Solar to power Middle East oil, natural gas exports

A long-standing concern of the energy industry has been growing Middle Eastern demand for its own oil and gas, supported by generous subsidies, which make fuel exceptionally cheap in the region.

Higher oil and gas consumption regionally would lead to rapidly diminishing export capacities, resulting in shortages on international markets. A key indicator of this growing demand has been the emergence in recent years of a number of Middle Eastern countries as LNG importers, despite vast regional gas reserves.

Those concerns are receding. Low oil and gas prices have hit the oil producers hard and subsidies have, to some extent, been reined in for budgetary reasons.

Higher domestic prices act as a drag on demand growth, just as low prices prompted a near unrestricted expansion of consumption.

However, a second factor is beginning to make itself felt – solar power.

Solar power in the Middle East is cheap because of the long hours of sunshine the region enjoys. It is a region that most stands to benefit from the technology’s increasing efficiencies and its substantial downward cost trajectory. Solar PV set record low tender prices in the UAE last year, well below the cost of fossil fuel generated power.

Solar’s attractions are becoming irresistible and the number of projects in the region is proliferating. In September, Algeria announced construction of a 10 MW solar PV farm to power an oil field.

It’s a minor project in terms of capacity, but one that neatly encapsulates the growing relationship between oil, gas and renewables because the alternative option would undoubtedly have been an oil or gas-fired generation set.

Much larger projects are underway. Iran in September unveiled an agreement with UK-based renewable developer Quercus for a 600 MW solar PV farm, while Saudi Arabia’s ACWA Power announced that it had been awarded the 700 MW Concentrated Solar Power (CSP) fourth phase of Dubai’s Mohammed Bin Rashid Al Maktoum Solar Park development at a levelized tariff of $7.30/kWh, which, according to the company, is the first time CSP has reached cost parity with natural gas or oil-fired generation.

While more expensive than solar PV, CSP projects are incorporating ever-larger storage capacities, which allow electricity to be generated when the sun goes down, as they use the sun’s heat rather than PV conversion to electricity.

ACWA Power’s plant will be able to generate power 24 hours a day and will be the largest single-site, thermo-solar plant in the world. However, of equal significance is that it will displace an estimated 0.5 million mt of LNG a year.

With solar becoming both cheaper than fossil fuels and less variable through CSP, it clearly makes sense to install more capacity to free up gas for export.

As natural gas is used to repressurize oil fields, additional gas will also go some way to supporting oil production, or could be used, as in Iran, by natural gas vehicles to displace oil products. Iran has 4 million NGVs on the road.

In one sense this is simply the proliferation of the cheapest available technology, but as renewables gain a foothold in oil- and gas-exporting countries as well as in net importing nations, it is affecting both the supply and demand sides of the market, displacing demand on the one hand and supporting exports on the other.

The effects may be small at present, but if solar costs continue to fall there is no reason why Middle Eastern and North African countries should not fully exploit their huge solar resource to the limit.
Source: Platts