GCC needs to invest heavily to meet power demand

According to an official Arab study, the six Gulf Cooperation Council (GCC) countries, which control over 40% of the world's proven oil wealth, will have to pump in excess of $63bn into projects to expand power generation in the next five years.

More funds are needed for new plants and for water projects.

Major power and water projects are among the key topics to be discussed at the PowerGen and WaterWorld conference and exhibition, which were opened in Doha last night. British-based Penwell company is sponsoring the event, which attracted more than 100 key speakers.

The study by the Dammam-based Arab Petroleum Investment Corp (Apicorp), an affiliate of the Organization of Arab Petroleum Exporting Countries, estimated the total capital in power generation in the Middle East and North Africa (MENA) at $125.8bn during 2012-2016 to add about 106.4 GW of electricity.

"This increment, which represents 48% of the 2010 estimated capacity of 220GW, justifies the huge capital investment needed," it said.

"A regional breakdown shows that about 46% of that expansion is expected in the GCC, which remains the fastest growing area. This should come as no surprise, taking into account its record rates of urbanization and the massive requirements for water desalination and air conditioning," it added.

The study put investments in such projects at around $63.1bn in the GCC, $27bn in Mashreq (east) Arab nations, $25.8bn in Iran, $13bn in Maghreb (west) Arab countries and the rest in other Arab states.

The report showed the GCC is projected to record the highest demand growth of around 8.5% in the medium term. Growth was put at 7.6% in Mashreq (Egypt, Iraq, Jordan, Lebanon and Syria), 7.2% in other Arab states, 7% in Iran and 6.5% in Maghreb (Algeria, Libya, Mauritania, Morocco and Tunisia).

Additional capacity was estimated at 52.7 GW in the GCC, 21.7 GW in Mashreq, 19.8 GW in Iran, 10.8 GW in Maghreb and 1.4 GW in other Arab nations.

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

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