Power demand in the UAE was lower in the first half of this year than in the same period last year, the Abu Dhabi National Energy Company said Thursday. A construction slowdown had caused the drop in electricity consumption, said Peter Barker-Homek, the chief executive of the company also known as Taqa, which runs power plants in the capital.
The disclosure highlights the severe effect of the global financial crisis on the UAE's previously booming residential and commercial property sectors. In April, the Abu Dhabi Water and Electricity Company (ADWEC) predicted power demand in the country would continue to rise this year, but at a slower rate than the 9 per cent average annual increase experienced in the past five years. It said slower growth in power requirements for large residential and commercial construction projects and industry would be offset in the short term by higher electricity consumption by the Abu Dhabi National Oil Company, which was pressing ahead with a number of large oil and gas development projects.
ADWEC is a unit of the Abu Dhabi Water and Electricity Authority, the government entity that owns 75 per cent of Taqa. In March, Nomura, the Japanese investment bank, forecast 7 per cent growth in UAE power demand this year. It said larger annual increases in previous years had been driven by property and population expansion, especially in Dubai. Thursday, Taqa reported a 71 per cent drop in second-quarter profits due to lower oil and gas prices and higher operating costs.
The company posted net earnings of Dh136 million (US$37m), down from Dh472m in the second quarter last year. Revenues fell 4 per cent to Dh4.38 billion. The results fell short of analysts' expectations, but were an improvement over the previous quarter, in which Taqa's profit fell 90 per cent compared with the first quarter last year. "We are now a long way from the lows we saw earlier in the year," said Mr Barker-Homek. "We have seen a welcome strengthening in business performance."
Crude prices have roughly doubled this year, recovering from below $35 per barrel last December to about $70 per barrel. But in Taqa's worst-performing business segment, its North American oil and gas operations, profits fell 93 per cent even as the company pared operating costs. That reflects extremely low North American gas prices, which have failed to rebound in tandem with oil prices. Canadian gas features heavily in Taqa's North American asset portfolio and is usually the lowest priced gas on the continent.
Profits from Taqa's European oil and gas operations fell just 29 per cent, even though operating costs more than doubled. That followed a major acquisition of North Sea assets from ExxonMobil and Royal Dutch Shell. Despite falling electricity demand in several countries in which it holds assets, Taqa's power and water operations made the biggest contribution to the company's profits for the quarter, as revenue expanded.
When Taqa was created four years ago, its assets consisted of majority stakes in Abu Dhabi's biggest power and water projects. Since then, it has invested about $25bn internationally in its quest to become an integrated global oil, gas and power company. However, in the upstream oil and gas sector, Taqa has mainly acquired mature producing assets that require large cash infusions just to maintain output. That has left the company vulnerable to low commodity prices.
Mr Barker-Homek said the company might spend another $1bn on energy assets in North America and Europe during the rest of this year. On the Abu Dhabi Securities Exchange Thursday, Taqa's stock closed at Dh1.75, up 9 per cent or 14 fils. * with Reuters tcarlisle@thenational.ae