By Justin Dargin
26-10-08 The Gulf nations which for decades have occupied popular imagination as the very meaning of "energy abundance" are now in dire straits facing crippling blackout and gas shortages. In this case, their very success has been what has hindered them; rapid economic growth has caused crippling shortages in water and power generation across the region.
The Gulf's power grid is crashing under the combined weight of increased demand by the demographic shift, i.e. a much younger energy hungry population, a booming construction sector and the expansion of heavy industry. While power consumption is expected to top 50-% within the next five years, power generation is expected to meet that by only 30-%.

This shortage is severely jeopardizing the stratospheric growth which the Gulf countries, particularly the UAE, have exhibited over the past decade. In Dubai, it is possible to see rows of brand new skyscrapers that are completely empty because there is no electricity to power them.
And it must be remembered that this is in an area where an undersupply of residential housing is causing the housing price to skyrocket.

Kuwait has been pummelled as well by rolling blackouts, as has Oman where major industrial projects were placed on hold because of the gas shortages. The governments fear that if this problem is not addressed soon, the spectacular economic growth that we have come to expect from the region will be a thing of the past. Regional officials blame baking summer temperatures that cause the residents to turn to air conditioners, as well as a lack of awareness about energy conservation.
Despite significant investment in energy generation infrastructure, there is a five to six year gap between when any new demand will be met by increased energy infrastructure, and this gap may only widen in the future.

It seems surprising that an area which has the world waiting breathlessly for any opaque statement about increases in oil and gas production should face a domestic energycrisis at home. In dealing with the crisis, the Gulf has turned to everything from building civilian nuclear plants, engaging in solar energy, looking for renewables and educating the public about conservation.
Their reaction to the power crisis concerns the world, because much of our additional gas and oil supplies will be coming from the Gulf, so their reaction directly impacts the rest of us.

What is inevitable is that significant power cuts are coming, and they will be necessary, whether as a planned "load shedding" where there are scheduled blackouts that are agreed between the utility companies and large consumer as hotels or residential blocks or unplanned brownouts.
Agreements between large power consumers and national power companies are considered to be a more palatable choice than facing unscheduled blackouts caused by demand pressure. Already, South Africa, China, and many Latin American countries engage in the practice, and the many Gulf countries could be in the same position.

The crux of the problem is that most of the Gulf countries supply their domestic market with below market priced gas, this makes exploration and production of known gas reserves to be unprofitable for the national oil champions and well as international oil companies.
Further, it is ironic, as the high price of oil causes the oil producing countries to reserve their oil for export and utilize more gas for the domestic market. And that in the almost manic drive for economic diversification away from oil dependency, has caused them to underestimate exactly how much gas would be needed to facilitate this shift.

Much of this has to do with the psychology that has been developed from the many decades of being energy exporters, and not importers. Although they are changing their worldview, this has been an almost forced concession caused by the acknowledgement that many Gulf countries will have to import energy from their neighbours.
Such as the necessity of the UAE and Oman to import natural gas from Qatar in the multi billion dollar Dolphin natural gas pipeline, and also by the planned $ 1.6 bn multinational power grid.

To address the energy shortages the countries in the region have been building coal fired power plants, and in a striking move, the UAE is spending upwards of $ 100 mm seed money to develop civilian nuclear energy by 2016.
This may work in the long term, but in the interim consumers in the Gulf will have to get used to something which they never expected, scheduled blackouts to cope with the overload on the grid. And if that occurs, and it seems all too likely, we could soon see a less bright future for the shining cities.

Justin Dargin is a Research Fellow with The Dubai Initiative, Harvard University, a specialist in International Law and Energy Law, and is a prolific author on energy affairs. He is the author of "The Dolphin Project: The Development of a Gulf Gas Initiative", Oxford Institute of Energy Studies Press, January 2008.