Tuesday, March 25, 2008

Castles in the Sand

By Joel Bowman

As a little kid growing up on the Gold Coast of Australia, my mates and I would often build sand castles. Even though we built lots and lots of castles, we never tried to equip any of them with electricity, fresh water and cable TV. But that's exactly what's happening along Dubai's coastline...and the infrastructure requirements will be enormous.

Dubai has constructed the world's most extravagant sand castles. With names like Palm Jumeirah, Palm Jebel Ali and Palm Deira, these massive manmade islands owe their existence to ostentatious ambitions and spectacular engineering feats. The three gargantuan accomplishments, made up of 100 million cubic meters of sand and rock are visible from space. In total, master developer, Nakheel, has manufactured 180 kilometers of coastline, increasing the United Arab Emirate's beachfront by an astounding 166%.

Impressive as this may seem, the crown jewel of Dubai's manmade archipelagoes must be Nakheel's "The World" – a 300-island development in the shape of the world map, featuring 232 kilometers of new coastland and built from a mind-boggling 386 million tones of rock and sand.

The press over here in the Middle East has been drowning in ink dedicated to the sheer magnitude of Dubai's construction wonders. The sandcastles, the Burj Dubai – currently the world's tallest tower – and Dubailand, the $65 billion, seven theme park mega-development, are just a few of the projects making headlines.

But not everyone is happy with how things are progressing. Investors in The World, for example, were shocked a few weeks ago when Nakheel, not content with earthly inspirations, announced plans to build another reclaimed land project, The Universe. While it is difficult for us mere mortals to empathize with the plight of millionaire island-owners, one can only imagine the discomfort that news of an even more exclusive property opportunity must have wrought for investors. Honestly, who cares about being king of the world when your neighbor is the master of the universe?

Owners of The World, however, may have larger concerns than simply an acute case of "Universe-envy." Dubai's construction boom is at the mercy of a plethora of tipping-point variables that could sink even the most ostentatious of plans.

It seems the usual culprits of serious underinvestment in sustainable infrastructure and with runaway government spending have again colluded to thwart the best intentioned plans.

According to the Middle East Economic Digest (MEED), Dubai will require an additional 60,000MW in power capacity by 2015 to satisfy anticipated demand for electricity. That figure would nearly double the currently installed capacity.

"The report shows that the GCC utility sector is entering a critical phase," says Angus Hindley, research editor at MEED and author of the report.

With oil revenue continuing to flood the collective Gulf Cooperation Council's (GCC) coffers, there would appear to be little or no prospect of regional economic slowdown. Consequently, the GCC has embarked on an unprecedented building program and Dubai, at the epicenter, may be in the most precarious position of all if the supply problem is not soon addressed.

"Combining with a distinct lack of investment in the first half of the decade," notes Hindley, "the reserve power capacity has fallen significantly across the Gulf, with the single exception of Abu Dhabi. This raises the spectre of power shortages across the region, and in particular in Dubai, Kuwait and parts of Saudi Arabia – despite the fact that the region has substantial oil & gas reserves."

Striking (and ironic) as the reality might sound, the actual new capacity requirements are expected to be even higher than this given that utilities departments will need to start decommissioning old installations.

Based on 2007 unit costs, the GCC power sector will require about $50bn of investment in new power generating capacity – no small drop in the bucket.

That brings us, of course, to the annoying little fact that Dubai is located in the middle of a desert. You could be forgiven for forgetting this while playing a round of golf at the lush Dubai International Golf Course...but if you happen to take a deep divot on any fairway, you'd soon realize that the entire course rests atop one big sandy dessert.

Not that this inconvenient geographical reality has curbed the enthusiasm of Dubai's master developers. The Palm developments alone, for example, require irrigation for 12,000 palm trees that are being grown in a nursery just down the road from your editor's apartment in Jumeirah Beach and readied for transplant into the middle of the Gulf.

And that's just the trees on a few offshore islands.

According to official figures, demand for desalination capacity - the predominant method of purifying water here in Dubai - grows around 8% per year. That's just a shade under the rate of population growth the city is experiencing. To service this swelling demand, Dubai will have to triple its current desalination capacity to around 800 million gallons per day by 2015.

GCC-wide cost projections for desalination projects alone – to which the thirsty city of Dubai contributes largely – run in the vicinity of $20 billion.

MEED sums up its rather alarming outlook for the city of sandcastles' infrastructure demands by declaring that "utilities are facing the most challenging time in their history."

The increase in competition for the feedstock is forcing utilities to consider new technology and alternative energy production, such as coal, nuclear and solar for the first time.

Just last month, for example, the UAE signed an agreement with France to cooperate on the development of nuclear energy for the emirates. French companies Total, Suez and Areva have all expressed interest in joining forces to develop plans for two new-generation nuclear reactors in the UAE. But the most ambitious plans put the start-up date for the new reactors sometime around 2016, giving Dubai plenty of time to shrivel up in the dark before then.

Even if Dubai does manage to keep the lights on and the taps running, the city must also contend with the very clear and present danger of tightening supply chains for raw construction materials.

[Rude Endnote: So while the real estate market goes ballistic in Dubai, there are some worrying signs of unsustainability. Sound familiar?

As always, we welcome your feedback. Please send emails to the address below.

Cheers,

Joel Bowman
Rude Awakening

aussiejoel@the-rude-awakening.com

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