UAE Offers Relief To Beleaguered US Shale Gas Industry… Or Not
Make up your minds already! Just last year the United Arab Emirates stunned the global energy markets by putting out word that the country was looking to import liquified natural gas from the United States and Canada. That would have been great news for US shale gas drillers, who have been buffeted by the triple evils of falling prices, rising opposition to drilling, and tighter environmental regulations. But now it looks like the UAE renewable energy market — namely, wind and solar — could offer the country an alternative.
What’s Up With UAE Renewable Energy?
The UAE is one of the world’s top natural gas producers, but as of 2010 the country was in crisis mode. The problem has been soaring demand for natural gas coupled with an almost exclusive reliance on natural gas for power generation. Also feeding the crisis is the country’s increasing reliance on energy-sucking water desalination facilities.
While the cost of retrieving more domestic natural gas has been growing in the UAE, global prices have been falling, so that’s why its current solution is to increase its reach in the import market.
The other solution, according to a new report from IRENA (the International Renewable Energy Agency) and the Masdar Institute of Science and Technology, is to pump up the UAE renewable energy sector.
The new report is titled “Renewable Energy Prospects: United Arab Emirates,” and it’s particularly significant because this marks the first time ever that the UAE has publicized the costs and potentials of renewable energy compared to conventional fuels.
Before we dig into the details, though, here’s a note of caution: just last week, the UAE renewable energy sector looked on shaky ground. According to Customs Today, the country’s Energy Minister laid out plans to continue ramping up UAE’s gas import capacity, including an upgrade of the Dolphin pipeline from Qatar.
However, the IRENA and Masdar Institute report was developed with the support of the UAE Ministry of Foreign Affairs, so if all goes well for renewable energy production, the import plans could be a stopgap measure.
UAE Renewable Energy By The Numbers
The full report is available online, but for those of you on the go, the bottom line is that the UAE renewable energy sector is on the move.
According to the report, recent technology improvements have pushed the cost of wind and solar energy down in the UAE, while domestic natural gas costs have been climbing up:
Solar PV costs, for instance, have fallen by 80 per cent since 2008, while the cost of new gas supplies in the UAE has grown from under $2.5/MMBtu in 2010 to $6-8/MMBtu for domestic production and $10-18/MMBtu for imports today, even after the recent decline of oil and LNG prices.
At the $8MMBtu (British thermal units) mark, wind and solar are “immediately competitive” in the UAE according to the report.
On that foundation, the IRENA and Masdar Institute report is looking at a quick growth rate in the UAE renewable energy market, achieving a 10% energy share overall by 2030, and a whopping 25% share of power generation by 2030. The Masdar report also finds that hitting that doing so could save the country $1.9 billion (AED 7 billion) a year by 2030.
One main driver will be a significant drop in the cost of solar. For example, the low bid for an extension of the Mohammed bin Rashid Solar Park in Dubai came in at less than six cents per kilowatt-hour, which, as the report out it, is “the lowest solar price ever achieved worldwide.”
Even without energy storage, the report estimates that daytime generation of solar power would result in enough savings to attract solar investors to the UAE.
Currently, the country has about 40 megawatts, and the report is looking at 17,500 megawatts by 2030.
So, What Does This Mean For The US Natural Gas Industry?
For those of you new to the topic, the US natural gas industry has been placing tremendous pressure on Congress to grow the export market, especially considering UAE’s interest in North American natural gas.
The US gas industry needs that export market because US domestic gas prices have fallen, partly due to global market forces and partly due to increased competition from domestic wind and solar, with much more to come.
Meanwhile, the Obama Administration has been slowly but surely working to close enormous gaps in federal environmental regulations that cover oil and gas fracking (that’s short for hydrofracturing, a drilling method that involves shooting massive quantities of chemicals and grit into shale formations).
Adding to the hurt, a set of newly released proposed fracking rules might not make drilling that much more expensive (at least not according to federal officials), but it certainly doesn’t help when prices are flatlining on the market.
The US fracking industry depends on drilling a great number of new wells annually to remain profitable, but the prospects for continued growth in that direction are shrinking as the loal impacts of fracking (and fracking wastewater disposal) become clear. That, too, will pile onto production expenses.
So, What About Those US Natural Gas Exports?
This year, Congress has been working on a bill to speed up the federal export approval process, and according to our friends over at The Hill, if the gas export legislation passes, it might escape President Obama’s veto pen — mainly because the regulations were already changed along those lines last fall.
That would certainly provide the US industry some relief, but as the new IRENA and Masdar Institute report illustrates, the UAE might not be such an eager buyer in the near future.
As for the rest of the global gas market, the report is just one of a threesome that IRENA is preparing to illustrate how renewables can meet the growing global demand for energy by 2030, as part of a United Nations program called Sustainable Energy for All.
Image credit (screenshot): Courtesy of IRENA.
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