Low oil prices and a better appreciation of the financial risks combine to push back the completion date of the ambitious program to build 16 nuclear reactors by at least eight years

The astonishing plans of the world’s number one oil producer to build 16 1000 MW nuclear power plants at three coastal sites have hit a hold point, and it is one that could last for as long as eight years. The head of the government agency that is in charge of the effort said January 19 that it has revised its energy outlook with a new completion date of 2040. Previously, the government said it would finish all 16 reactors by 2032.

Hashim Yamani, head of the energy agency responsible for the project, did not cite a single specific reason for the delay. He would only say that the government has “revised its outlook . . . to focus on 2040 as a major milestone” for completion of the effort, an eight year delay.

It was widely understood that the Saudi government is interested in building the reactors to insure its long term energy supply and to reduce the use of fossil fuel on domestic energy production releasing it for export. This amounts to just under 3 million barrels of oil a day or about 25% of its total production of 11.7 million barrels per day. The table below is the latest data from the U.S Energy Information Administration. (EIA)

However, the ability to pay for the new nuclear build, within a time frame of 18 years (2014-2032) is being challenged by a dramatic drop in oil prices from over $100/barrel to less than $50/barrel. According to the Bloomberg wire service, this week the price of oil varied between $45-48/barrel. Essentially, the long term prospect is that the Saudi government’s buying power from new oil revenues has been cut in half.

It follows the that value of the approximately 8.9 milli0n barrels a day has dropped from $890 million in revenue to about $430 million in revenue per day.  A new build of 16 new 1000 MW reactors would cost a minimum of $80-100 billion making a huge claim on a vastly diminished revenue stream.

Consider that are current “overnight” prices of $5K to $6.5K/Kw, a 1000 MW reactors will cost $5-6.5 billion. Multiply that times 16 units, even if built over a period of 26 years, and you get astounding numbers, and financial risks, that might challenge even the deepest pockets of the most robust sovereign wealth fund as well as its future revenues.

More than just oil revenue at work

While declining oil revenues will certainly play a role in the schedule of construction of up to 16 capital intensive nuclear power plants, there are other factors that may also have an impact on schedule. The Saudi government has only recent started, with help from Finland, to develop a nuclear regulatory and safety agency. Staffing it and deploying its capabilities as an independent oversight agency will be a significant challenge.

Another question is where the Saudi nuclear program is going to get the skilled work force to build the plants, the long lead time major components such as reactor pressure vessels, steam generators, and turbines, etc., and the overall project management expertise to keep the massive construction program on time and within budget?

The logistics don’t make sense. A straw man schedule (left) reveals a basis for skepticism about the likelihood the original Saudi plan made sense. Even a completion date of 2040 is open to question as a realistic target.

Assuming that in an ideal world it takes four years to build and commission a 1000 MW reactor, if you break ground on the first one today, it will be done in 2019.

A very aggressive construction schedule of starting one reactor per year puts completion of unit 16 at 2034 or two years later than the original milestones. Adding another eight years to the schedule improves the feasibility of the new build, but it still contains little slack for delays in long lead time procurements or construction bottlenecks. Also, you have to assume that even if you move crews from one site to the next, there are only so many people and machines you can mobilize in one country regardless of its ability to pay.

The UAE is building four nuclear reactors at at coastal site on the Persian Gulf with completion times of about five years per unit and with multiple units under construction. However, all units are under the management of a single consortium at a single site with a single lead vendor  The Saudi plan, even with a 2040 completion date, calls for three sites and multiple contractors and vendors. These factors would also complicate the ability of the Saudi plan to finish 16 reactors in 18 years or even 26 years.

What about China?

What’s surprising is that wire service reports about the delay in Saudi nuclear plans don’t mention China’s interest since that country has recently reaffirmed its plans for exports of commercial nuclear power technologies and expertise. China’s Premier Li Leqiang said January 16 that the country will push two of its major nuclear firms to improve their competitiveness in global markets and bid to become leading exporters of nuclear technologies.

China is one of Saudi Arabia’s biggest oil customers and is undoubtedly thrilled by the dramatic drop in oil prices. Also, according to data assembled by the Bloomberg wire service, last October China cut its imports of Saudi oil instead buying more from Russia and Venezuela. The EIA estimates China imports about 7 million barrels of oil a day making it with world’s leading buyer of this fossil fuel.

The Saudi government might be interested in seeing some of China’s technology invested on an equity basis on its new nuclear build. It remains to be seen where the Saudi government will award there results of future tenders for its new reactors.

Solar also postponed

At the same time the Saudi government pushed back the timeline for its investment in nuclear energy, it also postponed work on a massive solar energy program intended to supply 41 GW of intermittent power from a vast array of collectors in desert sands well away from urban centers.

# # #