The countries of the Middle East might seem like the last places that would embrace non-hydrocarbon energy sources. With a total of 55 percent of the world's crude oil reserves and 41 percent of its natural gas, why should they? But the past year has seen a major push towards nuclear and renewable sources of energy in the Middle East, as the region's states work to solve the problems of burgeoning domestic growth through energy diversification.
In last week's Bloomberg Businessweek, Stanley Reed described the rise of the "nuclear option" in the United Arab Emirates, Saudi Arabia, and Jordan. At the forefront is the U.A.E., which placed a $20 billion order for four nuclear reactors from Seoul-based Korean Electric Power Corp. last December. The Saudis have followed with a plan to construct an entire city focused around nuclear energy, while Jordan's extensive nuclear ambitions, fueled by the discovery of large uranium reserves, see the country satisfying a third of its electricity demands with atomic power by 2030.
Renewable energy sources and greater efficiency measures are also proliferating across the region. Last week Abu Dhabi unveiled an ambitious plan to install "smart grid" electricity meters in every home in the emirate this year, while at the same time creating a subsidy system for solar panels both to attract foreign investment in solar technology and to develop a domestic solar industry. Meanwhile, the World Bank is loaning $5.5 billion to fund solar projects across the Middle East and North Africa that are expected to generate a total of some 9,000 megawatts, or nearly the entire power capacity of Abu Dhabi itself, according to Tamsin Carlisle at Abu Dhabi's The National newspaper. All this comes after still more favorable news for renewables in the Middle East, as Egypt plans a giant wind farm and sets a goal of generating 20 percent of its electricity needs from renewable sources by 2020.
Why is this happening? The short explanation is skyrocketing domestic demand for energy in general and electricity in particular, both fueled by rising populations and GDPs. In its International Energy Outlook 2010, the U.S. Energy Information Administration forecast energy consumption in the Middle East to climb by 45 percent from 2007 levels to 2020 with an annualized growth rate of 2.2 percent, demand growth that is second only to Asia. Electricity demand in the United Arab Emirates alone is expected to grow by 10 percent over the next three years, according to a report from the research firm RNCOS.
While it may come as no surprise that resource-poor Arab states such as Jordan would want to reduce their dependence on oil and gas imports, it's easy to think that countries like the U.A.E. and Saudi Arabia could simply use their own vast oil reserves to power themselves. But natural gas, rather than oil, is the favored fuel for electric power in the region, due to its greater efficiency and lower levels of pollution. And outside of Qatar, natural gas development in the Middle East has struggled to keep up with domestic demand, owing to high extraction costs, a rise in the global gas supply (making extraction uneconomical), prolonged delays in development, and other difficulties. To avoid a dependence on natural gas without the inefficient side-effects of oil, which could be potentially freed up for export, even oil-rich countries in the Middle East are turning to alternatives.
But another, more basic, consideration is also driving the region's energy diversification. As oil analyst Gregor MacDonald at the Oil Drum argued on Tuesday, the rapid growth of the region's populations and economies will also fuel a demand for agricultural products. Arable land -- not exactly an abundant commodity in the Middle East -- will be needed to satisfy grain demand and offset record-high imports, particularly when those imports have been subject to recent spates of market volatility. So Saudi Arabia and the Gulf states have moved into central and eastern Africa to acquire or lease large swathes of land for agricultural production, which in turn will require significant amounts of fossil fuel products -- from oil-burning farm equipment to fertilizers.
Turning back to geopolitics, no mention of a nuclear movement in the Middle East would be complete without mentioning Iran, which plans to start up its first operational nuclear power plant later this year. The prospect of a nuclear Iran, especially one with potential weapons capabilities, has been an ongoing strategic concern for Saudi Arabia and the Gulf states. Although there is no sign that the movement in these areas to nuclear power is driven by anything other than long-term economic and environmental concerns, it is impossible to overlook the shadow cast by Iran's nuclear policies. In an interview last month, nuclear expert Mark Hibbs of the Carnegie Endowment for International Peace called the Saudi and U.A.E. nuclear programs "long-term hedging options, particularly in light of concerns that that U.S. security guarantees to its allies will become weaker."
Whether or not any geostrategic intrigue is at play, there is no doubt that the growing energy diversification movement in the Middle East will have important ramifications for the region. Looking to the future, several Middle East states are recognizing that oil or gas currently used in power generation would be put to better use in agricultural projects at home or abroad, domestic construction projects, or by exporting to still-thirsty foreign consumers. They might even be subtly recognizing that their own oil supplies are not completely unlimited after all.