Microsoft word new base 660 special 09 august 2015

Copyright © 2015 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced, redistributed,

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NewBase 09 August 2015 - Issue No. 660 Senior Editor Eng. Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE

Regional refinery projects on track to meet rising demand The National

A number of projects that will add significant oil refining capacity in the region remain on track to meet rising domestic demand, despite delays and weakness in prospective export markets. The addition of local capacity is particularly important to consumers in the UAE now that the government has liberalised the petrol and diesel markets, removing subsidies and leaving them open to price fluctuations in the international wholesale market.

For motorists in the UAE there was an immediate increase in petrol prices of 24 per cent this month when the new price regime took effect. Diesel prices were cut by 29 per cent. The impact on most household budgets is not expected to be onerous initially, but consumers and businesses alike have expressed concern about the potential impact down the road when world oil markets tighten up. Suhail Al Mazrouei, the Minister of Energy, said prices in future will be set monthly based on the average daily price of “the international benchmark” in the previous month, plus a fixed amount covering transportation, operating and distribution costs, plus “a small profit margin” for distribution companies. “The moving part will be the average of the monthly international gasoline price,” while the other part of the price formula will remain fixed, said Mr Al Mazrouei. Therefore, the cheapest fuel available should be that refined locally, which would have the lowest transportation, operating and distribution costs. But the country is still importing a significant amount of its needs, which have been rising at a rate of about 8 per cent a year. “We are still importing gasoline as of now,” Mr Al Mazrouei said. “Even Adnoc Distribution [the monopoly operator of petrol stations in Abu Dhabi], last year they imported around 2.4 billion litres of gasoline,” which equates to more than 40,000 barrels per day of refinery output. He added: “We will still import gasoline until the refinery is fully functional and fully commissioned. Therefore, I don’t think in the gasoline we will be exporting in the near future.” Under the




government’s expansion plans, the biggest addition to the country’s refining base has been the US$10 billion doubling of capacity at the government-owned plant at Ruwais, 250 kilometres west of Abu Dhabi city, bringing total process capacity to 817,000 barrels per day, or about 27 per cent

of the UAE’s daily crude oil output. The Ruwais plant began to start up its new units at the end of last year and is expected to meet demand currently being covered by imports. But it has run into a number of snags during the start-up process that have caused delays. The latest, Reuters news agency reported on Friday, is that one of the main new units – a residue fluidised catalytic cracker with 125,000 bpd capacity – has had to be shut down for several weeks because of an unspecified technical hitch. To meet the next phase of the country’s growing demand, the government-

controlled International Petroleum Investment Company (Ipic) is planning to build a $3.5bn refinery near the port of Fujairah with 200,000 bpd capacity. The team building that plant is similar to Ruwais – with France’s Technip handling the front end engineering and design and its Shaw Stone subsidiary project managing. Ipic was expected to announce at the end of June the award of the main engineering and construction contract from an all-Korean shortlist, which includes SK Engineering and Construction and GS Engineering and Construction, both of which had parts of the Ruwais commission. IPIC has not yet announced that and the latest estimate by trade sources is that the Fujairah refinery, assuming it begins construction this year, would be ready to come online in 2018.

While neighbouring countries have not yet moved to cut subsidies on transport fuel, they have also been expanding to meet local fuel demand. As with the UAE, their refinery expansion is also part of a broader industrial strategy that includes producing additional cheap feedstock for parallel expansions of petrochemicals. Saudi Arabia, for example, added two 400,000 bpd refineries in the past two years. But another plant of similar capacity at Jazan, on the Red Sea, has now been delayed because of a dispute with one of its contractors, SK of Korea, according to industry sources. A proposed plant at Al Zour, Kuwait, which is to have a capacity of more than 600,000 bpd, is expected to be commissioned to meet growing domestic and regional demand, but budget constraints have resulted in its schedule being pushed back. “Such delays are very characteristic of the region,” said Emma Richards, an industry analyst at BMI Research. “The Saudi plant [at Jazan] is in a very remote location and the infrastructure was just not in place to bring in vital equipment and materials.” Meanwhile, “the move forward at Ruwais took a lot of financial, regulatory and bureaucratic resources”, she added. Although the oil price slump in the past year has brought budget pressures, the case for refinery expansion remains compelling.




Qatar to gain from $5bn Vietnam petchem JV project Gulf Times + NewBase

The $4.6bn Long Son Petrochemical Project in Vietnam's Ba Ria-Vung Tau province could help boost economic contributions of Association of Southeast Asian Nations (Asean) countries to

Qatar, Thailand Ambassador Piroon Laismit said. He said the "trilateral project," which is being built on a 400-hectare complex inside the Long Son Industrial Zone, is a joint venture between Qatar Petroleum International (QPI, which is set to be integrated with parent

QP), PetroVietnam, and Thailand-based Siam Cement Group (SCG). "The project costs almost $5bn and is expected to commence operations in 2019," the ambassador told Gulf Times during the celebration of the 48th anniversary of Asean in Doha yesterday. According to Laismit, the complex will use ethane, naphtha, and propane as feedstock and is expected to cater to domestic demand for plastic resins. "The complex will produce 2.7mn tonnes of polyethylene and polypropylene, as well as 700,000 tonnes of compounds for the production of polyvinyl chloride and 840,000 tonnes of other chemicals for the petrochemical and chemical industry," he said. Aside from the project, the ambassador said another economic contribution to Qatar is the supply of a competent workforce from Southeast Asian countries. Laismit said the labour force of each Asean member country varies, with most of them supplying workers in Qatar's services sector. "For Thailand, we have around 2,500 skilled technicians in Qatar. We cannot support much of Qatar's need for workers in the construction sector because we have a similar need in Thailand; we even have to source out workers from neighbouring countries. "But given the opportunity we could also support Qatar's workforce by sending good Thai engineers to the country," Laismit said. The ambassador also said countries in Southeast Asia have an agricultural edge. "Not only the labour force but Asean member countries contribute to the food security of Qatar and the rest of the GCC region through the supply of various agricultural products. "Qatar, on the other hand, supplies energy to us; therefore, we complement each other," the ambassador said. Indonesian Ambassador Deddy Saiful Hadi, who is the current chairman of the Asean Committee Doha (ACD), said, "The supply of professional and skilled workers from Asean countries is a huge economic contribution to Qatar because these people facilitate a wide range of services to Qatar's public and private sector." This was reiterated by Philippine Ambassador Wilfredo Santos, who added, "We are mindful of the economic contributions of the Asean workforce in Qatar. We are here to stay."




UAE:Utico & Grupo in JV building a desalination plant in RAK Gulf news + NewBase

A private joint Emirati-Spanish venture is building a Dh719 million ($195.7 million) desalination plant in the UAE’s most northern emirate, Ras Al Khaimah. Utico Middle East and Spanish energy firm Grupo Cobra sign agreement in Dubai

Utico Middle East, a subsidiary of Abu Dhabi-based Ghantoot Group, and Spanish energy firm Grupo Cobra signed an agreement in Dubai on Thursday to incorporate Al Hamra Water Company, under a 60:40 partnership, which will oversee the development of the desalination plant.

The facility will generate 22 million gallons of water a day for the emirate and neighbouring areas, according to a joint statement. Richard Menezes, Managing Director of Utico Middle East, told reporters that most of water will be directly supplied to Federal

Electricity & Water Authority (Fewa).

Fewa supplies electricity and water to Ras Al Khaimah, Ajman, Umm Al Quwain, Fujairah and some east coast cities. Construction on the facility will start next month with the plant slated to start supplying water to Fewa by June 2017 and becoming fully operational in 2018, Menezes said.

Return on investment

It is the first desalination plant in the region to be independently financed, which will be 80 per cent debt financed and 20 per cent liquidity, Menezes said

The return on investment is expected to be between 15 and 16 per cent, Menezes said, however, he declined to state over what time frame.

Construction is expected to create 300 jobs and a further 80 permanent positions once the facility is operational, of which at least 20 per cent (16 jobs) will be guaranteed to Emiratis, according to the statement.

A tender has been issued to supply solar panels to the facility, with 16 companies, including one Chinese firm, pre-qualified, Menezes said.




Saudi is ceding China oil market share to Russia as Iran supply risk looms Bloomberg

Saudi Arabia has a challenge in Asia as it battles to maintain market share: The Russians are coming and other Opec members want a bigger slice.

It’s a market Saudi Arabia has vowed to defend, leading the decision by the Organisation of Petroleum Exporting Countries to sustain output as surging US production crippled prices and pushed cargoes to Asia. While the origins of this competitive shift started with the American shale boom, the return of Iranian exports poses another test for the kingdom.

“No other region needs more oil in the future than the Asia Pacific,” Sushant Gupta, the head of Asia downstream research at Wood Mackenzie in Singapore, said by phone. “It’s an absolutely important market for Saudi Arabia.”

Asia is the biggest export destination for Saudi Arabian crude and its share of the market was about 65% in 2014, according to Wood Mackenzie. In China, the world’s second largest oil consumer after the US, Russia and Iraq have emerged as key rival suppliers.

While Saudi Arabia faces fierce competition in China, the kingdom has a firm hold on South Korea, commanding about a third of the market as other Opec members battle for share. Qatar is challenging Kuwait for the No 2 spot after Iran slipped out of the top five.

Japan is a tale of the top two. Like South Korea, Saudi Arabia has consistently held about a third of the market but the UAE is closing the gap. Iran drifted out of the top five in 2012 as Russia clawed back share and Kuwait maintained a steady stream of cargoes.

Iran may play a bigger role in Asia after a nuclear deal was reached to lift sanctions. While analysts predict a steady gain in exports, the Islamic Republic is keen to boost output as quickly as possible, regardless of the price impact.




With Iran help, India eludes China in race for gas Bloomberg/New Delhi

Anyone looking for the biggest immediate impact from Iran’s nuclear deal may want to turn away from the Middle East and toward the Indian subcontinent.

With US sanctions easing, India is racing to build a port in Iran that will get around the fact that its land access to energy-rich former Soviet republics in Central Asia has been blocked by China and its ally Pakistan.

“We’re seeing the latest manifestation of the Great Game in Central Asia, and India is the new player,” said Michael Kugelman, a South Asia expert at the Washington-based Woodrow Wilson International Center for Scholars.

“It’s had its eyes on Central Asia for a long time.” While the world focuses on what Iran’s opening means for Israel and Arab nations, the ramifications are also critical for Asia. Closer Iran-India ties would allow New Delhi’s leaders to secure cheaper energy imports to bolster economic growth and reduce

the influence of both China and Pakistan in the region. The six nations that make up Central Asia hold at least 11% of the world’s proven natural gas reserves, as well as substantial deposits of oil and coal, according to data compiled by BP Plc. Afghanistan says its mineral wealth is valued at $1tn to $3tn.

“Iran can offer us an alternative route to Central Asia,” Indian Foreign Secretary S Jaishankar said in Singapore on July 20. “The resolution of the nuclear dispute and lifting of sanctions will allow our agenda of energy and connectivity cooperation to unfold seriously.”

India can be the first country to benefit from the deal in Asia, an Iranian diplomat told reporters in New Delhi this week. Iran was seeking billions of dollars in investment from India for ports, railways and airports, the diplomat said, asking not to be identified due to government rules.

Even before the deal to end sanctions was clinched, India reached an agreement to upgrade the Iranian port of Chabahar on the Arabian Sea. Two Indian state-run companies – Jawaharlal Nehru Port Trust and Kandla Port Trust – have plans to invest $85mn to upgrade two berths. On a five-nation Central Asian tour last month, Prime Minister Narendra Modi backed an ambitious transit route through Iran that would effectively connect Europe to India by a series of sea, rail and road links. Currently, cargo from India has to go by air or take a detour through the Suez Canal.




In a dry run on the alternative routes last August, the results showed that transit time from India’s financial capital of Mumbai could be more than halved to as short as 16 days and would slash costs by 70%.

Other plans are just as bold: A 900-kilometre (560 mile) railway would link the Iranian port to a part of Afghanistan where a group led by Steel Authority of India Ltd holds rights to a $11bn iron ore mine. Modi has proposed re-routing a Turkmenistan-India project through Iran, and his oil minister is reviewing a proposal for an undersea pipeline from India to Chabahar port. “India isn’t energy insecure – it’s surrounded by oil and gas,” said Subodh Kumar Jain, director of South Asia Gas Enterprise Pvt, the company behind the proposed $4.5bn undersea pipeline.

“The challenge is geopolitical, not technical or financial.”

China is the biggest economic player in Central Asia. It’s the top commercial partner for every nation except Afghanistan, with its $48bn in trade to the region dwarfing that of India, according to data compiled by Bloomberg. Turkmenistan pipes almost 80% of its gas to China.

China has welcomed the nuclear deal, noting in a statement that Iran once played a pivotal role in the ancient Silk Road trade route linking Europe and the Far East. Pakistan is also important. The only Muslim-majority country with a nuclear bomb has refused to allow Indian trucks to pass through to Central Asia, and plans to build overland gas pipelines from Iran and Turkmenistan had long stalled.

“Pakistan has essentially had a stranglehold over India’s policy in the region,” said Harsh V Pant, a professor of international relations at King’s College London. “India wanted to break that. Now, that constraint has been removed.” Even so, Pakistan doesn’t see much of a threat, according to Commerce Minister Khurram Dastgir Khan. China is investing $45bn in an economic corridor through Pakistan stretching from China’s western border to the Arabian Sea. Pakistan is also seeking a free-trade agreement with Iran.

“The scale of Chinese investment in Pakistan and in the corridor really dwarfs anything Indian is attempting in Iran,” Khan said in an interview in Islamabad on Wednesday. Iran and India’s historical links date back to antiquity, when Indus Valley merchants plied across routes to Mesopotamia.

Arab artists sculpted the Mughal architecture of India’s north, influencing structures such as the Taj Mahal. More recently, India was one of Iran’s top oil buyers before international sanctions were tightened several years ago.

“As always, India will be playing catch up,” Kugelman said. “It sees itself in a race with China, and it simply doesn’t want to fall that far behind.”




Russia is world's largest producer of crude oil and lease condensate Source: U.S. EIA, International Energy Statistics

Russia is the world's largest producer of crude oil (including lease condensate) and the second-largest producer of dry natural gas, after the United States. Hydrocarbons play a large role in the Russian economy, as revenue from oil and natural gas production and exports accounts for more than half of Russia's federal budget revenue. However, recent international sanctions on Russia, coupled with low oil prices, have put pressure on the Russian economy.

Russia exported more than 4.7 million barrels per day (b/d) of crude oil and lease condensate in 2014, based on data from the Federal Customs Service of Russia. Countries in Asia and Europe received more than 98% of Russia's crude oil exports. Asia accounted for 26% of Russia's crude oil exports, and Europe—which depends on Russia for more than 30% of the region's oil supply—accounted for 72% of Russian crude oil exports. Russia's economy largely depends on energy exports: oil and natural gas revenues accounted for 68% of total export value in 2013.

Much of Russian crude oil production comes from the West

Siberia and Urals-Volga regions in central and western Russia,

but production in East Siberia and Russia's Far East regions

has increased, and oil fields in eastern Russia and in the

Russian Arctic stand to play a larger role in the country's future

production. However, new projects may be delayed or

otherwise affected by economic sanctions currently in place.

In 2014, a series of progressively tighter sanctions, imposed by the United States in response to Russian actions and policies in Ukraine, led to reduced investments in Russia's upstream

sector. The sanctions limited the ability of Russian firms to access U.S. capital markets and prohibited the export to Russia of goods, services, or technology in support of deepwater projects, Arctic offshore projects, or shale projects. The European Union also imposed sanctions, although different in some aspects from those imposed by the United States.

These sanctions have halted virtually all involvement in Arctic offshore and shale projects by Western companies. Without such involvement, new Arctic resources are unlikely to be developed. Although this has little immediate effect on Russian production, the sanctions, along with the low world oil prices, have made it more difficult for Russian energy companies to finance new projects.




U.S. refineries are running at record-high levels Source: U.S. EIA, Weekly Petroleum Status Report

Gross inputs to U.S. refineries exceeded 17 million barrels per day (b/d) in each of the past four weeks, a level not previously reached since EIA began publishing weekly data in 1990. The rolling four-week average of U.S. gross refinery inputs has been above the previous five-year range (2010-14) every week so far this year. The record high gross inputs reflect both higher refinery capacity and higher utilization rates.

Lower crude oil prices and strong demand for petroleum products, primarily gasoline, both in the United States and globally, have led to favorable margins that encourage refinery investment and high refinery runs. Refinery margins are currently supported by high gasoline crack spreads that reached a peak of 66 cents per gallon (gal) on July 8, a level not reached since September 2008.

For the past several years, distillate crack spreads have consistently exceeded those for gasoline, but since May, this trend has reversed. From 2011 to 2014, distillate crack spreads (calculated using Gulf Coast spot prices for Light Louisiana Sweet crude oil, conventional gasoline, and ultra-low sulfur distillate) averaged a 24 cents/gal premium over gasoline crack spreads. Since May 20, Gulf Coast gasoline crack spreads have averaged 17 cents/gal higher than for distillate crack spreads.

Higher demand for gasoline is supporting these margins. Total U.S. motor gasoline product supplied is up 2.9% through the first five months of 2015, and trade press reports indicate that demand is also higher in major world markets such as Europe and India so far this year compared with 2014. Total U.S. petroleum product supplied (a proxy for demand) is up 2.5% through the first five months of the year compared with 2014. Much of the refinery output is reaching global markets, as net exports are 19% higher this year through May.

Favorable margins leading to high refinery runs are not limited to the Gulf Coast region. Since

early April, U.S. refinery utilization (gross inputs divided by operable calendar day capacity) has

consistently been above 90%, driven largely by elevated runs at Gulf Coast and Midwest

refineries. During that time, East Coast and Rocky Mountain utilization has also been high, only

dipping below 90% in five weeks and two weeks, respectively.




Despite the ongoing unplanned outage at ExxonMobil's refinery in Torrance, California, utilization on the West Coast exceeded 90% for the past three weeks, marking the second, third, and fourth times that all five regions have recorded refinery utilization rates above 90% within the same week since EIA began publishing weekly utilization data in 2010. These high utilization rates, combined with increased U.S. refinery capacity (18.0 million b/d as of January 1, 2015), have led to record high gross inputs. Monthly data on utilization rates go back further, and the last time all regions exceeded 90% in the same month was in September 2006.

U.S. refinery runs tend to peak in the second and third quarters of the year when demand for gasoline is greater because of increased driving in the summer. In its July Short-Term Energy Outlook (STEO), EIA estimates that refinery runs will average 16.7 million b/d from April through September and then decline slightly in the fourth quarter to 16.2 million b/d before falling further to 15.8 million b/d in the first quarter of 2016. Following the winter period of lower demand and refinery maintenance, EIA's STEO expects U.S. refinery runs will reach new highs next summer, averaging 16.9 million b/d in third quarter of 2016.




NewBase 09 August - 2015 Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE

Oil down, heads for 6th weekly loss on gasoline glut Reuters +NewBase

Crude oil dipped on Friday, plumbing multi-month lows and heading for a sixth straight week of losses, as the approaching end of the U.S. summer driving season suggested a growing surplus in gasoline supply.

Oilfield services firm Baker Hughes' report that the U.S. oil rig count rose by six this week added to the bearish sentiment for crude as it signaled production could creep up from higher drilling activity. Drillers have added a total of 32 oil rigs over the past three weeks. [RIG/U]

Traders and investors await Commodity Futures Trading Commission (CFTC) data at 3:30 p.m. EDT to determine if money managers again had slashed their bullish exposure to U.S. crude in the week to Aug 4. Hedge funds' net longs in U.S. crude fell to near five-year lows in the two previous weeks.

Government data showing U.S. gasoline stocks exceeded market estimates by about 300,000 barrels last week has pushed global oil benchmark Brent to six-month lows and U.S. crude to a 4-1/2-month trough since Wednesday. [EIA/S]

Brent LCOc1 settled down 91 cents, or 1.8 percent, at $48.61 a barrel on Friday, after touching a more than six-month low of $48.45. U.S. crude CLc1 closed down 79 cents, or 1.8 percent, at $43.87, after hitting a more than four-month session low of $43.80.

Oil price special

coverage




Brent was down 7 percent for the week. It fell 23 percent over the past six weeks. U.S. crude also slid 7 percent on the week and lost 26 percent in the last six weeks. Analysts said crude futures could be pressured in coming months by seasonal refinery maintenance and stock builds in key oil products such as distillates, which include diesel.

Gasoline RBc1 hit a 5-1/2-month low on Friday. It tumbled 12 percent on the week, its sharpest weekly loss in almost six years. Ultra-low-sulfur diesel HOc1 fell nearly 3 percent on the week after hitting a six-year bottom on Wednesday.

"The summer driving season is fading and we could see a quick ramp-up in gasoline stocks," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.

"We've had record refining heading out of the driving season that should translate into higher stocks of refined products in fall and winter."

Oil prices set for multi-week decline Reuters+ AFP + Newbase

Oil prices looked set to continue a multi-week decline in Asian trade on Friday on concerns over a global oversupply of crude and mixed prospects for energy demand. US benchmark West Texas Intermediate (WTI) for September delivery was at $44.83, down from $47.12 a week ago, and on course for its eighth consecutive week of declines. Brent crude for September, meanwhile, was trading at $49.73 compared to $52.21 last week, and set for a sixth straight weekly fall. In Asian trade through the day, both contracts were up slightly, with WTI rising 17 cents from $44.66 in New York and Brent gaining 21 cents from $49.52. A glut of crude oil supply is seen as the main driver for a sharp decline in oil prices that has seen crude fall about 50 percent from mid-2014 levels. “The rebalancing of supply and demand will likely prove to be far more difficult than what was previously priced into the market,” Goldman Sachs said in a report.




China’s energy asset rush stalls on crude slump, graft probes Reuters + gulf times+ Newbase

As global oil giants struggle with plunging earnings, Chinese state oil firms are unlikely to be waiting in the wings to buy any unwanted assets.

After pouring tens of billions of dollars into foreign energy projects in the last two decades, China’s rush to purchase overseas oil and gas projects is over – at least for now – and some state firms are even looking to sell assets.

China, the world’s second-biggest oil consumer, invested more than $140bn in the sector in the period from 1993, according to Thomson Reuters data. But Chinese firms have slammed the brakes on after a slide in crude prices has slashed returns on some investments and with deals coming under greater scrutiny since Beijing stepped up an anti-graft campaign two years ago.

The shift started last year but has become more pronounced in recent months, industry sources say, with the focus for management now on more mundane goals such as cutting costs and improving returns from assets rather than new purchases.

“The era of rapid, sometimes blind, expansions is over,” said Luo Zuoxian, an economist at a research arm of Sinopec Group, parent of Sinopec Corp, China’s No.2 energy giant. Luo

does not foresee any big acquisitions in the next three to five years.

Sinopec, which in late 2013 surprised the market by putting up for sale some shale gas assets in Canada, may now look to offload more “non-core” assets, senior company sources said. Sinopec Group is also shaking up its global exploration unit and re-assessing its broader investment strategy to identify “core areas” for spending in future.




This could mean that projects in places such as eastern Africa, which is rich in natural gas, could fall outside the targets, because to exploit them would require heavy spending and years to get returns, one of the sources said.

Beijing’s anti-graft drive, which has felled about a dozen top oil executives, has also made it harder to strike new deals.

New chairmen have been appointed in May at the top three energy groups – China National Petroleum Corp (CNPC) , parent of PetroChina, Sinopec and CNOOC, parent of CNOOC Ltd. “The anti-graft climate sends a message: ‘to do less is safer’”, said an investment official at a state oil firm.

China’s graft watchdog said in April that some of Sinopec’s overseas investments had generated low returns or even no revenue after years of output. “It’s definitely a dialing back of what they want to achieve. Previously it was growth at all cost, now the mantra is return on value,” said Neil Beveridge of Bernstein Research.

In a bid to cut spending, CNPC said last week it has started renegotiation with contractors on 24 overseas projects including gas ventures in Russia and Mozambique. Thomson Reuters data showed outbound oil and gas deals were $4.4bn last year, the lowest since 2008.

China has had highs and lows in investments going back.

A decade ago, CNOOC pulled an $18.5bn bid for US firm Unocal after intense opposition from Washington, though in 2013 it bought Canada’s Nexen Inc for $15.1bn, China’s largest foreign acquisition.

Asked about its strategy in a low oil price environment, CNOOC said it would prudently invest, balancing short-term return and long-term development and focusing on cash flow, as well as optimising assets and capital allocation.

CNOOC sold several small conventional gas assets last year, and Sinochem Group pulled back its team of five from the Wolfcamp shale operation in Texas, company sources said. Sinopec’s Argentine oil and gas venture, bought in 2010 from Occidental Petroleum Corp, could be considered for divestment, said a company source.




Incessant weak prices unnerve oil producers ENERGY OUTLOOK ,Syed Rashid Husain

Global crude horizon is in transition, passing through some major adjustments. The current crude glut, dampening oil futures and its consequences are under increasing focus - all around. With the US crude oil West Texas Intermediate contract trading in New York was at $43.87 US a barrel at the close on Friday and the contract price for December 2020 delivery hovering around $62.05 - these are hard times indeed - from a producers’ view point - especially when coupled with rising public expenses. Yet, despite dwindling market prospects, non-OPEC output continues to increase. And there are reasons for it. Ambrose Evans-Pritchard, writing for The Telegraph insists that the US shale frackers are not as high-cost as was projected initially. They are mostly mid-cost. He underlines that experts at IHS think shale companies may be able to shave costs by 45 percent this year - not only by switching tactically to high-yielding wells. Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. “We’ve driven down drilling costs by 50 percent, and we can see another 30pc ahead,” John Hess, head of the Hess Corporation was quoted as saying. “We have just drilled an 18,000 ft well in 16 days in the Permian Basin. Last year it took 30 days,” Scott Sheffield, head of Pioneer Natural Resources emphasized. The Permian Basin in Texas could alone produce 5-6m b/d in the long-term, more than Saudi Arabia’s giant Ghawar field, the biggest in the world, he pointed out. Although the North American rig-count dropped to 664 from 1,608 in October, yet the output has risen to a 43-year high of 9.6m bpd in June. It has only just begun to roll over. “The freight train of North American tight oil has kept on coming,” Exxon Mobil CEO Rex Tillerson too added. Similarly, gas prices have collapsed from $8 to $2.78 since 2009, and the number of gas rigs has dropped 1,200 to 209, yet output has risen by 30pc over that period. The equation is changing. Oil producers are faced with a real headwind - for a longer period of time than what some anticipated initially. Crude oil producers are cognizant of the changing environment. “It is becoming apparent that non-OPEC producers are not as responsive to low oil prices as had been thought, at least in the short-run,” the Saudi Arabian Monetary Agency underlined in its recent Financial stability report. “The main impact has been to cut back on developmental drilling of new oil wells, rather than slowing the flow of oil from existing wells. This requires more patience,” it added. A storm is in the making. All eyes are thus focused on Saudi Arabia, the OPEC kingpin. With the economy managers in major Gulf crude producers - dependent heavily on petrodollars - appear faced with real challenges - interesting questions continue to make waves all around. How long the OPEC oil producers could sustain the scenario - remains the big if? A task of mammoth proportion is definitely in hand. Throughout the energy-rich region, budgets are under considerable pressure. When the UAE announced winding off petrol subsidiary from beginning this month, this was regarded by most as a measure to plug the widening budgetary gap. Others, including Saudi Arabia are no exception. With the Saudi ‘fiscal break-even crude oil price’ estimated by some at $106, and markets




continuing to be at less than half the value, the budgetary deficit is definitely widening. As per the International Monetary Fund, the deficit in Saudi Arabia will reach 20pc of GDP this year, or roughly $140bn. Standard & Poor hence lowered its outlook of Saudi Arabia to “negative” in February. “We view Saudi Arabia’s economy as undiversified and vulnerable to a steep and sustained decline in oil prices,” it then said. With growing public expenditure, the fiscal gap needed to be plugged - somehow and from somewhere. When a decision was made in Vienna, at the OPEC ministerial, not to cut output, everyone knew it would impact the markets. However, analysts also conceded then, Riyadh had the financial muscle to weather the storm in the short term - so as to ensure a smooth run in the longer run. The bitter pill was hence regarded by many as a brute necessity to maintain market share of the efficient producers and in the process outdo the inefficient producers. Yet the policy carried its consequences too. The Saudi foreign reserves that peaked at $737bn in August of 2014, dropped to $672 this year in May. At current prices they seem falling by at least $12bn a month, some reports say. Saudi Arabia thus needed to take measures to handle the scenario. Fahad Al-Mubarak, the governor of the Saudi Arabian Monetary Agency said in July that Riyadh had issued its first $4bn in local bonds, the first sovereign issuance since 2007. Now there are reports in the international press that the Kingdom was returning to the international bond market to raise $27bn by the end of the year. Bankers were reported by Financial Times and others as saying the kingdom’s central bank has been sounding out demand for an issuance of about SR20bn ($5.3bn) a month in bonds - in tranches of five, seven and 10 years - for the rest of the year. What does all this mean? If the oil futures market is correct, Saudi Arabia will start running into (financial) trouble within two years, says Evans-Pritchard, writing for The Telegraph. Saudi Arabia returning to the bond market is, ‘the starkest sign yet of the strain, lower oil prices are putting on the finances of the world’s largest oil exporter,’ underlined Financial Times in a recent write-up. Yet there is a catch to the emerging scenario. Saudi Arabia has faced similar situation(s) before too. In the 90’s too, Saudi debt reached 100 percent of gross domestic product. Riyadh yet, managed to emerge out of the trough, as crude market prices firmed up in the subsequent years. That cannot be written off now too. After all, crude markets tend to be cyclical. Scenario could change, rather instantly, at any turn of events, taking gloom out of the markets. The long-term scenario too has many ifs and buts. The dwindling investment levels are a cause of concern and some now feel, it could give a real fillip to the markets - in not too distant a future. The battle is on. Let’s wait before passing the final judgment.




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Khaled Malallah Al Awadi, Energy Consultant MS & BS Mechanical Engineering (HON), USA Emarat member since 1990 ASME member since 1995 Hawk Energy member 2010

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Khaled Al Awadi is a UAE National with a total of 25 years of experience in the Oil & Gas sector. Currently working as Technical Affairs Specialist for Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy consultation for the GCC area via Hawk Energy Service as a UAE operations base , Most of the experience were spent as the Gas Operations Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility & gas compressor stations . Through the years, he has developed great experiences in the designing & constructing of gas pipelines, gas metering &

regulating stations and in the engineering of supply routes. Many years were spent drafting, & compiling gas transportation, operation & maintenance agreements along with many MOUs for the local authorities. He has become a reference for many of the Oil & Gas Conferences held in the UAE and Energy program broadcasted internationally, via GCC leading satellite Channels.

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