Development of an Integrated Energy Market in Saudi Arabia

1
Development of an Integrated EnergyMarket in
Saudi Arabia

• Saudi Arabia Global Super Project Conference
• 13 - 15 November 2000
• Rick Bergsieker
• President and COO
• Enron Middle East

2
Overview

• Gas, water and electricity infrastructure
  challenges
• The Saudi Gas Initiative - an integrated approach
• Key considerations
• What others have done
• Managing the transition

3
The Challenge

• 200 billion of capital investments required over
  the next 20 years for water, power and gas
  infrastructure
• Peak electricity generation capacity expected to
  grow 4 per year, from 25 GW in 2000 to 55 GW in
  2020
• Water desalination capacity to increase by 4.1
  million cubic meters/ day (MMCMD), from 6.3 MMCMD
  in 2000 to 10.4 MMCMD in 2020
• Massive development of gas infrastructure needed
  to fuel this growth and to replace existing
  liquid fuels

4
Natural Gas is the Kingdoms fuel of choice to
meet power demand growth. By 2020, more than 5
BCFD will be needed just to supply power
generation requirements.
MW
Information obtained from Investing in Saudi
Arabia, 20/21 June 2000 Conference, Four Season
Hotel, London
Power generated using Natural gas a fuel source
Peak Load Demand
5
Challenges in the Water Sector

• To meet future growth needs of 4.1 million cubic
  meters per day will require a combination of
  water desalination, wastewater recycling and
  enhanced conservation

Water Consumption
m3
Source Saline Water Conversion Corporation
6
Challenges in the Gas Sector

• The Kingdom is blessed with plentiful gas
  reserves that can fuel electric power and water
  production growth
• Gas can also displace higher value liquids
  currently being used for fuel
• more than 2 BCFD equivalent of liquid fuels is
  currently being burned in the Western Province
• Gas reserves are not close to some markets, and
  most known reserves are associated gas
• Massive gas infrastructure development is needed

7
The Saudi Gas Initiative

• A major First Step to develop gas resources and
  infrastructure
• integrated concept to define the best way to
  convert gas in the ground in one area to
  electricity and water in another area
• reliance on private sector and competition to
  optimize the system
• Key benefits
• can provide optimum solutions on a fast track
  basis
• attracts state-of-the-art technology
• attracts foreign capital
• creates opportunities for local investors,
  contractors, and employees

8
Key Considerations

• Power, water and gas development are
  inter-related
• should be planned and developed on an
  integrated basis rather than as separate
  components
• Whats the right balance between energy
  distributed by pipeline vs. energy distributed by
  wire?
• i.e., large centralized power plants supplied by
  large gas pipelines vs. a broader gas
  distribution network to smaller flexible power
  plants
• How to optimize power, water, co-generation and
  combined cycle requirements?
• What is the correct balance between efficiency,
  reliability and cost?
• How much backup (spare capacity, alternative
  fuels, etc.) is justified?

9
The Korean Approach

• Government developed initial infrastructure

SEOUL

• Government developed expansions to connect
  additional end-users

• Privatization to proceed, now that basic
  infrastructure is in place

10
The Florida Gas Approach

• Started with need for electricity and clean fuels
  in Florida

• Private investors build an initial pipeline and
  marketed gas

• Existing base-load line made incremental
  development and gas conversion possible

• Markets and supplies continue to expand
• Today 8000 km of pipeline supplying 1.5 BCFD
• Will reach 2 BCFD by 2002

Need for electric power
Gas supply Surplus
11
Once basic infrastructure is in place, the market
can quickly respond to supply/demand changes
1999 1300 MW
2000 1500 MW
12
Managing the Transition

• Market systems work - end users and suppliers can
  determine the optimum allocation of resources and
  infrastructure
• An optimal market-driven system needs transparent
  and predictable regulations that allow private
  industry to work
• Pricing disparities will occur but can be managed
  
• for example, subsidy programs can be targeted to
  solve specific end-user problems while minimizing
  the impact on infrastructure developers and
  investors

13
Conclusions

• Tremendous challenges are ahead
• Saudi Gas Initiative is a great First Step
• Many decisions are needed to optimize the system
• Markets, acting within a clear regulatory
  environment, can and will optimize the system
• Tough, but manageable, transition issues lie
  ahead
• Substantial international experience is available
  and is ready to help as needed

14
Thank You