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Oil Price Side-Effect: Why the Gulf Is Switching to Coal

By Wolfgang Reuter

The Persian Gulf may be sitting atop massive oil reserves. But with prices for crude skyrocketing, it makes more sense to sell it than to burn it. Instead, the Gulf is turning to coal for its energy needs -- to the detriment of the climate.

A coal-fired plant belonging to Evonik Steag in Turkey. The company is currently expanding in the Gulf.

A coal-fired plant belonging to Evonik Steag in Turkey. The company is currently expanding in the Gulf.

For Alfred Tacke, CEO of the Essen energy giant Evonik Steag, it's the yellowish-brown pall below that tells him the plane he's on is approaching the Persian Gulf. Beneath the haze, he knows, is Kuwait, which has five large-scale gas- and oil-fired power plants in operation. The power they generate provide around-the-clock electricity for Kuwait's gigantic seawater desalination plants and the country's enormous air-conditioning needs.

"Here, you only need to stick your finger in the sand and you're likely to strike oil or gas," says Tacke, whose energy group ranks fifth among Germany's electricity producers. But Tacke has his own ideas about how to make money in the region. And they center on a different kind of black gold: coal-fired power plants. "We're currently in the process of discussing the conditions for projects of this kind," he says.

As odd as the idea may seem, coal power in the gulf is just one more outcome of skyrocketing oil prices. In a world with dramatically disparate ideas on how or even whether to address the risks of global warming, demand for coal plants across the globe is growing rapidly to the detriment of efforts to increase the production of renewable energies such as solar, hydro and wind.

Nowhere is that demand more paradoxical than in the oil-rich Middle East. At the end of April, for example, the state-owned Oman Oil Company signed a memorandum of understanding with two Korean companies on the construction and operation of several coal-fired power plants. Dubai, for its part, is initially planning to build at least four large facilities with a cumulative output of 4,000 megawatts. Abu Dhabi also wants to get into the act. Even Egypt is thinking of constructing its first coal-fired plant on the shores of the Red Sea.

Two-Hundred More Years of Coal

Other regions in the world are fuelling the trend as well. Oil-rich Russia is planning the construction of more than thirty new coal-fired power plants by 2011. In China a new facility is connected to the grid about once every 10 days. Greenpeace estimates that around five thousand coal-fired power plants will be in operation worldwide by 2030.

The economics behind the coal fad are clear. To produce a megawatt hour of electricity using Australian coal, it costs just €11. Using natural gas, on the other hand, ups that price to €26 while oil-fired power plants swallow up €50.50 per megawatt hour of electricity.

Plus, coal is likely to be available for quite some time to come. Global coal reserves will last an estimated 100 more years and possibly even twice that long. As a result, coal is relatively cheap and in some cases can even be gleaned from open pit mines as in Australia, but also in the US, South Africa, China and Russia. The difference between the prices of natural gas and oil on the one hand, and coal on the other is growing increasingly large.

For the Gulf, the development is turning into a highly lucrative business model. They are currently able to sell their oil at record prices on the global market (currently over $140 a barrel). At the same time, they are able to satisfy their own energy needs at a much lower cost with coal shipped in from overseas.

From an environmental standpoint, of course, this trend is devastating. The Gulf states, first and foremost the United Arab Emirates, are among the world's boom regions. It is predicted that by 2015 the population of Dubai will double to a total of 2.6 million. Per capita energy consumption in the Emirates is six times higher than the global average and a third more than even the US average.

Deserts Devoid of Solar Power

Should coal play a major role in satisfying such a growing energy demand in Dubai and elsewhere, prospects for the global climate are dim. Even a modern anthracite-fired power plant emits 750 grams of CO2 per kilowatt hour of electricity produced, twice as much as a gas-fired power plant and around 50 percent more than an oil-fired power plant. The amount of CO2 emitted by lignite-fired power plants is much greater, further aggravating the greenhouse effect.

The situation is one which shows the limitation of climate protection policies developed and implemented on the national rather than the international level. Germany has committed to reduce its CO2 emissions by 20 percent by 2020 relative to 1990 levels and is striving to achieve double that reduction figure. Many Gulf States, on the other hand, including the United Arab Emirates, are classified as developing countries -- meaning that even though they've ratified the Kyoto Protocol, they have no obligation to reduce their CO2 emissions.

A quick look at the potential of solar power in the region shows the absurdity of this situation. In the sun-baked Gulf, one square meter of solar cells produces at least 2,200 kilowatt hours of electricity per year. In Germany annual output for a square meter is less than half that amount. In the Gulf States, though, solar energy is much too expensive when compared with coal. In contrast to Germany, there are no subsidies for those who invest in solar collectors.

In Germany last year, solar power facilities with an output of 1,300 megawatts were installed. In Saudi Arabia the other Gulf States, it was just 36 megawatts. Even if only a fraction of the solar electricity subsidies available in Germany were available in the Gulf, the positive effect for the global climate would be many times greater.

For the moment, though, there is currently not enough political support for solutions of this kind, neither in the oil-producing countries nor in the industrialized nations. Which means that Alfred Tacke of Evonik Steag is hoping for tidy profits in the future. "The Gulf," he says hopefully, "is a growth region for us."

Translated from the German by Larry Fischer

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