New base 615 special 31 may 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,

or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this

publication. However, no warranty is given to the accuracy of its content. Page 1

NewBase 31 May 2015 - Issue No. 615 Khaled Al Awadi

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

DEWA launches two Static VAR Compensator stations to boost reliability and

efficiency of power transmission network WAM + NewBase

Dubai Electricity and Water Authority (DEWA) has launched two Static VAR Compensator (SVC) stations in Al Nahda and Ras Al Khor at a cost of AED 236 million, to improve performance of the power transmission system. This is part of DEWA’s continuous efforts to support the 400kV-high voltage electricity transmission network.

DEWA’s efforts support the UAE Vision 2021 and Dubai Plan 2021, which has set a roadmap that includes ambitious initiatives and development projects. The efforts also support DEWA’s vision to become a sustainable innovative world-class utility. DEWA continues to implement several development projects to enhance and upgrade its infrastructure to meet growing demand for its services to the highest standards of efficiency and reliability.

"We work to provide excellent government quality services and adopt global best practices to make people happier and more satisfied. We harness excellence and creativity in our daily work to improve performance, efficiency, and our services to the highest international standards," said Saeed Mohammed Al Tayer, MD & CEO of DEWA.

"The project strengthens the capacity of electricity transmission networks by enhancing transmission capacity to the maximum and reducing power transmission losses to the minimum. It balances the transmission system, maintains supply voltage to raise the efficiency and reliability of the network in these key areas. It also ensures a continuous and stable supply to customers at all times," he added.

"These stations are the latest control systems for maximising the capacity of power systems. They have been designed to support the reliability and efficiency of the 400kV network. In the end, this serves Dubai’s ambitious development and economic plans," concluded Al Tayer




Emirates Float Glass wins top Environment Award, achieves lowest carbon footprint among factories. WAM + NewBase

Emirates Float Glass [EFG], a subsidiary of Dubai Investments PJSC and the first state-of-the-art integrated float glass facility in the UAE, has won the prestigious Emirates Appreciation for the Environment Award 2015, in recognition of its environmentally-safe production practices.

EFG has been recognised for achieving the lowest carbon footprint among factories across the region and beyond, the company’s carbon footprint level of 553 grammes of carbon dioxide emission per kilogramme of glass is among the best global ratings.

The Emirates Appreciation award, conferred under the patronage of Vice President and Prime Minister and Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, is a bi-annual recognition by Zayed International Foundation for Environment, which promotes sustainable living and environmentally conscious initiatives in the UAE.

The award is divided into five categories and EFG is being honoured for its environmentally-friendly initiatives in the Small and Medium industries category. A total of 120 nominations were received by the Awards Committee, out of which 79 made it to the next stage before the final winners were selected.

Ghassan Mashal, EFG General Manager, said, "The prestigious Emirates Appreciation Award for environment is a testimony of EFG’s contribution and commitment to sustainable development. Since its inception, EFG has adopted green initiatives in the production processes, which not only offer environmental benefits but has also lead to economic value, through decreased cost of waste disposal, and enhanced access to energy thus lowering the overall production costs."

EFG is committed to its unique Carbon Management Programme since 2012, which covers all aspects of the company’s manufacturing unit, be it the use of chemicals, disposal of industrial waste and air pollution levels, thus maintaining its balanced efforts to achieve sustainable development and upholding responsibilities towards all stakeholders including the community.

The float glass produced by EFG contains between 59% and 67% regional raw material, which is in line with the international sustainability requirements. Additionally, EFG uses 6.2% post-consumer recycled materials for production.

The EFG facility, equipped with state-of-the-art machines from Europe, US and Japan, achieves 100% capacity utilisation, the highest benchmark for efficiency levels worldwide. The hi-tech manufacturing unit currently holds a production capacity of 600 tonnes of clear molten glass per day and over 190,000 tonnes of glass products per year.




Saudi Aramco has 212 rigs ,may raise to 250 in 2016 Reuters + NewBase

Saudi Aramco may raise the number of its oil and gas drilling rigs to as high as 250 next year if oil prices continue to firm and as domestic demand for gas increases, industry sources said on Thursday.

Currently the national energy giant has 212 rigs of both types in operation and that could rise to between 220 and 250 if conditions permit, sources familiar with the plans said. “It all depends on the oil price of course,” said one.

Aramco declined to comment.

Brent oil is now around $62 a barrel, up from a low of $45 in January though still far from the $100 mark which Saudi officials said they favoured early last year. Saudi Arabia raised its crude production in April to a record high of 10.308 million barrels per day.

“They are looking for new rigs to replace the poorly performing rigs, and this will be to maintain potential now that demand is coming back – that is for the oil side,” another source said.

“As for the gas side, they need to add more rigs to increase production, and they are looking for deep gas.” Once Aramco starts looking for shale gas in the north, the number will be even higher, he added.

As a result of the decline in oil prices, Saudi Aramco managed to make big savings on drilling fees this year after asking for discounts from rig contractors and service companies.




Saudi rewrites its oil game with refining Reuters + NewBase

Saudi Arabia’s rapid transition into one of the world’s largest oil refiners adds an extra dimension to the oil exporter’s role as the driver of Opec policy. When it attends Opec’s next meeting on Friday, it does so with major new state-of-the-art oil refineries that can profit from cheaper crude and reviving world fuel demand - exactly as international oil firms have over the past six months.

The kingdom now has stakes in more than 5mn bpd of refining capacity, at home and abroad, landing it a place among the global leaders in making oil products. Its own target of 8-10mn bpd of refining firepower would eclipse even ExxonMobil. “Saudi has moved into the product business in a big way,” said Fereidun Fesharaki, chairman of FGE energy. Its oil trading arm, Aramco Trading, could soon find at least two thirds of its trading focused on products such as diesel, gasoline and heating oil rather than crude, Fesharaki said.

Years of investment was designed to fuel the transport, air conditioning and power generation for the kingdom’s economic growth. But as Opec members fight for market share, Aramco’s refineries also give it a natural outlet for its 10mn bpd of crude production. “In contrast with the crude market which is shrinking, the product market is becoming more global,” said Antoine Halff, chief oil analyst with the International Energy Agency. The crude oil price rout this year catapulted refining to the fore; trading and refining last year soared to 60% of

Saudi becomes world’s fourth largest oil refiner; plans to reach 8mn bpd of refining

would surpass Exxon; refining and trading could shift Kingdom’s Opec calculus




integrated oil companies’ first quarter earnings, compared with 18% last year, according to Reuters calculations. While crude oil producers who lack a developed refinery sector - such as Nigeria - effectively leave this money on the table for refiners, Aramco and others in the Gulf can now cash in. “The crude is so cheap it’s pretty much free for them,” said Amrita Sen of Energy Aspects. “The margins are going to be massive. It makes trade flows in products very different.” Other Organisation of the Petroleum Exporting Countries members, including fellow Gulf states Kuwait and the UAE, have also boosted refining and added trading arms. But their refineries worldwide, hovering near 1mn bpd each, are only a fraction of what Aramco has built in just a few years. “The Saudis have a much wider market there because they are competing globally,” Halff said. “They diversify vertically by capturing different parts of the value chain and it becomes a hedge and it gives them a lot more market access.” Aramco has added more than 1mn bpd in capacity through a controlling stake in Korea’s S-Oil as well as its two heavy hitting refineries at home, Yanbu and Yasref, both with 400,000 bpd in throughput. Jizan, due on in the Kingdom in 2018, would add a further 400,000 bpd. The growth puts Aramco’s owned or equity stakes refining at 5.4mn bpd, at least 40% above a decade ago. Aramco itself markets more than 3mn bpd of that, tying it with Shell as the world’s fourth largest oil refiner. The shift could also enable it to funnel more crude into its own plants, meaning the nine-year high of 7.89mn bpd it exported in March could be the high water mark. Already, it has turned down requests from China for extra crude. “The volume of crude being sold is still huge,” Fesharaki said. “But it shows the transformation in the next five years in which the companies become more of product players and will have automatically less of an influence on the crude market.”




Saudi goes on refinery hiring spree in South Korea Reuters + NewBase

Saudi Arabia's state oil firm is on a hiring spree in South Korea, as the world's top crude exporter seeks engineers to run plants in its soaring refining sector - setting it on course to compete with

some Asian countries that are big oil buyers. Technicians from South Korea are an obvious target given parts of its refining sector are struggling and the two countries also have long-established business ties across a range of areas including refining. But Asia has established itself as the world's biggest refining region and so Saudi moves to become a major refiner are set to increase competition with countries such as India that also refine Saudi crude to supply Europe. Having little prior experience in refining, state oil firm Saudi Aramco is

trying to lure experienced engineers and technicians from South Korea with generous expatriate packages. "Working in Aramco has three benefits - salary, kids' education at an international school and career development to work at global companies in the United States and Europe," said a South Korean engineer who is about to move to Saudi Arabia after working seven years for a major domestic refiner. The engineer - who declined to be identified due to contractual clauses - will initially live in the oil hub of Ras Tanura where there are gated compounds for foreigners. Saudi Aramco did not reply to an email requesting comment but industry sources say that it has taken on more than 100 South Koreans since last year. Energy Resourcing Korea, the recruiting agency Saudi Aramco uses, has about 100 jobs listed on its site for posts such as refining engineers, chemical engineers and technicians. South Korean technicians are generally not as well paid as Western counterparts, recruitment data shows, and the advertisements have had more than 4,000 hits since they were posted on April 30. STRUGGLING ASIAN REFINERS Illustrating the pressure some Asia's firms are under, SK Innovation Co, which owns South Korean refiner SK Energy and employs about 6,500 workers, recently offered an early retirement programme for the first time in 18 years after suffering its first operating loss in decades. "As our refiners are reducing the size of their work force, this could be the best time to recruit," said Jeon Jaewan, a research fellow at the Korea Institute for Industrial Economics and Trade. Saudi Arabia and its Gulf allies have led Opec’s policy of maintaining high crude output in a bid to drive out competition from rivals such as US shale oil.




It is also at the forefront of plans for the Middle East to become the world's biggest refining region within three years. Saudi Aramco said its downstream investments would exceed $100 billion over the next decade, targeting a refining capacity of between eight million and 10 million barrels a day in coming years, or more than a tenth of global capacity.

"Over time, the Asian economies will likely absorb their share of new supply," said Thomas Hilboldt, head of oil, gas and petrochemical research for Asia-Pacific at HSBC, adding that global product flow changes had already led to refinery closures in Japan and Australia. Sushant Gupta, director for Asia-Pacific Refining at consultant Wood Mackenzie, said direct competition with business partners such as South Korea should, at least initially, be limited by Saudi Arabia matching its Asian fuel flows with shortages. "Most of their product will be diesel to Europe because Asia is already in surplus of diesel, and by

sending crude and gasoline to Asia, of which it is short, they actually support the many partnerships they have across the region," said Gupta. Saudi Arabia already has close ties with South Korea. Saudi Aramco is a major shareholder in the country's third-biggest refiner S-Oil Corp and is South Korea's top crude supplier. Korean firms have also long been involved in big construction projects and Seoul has agreed to cooperate on developing nuclear power in the kingdom. Saudi Aramco's board met in Seoul in April, while a road in a refinery complex in South Korea has even been named after veteran Saudi oil minister Ali Al-Naimi.




Saudia: Japanese investment in Jubail's petrochemicals hits SR34B Arab News 2015 + NewBase

The investment volume in Jubail has reached SR560 billion, including SR501 billion for the private sector, with its petrochemical sector accounting for SR34 billion of Japanese investment, according to Abdulaziz Attragi, general manager of strategic planning for the Royal Commission for Jubail. Attragi made the statement while giving an overview of the industrial cities of Jubail and Ras Al-Khair during the Royal Commission for Jubail and Yanbu 's (RCJY ) participation in the Saudi-Japanese Forum. The event marked the 60th anniversary of the establishment of Saudi-Japanese relations.

Economy and Planning Minister Adel Fakeih, Saudi Arabian General Investment Authority (SAGIA) Gov. Abdullatif Al-Othman, the Japanese minister of economy, the Saudi and Japanese ambassadors, and many Japanese businessmen visited the RCJY 's pavilion at the exhibition held on the sidelines of the forum. The pavilion provided exhaustive information on the RCJY and its role in the industrial and economic development of the Kingdom. Attragi explained that the Japanese companies are technically and professionally qualified for investment in the cities of the Royal Commission as they have been successfully investing in petrochemicals across the Kingdom. "We expect more investment cooperation forthcoming between the two sides, as our goal is to attract Japanese investors to take advantage of available opportunities, and contribute effectively to the sustainable development, in addition to share expertise," Attragi added. Detailing the various investment opportunities available in Jubail and Ras Al-Khair industrial cities, he said the establishment of Ras Al-Khair project aims to support the mining sector, which contributes to the existence of investment opportunities for citizens and international companies. The RCJ (Royal Commission of Jubail) has made great efforts in supporting manufacturing as the Kingdom presents a great opportunity to compete in this field through many finished products. Japan ranks fifth in terms of foreign direct investment in the Kingdom. It has 83 projects, including petrochemicals, pharmaceutical, electrical appliances, textiles, and financial services, with a total funding of $ 15 billion, Attragi added.




Oman commits to invest $7 billion in Indonesia for oil refinery TIMES NEWS SERVICE + NewBase

Oman has committed to invest $7 billion to build oil storage facilities, a petrochemical plant and a refinery in Indonesia, said an Indonesian minister. Energy and Mineral Resources Minister Sudirman Said revealed that Oman was interested in building a new oil refinery in Riau, an Indonesian newspaper reported.

Oman would supply the required crude oil for the refinery, develop storage facilities, and could later expand into petrochemicals, the minister said. "It has prepared $7 billion in total and is now in the process of obtaining a permit. Ground-breaking of the refinery project is expected to be as early as next year," Sudirman said following his meeting with a senior Omani official. Figures from Oman's Ministry of Oil and Gas shows that it currently produces an average of 960,300 barrels of crude oil and condensate daily, Jakarta Post said in a report.

The Sultanate of Oman has exported a daily average of 948,493 barrels of crude oil, with China as the main buyer. In April, Oman's exports to China accounted for almost 83 per cent of its total export volume. However, according to the report, imports to China declined by 5 per cent in April compared to March. Indonesia, which is currently seeking to re-enter the Organisation of Petroleum Exporting Countries (OPEC) as an observer nation, is trying to secure more crude oil supplies to feed its ballooning energy consumption. Its national oil output currently amounts to approximately 800,000 barrels per day. However, the country's roughly 250-million citizens need as much as 1.6 million barrels per day.In consequence, Indonesia is now an increasingly major importer of crude oil and petroleum products, the report added. "We are assessing all countries that have oil supply because a wider range of supply alternatives is better for us. We are a big buyer so it is normal to ask for good terms. Our intention is to have a direct deal so that we don't have to go through middlemen," Sudirman said. In previous years, the country had a number of discussions with potential oil producing countries. It has also invited interested countries and firms to invest in refinery development. However, the attempts have often fallen through. To date, the country has six oil refineries operated by state owned firm Pertamina. However, the refineries are old and can no longer operate at full capacity, leading to rising imports of petroleum products. Pertamina is currently working to upgrade four of the six refineries so that they will be able to produce more and better products. Apart from Oman, the Energy and Mineral Resources Ministry has also noted interest from Iran for the development of a hydropower plant in Indonesia. "We are not only seeking crude supply from Iran but we are also aware that Iran is experienced in hydropower plant development.




Indian Oil Corp to buy LNG from US Press Trust of India + NewBase +Business Standard

Indian Oil Corp (IOC) has signed an interim deal with Mitsubishi Corp to buy 0.7 million tonnes (MT) a year of LNG from US on a long-term contract beginning 2018, news agency reported Friday. "To secure LNG supplies, IOC has forayed into independent LNG purchase," IOC Chairman B Ashok told reporters. The LNG will be supplied by the Japanese firm for 20 years from Cameron LNG project in US, quoted Ashok as saying. The price is indexed to Brent crude. Last year, Indian Oil signed a deal with Progress Energy for the acquisition of a 10 percent interest in Progress Energy Canada’s shale gas assets in northeast British Columbia and in the proposed Pacific NorthWest LNG project. As part of the deal, IOC shall also off take 1.2 million tons per annum (MTPA) of LNG, which represents 10 percent of the LNG facility’s production, for a minimum period of 20 years, LNG from US will be imported at IOC's proposed Ennore import terminal in Tamil Nadu. The 5 MTPA terminal is expected to come online in 2017-2018.

GAIL India to Cut LNG Purchase from Qatar by 35%

GAIL (India) will cut long term LNG purchase from Qatar by 35 percent, newspaper reported Friday. "We are discussing this issue in terms of the options that we have of downward flexibility of 10 per cent built in to the contract. We are reducing the off take by another 10-20 per cent," GAIL chairman B C Tripathi told analysts in Mumbai. The company has been under stress as it has found no takers for the expensive LNG purchased through long term contract. Spot prices currently are lower than the price GAIL is paying under the long term contract. "Petrochemical plant is consuming regasified LNG as of now. We have decided that it will use spot gas from next month. We have signed a term deal for six cargoes of spot gas from a major supplier. This will help reduce input costs," Business Standard quoted Tripathi as saying. The 7.5 million tonne LNG from Rasgas procured by Petronet LNG (of which GAIL is liable to take 60 per cent) on take-or-pay basis is expensive at $13 per MMBTU Spot gas on the other hand is available at $8 per MMBTU.




India hungry for rate cut despite 7.3% GDP growth Reuters + NewBase

India’s government and businesses are pushing for an interest rate cut next week even though data on Friday showed output is expanding faster than China’s, in the latest sign of concerns that the figures are masking weaknesses in the economy.

Gross domestic product in the three months that ended in March grew 7.3% from a year earlier, a Reuters’ poll of economists found, outpacing China for the second straight quarter. But New Delhi, worried that companies are not investing enough and that a period of low inflation may be short-lived, is nudging Reserve Bank of India governor Raghuram Rajan to lower lending rates from 7.5% at a policy meeting on Tuesday. The government’s position reflects nagging doubts that a new way of measuring GDP introduced earlier this year, which boosted growth by several points, may have distorted the macroeconomic view. For example, economists say weak corporate earnings and five months of falling merchandise exports – which make up about 16% of the nearly $2tn economy – are not reflected in the robust GDP figures based on the new methodology. “We are not experiencing a high level of growth if you look at a variety of high-frequency indicators,” said Rahul Bajoria, an economist at Barclays. Bajaria said he expected a 25 basis-point rate cut at the June 2 meeting and said the RBI had a short window to help encourage growth. “In the second half, inflation may pick up,” he said. For the 2014-15 fiscal year growth is expected at 7.4%, up from 6.9% in 2013/14, using the new series. On Wednesday, Rajan met Finance Minister Arun Jaitley, who has publicly favored a rate cut, citing falling Inflation. The RBI has already cut rates twice this year after inflation fell within its comfort zone, but it left them unchanged in April. “We expect RBI should cut interest rates by 25 basis points.




After that they will probably wait for the monsoon data before deciding whether there is more room for rate cut,” Bajoria said. Prime Minister Narendra Modi, who completed one year in power this week, has taken steps to reduce corruption and opened more sectors for foreign investors – contributing to a 39% jump in

foreign direct investment in India last year. A sharp drop in energy prices has brought down retail inflation and freed up government resources to spend on roads, ports and railways – measures aimed at reviving Asia’s third largest economy in the medium term. For now, consumers are deferring spending. Along with lower rates, corporates, who have not yet pumped much investment in new projects, hope to see labour, land and tax reforms. In May, the MNI India Business Sentiment Indicator, a gauge of

the sentiment among companies listed on the BSE bourse, dipped to pre-Modi government levels of 62.3 from 63.9 in April, a Deutsche Borse survey said on Wednesday. Many investors, however, remain optimistic. “We believe that the combination of sustained reforms and our expectation of further rate cuts will help drive a steady acceleration in capex growth,” Morgan Stanley said in a note to its clients on Wednesday.




Oil Price Drop Special Coverage

Oil jumps 5pc as dollar rally stalls, US rigs fall

Reuters + NewBase

Crude oil prices jumped almost 5 per cent on Friday, their biggest rally in 1-1/2 months, as a steady US dollar and a bigger than expected drop in US oil rigs in operation set off a renewed rush of bullish bets. US crude has risen by as much as $4 a barrel after hitting a one-month low just a day ago, locking in a record 11th weekly gain that was propelled both by declining domestic oil inventories and rapidly shifting sentiment ahead of next week's Opec meeting, at which the group is expected to keep production at high levels.

Oil bulls were also enthused by Friday's rig count data from Baker Hughes, which showed US drillers again reducing the number of rigs in operation this week despite speculation that they would add more. A lower rig count signals potentially lower production. Brent crude settled at $65.56 a barrel, up $2.98, or 4.8 per cent, on the day. It was flat on the week, while for the month, it fell 2 per cent. US crude ended at $60.30, up $2.62, or 4.5 per cent, on the day, and up about 1 per cent on both the week and month. Tensions in the Middle East after the Islamic State claimed responsibility for a mosque bombing in Saudi Arabia that killed three people added to the market's support. "The dollar's stalling provided the spark for today, and coupled with the bullish crude draws data, the encouraging rig count numbers and Middle East worries, the market just went into a frenzy," said John Kilduff, partner at New York energy hedge fund Again Capital. The dollar edged lower against a basket of major currencies on Friday, after having risen 2.5 per




cent this month. Oil bears cautioned that prices could fall again on the global supply glut. Pressure might build by next week if the dollar rallies and Opec decides not to cut output, they said. Opec is expected to maintain a collective output target of 30 million barrels per day and produce 1 million bpd above that. Demand for its oil is much lower, leaving an estimated surplus above 2 million bpd. "The dollar has been as imperative as anything to recent moves in oil, and Opec has been over-producing, so I expect another leg lower in prices," said Tariq Zahir, an oil bear at Tyche Capital Advisors in Laurel Hollow, New York.

Oil prices sank last week to one-month lows on the back of the strong dollar and global supply glut fears, ahead of the Opec output meeting this week. The rising greenback makes dollar-denominated commodities more expensive for holders of other currencies. That tends to dent demand and prices. Meanwhile the Organisation of the Petroleum Exporting Countries (Opec), which pumps about 30% of global crude, meets on June 5 for a production gathering in Vienna. OIL: London Brent oil dived to a six-week low and New York crude to a four-week trough on Thursday, as the market was shaken once more by the rebounding dollar and stubborn jitters over the global supply glut. “Brent and WTI futures have been set for a monthly decline as the strong dollar dominates the oil market,” said Sucden analyst Myrto Sokou. “Crude oil inventories have started to decline since mid-April 2015, suggesting a possible recovery of the US oil demand. “However, the strong dollar seems to limit any strong gains in the oil market for the time being.” The US government’s Department of Energy (DoE) revealed Thursday a healthy decline in crude oil and gasoline reserves—but also a rise in output that could aggravate the global oversupply. The report showed US commercial crude inventories fell 2.8mn barrels to 479.4mn in the week through May 22, while gasoline stockpiles fell 3.3mn barrels. The DoE also reported a rise in US crude production last week, by 304,000 barrels per day to 9.57mn. Dealers have been hoping a slowdown in US output, and increased demand during the summer driving season, could whittle down the huge global supplies that were a key reason for the collapse in prices between June 2014 and January this year.

Those losses deepened in November after Opec refused to cut output despite a global glut. Next week, the market focus switches back to Opec, whose official oil output target stands at 30mn barrels per day. Market expectations are that Opec will maintain its output levels once again, due to satisfaction at oil prices that have recovered significantly since February. By

Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in July dropped to $64.35 a barrel compared with $65.57 a week earlier. On the New York Mercantile Exchange, West Texas Intermediate (WTI) or light sweet crude for July fell to $58.52 a barrel from $59.60 a week earlier.




OPEC seen keeping output cap unchanged

JURY is out. The OPEC ministerial this Friday will opt not to change course! Despite some, within the crude exporters’ group too, clamoring to cut output, so as to support the market floor, this upcoming ministerial - the first since November 27 when a decision to maintain unchanged production levels triggered the low point reached on January 29 - may persist with its last decision and continue to produce at its current levels. And reasons are ample! With prices rebounding from the lows experienced at the beginning of the year, a drop in US rig count signaling for the first time the possibility of a decline in shale output and the possibility of non - OPEC crude producers working in tandem with OPEC to stabilize the markets continuing to be remote, there seems to be a growing consensus within the energy fraternity that OPEC will opt -yet again - not to cut output. “Prices are improving, growth in supplies from outside OPEC - especially shale oil - is lower than before and demand is recovering,” Kuwait’s governor at OPEC Nawal Al-Fuzai told reporters last week. The strategy of elbowing out high cost producers is showing some signs of success, as global oil companies have slashed their capital budgets by up to 40 per cent, and the once-booming US production appears to have leveled off and begun a slow decline. Global investment in oil production might fall by $100 billion this year, the IEA is now estimating. The feeling in OPEC headquarter in Vienna also seems against any change in direction - at this juncture. The policy still has some way to go, OPEC analysts too are pointing out. In a draft strategy document presented to the delegates and reported by the Reuters news agency, OPEC analysts point to stubbornly high output from non-OPEC sources and sluggish demand, which they say will reduce its market share to 28.2 million barrels a day in 2017 from 30 million last year. OPEC is currently producing 31 million bpd. “Since June, 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-OPEC supply is still showing some growth,” the strategy paper pointed out. “Generally speaking, for non-OPEC fields already in production, even a severe low price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs,” the report said. “For future non-OPEC production, only expectations of an oil price environment in the long-term below the marginal cost of production may deter substantial non-OPEC developments. Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations,” the report added. “Recent structural changes in the growth patterns of non-OPEC supply as a result of the substantial contributions from North American shale plays might prove to be a turning point (e.g. short lead times of the projects and higher short-term price elasticity),” the report noted. Most OPEC delegates are beginning to recognize the fact. They know they need to act - to deter competition - as much as they can. And they seem preparing for the eventuality.




OPEC is unlikely to change its production ceiling when the group meets in June, Iran’s Oil Minister Bijan Zanganeh, who until recently has been insisting on an output cut, conceded last week. “Lowering OPEC’s production ceiling requires consensus between all members ... under current conditions it seems unlikely that the OPEC production ceiling will change,” Zanganeh said. Earlier in April, Zanganeh has insisted that OPEC should cut its output target by at least 5 percent, or approximately 1.5 million bpd. Yet that does not appear in sight - at this stage. All but one of the 34 analysts and traders surveyed by Bloomberg said OPEC will maintain its daily production target of 30 million barrels a day when it meets in Vienna on June 5. Many in Saudi Arabia also don’t expect any dramatic reversal in policy direction at the upcoming moot. Opec is not expected to cut oil production at its meeting in June, and the meeting is expected to be a short one, Al Hayat reported quoting an unnamed OPEC source. The source emphasized that Saudi Arabia would not sacrifice its market share, especially if there was no cooperation from non-OPEC oil producers. This has been the Saudi line for last few months. “Preserving market share still remains a top priority for Gulf states,” Saudi economist Abdulwahab Abu-Dahesh was quoted as saying by AFP. “This time they are even encouraged by signs their November strategy is working after a drop in US shale oil production and in the number of rigs,” he added. “I don’t think that any change will happen at OPEC’s meeting,” a former member of Kuwait’s Supreme Petroleum Council, Musa Maarafi, told AFP. “Gulf states will continue to defend their market share and it is their right to do so,” Maarafi added. “They will not accept to cut output at their own expense unless an agreement is reached with non-OPEC producers.” Analysts outside the region too mostly concurred with the prevalent opinion. “Dramatic cuts in spending and drilling are finally having an impact, so why on earth would Saudi Arabia change course now their strategy is just starting to bear fruit,” Mike Wittner, head of oil research at Societe Generale SA, was quoted as saying. “Anyone who expects anything to happen at this meeting is going to be sorely disappointed.” “OPEC doesn’t really have a need to change course,” Francisco Blanch, Bank of America Corp’s head of commodities research, said on May 18. “The strategy has achieved its goal of reigning in supply and stimulating demand.” OPEC’s 12 members pumped about 31.2 million barrels a day of crude in April, almost 3 million a day more than the average amount the world requires from the group this quarter, according to the Paris-based International Energy Agency. Yet the challenge to strike a balance between the desire to hold on to market share versus the push of some of the group members to cut output so as to support the weak markets, would continue to haunt OPEC ministers in Vienna next Friday. To say the least - the task in hand is ominous!




Opec predicts global oil glut to continue for two more years

The global oil glut could persist for another two years, says a draft report from the Opec producer group. The paper comes ahead of the group’s meeting in Vienna next week.

In a draft report of Opec’s long-term strategy, the 12-member organisation does not foresee a cut in North American shale production for two years, Reuters reported.

In addition to a downturn in demand for oil, Opec’s oil supply will drop from 30 million barrels per day last year to 28.2 million bpd in 2017.

Amrita Sen, the chief oil analyst for UK-based Energy Aspects, said Opec’s shale production estimates depend on the tools used to measure.

“Energy Aspects believes that the shale production will fall next year, but some think 2017 – it really depends if [Opec] is using tight oil [shale] versus the rest of non-Opec [production],” she said.

The price of extracting tight oil, or shale deposits, is higher than the very mature oil-producing fields in the Middle East. Opec members believed that US shale producers would not be able to continue such high-cost production amid the oil price slump.

Brent crude has advanced to about US$60 per barrel, up from below $50 per barrel in January – the lowest price in six years.

“Generally speaking, for non-Opec fields already in production, even a severe low-price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs,” the Opec report said.

“For future non-Opec production, only expectations of an oil price environment in the long term below the marginal cost of production may deter substantial non-Opec developments.

Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations.”

The Opec draft report identified shale oil as a possible turning point in the industry, signalling North America as a new swing producer. Opec is not expected to cut production when its members gather in Vienna next week, according to Ms Sen.

“Opec can afford to continue producing,” said one American mid-size company exploration and production manager operating in the Mena region.

He said that one major change that would take place was the shift in business needs, such as better management for mature fields like those in the GCC. “More so, certain areas of expertise will see a decline and more layoffs, while others will see an incremental uptick,” he said.




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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

Mobile: +97150-4822502 [email protected] [email protected]

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.

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

NewBase 31 May 2015 K. Al Awadi


