Coal seen as cost-competitive alternative to gas in GCC

MUSCAT, AUG 25 – Competing demands on natural gas as a fuel resource for power generation, on the one hand, and as feedstock for industrial investments, on the other, are among the factors underpinning the Gulf region’s nascent embrace of coal as an alternative resource, according to an Omani scholar. Dr Aisha al Sarihi (pictured), a specialist in energy and climate affairs, says that coal is also seen as a cost-competitive alternative to gas and other power sources as some Gulf states move to conserve natural gas for industrial and other value-generating investments.
Her comments are set out in an insightful paper titled, ‘Why Oil and Gas-Rich Gulf Arab States are Turning to Coal?’ published by the prominent think-tank, The Arab Gulf States Institute in Washington (AGSIW).
Although blessed with a nearly a third of proven world crude oil and around a fifth of global natural gas reserves, some GCC states in this resource-rich region are switching to coal to augment electricity generation, according to Dr Aisha.
Dubai, for instance, is making headway in the construction of the Gulf’s first coal-fired power plant — the 2,400 MW Hassyan project — in Saih Shuaib. The Emirate is also weighing plans for a second coal-powered scheme as part of the Dubai Clean Energy Strategy 2050.
Likewise, the Sultanate of Oman has already launched a competitive bid process for the development of the nation’s first coal-based power plant — a 1,200 MW capacity scheme — planned in the Special Economic Zone at Duqm.
“Securing enough energy to meet surging domestic demand and maintaining energy export levels over the long term while also pursuing ambitious economic diversification strategies present a triple policy challenge to the hydrocarbon-dependent economies of the Gulf states, especially with the drop in oil prices since mid-2014,” said Dr Aisha, a visiting scholar at the Arab Gulf States Institute in Washington, in her paper.
According to the expert, the GCC states are experiencing an “extraordinary surge in energy consumption”, with their overall energy demand rising on average some 5 per cent per annum during the 2000s.
“Between 2003 and 2013, regional electricity consumption increased at an average rate of 6-7 per cent per annum — faster than anywhere else in the world. Nearly 50 per cent of all electricity produced in the Gulf states goes to the residential sector, with air-conditioning accounting for a considerable portion of demand. Given the highly subsidised power sector, per capita electricity consumption in the Gulf countries is also substantial: more than 10,000 kilowatt-hours per person in 2014,” she pointed out.
“Consequently, gas demand across the Gulf states has grown two-and-a-half fold since 2000, with almost two-thirds of this growth coming from power generation alone,” she stated.
This burgeoning gas demand, Dr Aisha points out, threatens to come in the way of the GCC states’ ambitions to pursue economic diversification, notably through investments in gas-based industrial and petrochemical projects.
“Against this background, it makes sense for the Gulf states to free up natural gas either for export or industrial expansion. Therefore, the provision of additional energy becomes ever more important. Indeed, considering this triple energy-policy challenge, all of the Gulf Arab states are now pursuing fuel-mix diversification strategies, including the development of renewable energy, nuclear power, and most recently coal,” she noted.
Coal’s appeal to some Gulf states, over alternatives like renewables and nuclear power, is linked to its cost-competitiveness relative to these alternatives, according to the scholar. The average Levelised Cost of Electricity (LCOE) places coal-based generation ($0.05 per kWh) significantly lower than the corresponding average for alternatives like gas-based power generation ($0.02 – 0.05 per kWh), solar ($0.11 – 0.47 per kWh) or nuclear (around $0.15 per kWh).
“It is even cheaper than the lowest recorded cost of utility-scale solar photovoltaic (PV), which was $0.06 per kWh in Dubai in 2014. Further, it takes less time to construct coal-fired plants, which means that gas or diesel can be freed up and used very quickly for other purposes such as industrial expansion or sales in the international market,” Dr Aisha stated.
On the flipside, the paper looks at the implications of the transition to coal-power for climate change and global warming. The characterisation of coal-based technology as “clean” is still unclear, the author points out. She stresses, in this regard, an emphasis on energy efficiency and further reform of fossil fuel subsidies to help conserve natural gas as a valuable resource.

Conrad Prabhu