Another Nuclear Option for the Mideast

Historically, it has been difficult for countries in the Mideast to build nuclear power plants. The idea of nuclear material being diverted from commercial reactors has always alarmed Washington, which for decades has used its clout in the region to keep the Mideast as nuclear-free as possible. Today the U.S. is leading the way in imposing sanctions on Iran's nuclear program. Israel also remains ready to protect its interests, as it did when its air force bombed the unfinished Osirak reactor in Iraq in 1981.

The situation is gradually changing, as Arab allies of the U.S. petition Washington to bless their plans for civilian nuclear programs. The U.S. is proving pliable, since the programs do not appear to have sinister intent, at least in the medium term, and offer a business opportunity for multinationals such as General Electric (GE).

Saudi Arabia and the United Arab Emirates need to satisfy a growing hunger for electricity. In Abu Dhabi, electricity demand grew 11 percent just between 2008 and 2009. The interest in nuclear energy has in part been sparked by a shortage of natural gas, the usual fuel for electric power plants. Without enough gas, the Saudis and the Gulf Arabs have been burning oil to generate power, which is inefficient and polluting. These countries also consider themselves energy specialists and want to prepare for an era when carbon emissions may be penalized. "There is more to this than straight economics," says Ian Jackson, a nuclear specialist at London's Chatham House think tank. "It is clearly about strategic energy positioning."

Among the Gulf states, the United Arab Emirates is furthest down the nuclear road. At yearend, the U.A.E. concluded a $20 billion deal for four nuclear plants with Korean Electric Power (KEP), which beat GE and France's Areva on price. The U.A.E. has also agreed with the U.S. on strict safeguards, which include forgoing any domestic uranium enrichment or reprocessing of spent fuel. "They are the poster child for nukes in the Middle East," says Mark Hibbs, a nuclear analyst at the Carnegie Endowment for International Peace in Washington.

Not to be outdone, the Saudis recently said they would build a city specializing in nuclear and renewable energy, a concept that appears to be modeled on Masdar, Abu Dhabi's planned showcase green metropolis. The Saudis say they will spend some $80 billion on added power capacity over the next decade, with a big chunk possibly coming from nuclear facilities. "Use of nuclear in electricity will free more oil for exports and more gas for development," says Anas Alhajji, chief economist at NGP Energy Capital in Irving, Tex. With the Arab world's largest economy and a fast-growing population, the Saudis could prove to be the regional leaders in nuclear and other energy technologies, says Leila Benali, an analyst at energy consultants IHS CERA in Paris. "The Saudis continue to position themselves so they can play a leading role in the sector in 20 to 30 years' time," she says.

The most surprising would-be entrant is Jordan. Though the kingdom lacks the plentiful coffers of the Gulf petrostates, it wants to take advantage of its recent, large discoveries of uranium to become a nuclear energy center. Jordan's program will be devoted to generating electricity and "has no military uses whatsoever and could in no way be a threat to anybody," says Khalid Touqan, chairman of the Jordanian Atomic Energy Commission.

The prospect of future deals has sparked huge interest among nuclear suppliers. GE is firmly ensconced in the region. Saudi Arabia is its biggest customer for conventional power generation equipment, and the American company hopes its longstanding partnership with Hitachi (HIT) will give it an edge in landing future nuclear contracts in the Mideast. "Saudi is obviously of interest to us," says Daniel Roderick, senior vice-president for nuclear projects at GE-Hitachi. "We're interested in Kuwait, we're interested in a lot of different countries there that are in various stages of their nuclear programs."

There is still much haggling to do on where the nuclear fuel will come from and how best to prevent proliferation. The U.S. is reluctant to permit states in the region to enrich uranium, which can then be used for nuclear weapons, or to reprocess fuel, which can yield plutonium for bombs. What helps keep things under control is that these countries cannot build plants on their own and need outside expertise to pursue their nuclear dreams. Carnegie Endowment's Hibbs figures that some of the wealthy Gulf states will succeed in going nuclear, while the high costs and risks will exclude the rest.

Looming over all this activity is the prospect of a nuclear-armed Iran. While the rulers of the Gulf states and Saudi Arabia seem genuinely interested in peaceful nuclear development, they know reactors can provide needed knowhow if tensions with their ancient Persian enemy escalate. "It's a long-term hedging option," says Hibbs, "particularly in light of concerns that U.S. security guarantees will become weaker."

The bottom line: The Mideast may meet its growing energy needs through nuclear power. That gives power plant companies like GE a big opportunity.

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