Abu Dhabi recently launched the world's largest concentrated solar power plant, in what marks a significant turn in the way the UAE views its energy sector.
The 100-megawatt Shams 1 has the ability to power 20,000 homes in the UAE, and mark the commencement of one of the first major alternative energy projects in the Middle East, a region traditionally seen as the center of the global fossil fuels industry.
"The inauguration of Shams 1 is a breakthrough for renewable energy development in the Middle East," said Dr. Sultan Ahmed Al Jaber, CEO of Masdar, in a statement. "With the demand for energy rising exponentially, the region is undergoing a major transformation in how it generates electricity. In fact, the Middle East is poised for major investments in renewables, and Shams 1 proves the economic and environmental advantage of deploying large-scale solar projects."
As a major crude oil exporter, the UAE has the third highest carbon footprint per capita in the world, dwarfed only by neighbors Kuwait and Qatar.
The UAE's ecological foot print stands at 8.44 hectares per person compared to the Middle East's average 2.47 and Asia Pacific's 1.63 hectares per person, according to a World Wildlife Fund report.
While it will take more than a few Shams 1s to reduce the carbon footprint, it adds a healthy dose of green to the UAE economy and help diversify its energy base.
But it is also a shrewd economic policy.
Like most Arab OPEC countries, the UAE's own demand for energy is rising, and the country's rapid consumption of oil for transport fuel and power reduces its crude export capacity.
The Middle East was the fastest growing region in energy consumption, rising 3.6% last year, with Saudi Arabia and the Emirates among the leading consumers.
Domestic consumption on the rise
Electricity demand in the UAE and the wider Middle East is also set to grow at one of the highest rates in the world, or 2.5% each year, just behind Africa's 2.6% over the next twenty years.
"Oil use for power generation [is set to fall] at the slowest pace in the Middle East, where subsidies persist and electricity demand grows strongly," said the International Energy Agency in a long-term forecast. In 2035, the Middle East is expected to account for almost half of world oil-fired generation, up from 29% in 2010, the IEA said.
The US Department of Energy notes that the UAE's domestic petroleum consumption — including refined products — was 487,000 barrels per day in 2011.
"Gasoline is heavily subsidized in the country, and while the subsidies are politically popular, some analysts believe they encourage wasteful practices," the department noted. "Over the past 10 years, the annual growth rate of oil consumption was 4.3%, and positive economic growth forecasts indicate this trend is likely to continue."
At the same time, the UAE's production capacity is flat-lining after growing steadily over the past few years.
"In the UAE we estimate capacity will increase marginally from current levels of 2.8 million b/d supported by successful enhanced oil recovery efforts, particularly with water and gas injection at mature onshore fields," said Sabine Schels, analyst at Bank of America Merrill Lynch, in a forecast looking till 2017.
"Volumes should come from the re-commissioning of mothballed facilities at Lower Zakum, expansions at Upper Zakum, and the start-up of a handful of new smaller fields both onshore and offshore."
The government has delayed plans to raise oil capacity to 3.5 million bpd to 2018, due to weaker global oil-demand prospects.
Development of a new field – Qusahwira – and the extension of some old giants – Bab and Upper Zakum- are currently being undertaken by the Abu Dhabi National Oil Company and its partners, which between them are expected to add about 250,000bpd by 2014 and another 250,000 bpd by 2016, the IEA said.
"Other companies are also planning capacity increases, though this is likely to take place only after decisions are taken on the renewal of the concessions, due in 2014," notes the International Energy Agency. "National production is projected to reach 3.7 million bpd in 2035, up from 3.3 million bpd in 2011, with most of the increase coming from natural gas liquids."
Diversifying energy sources
For a country that sits on the seventh largest conventional gas reserves in the world, the UAE finds itself in a strange situation where Abu Dhabi exports gas while Dubai imports it.
"The country's inefficient and rapidly expanding electricity grid–which is being taxed by the rapid economic and demographic growth of recent decades–relies on natural gas for the majority of its feedstock," said the US Energy Department.
Much of the imports come from Qatar through the Dolphin Gas Project's export pipeline, which runs from Qatar to Oman via the UAE.
The new minister of Energy Suhail Mohammad Al Mazroui will be tasked with raising the country's natural gas production and also introduce alternative energies as part of a more diversified energy mix.
On March 19, Shell reportedly won a USD 10-billion bid to operate Abu Dhabi National Oil Co.'s Bab sour gas field to produce anywhere between 500 million to 800 million cubic feet of gas per day.
At the same time, plans to build a nuclear power plant are also under way.
The USD 40 billion Braqa Nuclear Power Plant being commissioned by the Emirate Nuclear Energy Corporation (ENEC) is a landmark nuclear project for the Middle East and currently in construction phase, according to Zawya Projects Monitor.
"The plant will have a capacity of 5,600 MW upon completion in 2020. It will include four nuclear reactors [with] a capacity of 1,400MW each," according to Zawya Project Monitor's details on the project. "The plant will be built in three phases. The first phase's planned completion date is in 2017, followed by the second and third phases in 2018 and 2020."
Meanwhile, Masdar City is planning a wind power plant in Sir Bani Yas Island, a carbon dioxide capture and storage program and a solar power tower, and Dubai Electricity & Water Authority is also developing a solar power plant.
Apart from attracting a new stream of investment into the economy, the UAE is making a concentrated effort to embrace alternative energies even as it continues to feed off its considerable fossil fuel resources.