The Middle East Data Center Industry Capitalising on the AI Boom and Saturated Legacy Markets

Khazna, Leading Data Center Developer and Operator in the UAE

Over the past decade, the UAE has emerged as the frontrunner in the MENA region, with data center contracts valued at $1.6 billion, largely attributed to Khazna Data Centers which operates a joint network of data centers for e& and G42 making it the largest provider in the UAE and the Middle East.

Khazna seems well placed in the context of the recently announced MGX , the Mubadala and G42 technology investment arm, partnership with Global Infrastructure Partners (GIP) BlackRock and Microsoft which aims to raise $100 billion in private capital to invest in data centers and the necessary power infrastructure in the US and partner countries.

As part of my ongoing series focusing on leaders shaping the future, I’m thrilled to present insights from an engaging discussion with Johan Nilerud who oversees strategy and planning at Khazna. We delve into topics from designing data centers for AI, energy strategies and opportunities arising from saturated legacy markets to engaging with communities.

Building Future-Ready Data Center Infrastructure

Khazna specialises in constructing data centers that provide essential services such as power, cooling, space and security. They manage the entire lifecycle of the data center and retain operational control of facilities having established robust design and operational procedures over a decade of experience.

As cloud services continue to grow, they are now increasingly focused on the heightened computational demands of AI.

The most significant change lies in the high density of AI's GPU computing needs, with the primary challenge being the effective cooling of these static assets.

Khazna’s Expansion Strategy: Reaching 4 Billion People in Underserved Markets

Nilerud describes the business development strategy as a complex puzzle with numerous components.

We analyse around 50 different data points to assess potential, including power availability, green energy, megawatt per GDP and proximity to population centers.

Fuelled by shareholders' ambitions, Khazna aims to expand into underserved markets, potentially reaching a population of 4 billion and balancing MW/GDP between saturated and underserved markets. They have secured land in Saudi Arabia and Egypt and are looking into opportunities in Turkey and Kenya, where geothermal energy is of particular interest.

Khazna's Clean Energy Initiative: Geothermal Solutions

Like others in the industry, Khazna is navigating multiple challenges, including the energy transition and transformations within the data center sector.

In assessing the ideal power mix, Nilerud points that Khazna is part of a larger group investing in clean energy solutions. Masdar, home to their data center campus, is committing significant resources. Geothermal energy is appealing due to its stability and green credentials, especially in regions like Kenya and Tanzania.

Furthermore, the UAE operates 5.4 gigawatts of nuclear power that supports the grid, and where Oracle is exploring small modular reactors (SMRs) for their giga plants. Hydrogen technology has its advocates and skeptics. With the high initial costs, it may take 5 to 6 years for hydrogen and SMRs to be industrialised at the scale Khazna is pursuing.

Building Data Centers for the AI Surge in Power-Dense Environments

Khazna is capitalising on the global AI boom in the Middle East, where training is optimised in areas with abundant power, consistent availability, and minimal latency issues. Much of the demand stems from international AI companies looking to establish training operations in these markets and build inference capabilities on top of that.

Transitioning from Legacy Data Centers to AI-Enabled Facilities 

A decade ago, Khazna introduced two groundbreaking data centers, each operating at 3 megawatts. Today, they are developing facilities with capacities ranging from 31 to 100 megawatts presenting a significant opportunity to offload some workloads from power and land-constrained markets.

The Middle East is unencumbered by outdated grids typical of legacy markets.

Powered Land 

The idea of powered land or powered shell is still in its early stages, presenting opportunities for various players to engage in this emerging field.

Benchmarking Regional Capacity 

According to Nilerud, the UAE boasts an operational capacity of around 270 megawatts, significantly ahead of Saudi Arabia, which at about 120 megawatts is in the early phases of construction requiring 2 to 3 years to achieve the desired capacity.

Innovation 

The UAE is home to the only AI university, has established the first AI ministry, and is among the first five countries to implement an AI policy. Hence Nilerud believes innovation is on the horizon.

Engaging with Communities and Demystifying Data Centers 

Khazna community engagement centers round initiatives to mentor and hire graduates.

Insights and Trends in KSA and UAE Data Center Markets

Nilerud participated in the Middle East markets session at Platform Global Antibes chaired by Martin Hayward Pinsent Masons and co-panelists Tim Bawtree Quantum Switch James Bellis Frontier Economics Stuart Manby ezditek Stephen Beard Knight Frank .

Key insights and trends shared by this expert panel include:

- Currently, the UAE and Saudi Arabia have approximately 500 megawatts of total data center capacity, with 50% of this capacity still under construction.

- Artificial Intelligence (AI) is a significant driving force in the region. There is an acknowledgment within the GCC of the need to ensure data center capacity and specifications are adequate to support AI models.

- Power availability is becoming increasingly important for AI customers, who are attracted to the region due to competitive pricing at $0.05 per kilowatt, compared to four times that in London or Frankfurt.

- The hyperscale model and AI startups are fuelling investment, but entering into long-term contracts of 10, 15, or even 25 years poses risks due to the potential for startup failures.

- Middle Eastern data center operators need to improve their ability to manage the lifecycle of these long-term investments and gain investor trust in their long-term operational capabilities.

- While Saudi Arabia sees ample investment, there is a knowledge gap regarding how that investment will be utilized. Educating stakeholders is crucial for building confidence in investment models over the long term. The faster this learning curve is navigated, the sooner funds can be allocated to the data center sector.

- Europe is currently facing a short-term power shortage, with delays of 7 years in London, 6 years in France, and 5 years in Germany. In contrast, Dubai only requires 2 years. This discrepancy leads major players to focus on entering these markets.

- New operators cannot enter the market alone. Collaboration with local stakeholders who have capital and local influence, such as Public Investment Fund (PIF) and ROSHN l روشن in Saudi Arabia, is essential to mitigate risks while still achieving attractive returns.

Thank you Platform Markets Group and Khazna for the wonderful experience and opportunity to produce this Antibes special series of exclusive video interviews spotlighting leaders shaping the future. More insights from other major digital infrastructure brands coming up.

Watch the full interview on YouTube.

#digitalinfrastructure #powerinfrastructure #datacenter #MENA #UAE #SaudiArabia