Oman: Investment in Uranium Mine May Signal Shift in Energy Mix

13 September 2017 Alex Havas, Research Assistant, Indian Ocean Research Programme

Background

The Oman Sovereign Wealth Fund (OSWF) has committed US$120 million to fully fund the development of the uranium mine owned by Berkeley Energia Limited near the Spanish city of Salamanca by 2019. The price of uranium is currently at around US$20.00 per pound and, according to the energy company, is expected to triple over the next five years. The Omani energy sector relies heavily on oil and gas, with future electricity demand expected to increase significantly due to industrial growth and urbanisation. The Berkley mine is not Oman’s first foray into nuclear energy; in June 2009, a nuclear co-operation agreement was signed with Russia.

Comment

Energy security is a major concern for Oman as the country’s fossil fuel reserves may be insufficient to meet future electricity requirements. This has prompted research into the viability of diversifying the energy mix through the introduction of more renewable energy sources to complement existing fossil fuel energy generation systems.

It has been estimated that the implementation of a co-ordinated global sustainable energy plan by 2050 will reduce fossil fuel consumption by twenty per cent. The end result under such a scenario will see thirty per cent of energy coming from renewable sources and eleven per cent from nuclear. Oman, however, has a narrow energy mix and relies on gas for 97 per cent of its energy supplies, with the remainder coming from diesel sources. Other countries, such as France, have chosen to rely significantly on nuclear power, which accounts for over seventy per cent of the electricity generated in France; seventeen per cent is generated from renewable energies and waste, and seven per cent from fossil fuels. The French example may be at the far end of the spectrum but it does demonstrate what is possible from a concerted effort to reduce the use of fossil fuels in a country’s energy mix.

Energy demand in Oman is expected to grow by ten per cent per year to 2019 as the population grows from 2.4 million to 4.42 million alongside a gross domestic product that grew by an average of 3.96% per year between 2000 and 2016. Although growth has slowed, Oman has the fifth-highest GDP per capita in the Middle East, generated from oil and gas production and large-scale industries such as the production of fertiliser, aluminium, cement and steel tubes. Continuing industrialisation and urbanisation will use greater amounts of electricity, placing further demands on the energy sector.

Oman GDP + Electricity

There is potential to diversify the Omani energy mix and the International Renewable Energy Agency has detailed the reforms required to develop the renewable energy sector. The action plan includes developing a strategic policy and governance structure specifying the required energy mix to 2040; establishing market targets for renewable sources; developing a legal framework for effective implementation; mapping and verifying of centrally-stored renewable sources; and, investing in research into future renewable energy sources.

In his “Vision 2020” policy, Sultan Qaboos has set the objective that ten per cent of the country’s total electricity requirements should come from renewable energy sources by 2020. Studies have identified solar and wind energy generation as reliable sources for Oman, which has one of the highest solar densities in the world. In the southern region of Dhofar, construction has commenced on a large-scale wind farm that is due to be in operation by 2020. The Dhofar project is the first of its kind in any of the Gulf Co-operation Council countries and will supply power to 16,000 homes and offset 110,000 tonnes of carbon dioxide. To compliment wind-generated electricity, areas in the south of Oman, such as Marmul, are suitable for the generation of concentrated solar energy, which uses directional mirrors to enhance the levels of sunlight collected, often by water-filled insulated tubes. The cost of producing solar energy is comparable to the diesel-based electricity generating systems that are currently used. Recent joint ventures between the OSWF and China on solar energy projects are a promising sign that solar energy will contribute to the future energy mix.

The Omani investment in the Berkeley Salamanca uranium mine may indicate a place for nuclear power in the country’s future energy mix. The agreement with Berkeley Energia gives Oman the right to buy twenty per cent of the mine’s production from 2019 onwards, which could allude to a timeline for the commencement of nuclear energy generation in the Sultanate. If so, that would represent a significant re-think on the part of the Omani authorities. In 2008, for instance, the position of Oman was that ‘most of its demand was peak load, therefore nuclear did not seem appropriate, though investment in a nuclear plant in a neighbouring GCC country was possible.’

This investment could also be an effort to raise capital with which to fund the further development of oil extraction technology and to increase the utility of locally-sourced fossil fuels. The Salamanca mine is assessed by private equity manager Tim Keating at State General Reserve Fund as ‘long life, low cost’, and an investment based on ‘outstanding economic fundamentals’. In September 2017, Berkeley Energia signed a contract to supply UK firm Interalloys Trading with one million pounds of uranium concentrate from the Salamanca mine at a rate of forty-one dollars per pound over a five-year period, a deal which would provide Oman with a significant return on its investment.

A growing demand for electricity and the depletion of fossil fuel reserves is a common issue for many Middle Eastern states and nuclear power would seem to be a more viable option than it has been in the past. Oman, however, also has the opportunity to support future economic growth and urbanisation by harnessing the energy from plentiful renewable resources.

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