Global energy thirst ‘threatens to worsen water scarcity’
Global energy thirst ‘threatens to worsen water scarcity’
“There is an increasing potential for serious conflict between power generation, other water users and environmental considerations,” said the UN World Water Development Report that focused on water and energy. Ninety percent of power generation is “water-intensive,” it said.
Shale gas and oil production as well as biofuels “can pose significant risks” to water resources, pitting energy producers against farmers, factories and providers of drinking and sanitation services, the agency said ahead of tomorrow’s annual World Water Day.
Water-related needs for energy production have tripled since 1995, according to GE Water.
Electricity demand is forecast to rise at least two-thirds by 2035, driven by population growth.
Infrastructure upgrades, smart meters and clean technologies would help conserve resources as “billions of gallons of water are leaked each day, and energy is required to clean and transport that water,” according to Sensus, a US developer of water-metering systems. “When water is wasted, so is energy.”
The energy industry “needs to understand that if they don’t take water into account, they will have problems,” Michel Jarraud, who heads the UN-Water agency, said from Paris.
“Water supply is already a constraint for energy projects in some countries, especially in Asia.”
The UN warning comes as World Water Day events started in Tokyo.
The US shale energy boom has sparked concerns about the risks that hydraulic fracturing, which uses high volumes of water to extract gas and oil from shale, may hurt local waters’ quality and strain supplies.
Water “is critical for energy. About 80 percent of the water used in industry goes to thermal power plants. That means the rest of industry consumes practically nothing,” said N. K. Ranganath, managing director of the India business of Grundfos AS, a Danish maker of water-pumping equipment.
“As long as you’re producing thermal power, you require water. There’s no technology that replaces water in thermal power.”
Globally, as water demand increases, more than 40 percent of the population is expected to be living in areas of “severe water stress” by about 2050.
The International Energy Agency, a Paris-based adviser to oil-consuming nations, estimates energy production overall will require one-fifth of global water withdrawals by 2035 compared with 15 percent in 2010. Over the period, it forecasts water consumption, a measure of the volume taken and not returned to its source, will rise a “dramatic” 85 percent.
In the US, “water scarcity threatens to constrain burgeoning domestic oil and gas production from shale formations,” the IEA said in a report cited in the UN publication.
Texas’s drought has “heightened concerns about water availability,” it said. The latest US Drought Monitor shows moderate to exceptional drought conditions in 37.5 percent of the contiguous states, almost all west of the Mississippi River.
In developing countries, water constraints regularly lead to power shortages such as when monsoon rains were delayed in India two years ago, creating more power demand and blackouts. A drought in China in 2011 limited hydropower generation along the Yangtze River, causing electricity shortages.
“Droughts make energy shortages worse while lack of electricity reduces farmers’ ability to irrigate fields,” the UN report said. Water-pricing policies also play a role because they “rarely reflect the real cost” so energy producers aren’t encouraged to save.
About a fifth of the world’s aquifers are already over- exploited and water demand is expected to grow 55 percent by 2050 due to expanding populations and demand from factories, power plants, farming and households, the report said. At the same time, 2 billion people don’t have access to safe water and at least 1.3 billion lack electricity, most in Africa and Asia.
“Energy is perceived as big business that gets the attention of industry and politicians and attracts more investment than water,” Jarraud said. Yet “to satisfy energy demand, we are adopting methods that require more water” such as shale projects and cultivating crops for biofuels.
Gulf companies challenged by debt and rising interest rates
- Debt restructurings on the rise, but below crisis levels
- Central Bank of the UAE has raised interest rates four times since last March
There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.
Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”