Abu Dhabi National Oil Company (Adnoc) will increase the price of natural gas starting Sunday, as Arabian Gulf countries forge ahead with reforms to energy subsidies aimed at lowering expenditure and narrowing fiscal deficits.
The gas increase will also put pressure on industrial clients who will need to shore up efficiencies in order to maintain healthy margins.
“We have rebalanced our gas price structure to ensure a fairer price for our gas,” an Adnoc spokesman told The National.
“Nevertheless, the price remains competitive and below market price.”
Prices will increase across the board, starting January 1, but vary for each customer and industry.
Gulf countries began removing subsidies on energy, power and water last year as oil prices continued their plunge, putting pressure on national budgets.
The UAE was the first country to effectively remove subsidies on gasoline last year, linking them to international pricing.
Saudi Arabia followed suit in December last year, raising prices on power, electricity and energy, including natural gas, which used to be among the lowest in the world.
Gulf countries are among the largest consumers of energy, guzzling 9.2 tonnes of oil equivalent (TOEs) per capita in 2014, which compares with a world average of 4 TOEs per capita, according to the IMF.
Low gas prices have allowed Gulf industrial and petrochemical companies to prosper compared to global rivals that have to pay international prices.
Arkan, a unit of Abu Dhabi industrial conglomerate Senaat, said yesterday that it would see a price increase totaling 73.3 per cent since the building materials manufacturer, uses gas to fire its kilns.
“We have been working continuously to drive energy and raw material costs down across our business and have implemented a range of initiatives that will mitigate to a large extent the tariff increases we face,” Arkan’s chairman, Jamal Salem Al Dhaheri, said in a statement.
The industrial sector, which includes manufacturing, mining and construction, will also juggle new electricity tariffs after Abu Dhabi Distribution Company (ADDC) last month outlined higher rates.
Industrial consumers that use more than 1 megawatt of power will see a 68.75 per cent increase to 27 fils per kilowatt hour during non-peak times which will increase even further during peak times from June to September.
Arkan’s biggest money maker, cement, is also the most energy intensive industrial sector. The product accounted for over 72 per cent of the company’s total revenues for the first nine months of the year.
Cement’s energy use is roughly 10 times its share of the gross output of goods and services, according to the US Energy Information Administration.
On average, Arkan’s power bill will see an increase of just over 56 per cent and the firm began over the course of the year adding new technologies to offset the expected price increases.
A waste heat recovery system will reduce electricity consumption from the grid while hot gases will be collected and reused to produce enough power to meet a quarter of Arkan’s demand.
In another move to cut costs, Arkan’s board of directors decided yesterday to temporarily consolidate cement production and sales to the Al Ain factory.
“Savings in excess of Dh45 million are expected to be generated through this consolidation,” the company said.
And while moving operations from two plants to a single location can help with efficiencies, Arkan is still eyeing other options to cut electricity costs. The company is currently conducting feasibility studies to build a coal power plant while biomass and other wastes are being looked at to reduce the gas needed to fire the kilns.
Yet what may be a better option could be the use of renewable energy such as solar power.
The World Economic Forum (WEF) released a report this month that showed solar power beating natural gas and coal.
The average price of coal power, known as the levelised cost of electricity, has remained about US$100 per megawatt-hour, while the price of solar has plummeted from $600 a MWh a decade ago to about or below $100 a MWh for utility-scale solar photovoltaic.
“In an increasingly larger number of countries, it has become more economical to install solar and wind capacity than coal capacity,” the WEF said.
lgraves@thenational.ae
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