure 52 MIS peak demand 2007, Oman 166 Figure 53 Salalah peak demand 2007, Oman 166 Figure 54 Daily load curves: January and August ­ Yemen 167 Figure 55 Seasonal load pattern (2006) ­ Yemen 167 Abbreviations ADWEA Abu Dhabi Water and Electricity Authority ADWEC Abu Dhabi Water and Electricity Company ADDC Abu Dhabi Distribution Company AED UAE dirham (UAE) bbl barrel BCM Billion cubic meters BMI Business Monitor International BOO Build Own Operate BP British Petroleum BST Bulk Supply Tariff CAGR Compound Annual Growth Rate COA Central Operating Area (Saudi Arabia) DEWA Dubai Electricity and Water Authority EOA Eastern Operating Area (Saudi Arabia) ECA Economic Consulting Associates ECRA Electricity and cogeneration regulatory authority (Saudi Arabia) EGS Eastern Gas Company (Saudi Arabia) Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 x Contents EIA Energy Information Administration (USA) FEWA Federal Electricity and Water Authority (UAE) GCC Gulf Cooperation Council GGFR Global Gas Flaring Reduction partnership GPIC Gulf Petrochemical Industries Company (Bahrain) GTL Gas to Liquids IEA International Energy Agency IPP Independent Power Producer IWPP Independent Water and Power Producer KNPC Kuwait National Petroleum Company KOC Kuwait Oil Company LNG Liquefied natural gas LPG Liquefied petroleum gas MCM Million cubic metres MENA Middle East and North Africa MGS Master Gas System (Saudi Arabia) MIGD Million Gallons per Day MIS Main Interconnected System (Oman) mmbtu million btu MW Mega watt MWh Megawatt hour NGL Natural gas liquids OGC Oman Gas Company OPEC Organization of the Petroleum Exporting Countries OPWP Oman Power and Water Procurement Company PDO Petroleum Development Oman PEC Provincial Electricity Corporation (Yemen) QEWC Qatar Electricity and Water Company RAEC Rural Areas Electricity Company (Oman) RSB Regulation and Supervision Bureau of Abu Dhabi SADAF Saudi Petrochemical Company SEC Saudi Electricity Company SEWA Sharjah Electricity and Water Authority SOA Southern Operating Area (Saudi Arabia) SWCC Saline Water Conversion Corporation (Saudi Arabia) Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 xi Contents TCM Trillion Cubic Meters TRANSCO Abu Dhabi Transmission and Despatch Company UAE United Arab Emirates USD United States dollar WEC Water and Electricity Company (Saudi Arabia) WOA Western Operating Area (Saudi Arabia) WTO World Trade Organisation Currency equivalents (Exchange rates as of May 2009) USD 1.00 = 0.286 Kuwaiti Dinar (KWD) USD 1.00 = 3.74 Saudi Arabian Riyals (SAR) USD 1.00 = 0.377 Bahrain Dinar (BhD) USD 1.00 = 3.64 Qatari Riyals (QAR) USD 1.00 = 3.67 United Arab Emirates Dirhams (AED) USD 1.00 = 0.384 Omani Rial (RO), 1 Omani Rial (RO) USD 1.00 = 199 Yemeni Rials (YR) Conversion factors 1 (standard) cubic feet (scf) of gas = 0.028 cubic metres 1 metric tonne = 1.2023 short tonnes 1 kilolitre = 6.2898 barrels = 1 cubic metre 1 British thermal unit = 1.055 kilojoule (kJ) 1 trillion British thermal units = 0.028 BCM 1 tonne of oil equivalent (Toe) = 10 GJ 1 gallon = 0.0038 cubic metres 1 cubic meter = 1,000 litres Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 xii Executive summary Executive summary This Report has been prepared by Economic Consulting Associates under contract to the World Bank to explore the potential for interconnection and electricity and gas trade among Yemen and the countries of the Gulf Cooperation Council (GCC). Figure 1 GCC countries Source: www.gcccountries-business.com Existing or on-going interconnections The GCC regional power grid is almost complete and will allow electricity exchange among the six member states ­ Kuwait, Saudi Arabia, Bahrain, Qatar, United Arab Emirates (UAE) and Oman. Aimed at sharing reserve capacity and improving electricity supply reliability, the network is intended to reduce the need for investment in new generation. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 i Executive summary Figure 2 GCC electricity interconnection scheme Source: Abu Dhabi Water and Electricity Authority The GCC interconnection project is divided into three phases. The first phase, connecting Kuwait, Saudi Arabia, Bahrain and Qatar to create the North Grid, was scheduled to become fully operational in 2009. The second phase, integrating the isolated networks of the various emirates of the UAE into a national grid and interconnecting this network with Oman, was completed in 2006 to create the South Grid. The final phase, interconnecting the North and South Grids is expected to be complete in 2010-11. The GCC gas pipeline project, to export natural gas from Qatar ­ with the third largest natural gas reserves in the world ­ to the UAE and Oman, began to deliver gas to Abu Dhabi in July 2007 and to Oman in November 2008. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 ii Executive summary Figure 3 Dolphin gas project map Source: http://www.meed.com It is planned that the regional gas pipeline will eventually extend northwards to Bahrain and Kuwait. The pipeline will initially carry 20 BCM of gas per year to UAE and Oman but has the theoretical capacity to carry 32 BCM per year. Full utilisation of the existing pipeline capacity and further development of the pipeline northward has been postponed following Qatar`s moratorium on further export projects. Objections have also been raised by Saudi Arabia to the extension of the pipeline through its territorial waters beyond Bahrain to Kuwait. Yemen borders Saudi Arabia and Oman but is not yet a member of the GCC and its electricity and gas networks remain isolated from networks in other countries. Energy resources in the region The GCC region is blessed with 40% of the world`s oil reserves and with 25% of the world`s natural gas reserves. Oil reserves have been exploited for export but gas reserves are generally under-developed in the region, with some exceptions. This is partly because of the abundance of oil reserves and the greater difficulties in exploiting natural gas. It is also because the majority of natural gas reserves are associated with oil and production of oil is constrained by OPEC oil export quotas. However, under-development of gas reserves is also partly a self-imposed problem because pricing policies that hold down natural gas prices both discourages investment in gas exploration and development and encourages the misallocation of Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 iii Executive summary the gas toward energy-intensive export-oriented petrochemical and fertiliser industries1. All GCC countries have struggled to invest in power generation capacity to keep pace with the rapidly growing demand for electricity. The GCC countries and Yemen all face similar challenges of: rapid electricity demand growth, gas (and electricity) pricing policies leading to: limited development of gas reserves, use of much of the available gas reserves for export-oriented projects such as fertiliser, petrochemicals and LNG, and absence of pipeline infrastructure to transport gas between countries. Against this background, some GCC members ­ Abu Dhabi, Dubai, Oman ­ who have insufficient gas production of their own, and recognising the high opportunity cost of using crude oil in power plants, have been led to develop, or to plan to develop, coal-fired power plants using coal imported from outside the region. Dubai is also planning to build an LNG import facility that may, if Qatar does not release gas for LNG exports, rely on LNG imported from outside the region Oil production at the Shaybah field in the Empty Quarter area of Saudi Arabia, bordering UAE and Oman (see Figure 40) began production in 1998. The Shaybah field is connected to Abqaiq, Saudi Arabia's closest gathering centre via a 630 km oil pipeline. The field has a large natural gas cap with estimated reserves of 700 BCM. Gas is currently re-injected but could be exploited to produce 9 BCM per year. The field is about 10 km south of the border with Abu Dhabi and perhaps 200 km from the Dolphin pipeline at Al Ain or the pipeline at Maqta (see Figure 11) and is therefore closer to Abu Dhabi than to Saudi Arabia`s own load centres. The South Rub al-Khali Company (SRAK), a consortium of Saudi Aramco and Royal Dutch/Shell, is exploring the Shaybah and Kidan oil fields and aims to produce 5 BCM per year. 1Use of natural gas in these industries allows OPEC member countries, indirectly, to by-pass restrictions on oil exports. By using crude oil in power generation and using natural gas to produce petrochemicals and fertiliser for export, these countries can increase their revenues from the export of energy. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 iv Executive summary Figure 4 Natural gas resources ­ Saudi Arabia Shaybah Yemen has developed natural gas for export as Liquefied Natural Gas (LNG) - beginning commercial operations in the third quarter of 2009 ­ and has plans to develop natural gas for use by the power sector. It faces chronic shortages of power and has insufficient gas to supply all of the power plants that need to be commissioned over the next seven years. Opportunities for trade in natural gas within the GCC region There appear to be strong benefits in increased export of natural gas by pipeline from Qatar to UAE and Oman and in developing natural gas exports from Qatar to Bahrain and Kuwait. Qatar is a major exporter of natural gas in the form of LNG to the rest of the world (Japan, USA and Europe), but the costs of liquefaction, transportation and re-gasification are high. At the same time, Qatar`s close neighbours ­ UAE, Oman, Kuwait - are resorting to importing bulk energy from outside the region, with correspondingly high transportation costs. There are clear savings available to Qatar and its neighbours from trading gas via pipelines. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 v Executive summary Kuwait, Bahrain, UAE and Oman are all hoping that Qatar will relax its moratorium on further gas export agreements. However, even when the moratorium is lifted, the development of a 600 km gas pipeline linking Qatar with Kuwait, via Bahrain, is subject to some uncertainty until agreement is reached with Saudi Arabia over the use of its territorial waters in the Persian Gulf. An increasing premium on the international value of LNG relative to coal means that in future it may be optimal for the GCC countries to export gas as LNG and to develop coal-fired power plants burning coal imported from outside the region. This would undermine trade in natural gas in the region and may partially explain the underdevelopment and under-use of inter-GCC gas pipeline network and the recent steps toward developing coal-fired power plants in UAE and Oman. Opportunities may exist for further developing Saudi Arabia`s gas resources both to substitute for oil-based power generation within the country or for export of natural gas via pipelines to its neighbours such as Kuwait, UAE or Oman. Opportunities may exist in this regard for gas developments in the Empty Quarter in the south- east of the country for export to UAE and Oman. Exploitation of gas reserves in the region for power generation is dependent on changes to pricing policies that discourage exploration and development and at the same time encourage the diversion of gas to export industries that have low economic value to the country but high financial value to the industries themselves. Opportunities for trade in electricity within the GCC region Electricity interconnectors are unlikely to be the optimal channel to trade energy in bulk because a) it is cheaper to export energy in bulk as natural gas via pipeline, and b) the demand for water and the use of multi-purpose power and water desalination plants makes it more attractive to generate electricity close to the water demand centres and to import natural gas (rather than to import the electricity). Furthermore, the trading arrangements developed for the GCC electricity interconnector and the size of the interconnector do not favour its use for trading bulk energy as electricity. While the interconnector could, in theory, be used to allow a reasonably substantial trade in energy, the interconnector was designed primarily to allow the sharing of reserve and, once capacity is allocated for reserve sharing there is limited spare capacity available to permit the trading of bulk energy on a firm basis (ie., long-term firm contracts between an electricity producer in one country and a buyer in another). Given the advantages of direct trade in natural gas (rather than trade in gas transported as electricity), this design of the electricity interconnector ­ primarily for reserve sharing rather than bulk energy trade ­ is likely to have been the optimal design for GCC members. The feasibility study to examine the benefits of the GCC interconnector selected the planned interconnector capacity in order to allow reserve sharing. The study is not publicly available. It is possible that reinforcement of the regional electricity network could yield additional net benefits, but an evaluation would require a full probabilistic analysis and it is impossible to judge without such an analysis. A study Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 vi Executive summary of the further reinforcement of the GCC interconnector should probably wait until the interconnector that is currently close to completion is fully operational and some experience has been gained. We do, however, recommend that studies are undertaken to help understand how the existing interconnector could be optimised to allow trade that exploits differences in short-run fuel and operating costs among GCC members and differences in load patterns. Such analysis would require the use of multi-area dispatch simulation models. Opportunities for trade between Yemen and Saudi Arabia A study was undertaken in 2006-07 by Tractebel Engineering and CESI on behalf of the Governments of Yemen and Saudi Arabia entitled: Consultancy Services for the Feasibility Study for the Saudi-Yemen Electrical Interconnection. Figure 5 Proposed interconnection with Saudi Arabia Source: Adapted from Arab Union of Producers, Transporters and Distributors of Electricity. Two critical assumptions were used when the study was prepared: natural gas in Yemen was assumed to be abundant and its economic value was low, Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 vii Executive summary the economic value of petroleum products used for power generation in Saudi Arabia was the international market price (net of transport costs). It is now clear that the availability of natural gas for power production in Yemen is constrained and the economic value of natural gas is high, and rather than use this scarce resource by generating electricity for export to Saudi Arabia, Yemen should conserve gas for use for its own power sector in order to minimise imports of fuels in the near future. It is also clear that electricity generated in Yemen using relatively expensive natural gas cannot compete with electricity generated in Saudi Arabia using petroleum products (or natural gas) that, because of Saudi Arabia`s membership of OPEC and quotas on oil exports, have relatively low economic values when consumed within Saudi Arabia. These revisions to the assumptions used in the Saudi-Yemen interconnection study means that the study cannot be relied on to justify an interconnection. It cannot, however, be concluded that interconnection is not justified - there could be potential for interconnection for reserve sharing benefits (similar to those benefits expected to be achieved for the GCC electricity interconnector) and to exploit differences between the two systems in terms of load shape and short-run fuel and operating costs. However, when the GCC countries created the GCC electricity interconnector to share reserve, the six countries each had relatively reliable power systems. Before Yemen could join the GCC interconnected system, the GCC countries would need to be assured that Yemen`s power system has adequate generating capacity and reliable transmission networks to meet its own needs and could comply with installed capacity margin obligations placed on members of the GCC electricity interconnector. Given the chronic power shortages in Yemen at present and over recent years Yemen`s membership of the GCC interconnector is very unlikely to be contemplated at present. Opportunities for electricity trade between Yemen and Oman Three grids in the Hadramaut (central) area of Yemen are currently isolated from each other and these, in turn, are isolated from the main grid to the west. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 viii Executive summary Figure 6 Interconnection of Yemen's isolated grids Source: EdF, Feasibility Study for Balhaf Power Plant and associated Transmission Facilities, October 2008 Though recommendations have been made to connect the three grids around Hadramaut and the coast to form an eastern grid and to interconnect the eastern grid with the main western grid, neither the creation of the eastern grid nor the interconnection with the western grid have yet been included in future investment plans. Until Yemen`s western and eastern grids are interconnected, interconnection of the eastern grid with Oman would certainly not be justified. However, even when Yemen`s western and eastern grids are interconnected the distances are such that interconnection of the Yemen grid with the Salalah grid (in the south of Oman) would almost certainly be uneconomic. The distance from the closest points on the eastern grids to the Oman border is over 400 km and the highest voltage for the transmission network proposed for Yemen`s eastern grid is only 132 kV. A transmission line over this distance would require an extension of the 400 kV transmission line to Oman and this would almost certainly not be justified. Furthermore, until Yemen has resolved its power shortages, Oman is unlikely to contemplate such an interconnection. Investigation of possible interconnections would not therefore be worthwhile at this stage. Opportunities for gas trade between Yemen and Oman Oman`s natural gas resources to the south of Oman are well developed and well utilised to meet power generation needs as well as for export. Oman does not have surplus gas resources that could be used to supply Yemen. Additionally, to the east of Yemen, in the provinces bordering Oman, population density and energy Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 ix Executive summary demand are extremely low. Given the absence of demand in Yemen and the absence of surplus supply in Oman, we believe that there can be no opportunities for exporting gas across the border from Oman to Yemen. The reverse ­ the export of gas from Yemen`s eastern provinces to Oman ­ might be feasible if gas production is economically justified in Yemen`s eastern oil and gas fields. Currently, however, Yemen has no non-associated gas and, of the 100 oil blocks at various stages of exploration or development, only 12 blocks are producing oil. The producing blocks are located in the two main basins: Ma`rib/Shabwah - located in the Ma`rib area including Block 18 and adjacent blocks shown in Figure 7, and Sayoun/Masila - located in the Hadramaut area including Blocks 10 and 14 and surrounding blocks. The latter is closer to the main population centres in Yemen than it is to population centres in Oman and if gas production is justified then it would be produced for Yemen`s own market. The former is much closer still to Yemen`s main population centres and, given Yemen`s gas shortages and the distances involved (over 800 km), it would clearly be uneconomic to export of natural gas to Oman. Many of the remaining oil concession blocks to the east of Yemen have not yet been taken up by international oil companies ­ exceptions are Blocks 39 and 16. None are yet producing oil (or natural gas). They may potentially contain natural gas in commercially recoverable quantities and Oman would be the natural market for this gas, but gas production from these fields, if feasible, is not expected for some time. Gas reserves should be identified, gas production quantified and approximate gas production dates estimated, before further investigation of gas utilisation and export is carried out. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 x Executive summary Figure 7 Oil concession map of Yemen Source: Petroleum Exploration and Production Authority. Uncoloured blocks have not been allocated. Summary of findings The key findings of the study are as follows: If the GCC countries are to trade bulk energy then the optimal strategy should be to expand and extend the gas pipeline network within the GCC region ­ particularly linking Qatar with Bahrain and Kuwait and expanding the pipeline between Qatar and UAE/Oman. However, trade in natural gas among GCC countries may be undermined by international trends toward an increasing premium on the value of LNG relative to coal. This trend means that in future it may be optimal for the GCC countries to export gas as LNG and to develop coal-fired power plants burning coal imported from outside the region. This trend may partially explain the underdevelopment and under-use of the GCC gas pipeline networks and the reluctance of GCC countries to export gas to neighbours. Reform of natural gas pricing policies in the GCC countries would encourage the development of gas resources and discourage the use of gas for energy intensive export industries ­ petrochemicals, aluminium, etc. This would release natural gas for power generation and could Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 xi Executive summary release some gas for export either to GCC neighbours or to the rest of the world. Opportunities should be explored for exploiting gas resources close to Saudi Arabia`s borders for export to UAE, Oman and Kuwait. There are currently no fundamental drivers for trade in electricity in bulk between GCC countries. There will, however, be opportunities for more modest trade to exploit: temporary power capacity deficits and surpluses in some of the countries arising accidentally because outturn demand is below or above the levels previously forecast, differences in system load patterns at certain times of the day or year allowing the regular export or import of cheaper energy from one country to another. It would be valuable to study the optimal use of the GCC electricity interconnector using modern dispatch simulation software in order to help understand whether the proposed trading arrangements ­ focusing on reserve sharing ­ is optimal or whether different trading arrangements could yield greater benefits. There are no benefits to interconnecting Yemen and Saudi Arabia`s networks for trade in bulk electricity. Yemen`s power system is too unreliable at present to be considered for reserve sharing as a member of the GCC interconnection scheme. Investigation of the Yemen-Saudi interconnection should therefore be postponed. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 xii Introduction 1 Introduction This Report has been prepared by Economic Consulting Associates (ECA) under contract to the World Bank to explore the potential for interconnection and electricity trade among Yemen and the countries of the Gulf Cooperation Council (GCC). 1.1 Scope of the study The primary objective for this study is to identify the efficient scenarios to utilise gas and electricity resources through cross-border integration among Yemen and the GCC countries2. The analysis includes an assessment of gas resources available for the electricity systems and identification of the potential for cross-border interconnections and integration among the respective countries to identify efficient ways to utilise the gas resources and generation capacities from national and regional perspectives. Task 1 of the project involved the compilation of information on each of the six countries and an assessment of that information preparatory to using it in Task 2. Task 1 involved gathering: latest electricity demand projections; power generation capacity ­ current capacity, committed capacity (under development), and planned retirements ­ including information on available (MW) capacity, fuel type, technology, dual-fuel capabilities, age and efficiency; power sector investment plans for generation and transmission including, if available, information on investment options that were rejected (but could become feasible if cross-border trade occurs); projections of natural gas demand for the power sector; data on system load patterns; data on proven reserves of natural gas and existing or planned gas transmission developments and planned exploitation of gas resources in power generation and for other purposes; information on existing or proposed pricing policies for natural gas, power and other fuels; 2 The possibilities of trade between the GCC group and Yemen with countries outside this grouping (eg., Djibouti) is specifically excluded from the study. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 1 Introduction review of policies and legal or regulatory frameworks impacting on the development and exploitation of power or gas resources domestically or for cross-border trade. The information was collected through e-mail and telephone communication from relevant sources in each of the countries. Task 2 involved the evaluation of potential cross-border/regional electricity trade and includes: assessment of possible scenarios to efficiently utilize natural gas in power generation; examination of cost-effective solutions to secure energy supply through power exchange and efficient generation mix; assessment of the relative economic benefits of gas cross-border trade versus electricity cross-border trade; evaluation of relevant electricity networks integration plans and ongoing projects; creation a feasible scenario(s) that promote regional network integration and cross-border electricity (and/or gas if feasible) trading among the respective countries to reliably meet their demand forecasts; articulate potential business development opportunities and economic benefits in the area of regional and/or cross-regional integration (institutional and investments). In our Proposal we noted the limited budget for this project and the necessity of using simplified approaches to analyse the potential for cross-border trade. We also noted the limited resources available for data collection for Task 1. We note that considerably greater effort had to be expended on Task 1 in order to collect data requested in the Terms of Reference. 1.2 Location of the six GCC countries and Yemen An overview map showing the location of the six countries and Yemen is provided in Figure 8. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 2 Introduction Figure 8 GCC countries Source: www.gcccountries-business.com 1.3 Outline of the Report In Section 2 we describe information collected during Task 1 relating to the existing regional power and gas interconnection projects and, in Sections 3 to 9, we provide the information requested in the Terms of Reference relating to each of the seven GCC countries (Kuwait, Saudi Arabia, Bahrain, Qatar, UAE and Oman) and Yemen. Each of these Sections follows a similar structure. Section 10 then describes the opportunities for trade in electricity and natural gas within the GCC countries. Section 11 describes the opportunities for trade between Saudi Arabia and Yemen and, finally, Section 12 describes the opportunities for trade between Oman and Yemen. Section 13 summarises the likely benefits of closer regional integration of the electricity and gas networks, describes the steps Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 3 Introduction necessary to verify those benefits and notes some preconditions for achieving the benefits. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 4 Regional GCC electricity and gas projects 2 Regional GCC electricity and gas projects Major gas pipeline and electricity interconnection projects are underway in the GCC countries. These are summarised below. 2.1 GCC electricity interconnection project The GCC regional power grid shown in Figure 9 will allow electricity exchange among the six member states ­ Kuwait, Saudi Arabia, Bahrain, Qatar, United Arab Emirates (UAE) and Oman. Aimed at sharing reserve capacity and improving electricity supply reliability, the network is intended to reduce the need for investment in new generation. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 5 Regional GCC electricity and gas projects Figure 9 GCC electricity interconnection scheme Source: Arab Union of Producers, Transporters and Distributors of Electricity Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 6 Regional GCC electricity and gas projects The GCC interconnection project is divided into three phases (see Figure 10): In Phase I, the power grids of the northern states of Kuwait, Saudi Arabia, Bahrain and Qatar are being interconnected to form the GCC North Grid. The grid is expected to become fully operational in the first quarter of 2009. Phase I included the construction of a 400 kV grid in Kuwait, Saudi Arabia and Qatar with a 400 kV submarine cable link to Bahrain. It also includes a 380 kV, 60 Hz back-to-back HVDC transmission line to connect the 60 Hz Saudi Arabian with the other GCC countries which operate a 50 Hz system. Phase II of the project comprised: The integration of isolated networks of the various emirates of the UAE into a national grid. The UAE interconnected the separate power grids of its seven emirates to form the Emirates National Grid (ENG). Four major contact points have been established under the four power authorities in the UAE ­ Abu Dhabi Water and Electricity Authority (ADWEA), Dubai Electricity and Water Authority (DEWA), Sharjah Electricity and Water Authority (SEWA) and the Federal Electricity and Water Authority (FEWA), which is responsible for the other four northern emirates of Ajman, Umm Al Qaiwain, Fujairah and Ras Al Khaimah; and Creation of Oman`s integrated northern grid. This combined system (above) is the GCC South Grid. The UAE and Oman had signed an agreement to interconnect their electricity networks in 2004. This interconnection was completed in 2006 through a 220 kV line between Al-Waseet in Oman and Al-Ain in the UAE. In Phase III, the GCC North Grid will be interconnected with the South Grid. This is expected to be complete in 2010-11. Phase III includes a double-circuit 400 kV line from Salwa to Shuwaihat (UAE); and a double and a single-circuit 220 kV, 50 Hz line from Al Ouhah (UAE) to Al Waseet (Oman). Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 7 Regional GCC electricity and gas projects Figure 10 GCC electricity interconnection phases KUWAIT AL ZOUR 400 kV 1200 MW 310 km AL FADHILI 400 kV 112 km BAHRAIN SAUDI ARABIA 90 km JASRA 400 kV SEC ­ ERB 600 MW HVDC HDVC BACK -TO-BACK 1200 MW 290 km 100 km GHUNAN 400 kV QATAR 900 MW DOHA SOUTH SUPER 400 kV SALWA 400 kV 150 km 750 MW UAE 400 MW SHUWAIHAT 400 kV OMAN OMAN NORTHERN GRID EMIRATE NATIONAL GRID 52 km AL WASEET 220 kV AL OUHAH 220 kV Source: www.gccia.com.sa A regional grid operator, GCC Interconnection Authority (GCCIA), based in Dammam, Saudi Arabia, has been set up to manage the interconnected system. When completed GCC Interconnection will allow for imports of 1,200 MW from/to Kuwait and Saudi Arabia and between 600 MW and 900 MW from/to Bahrain, Qatar and UAE ­ as shown in Figure 10. The import/export capacity of the connection to Oman will be 400 MW. The rules governing the operation of the regional grid ­ the Power Exchange Trading Agreement ­ are currently under negotiation among members. 2.2 GCC gas interconnection project The GCC gas pipeline project, to export natural gas from Qatar to the UAE, Bahrain, and Kuwait, includes the following components3: The 48, 364 km Dolphin Gas pipeline shown in Figure 11 is used to export natural gas from the Qatar North Field to the UAE, began to deliver gas to Abu Dhabi in July 2007. The pipeline will initially carry 3 The future of the planned Qatar-Bahrain and Qatar-Bahrain- Kuwait pipelines is uncertain due to the temporary moratorium imposed by Qatar on the expansion of gas extraction from its North field. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 8 Regional GCC electricity and gas projects 20 BCM of gas per year (57 MCM/day) but has the theoretical capacity to carry 32 BCM per year (90 MCM/day). Qatar-Bahrain pipeline, which will be used to export natural gas from Qatar to Bahrain but has been postponed following Qatar`s moratorium on further export projects ­ revised dates have not been announced. Qatar-Bahrain-Kuwait pipeline, which will be used to export natural gas from Qatar to Bahrain and Kuwait but has been postponed following Qatar`s moratorium on further export projects ­ revised dates have not been announced; and The 24, 182 km pipeline linking Al-Ain with Fujairah, both in UAE, has the capacity to deliver 20 BCM of natural gas per year. It was completed in 2003 and initially operated by the Emirates General Petroleum Corporation but since 2006 it has been operated by Dolphin Energy. Until 2008, the pipeline was used to supply Omani natural gas to the Fujairah power and desalination plant but, when Dolphin gas began to flow in November 2008, the pipeline was used import gas from Qatar to Oman. Dolphin Energy Limited4 is the constructor and operator of the project. In October 2003, Dolphin Energy signed significant long-term gas sales agreements with its initial customers, Abu Dhabi Water and Electricity Company (ADWEC) and Union Water & Electricity Company (UWEC). In May 2005 a similar long-term gas sales agreement was signed with the Dubai Supply Authority (DUSUP). Dolphin Energy signed a long term Gas Sales Agreement with Oman Oil Company (OOC) in September 2005, committing to supply an average of 2 BCM of natural gas for 25 years from 2008. The signature of the Gas Sales Agreement with Oman Oil Company completed Dolphin Energy`s major contracts for long term gas supply. Dolphin has been producing, processing and transporting natural gas through its Export Pipeline from Ras Laffan, Qatar to Taweelah in Abu Dhabi, UAE since July 2007. In March 2008 the company reached full capacity of 57 MCM per day. Dolphin Energy`s average daily contracted gas volumes are as follows: ADWEC (Abu Dhabi Water & Electricity Company) ­ 22.1 MCM /day; DUSUP (Dubai Supply Authority) ­ 20.4 MCM/day; ADWEC, Fujairah - 3.95 MCM/day; and 4www.dolphinenergy.com. Dolphin Energy is owned 51% by Mubadala Development Company, on behalf of the Government of Abu Dhabi and 24.5% each by Total of France and Occidental Petroleum of the USA. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 9 Regional GCC electricity and gas projects OOC (Oman Oil Company) - 5.6 MCM/day. The difference between the total of these daily contracted volumes and the daily capacity of 57 MCM/day allows Dolphin to offer flexibility over the peak requirements of its customers. A Phase-II of the Dolphin pipeline calls for capacity to be increased to nearly 90 MCM/day. The target date for Phase II completion was originally 2012 but Qatar has placed a moratorium on new gas development projects at its offshore North Field and the Phase II project has been put on hold for the foreseeable future5. 2.3 Other natural gas trade While further expansion of gas exports from Qatar to other Gulf states via the Dolphin pipeline have been suspended, press reports6 indicate that Dubai is moving ahead with a scheme to import natural gas as LNG, primarily from Qatar. The imports will be based around a floating storage and re-gasification unit to be moored offshore within the Jebel Ali Terminal and gas will be transported through a sub-sea pipeline to Dubai`s natural gas network to industrial customers. The re- gasification plant is reported to have a capacity of three million tonnes of LNG per year which is equivalent to 4.1 BCM of natural gas. Shell will supply the scheme with LNG, primarily from its sources in Qatar. 5Dolphin Imports From Qatar, APS Review Gas Market Trends, May 26 2008 http://www.allbusiness.com/energy-utilities/oil-gas-industry-oil-processing/10549988-1.html 6 Shell Press Release, 20 April 2008. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 10 Regional GCC electricity and gas projects Figure 11 Dolphin gas project map Source: http://www.meed.com Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 11 Kuwait 3 Kuwait 3.1 Energy resources 3.1.1 Gas reserves Kuwait has 1.78 trillion cubic meters of proven natural gas reserves, estimated at the end of 2006 - slightly less than 1% of the world total. This places the country just outside the top 20 holders globally. Table 1 Kuwait proven natural gas reserves - Kuwait at the end at the end at the end of of 1987 of 1997 2006 Trillion cubic meters 1.21 1.49 1.78 Source: BP Statistical Review of World Energy, June 2008 Kuwait`s gas reserves are almost entirely found in association with oil. Gas exploitation is accordingly linked to oil production and, by extension, OPEC quotas. This has contributed to past difficulties in sourcing sufficient gas to meet local demand. The location of gas resources are shown in Figure 12. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 12 Kuwait Figure 12 Kuwait gas resources and infrastructure Source: IEA World Energy Outlook:, Middle-East and North Africa Insights, 2005 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 13 Kuwait Kuwait hopes to increase its domestic natural gas production, both through reduced flaring of associated gas and through new drilling. In recent years, Kuwait Oil Company (KOC) has stepped up efforts to discover non- associated gas, but these have been largely unsuccessful. However, in June 2006, non-associated gas was reportedly discovered onshore--in Umm Niqa, Sabriyah and Northwest Rawdatain--which according to studies is 60%-70% recoverable. KOC indicated that the new field will reach production of 5.1 MCM/day. This deposit is not yet officially classified as 'proved'; if it were to be, it would increase the country's reserves by 56% making Kuwait rank 11th in terms of gas reserves in the world7. Significant potential remains to increase reserves of associated gas. The focus of current drilling activity is on areas that are thought to contain gas rich deposits beneath the Raudhatain oilfield in the north, reaching geological formations much deeper than the oil deposits, which are believed to be gas rich. Meanwhile, Kuwait and Saudi Arabia conduct seismic studies in the offshore Durragas field, which they share. Gas production is expected to reach 17 MCM/day. Kuwait is also engaged in talks with Iran to resolve a long-running dispute over maritime borders, which would facilitate the development of the 200 BCM Dorra gas field which straddles Kuwaiti, Iranian and Saudi waters. 3.1.2 Gas production Kuwaiti gas production fluctuates in line with oil output. Table 2 Kuwait natural gas production 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 BCM 9.3 9.5 8.6 9.6 8.5 8.0 9.1 11.0 12.3 12.9 12.6 Source: BP Statistical Review of World Energy, June 2008 With reserves of only 1.78 trillion cubic meters, Kuwait hopes to significantly increase its use of natural gas in electricity generation, water desalination, and petrochemicals to free up as much as 100,000 bpd of oil for export. Kuwait has made significant efforts to increase the share of its marketed natural gas production, including: 7EIA, and GCC natural gas outlook (Global investment house, 2006) http://www.menafn.com/updates/research_center/Regional/Economic/GCC_natural_gas.pdf Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 14 Kuwait Gas flaring has been reduced substantially and is targeted to be reduced further, but an estimated 2.1 BCM of gas continued to be flared in 2007 (see Table 80 in Annex A3). Natural gas gathering systems have been installed at each of Kuwait`s oilfields. These are connected to a pipeline network which delivers the gas to the Kuwait National Petroleum Corporation (KNPC)`s facilities, where it is processed into feedstock for power generation and for petrochemicals and fertilizer production. In April 2006, Australia`s WorleyParsons was awarded an engineering, procurement and construction management contract covering the Mina al-Ahmadi - Subiya natural gas-oil pipeline project to supply Subiya power station, north of Kuwait City. In 2008, a little over 4 BCM of natural gas was used for power generation. If the same volume had been used in 2007 then, with total production of 12.6 BCM, the balance of gas, amounting to 8.6 BCM was used for the production of petrochemicals and fertilizers for export. Given Kuwait`s shortage of natural gas for power generation and plans to import natural gas discussed below, the economic logic of this strategy is questionable. 3.2 Electricity demand A forecast of peak electricity demand provided by the Ministry of Energy is shown in Table 3. Gross electricity production in 2008 was 52 TWh. Table 3 Projections of peak electricity demand - Kuwait Year Peak demand (MW) 2008 9,710 2009 10,623 2010 11,509 2011 12,887 2012 14,273 2013 16,078 2014 17,238 2015 20,035 2016 21,495 2017 22,496 2018 23,585 2019 24,701 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 15 Kuwait Year Peak demand (MW) 2020 25,954 Source: Ministry of Energy. Communication with the World Bank, July 2009. 3.3 Power generation capacity review The installed capacity of power plants in Kuwait reached 10,300 MW in 2008. There are five plants that are distributed along the Arabian Gulf coast. These are8: Doha East, 1,050 MW installed capacity, in operation since 1980 and with 108 MW of gas turbines; Doha West, with steam turbine capacity 2,400 MW, in operation since 2004, and 85 MW of gas turbines; Al Subiya, 2,400 MW plant, which came partly on stream in 1998 and whose final units were commissioned in March 2001; the station also has 252 MW of gas turbine capacity; Shuaiba South, with a nameplate capacity of 800 MW and an output of 720 MW, in operation since 1970-1974; and Al Zour South started operation mid-2005 with 1,000 MW and in 2008 it had a total of 4,376 MW of installed capacity. Table 4 Existing generation capacity (MW) - Kuwait Plant Gas turbines Steam turbines Total Units Total Units Total Shuwaikh 6*42 252 - - 252 Shuaiba South - - 6*120 720 720 Doha East 6*18 108 7*150 1,050 1,158 Doha West 3*28.2 85 8*300 2,400 2,485 Al Zour South 8*130 1,976 8*300 2,400 4,376 4*27.75 5*165 8Source: Arab Union of Producers, Transporters and Distributors, http://www.auptde.org, EIA and press reports Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 16 Kuwait Plant Gas turbines Steam turbines Total Units Total Units Total Al Subiya 6*41.7 250 8*300 2,400 2,650 Total 2,671 8,970 11,641 Source: Ministry of Energy, communication with the World Bank, July 2009. 3.4 Electricity and gas transmission review 3.4.1 Electricity Kuwait`s transmission network includes voltages ranging from 110 kV up to 400 kV. The current network is shown in Figure 13. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 17 Kuwait Figure 13 Kuwait electricity network Source: Arab Union of Producers, Transporters and Distributors of Electricity Kuwait`s electricity consumers are largely served by a single integrated grid. With the implementation of the GCC interconnection project, Kuwait`s grid is now also connected to the GCC grid. 3.4.2 Natural gas The map in Figure 12 in Section 3.1 shows the location of Kuwait`s oil and natural gas resources. No information is available on the gas pipeline network. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 18 Kuwait 3.5 Supply-demand balance for electricity The supply-demand balance for electricity is shown in Table 5. The 7.6% required reserve margin is based on the value assumed in the GCC interconnection study (after completion of the GCC interconnection) but this appears very low. The Table suggests that over 18 GW of capacity will be required between now and 2020 after allowing for retirement of older plants scheduled between 2013 and 2016. As described in Section 3.6 below, 10 GW of capacity is under development or is planned. Table 5 Electricity supply-demand balance, Kuwait Year Demand Demand + Installed Investment (MW) 7.6% reserve capacity required margin (MW) (MW) (MW) 2009 10,623 11,430 11,641 0 2010 11,509 12,384 11,641 743 2011 12,887 13,866 11,641 2,225 2012 14,273 15,358 11,641 3,717 2013 16,078 17,300 11,281 6,019 2014 17,238 18,548 10,921 7,627 2015 20,035 21,558 10,342 11,216 2016 21,495 23,129 9,763 13,366 2017 22,496 24,206 9,763 14,443 2018 23,585 25,377 9,763 15,614 2019 24,701 26,578 9,763 16,815 2020 25,954 27,927 9,763 18,164 3.6 Electricity development plans Kuwait announced plans in June 2008 to launch tenders for power expansion worth more than US$ 2.5 billion9. The plants under this program are: Al-Zour North: The plant will have a nominal generating capacity of 2,500 MW. Originally planned to be a steam plant burning heavy fuel oil, as of February 2007 a decision was made to use gas instead of fuel oil. A further tender is expected to be issued in 2009 for a 4,700 MW 9(Sourced from KUNA, Kuwait News Agency) Kuwait plans power expansion worth over USD2.5 bln Thu Jun 5, 2008 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 19 Kuwait plant, which is planned to be built in four phases, with completion scheduled for 2011. Al Zour South Conversion: The project will convert the existing 1,000 MW gas fired Al Zour South power plant to combined cycle. The scope of work includes supply and installation of heat recovery boilers and two steam turbines with a capacity of 250 MW each. The first units were scheduled to be commissioned in 2008 and the plant is expected to reach full capacity by the end of 2009. Shuaiba North: The proposed plant will be gas fired with a generating capacity of 800 MW and 0.21 MCM/day seawater (MSF) desalination plant. This is scheduled to start operation in the summer of 2010. Subiya: The proposed plant will have a capacity of 1,500 MW. Kuwait is also installing two new gas turbines in its South Zour power station that will add another 320 MW starting in August 2009. 3.7 Demand for natural gas 3.7.1 Historical gas demand Consumption of natural gas has been increasing sharply in recent years as shown in Table 6. Table 6 Historical natural gas consumption - Kuwait 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 BCM 9.3 9.5 8.6 9.6 8.5 8.0 9.1 11.0 12.3 12.9 12.6 Source: BP Statistical Review of World Energy, June 2008 The bulk of electricity is currently provided by thermal power generation. Traditionally, oil and gas have been the dominant fuel sources in the power generation market in Kuwait. All plants burn natural gas to some extent and the share of natural gas in the fuel mix for power generation and water desalination has been increasing in the past few years but in 2006, of the total electricity production of 48 TWh, 35 TWh was fuelled by oil and only 13 TWh by gas10. Just over 4.1 BCM of gas was used for power generation in 2008. Source: Restructuring Kuwait Electric Power System: Mandatory or Optional? Proceedings of World 10 Academy of science, engineering and technology Volume 35 November 2008 ISSN 2070-3740. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 20 Kuwait 3.7.2 Gas demand projections Business Monitor International has also produced a forecast for gas consumption in Kuwait (April 2009) which is summarised in Table 7. Gas demand is forecast to grow from 13 BCM in 2007 to 32 BCM in 2013. The projections beyond 2013 are calculated by the Consultant assuming a continuation of the 10.3% per annum trend predicted for 2013. Table 7 Gas consumption forecast - Kuwait Year Source BCM 2006 BP Statistical Review of World Energy, June 2008 13.0 2007 13.0 2008 BMI. Bahrain oil and gas report, Q2, 2009 14.0 2009 20.0 2010 23.0 2011 26.0 2012 29.0 2013 32.0 2014 ECA trend projection 35.3 2015 39.0 2016 43.0 2017 47.4 2018 52.3 2019 57.8 2020 63.7 3.8 Review of electricity and gas pricing 3.8.1 Electricity Current electricity prices in Kuwait are shown in Table 8. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 21 Kuwait Table 8 Electricity prices in Kuwait (2009) Shuiaba industrial Chalets11 All other area consumers Fils (US˘)/kWh 1 (3.5) 10 (35.0) 2 (7.0) Source: Ministry of Energy, communication with the World Bank, September 2009. 3.8.2 Gas No information is available on natural gas prices in Kuwait. 3.9 Legal and regulatory framework Kuwait`s electric power system is vertically integrated utility that is owned and operated by the Ministry of Electricity and Water. Unlike other GCC states, Kuwait has not yet introduced the IWPP model but is seeking foreign investment for the construction of new plants. 11 No information is available on this category of consumer. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 22 Saudi Arabia 4 Saudi Arabia 4.1 Energy resources 4.1.1 Proven gas reserves According to BP, natural gas reserves stood at 7.07 trillion cubic meters at the end of 2006. Table 9 Proven natural gas reserves - Saudi Arabia Proven reserves at the end at the end at the end of of 1987 of 1997 2006 trillion cubic meters 4.19 5.88 7.07 Source: BP Statistical Review of World Energy, June 2008 Approximately 57%of Saudi Arabia's proven natural gas reserves consist of associated gas at the giant onshore Ghawar field and the offshore Safaniya and Zuluf fields. The Ghawar oil field alone accounts for approximately one-third of the country's proven natural gas reserves12. Gas reserves are expected to reach 7,420 billion cubic meters by 2011 (see Figure 14). The Kingdom holds the world's fourth-largest gas reserves and until now has had no problems meeting its gas needs. Figure 14 Forecast for gas reserves - Saudi Arabia Source: Global Research ­ May 08, GCC Natural Gas Sector ­ Dawn of the `gas' era! Global Investment House. For more than a decade, Saudi Aramco has aggressively explored on and offshore for additional reserves to meet growing demand, although success has been limited. The majority of new natural gas discovered in the 1990s was associated with light crude oil, especially in the Najd region south of Riyadh. Over the last decade and a 12 EIA country information, OPEC bulletins Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 23 Saudi Arabia half, Saudi Aramco has added around 2.1 trillion cubic meters of non-associated reserves, including the fields of Mazalij, Manjura, Shaden, Niban, Tinat, Al-Waar, and Fazran in the deep Khuff, Unaizah and Jauf reservoirs. To meet growing domestic needs, in November 2006, the Petroleum Ministry and Saudi Aramco announced a US$ 9 billion strategy to add 1.4 trillion cubic meters of non-associated reserves between 2006 and 2016 through new discoveries (and potentially another 1.4 trillion cubic meters of associated reserves). In the last few years some important discoveries were made, including: Both associated and non-associated natural gas has been discovered in the country`s extreme northwest, at Midyan, and in the Empty Quarter (Rub al Khali) in the country's south eastern desert. The Rub al Khali is believed to contain natural gas reserves potentially as high as 8.4 trillion cubic meters, although these are not proven. The area remains under exploration. A large non-associated offshore natural gas field, Dorra (Durra), is located offshore near Khafji oil field in the Saudi-Kuwaiti Neutral Zone. Dorra development has been controversial since the late 1960s, however, because 70% is also claimed by Iran (called Arash). The offshore Jana-6 and an extension of Karan (Karan-7) were the major gas finds in 2007. The Karan gas field is the largest gas deposit yet discovered in the offshore Khuff formation, some 160 km north of Dhahran. Discoveries in 2006 included an earlier extension of the Karan field (Karan-6), with the potential to add 2.25 MCM/day to gas flows, and onshore, the Kassab-1 and the Zamalah wells in the Jauf Reservoir, which could add a combined 0.6 MCM/day. According to the 2007 Saudi Aramco Annual Review, the company has increased the rate of exploration, drilling 73 development and exploratory wells in that year as compared to 35 in 2006 and 20 in 2005. Some 300 development and 70 exploratory wells are reportedly planned by 2010. Still according to the company, only 15%of Saudi Arabia has been "adequately explored for gas." To overcome the gas bottleneck, Saudi Aramco has launched an aggressive investment programme which involves: Fast-tracking development of the offshore Karan gas field in the Gulf and estimated to contain 0.25 trillion cubic meters. On completion, targeted for 2011, Karan is to produce 28 MCM/day. Recent non- associated gas finds are promising; Exploration of prospective areas along the Red Sea coast and in the country's north-west; Search in the Rub' al-Khali desert. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 24 Saudi Arabia The Saudi domestic natural gas market, traditionally the sole domain of Saudi Aramco, is slowly being opened to private investment both in exploration and distribution, and increasing competition in the market. Saudi Arabia reached an agreement with Kuwait in July 2000 to share Dorra output equally, although the Kuwaitis are reportedly trying to purchase the Saudi share. According to Saudi Aramco, the field is estimated to contain non-associated gas reserves of 1.0 and 1.7 trillion cubic meters of natural gas, and is under seismic study. The Kuwaiti Ministry of Oil has reported that the goal is to produce initially 16.8 MCM/day from Dorra. Kuwait and Iran have intermittently discussed jointly developing the field, although production plans remain undisclosed. Recent reports also indicate that Saudi Arabia, Iran and Kuwait are expected to sign an agreement to develop non-associated gas reserves at Dorra, a field straddling their territorial waters with its reserves said to be large enough to feed a stream of more than 28 MCM/day. The South Rub al-Khali Company (SRAK), a consortium of Saudi Aramco and Royal Dutch/Shell, is exploring Shaybah and Kidan oil fields, abutting Oman and the UAE, and the Saudi-Yemeni border respectively, aiming to sell 14 MCM/day of gas. Russia's Lukoil is exploring for non-associated natural gas in the Empty Quarter, near Ghawar, as part of an 80/20 joint venture with Saudi Aramco, known as Luksar. Sino Saudi Gas, a venture of China`s Sinopec has reported the first natural gas find in the Sheeh-2 area although the quantity is unconfirmed and geology reported to be complex. 4.1.2 Gas production Highly subsidised prices and soaring costs of production, exploration, processing and distribution of gas have squeezed supply, while limiting investment in the sector and constraining other areas of economic and industrial growth. The situation is exacerbated by the fact that the majority of gas fields in Saudi Arabia are associated with oil, as discussed above. Table 10 Natural gas production - Saudi Arabia 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 BCM 45.3 46.8 46.2 49.8 53.7 56.7 60.1 65.7 71.2 73.5 75.9 Source: BP Statistical Review of World Energy, June 2008 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 25 Saudi Arabia Saudi Arabia currently has seven gas processing plants with a total gas production capacity of approximately 0.26 BCM/day (75.9 BCM in 2007, according to BP ­ as shown in Table 10), including 1.1 million bbl/day of natural gas liquids (NGLs) and approximately 2,700 tons of sulphur at facilities at Berri, Shedgum, Uthmaniyah and Hawiyah. According to statements made by Saudi Aramco, the country aims to process an estimated 0.36 BCM/day by the end of 2009 through additional facilities and capacity expansion. Mega-project plans are currently underway at Khursaniya, Hawiya, Ju'aymah, Yanbu` and Khurais. Efforts are also made to reduce losses: according to OPEC and other sources, an estimated 13 to 14 percent of total production of natural gas in Saudi Arabia is lost to venting, flaring, re-injection and natural processes. 4.2 Electricity demand Saudi Arabia`s electricity demand was approximately 35,000 MW in 2008 and electricity sales were over 173,000 GWh. A forecast of electricity sales prepared for the Ministry of Water and Electricity in 2007 for the four operating areas is provided in Table 11 below. Table 11 System peak demand and energy forecast - Saudi Arabia by region Year COA EOA WOA SOA Demand Sales Demand Sales Demand Sales Demand Sales (MW) (GWh) (MW) (GWh) (MW) (GWh) (MW) (GWh) 2008 11 713 51,953 11 784 63,611 11 775 52,751 2 792 12,736 2009 12 592 54,299 12 689 66,679 12 746 55,163 3 016 13,242 2010 13 462 56,925 13 547 70,455 13 708 57,863 3 251 13,870 2011 14 323 59,648 14 410 74,415 14 539 60,662 3 667 14,519 2012 15 184 62,468 15 256 78,569 15 418 63,563 4 216 15,191 2013 15 844 65,261 16 027 82,853 16 081 66,439 4 537 15,851 2014 16 525 68,156 16 790 87,350 16 761 69,421 4 861 16,533 2015 17 212 71,440 17 562 92,856 17 456 72,803 5 188 17,296 2016 17 894 74,873 18 321 98,702 18 161 76,340 5 522 18,092 2017 18 550 78,321 19 286 104,827 18 868 79,896 5 858 18,882 2018 19 202 81,931 20 369 111,335 19 556 83,621 6 202 19,709 2019 19 941 85,714 21 559 118,254 20 370 87,522 6 545 20,571 2020 20 711 90,191 23 060 127,045 21 268 92,141 6 901 21,576 Source: Demand forecast ­ Final Report, Development of Electricity Generation and Transmission Plan (EGTP), prepared for the Ministry of Water and Electricity by the Center for Engineering Research & SNC- LAVALIN, December 2007, Confidential. The peak demand and sales forecasts for Saudi Arabia in aggregate for the interconnected networks are shown in Table 12. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 26 Saudi Arabia Table 12 System peak demand and energy forecast - Saudi Arabia aggregate Year Demand (MW) Sales (GWh) 2008 34,708 173,185 2009 36,308 181,153 2010 38,141 190,460 2011 40,047 200,150 2012 42,029 210,239 2013 44,011 220,389 2014 46,073 230,965 2015 48,462 243,337 2016 50,971 256,356 2017 54,079 269,671 2018 56,762 283,701 2019 59,585 298,493 2020 63,001 316,565 Source: Demand forecast ­ Final Report, as for Table 11. 4.3 Power generation capacity review According to the Saudi Electricity Company (SEC), electricity generating capacity reached 37,154 MW in 2007 ­ as shown in Table 13. Table 13 Electricity generation capacity 2007 ­ Saudi Arabia Producing entity No. of plants Capacity (MW) SEC 49 30,670 SWCC 12 3,426 Saudi Aramco 5 834 Tihamah Power Generation Co. 4 1,074 Marafiq (Yanbu) 1 900 Jubail Power Co. 1 250 Total 72 37,154 Source: ECRA Annual report, 2007 In 2007 natural gas supplied 52% of power generation, followed by heavy fuel oil (19%), diesel (18%), and crude oil (11%). In the eastern region natural gas is used for most of the power plants. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 27 Saudi Arabia Table 14 describes generating plants with their capacity in 2007 based on a report prepared for the Electricity & Cogeneration Regulatory Authority (ECRA) in 200613. This was supplemented with data from SEC for 2007. Table 14 Existing power generating capacity ­ Saudi Arabia Plants Eastern Station Plant name Plant type Total generating capacity Operating No. (MW) Area 1 Ghazlan- I Steam turbine 1,600 2 Ghazlan- II Steam turbine 2,528 3 Qurayyah Steam turbine 2,500 4 Shedgum Gas turbine 1,069 5 Faras Gas turbine 803 6 Dammam Gas turbine 615 7 Berri Gas turbine 171 8 Uthmaniyah Gas turbine 284 9 Juaymah Gas turbine 91 10 Qaisumah Gas turbine 123 11 Sfaniyah Gas turbine 63 Central Station Plant name Plant type Total generating capacity Operating No. (MW) Area 1 Riyadh PP9X Gas turbine 480 2 Riyadh PP9 Combined cycle 1,417 Riyadh PP9 Gas turbine 814 3 Riyadh PP8 Gas turbine 1,588 4 Riyadh PP7 Gas turbine 1,113 5 Riyadh PP5 Gas turbine 538 6 Riyadh PP4X Gas turbine 90 7 Riyadh PP4 Gas turbine 215 8 Riyadh PP3 Gas turbine 55 9 Qassim PP3 Gas turbine 816 10 Buraydah Gas turbine 89 11 Hail2 Gas turbine 302 12 Hail1 Gas turbine 43 13 Layla Gas turbine 81 Western Station Plant name Plant type Total generating capacity Operating No. (MW) Area 1 Jeddah PP3 Gas turbine 1,318 2 Jeddah PP2 Gas turbine 116 3 Rabigh Steam turbine 1,572 4 Rabigh Combined cycle 1,091 5 Sha`iba Steam turbine 4,323 13Revised final report updated generation planning for the Saudi electricity sector, Prepared for Electricity & Cogeneration Regulatory Authority (ECRA) Riyadh, Saudi Arabia, by Centre for Engineering Research, Safar 1427 H March 2006. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 28 Saudi Arabia Plants 6 Makkah Gas turbine 778 7 Madinah Gas turbine 318 8 Taif Gas turbine 116 9 Yanbu Gas turbine 55 Southern Station Plant name Plant type Total generating capacity Operating No. (MW) Area 1 Asir CPS Gas turbine 433 2 Asir CPS Diesel units 77 3 Jizan CPS Gas turbine 677 4 Jizan CPS Diesel units 24 5 Bisha CPS Gas turbine 144 6 Baha CPS Gas turbine 24 7 Baha CPS Diesel units 51 8 Tihama CPS Gas turbine 482 9 Njran CPS Gas turbine 267 4.4 Electricity and gas transmission review 4.4.1 Electricity The electric power system in Saudi Arabia is divided into four operating areas: Eastern, Central, Western and Southern. The Eastern, Central, and Western operating areas have only a small number of isolated systems. The Northern region has a number of isolated systems that are managed by the Eastern and Western operating areas. The Southern operating area has four autonomous systems that are not interconnected with each other but there is a plan to link these four systems. The Eastern and the Central operating areas are interconnected by 230 kV and 380 kV overhead lines. Hail and Qassim are also interconnected by 380 kV lines. The network is shown in Figure 15 and schematically in Figure 16. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 29 Saudi Arabia Figure 15 Electricity map - Saudi Arabia Source: Arab Union of Producers, Transporters and Distributors of Electricity Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 30 Saudi Arabia Figure 16 Schematic electricity map of Saudi Arabia showing the operating areas Source:Saudi Electricity Company, Annual Report 2007 www.se.com.sa Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 31 Saudi Arabia Steps are also being taken to increase the power exchange between operating areas within the Kingdom. Table 15 summarises the plans to interconnect the isolated areas and some of the operating areas as well as the GCC interconnections. The major interconnection between operating areas will be that between EOA and COA and it is intended that EOA will supply power to COA. Table 15 Intereconnections, current and planned - Saudi Arabia Importing operating Importing from Year Maximum capacity Area (MW) Eastern SWCC all years 1,888 WEC 2012 onwards 333 WEC 2013 onwards 1,000 Maaden 2011 onwards 600 Marafiq 2009 1,373 Marafiq 2010 onwards 2,746 SADAF 2008 250 GCC * 2010 onwards 1,200 EOA 2008 2,800 Central EOA 2009-2010 3,700 EOA 2011 onwards 4,700 SWCC all years 700 Western WEC 2009 onwards 300 WEC 2010 onwards 900 Southern WEC 2010 onwards 285 2011 onwards 850 Total 34,825 * the GCC interconnector is planned to be used for reserve sharing Source: Demand forecast ­ Final Report, Development of Electricity Generation and Transmission Plan (EGTP), prepared for the Ministry of Water and Electricity by the Center for Engineering Research & SNC- LAVALIN, December 2007, Confidential. Abbreviations: SEC = = Saudi Electricity Company, SWCC = Saline Water Conversion Corporation; WEC= Water and Electricity Company; SADAF = Saudi Petrochemical Company. The study examining the benefits of interconnecting the operating areas is described in Annex A2. We understand that there is an ongoing study for the interconnection of Saudi Arabia with Egypt but no information is available to us on this study. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 32 Saudi Arabia A study of the interconnection of Yemen with the SOA of Saudi Arabia was prepared in 2006 by Tractabel and is discussed in Section 11. 4.4.2 Natural gas Saudi Aramco, the state-owned oil company, is the operator of the Master Gas System (MGS) - the network which brings natural gas to industrial users, first built in 1975. The MGS now has a capacity of 224 MCM/day. The MGS feeds gas to the industrial cities including Yanbu, on the Red Sea, and Jubail. A key pipeline project was completed in June 2000 to extend the MGS from the Eastern Province (which contains large potential gas and condensate reserves) to the capital in the Central Province. This is part of a broader expansion of the existing gas transmission system in Saudi Arabia, reportedly to include the construction of around 1,930 km of additional natural gas pipeline capacity (on top of 16,895 km of oil, gas, and condensate, products, and NGL pipelines currently in operation). Since 2001, the MGS has been fed entirely by non-associated gas. In order to feed the expanded gas processing facilities, several additions to the MGS are in the planning or construction phases. The largest pipeline to be built is to the Rabigh complex and the existing Yanbu` NGL processing facility, a distance of 223 km. Installation of four pipelines will connect Manifa to the Khursaniyah gas plant and Ras az-Zour for gas processing and power production. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 33 Saudi Arabia Figure 17 Oil and gas Infrastructure in Saudi Arabia IRAQ KUWAIT IRAN -:""" - Q- ..... _ Crw. ... IiIIId _ GmJ_ .......... fiMII . - Cru6eaWp"p.t .. ", ,.. - 0.. P'jMOIIr4 .JI Iter-.y in ..,...... iDn - - __ Tonk_ """"001 ....... - - r ........· _ - .,- J ·w -...... Source: IEA World Energy Outlook:, Middle-East and North Africa Insights, 2005 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 34 Saudi Arabia 4.5 Supply-demand balance for electricity The supply-demand balance for electricity is shown in Table 16. The 6.6% required reserve margin is based on the value assumed in the GCC interconnection study (after completion of the GCC interconnection) but this appears very low. The Table suggests that over 30 GW of capacity will be required between now and 2020 in addition to any capacity needed to compensate for plant scheduled to be retired. Table 16 Electricity supply-demand balance, Saudi Arabia Year Demand Demand + Installed Investment (MW) 6.6% reserve capacity required margin (MW) (MW) (MW) 2009 36,308 38,704 37154 1,550 2010 38,141 40,658 37154 3,504 2011 40,047 42,690 37154 5,536 2012 42,029 44,803 37154 7,649 2013 44,011 46,916 37154 9,762 2014 46,073 49,114 37154 11,960 2015 48,462 51,660 37154 14,506 2016 50,971 54,335 37154 17,181 2017 54,079 57,648 37154 20,494 2018 56,762 60,508 37154 23,354 2019 59,585 63,518 37154 26,364 2020 63,001 67,159 37154 30,005 4.6 Electricity development plans A comprehensive least-cost generation investment plan was prepared for Saudi Arabia's Water and Electricity Ministry and the Electricity & Cogeneration Regulatory Authority (ECRA) by the Centre for Engineering Research in 200614. This was, however, based on a demand forecast which, at the time, expected peak demand of 58 GW in 2023 for the Kingdom in aggregate including both interconnected and isolated systems. 14Revised final report updated generation planning for the Saudi electricity sector, Prepared for Electricity & Cogeneration Regulatory Authority (ECRA) Riyadh, Saudi Arabia, by Centre for Engineering Research, Safar 1427 H March 2006. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 35 Saudi Arabia The latest forecast prepared for the Ministry of Water and Electricity by the Center for Engineering Research and SNC- LAVALIN in 2007 and described in Section 4.2 suggests that demand will substantially higher at 78 GW in 2023 (interconnected plus isolated). For the year 2020, the comparison would be approximately 53 GW for the earlier forecast and 66 GW for the latest forecast, an increase of 24%. We do not, however, have the latest investment plan associated with this new (2007) demand forecast. We therefore provide below the investment plan based on the earlier (2006) demand forecast. This is shown in Table 17. For reference, the demand forecast on which that investment plan was based is provided in Annex A1. Table 17 Generation investment plan (MW capacity) ­ Saudi Arabia Year EOA COA WOA SOA 125 MW 600 MW 116 MW 123 MW 400 MW 600 MW 123 MW 250 MW GT ST GT GT ST ST GT ST 2008 812 369 2009 250 464 2010 369 2011 696 246 400 2012 375 696 246 400 123 2013 500 696 369 400 246 2014 696 246 400 246 2015 250 812 246 400 492 2016 125 600 696 246 400 369 2017 125 600 696 369 400 369 2018 125 600 696 123 600 123 250 2019 250 600 812 123 600 123 250 2020 125 600 696 615 369 250 Source: See footnote 15. 4.7 Demand for natural gas 4.7.1 Historical demand for gas Despite sizable reserves and increasing demand, dry marketed natural gas production and consumption in Saudi Arabia remain limited. The demand in 2007 was estimated at 75.9 BCM. 15Revised final report updated generation planning for the Saudi electricity sector, Prepared for Electricity & Cogeneration Regulatory Authority (ECRA) Riyadh, Saudi Arabia, by Centre for Engineering Research, Safar 1427 H March 2006. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 36 Saudi Arabia Table 18 Gas consumption - Saudi Arabia Saudi Arabia 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 BCM 45.3 46.8 46.2 49.8 53.7 56.7 60.1 65.7 71.2 73.5 75.9 Source: BP Statistical Review of World Energy (2008) Demand for gas from power and water desalination plants account for nearly 52% of the Kingdom's gas consumption, with the remaining 45% used as feedstock for petrochemicals. 70,217 GWh of electricity in the Kingdom was produced using natural gas (around 50%of the fuel demand by the power sector)16. 4.7.2 Gas demand projections According to press reports, Saudi demand is rising at 6% per year for dry gas and 9% per year for wet gas. A strong growth in Saudi gas demand is expected in the future as well. According to Saudi Aramco forecasts, natural gas demand in the Kingdom is expected nearly to double to 150 BCM by 2030, up from 76 BCM in 200717 at an average growth rate of 3% per year. The year-by-year forecast using a 3% per annum growth rate is shown in Table 19. Table 19 Forecast gas consumption ­ Saudi Arabia Year Gas (BCM) 2007 76.0 2008 78.3 2009 80.6 2010 83.0 2011 85.5 2012 88.1 2013 90.7 2014 93.5 2015 96.3 2016 99.2 2017 102.1 2018 105.2 16 Source: Saudi Electricity Company, Annual Report 2007 www.se.com.sa. 17 US - Saudi Arabia Business Council http://www.us-sabc.org/custom/news/dayetails.cfm?id=99 Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 37 Saudi Arabia Year Gas (BCM) 2019 108.4 2020 111.6 Source: Development of Alternative Energy Technologies in Bahrain, WB 2008. Original source: National Oil and Gas Authority, Electricity Directorate. (Confidential) 4.8 Review of electricity and gas pricing 4.8.1 Electricity Current electricity tariffs in Saudi Arabia are among the lowest in the world. Table 20 describes these tariffs. Table 20 Electricity tariff structure - Saudi Arabia Consumption, kWh Commercial and Industrial Agricultural residential Halala and (US cents/kWh) 0- 1000 5 (1.3) 12 (3.1) 5 (1.3) 1001-2000 5 (1.3) 12 (3.1) 5 (1.3) 2001-3000 10 (2.7) 12 (3.2) 10 (2.7) 3001-4000 10 (2.7) 12 (3.2) 10 (2.7) 4001-5000 12 (3.2) 12 (3.2) 10 (2.7) 5001-6000 12 (3.2) 12 (3.2) 12 (3.2) 6001-7000 15 (4.0) 12 (3.2) 12 (3.2) 7001-8000 20 (5.3) 12 (3.2) 12 (3.2) 8001-9000 22 (5.9) 12 (3.2) 12 (3.2) 9001-10000 24 (6.4) 12 (3.2) 12 (3.2) More than 10000 26 (6.9) 12 (3.2) 12 (3.2) Source: World Bank, based on Ministry of Water and Electricity of Saudi Arabia. Note, for customers at 110 kV and above, tariffs are negotiated. Saudi Arabia's Council of Ministers is reviewing recommendations for the restructuring of the country's electricity tariffs based on recommendations from ECRA (Electricity and Cogeneration Regulatory Authority) and a tariff study prepared by ECRA in 2006-07. The proposed new tariff structure seeks to address Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 38 Saudi Arabia the industry`s chronic revenue shortfalls. Time-of-use tariffs proposed by ECRA have already been introduced. 4.8.2 Natural gas With the aim to promote gas-based industries to local and international investors, the Saudi Government offers gas at a price of only US$ 0.75/mmbtu. The low price is a challenge to the foreign oil operators in the Kingdom hoping to exploit resources in some of the more remote areas of the country. As a result of concerns over the low gas prices, some changes have taken place. In mid-2006, the local Eastern Gas Company (EGS) was awarded a two-year contract to become Aramco`s gas distributor to consumers in the Dhahran industrial area, with the purchase price from Aramco being at a level of US$1.12/mmbtu and a sale price of US$1.34/mmbtu (according to press reports). In Riyadh, the Natural Gas Distribution Company was granted a license to supply several small-scale manufacturing plants, with a similar pricing structure. 4.9 Legal and regulatory framework The Ministry of Water and Electricity is responsible for planning and policy making. The Saudi Electricity Company (SEC), which incorporated all previous electrical energy companies in the Kingdom was formed in April 2000. SEC currently operates as a vertically integrated business covering generation, transmission, and distribution activities. The Saudi Electricity Regulatory Authority was formed in 2001 but in 2004 it became Electricity and Co-Generation Regulatory Authority (ECRA)18. By law, ECRA is a financially and administratively independent Saudi organisation, which regulates tariffs and market access in the electricity and water desalination industry. SEC is responsible for tendering and procurement of IPPs. Ownership is normally structured with SEC having 10% of the equity, the developer having 60% and third parties 30%. In the absence of a third party investor, SEC or the developer may take this share of the equity. The Shoaiba IWPP, scheduled to be completed in 2009, will be the first of four to be implemented by the private sector. The Saudi Basic Industries Corporation (SABIC), the Saudi Arabian Oil Company (Saudi Aramco) and the Royal Commission for Jubail and Yanbu have also combined with private investors to set up a utility company ­ Marafiq - to expand water and power supply in the industrial cities of Jubail and Yanbu. 18 Website: www.ecra.gov.sa Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 39 Saudi Arabia Saudi Arabia has further plans to restructure the electricity sector, including unbundling of SEC in stages and the introduction of competition. However, no steps have yet been taken. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 40 Bahrain 5 Bahrain 5.1 Energy resources The Bahrain National Gas Company (BANAGAS) is 75% owned by the Government and 12.5% by Caltex Bahrain and 12.5% by the Arab Petroleum Investment Corporation. The Company was formed with the primary objectives of processing associated gas into marketable products and supplying gas for local industrial use. In September 2003, the government signed an agreement with the American firm Alcoa, allowing Alcoa to take up to a 26% percent equity stake in BANAGAS. Exploring the potential for interconnection and electricity trade among Yemen and the GCC countries; October 2009 41 Bahrain Figure 18 Oil and gas map of Bahrain INDUSTRY " Petroleu m refining h:i light indu stry (prefabricated produ cts. !t-: Chemica ls (petroc hemicals and fertili zers) furniture, and cable) I Textiles a liquified natural gas 0 Food processing ~ Meta l processing