New base 711 special 21 october 2015

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NewBase 21 October 2015 - Issue No. 711 Senior Editor Eng. Khaled Al Awadi

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

MENA urged to add ‘real value’ in NOC refinery expansion projects

Saudi Gazette + images by NewBase

Planned refinery expansions and greenfield projects across MENA, led by 830k b/d of new capacity from the GCC by 2020, could make the region an international products hub, with national oil companies (NOC) trading arms playing a key role, Arab Petroleum Investments Corporation (Apicorp) said in its inaugural issue released this month.

The report forecast that the GCC will add 830k b/d of refining capacity in 2016-20.

However, with the global capacity also rising, the “competition is tough”, and combined with tighter financing, governments must ensure expansion plans add value, not just capacity, the report noted.

The rapid increase in domestic oil demand driven by factors such as high population growth rates, rising income levels and low energy prices has prompted many governments in the MENA region to build new refineries and expand the capacity of existing ones. From around 2.3m barrels per day (b/d) in 1980,




MENA oil consumption exceeded 8.7m b/d in 2014, accounting for around 11% of the world’s total. Building new refineries is also part of a wider initiative to integrate the crude, refining and petrochemical industries to create more value added by diversifying exports away from crude oil toward refined products and petrochemicals.

As well as increasing the availability of feedstock, the use of refined products provides opportunities to produce more sophisticated petrochemical products that are essential to extend the value chain, Apicorp said in the report.

Some of these projects have already come on line with most of the increase concentrated in the GCC. The completion in the past three years of Yasref and Satorp, two Saudi refineries, and the Ruwais facility in the UAE added approximately 1.2m b/d of new refining capacity.

The impact on the products trade balance has been substantial.

For instance, in Saudi Arabia, gross exports of gasoline increased from 44,000 (k) b/d in 2012 to 173k b/d in June 2015, while that of diesel more than tripled from 98k b/d to 308k b/d during the same period.

As a result, during the first half of 2015, Saudi net imports of gasoline stood at around 86k b/d and even though the kingdom was a net importer of diesel only a few years ago, net exports have reached 108k b/d (in May, net exports reached a peak of 300k b/d, but declined in June as demand for diesel in power generation increased).

The Ruwais refinery in the UAE had some start-up problems and hence the impact on trade balances is yet to be fully felt.

But while some countries in the GCC succeeded in increasing refining capacity, conflict has destroyed capacity in many Arab countries, resulting in shortage of petroleum products which has, in turn, forced governments increasingly to rely on expensive imports. Libya, Yemen, Syria and Iraq have seen significant cuts in refining capacity.

Jazan refinery ($16bn) A huge new refinery capable of producing

400,000 barrels per day on the Kingdom's South West coast - for which

eight separate engineering, procurement and construction (EPC)

contracts were awarded during the final quarter of last year. The

$16bn project, which is due to complete in 2016, is being built by the

Saudi Arabian arms of several international contractors - with the

biggest deals going to the UK's Petrofac ($1.4bn), Spain's Tecnicas

Reunidas ($1bn), Korea's SK Engineering ($1bn), and Japan's JGC Corp

($1bn)

Satorp petrochemicals complex, Jubail ($14bn) New refinery

which will be capable of breaking down heavy crude to produce

diesel, gasoline, LPG, petrochemicals and jet fuel. It will be

operated by a joint venture between Saudi Aramco and Total

once the facility opens later this year and has been built by a

consortium led by Japanese contractor Sumitomo.




The 300k b/d Baiji refinery in Iraq is essentially out of operation, a loss that has prompted Baghdad to accelerate plans to build new refineries in other parts of the country. This has not yet been successful: on top of financing issues, the absence of clear regulatory structure has kept foreign investors at bay.

In Libya, the 220k b/d Ras Lanuf refinery, the country’s largest, remains closed, while the regular shut down of oilfields and labor strikes continue to disrupt operations

at the 120k b/d Zawiya plant.

In Yemen, the 150k b/d Aden refinery has operated intermittently during the conflict.In Syria, Damascus has lost control of all its major oilfields, leaving the Banias and Homs refineries operating at a fraction of their full capacity. Moreover, even those countries not directly affected by political turmoil have seen refining plans delayed or canceled.

Morocco’s sole refinery, SAMIR, had its assets suspended by the authorities pending financial restructuring, while in Tunisia plans for the building of the Skhira refinery have been put on hold due to financing problems and the inability to secure crude from neighboring Algeria and Libya.

In Algeria, plans to build five new refineries to meet domestic demand have faced repeated delays and the current squeeze in revenues will likely put these plans on hold.

In Jordan, the Jordan Petroleum Refinery Company (JPRC) plans to expand capacity from 70k b/d to around 150k b/d, but this will depend both on securing finance for the project and the completion of oil pipelines from Iraq.

In Egypt, agreements have been made to upgrade and modernize two refineries, Assiut and Midor, as well as the Mostorod refinery expansion, although it is not clear if these projects will be carried out on time, the report further said.

The GCC was not left scot-free.

The oil-price collapse since mid-2014 has curbed investment over the medium term with some projects being pushed back and others canceled, although a handful of projects might come on line within or shortly after their targeted completion date.

Jazan project in Saudi Arabia and the UAE’s Fujairah plant are the major additions, Apicorp report said. These will add 400k b/d and 200k b/d of capacity, respectively, between 2016 and 2020. The Jazan refinery has been pushed back into 2018 while the Fujairah refinery, with a target completion date of 2016, is now expected to come online at around the same time.

Al Zour refinery and clean fuel project ($30.5bn) One of the biggest and

most important projects identified in Kuwait's 2010-2015 National

Development Plan, but like many other projects in the country it had

become somewhat mired in politics. The project for Kuwait National

Pipeline Co involves the construction of a fourth refinery at Al Zour at a

cost of $14.2bn as well as the construction of a related $16.3bn clean

fuel plant. Contracts for the project had originally been signed in 2008

but cancelled in March 2009 due to political opposition. The work was

eventually re-tendered in July last year, with Amec and Foster Wheeler

picking up project management contracts to oversee construction in

December last year. When complete in 2018, the refinery will have a

capacity to process 615,000 barrels of oil per day. Much of this will be

used to help fund a growing demand for electricity. (Photo for

illustrative purposes)




The rest of the additions will come from the Ras Laffan 2 plant in Qatar, which will add 146k b/d of condensate capacity, followed by the Sohar expansion in Oman, which will add 82k b/d to its existing capacity of 116k b/d.

The 230k b/d grassroots Duqm Refinery (a joint venture between Oman Oil Company and Abu Dhabi’s International Petroleum Investment Company) is also likely to come on line in the early 2020s.

The report also noted that establishing a key position in the products markets can provide MENA producers with a strategic opportunity to develop the trading industry and establish regional trading hubs. So far, NOCs in the region have almost exclusively relied on their trading arms or subsidiaries to buy and sell their refined products, bypassing the traditional oil traders such as Glencore and Vitol.

In 2012, Saudi Aramco established the Aramco Trading Company (ATC) in place of its Product Sales and Marketing Department to handle the sales and purchasing of all petroleum products. Since its establishment, ATC has been an active player in the products market competing with the established oil-trading house s. Other examples include Oman Trading International (OTI), a venture between the state of Oman and Vitol.

In Oman, plans are underway to build a large crude and petroleum product storage facility with a capacity of 200m barrels. The UAE has increased tank-storage capacity in Fujairah from 2.8m cubic meters to 7.4m cubic meters over the past 10 years with the total storage capacity expected to increase to about 9m cubic meter s by the end of 2015.

While the region is likely to continue to be a net importer of gasoline (or in the case of the GCC a modest exporter of gasoline with export expected to reach 100k b/d by 2020), diesel exports from the GCC are expected to rise sharply from 310k b/d in 2015 up to 895k b/d in 2020.

IPIC Fujairah Oil Refinery planned ….400KBD




The new refineries in the Middle East (as elsewhere) have been configured mainly to produce diesel to cater for the anticipated increase of diesel demand from Asia, particularly from China.

Hence, faced with increased competition in global products markets, subsidized prices in local markets, and overcapacity in global refining, Apicorp report suggests that it is “ a good time for governments to re-evaluate their downstream strategies” as some refining projects “struggle to find adequate financing in a large number of countries, including Kuwait, Bahrain, Iran, Iraq, Jordan, and Algeria.”

It noted “many governments will be forced to seek private sources of finance to fund many of the planned projects, (and) they have to show that these projects are adding real value and are not solely driven by the increasing pressure to meet ever-increasing demand.”




Saudi Butanol starts trial ops at Jubail Reuters + NewBase

Saudi Butanol Company, a joint venture of local petrochemicals firms, has be gun trials of its plant in Jubail and expects commercial operations to start in the first half of 2016. Testing will take between three and six months at the plant, a statement from Sahara Petrochemical Company said on Tuesday.

The project is owned by group consisting of Saudi Kayan Petrochemical Company, Sadara Chemical Company (a joint venture between Saudi Aramco and The Dow Chemical) and Saudi Acrylic Acid Company (SAAC). SAAC is an affiliate of Tasnee and Sahara. A statement issued in March had said testing was expected to commence in the third quarter of 2015. The project, estimated to cost around SR2 billion ($534 million), was expected to come on stream in the first quarter of 2015 when it was first announced in 2012.

The plant will have a capacity of 330,000 tonnes a year of n-butanol, a type of alcohol used to make other chemicals, and 11,000 tonnes a year of iso-butanol.

Saudi Butanol Company

At the end of 2012G, a partnership contract was signed for Butanol Project as a joint venture at cost of SAR1939 million among SACC, Saudi Kayan and Sadara Petrochemicals each with 33.3% shareholding. On this basis, by virtue of Sahara’s aggregate 43.16% equity stake in SAAC, Sahara owns an indirect equity stake of 14.38% in the Butanol JV.

Butanol JV IS established to own, manage and operate the Butanol Plant of the Integrated Acrylates Complex. The plant will produce 33.000 tons of n-butanol annually that will be made available in equal proportions to SAAC, Saudi Kayan and Sadara. Each of them will be responsible for procuring and supplying propylene for production of their share of n-butanol. All iso-butyraldehyde production and one-third of hydrogen capacity will be made available to SAAC, while the remaining hydrogen capacity will be made available to Saudi Kayan and each of SAAC and SABIC will have to arrange corresponding feedstock supply and product off-take accordingly. A contract for establishment of the plant has been signed with Daelim Industrial Co. with a value of SAR 1.100 millions. Commercial operations are expected to commence in 2015.




Oman: Orpic picks bidders for $5.2bn Liwa Plastics Oman Observer

Orpic (Oman Oil Refineries and Petroleum Industries Company) had named Tecnimont, JV GS Engineering & Construction Corp, Mitsui & Co and Punj Loyd as the preferred bidders for three of four packages for its Liwa Plastics Industries Complex (LPIC) project.

The three packages include the Natural Gas Extraction Unit in Fahud, the NGL pipeline between Fahud and Sohar and the three plastics plants in Sohar. Orpic intends to sign the final

Engineering Procurement & Construction (EPC) contracts after finalising the agreements and receiving Final Investment Decision on the project but before year end.

In the coming days, Orpic will be announcing the preferred bidder for the largest package (Package 1) which includes the steamcracker and associated utilities in Sohar.

The $5.2 bn project will transform LPIC’s presence in the

international petrochemicals marketplace as well as support the development of a downstream plastics industry in the Sultanate. It will also create new business opportunities, and generate significant employment opportunities.

Eleven strong bidders submitted financial tenders for the 3 considered packages and after a thorough evaluation process the preferred bidders were presented to Orpic’s Major Tender Board. The Tender Board studied the detailed bids and subsequently approved the names of preferred bidders. In the next 2 weeks, a detailed discussion will be held with the preferred bidders in order to finalise the contracts. The final package for the steam cracker will be announced soon.

Musab al Mahruqi, CEO, Orpic, stated: “We are very pleased to receive such high calibre financial tenders for EPC works on this regionally significant project. LPIC will have a substantial flow on effect on the national economy, and we are looking forward to partnering with leading proponents to deliver a best in-class result.

” He further added: “Following commissioning, plastics production is forecast to increase by more than 1m tonnes; giving Orpic a total of 1.4m tonnes of polyethylene and polypropylene production. The operation will be one of the best integrated refinery and petrochemical facility combinations in the world and will be able to achieve the maximum value add for Oman’s hydrocarbon molecule.”

All relevant environmental permits have been obtained from the Ministry of Environment & Climate Affairs, and all technical and commercial terms & conditions for supply of utilities, such as electricity and cool water, have been finalised with Majees and Majan. Gas Supply Agreements, are being finalised with the Ministry of Finance and Oil & Gas. Land agreements with Sohar industrial Port Company, Sohar Free Zone and Fahud are scheduled for signing with the Ministry of Housing.




Egypt: Noble Group Bags LNG Supply Slot at 2nd Floating Terminal Noble Group .

Noble Group has been awarded “a significant number of slots” for mid-term delivery of LNG cargoes to Egypt’s second floating import terminal, which is due to start operations next month, the company announced Tuesday.

The slots were awarded by state owned Egyptian Natural Gas Holding Company (EGAS) following a competitive tendering process. Egyptian Natural Gas Holding Company (EGAS) took delivery of the second FLNG terminal provided by BW Group earlier this month. Operations are expected to start late October.

This follows Noble’s previous success in Egypt’s first import tender early this year, and builds on Noble’s existing business in the country, the company stated. Noble commissioned the country’s first terminal in Ain Sokhna and delivered the first two LNG cargoes ever imported into the country. Further deliveries under this first import contract are scheduled in 2015 and 2016.

"Egypt is emerging as a key LNG market and we are pleased that we continue to build on our successful track record in the country," Gareth Griffiths, Global Head of Power, Gas and Carbon trading, Noble Group, said.

The North African nation has become an importer of gas due to falling domestic gas production amid rising demand. The imported gas is expected to fill the demand gap in the short term while the government works to boost production of local gas.




Iraq: Genel Cuts 2015 Oil Production Forecast on Iraq Payment Delays Bloomberg - Angelina Rascouet

Genel Energy Plc, an oil producer in Iraqi Kurdistan, reduced its output forecast for the year after suffering delays to payments for its exports.

The company expects to pump 85,000 to 90,000 barrels a day in 2015, compared with a previous forecast of 90,000 to 100,000 barrels a day, it said Tuesday in a regulatory statement. It also lowered guidance for spending and revenue.

Oil companies in Kurdistan such as Genel, Gulf Keystone Petroleum Plc and DNO ASA have been caught for years in a spat over revenue-sharing between the regional authorities and Iraq’s federal government. In December, both parties agreed to allow increased oil shipments, yet payment continued to elude producers amid the oil-price slump and the soaring costs of fighting Islamic State militants. Genel has cut spending on its Taq Taq and Tawke fields as a result.

“Given the payment situation has been irregular, we stopped investing in the drilling of the fields,” Chief Financial Officer Ben Monaghan said in a phone interview. “Inevitably with conventional oil fields, if you stop investing, the production will begin to decline.”

Spending Cut

Genel lowered its capital-expenditure forecast for this year to $150 million to $175 million from previous guidance of $150 million to $200 million.

“The reduction of production at Taq Taq and Tawke in the current uncertain political context in Kurdistan is an issue,” FirstEnergy Capital LLP wrote in an e-mailed note. “We appreciate this is likely to be a way to put pressure” on the Kurdish authorities to boost payments, it said.

The authorities resumed payments to oil companies in September after an eight-month hiatus. Genel said Tuesday that the Taq Taq partners have received a gross payment of $30 million for exports, of which its own share is $16.5 million, according to a separate filing. Its shares pared losses of as much as 9.6 percent to trade down 4.3 percent at 321 pence as of 9:49 a.m. in London.

The company narrowed its forecast range for 2015 sales to $350 million to $375 million from $350 million to $400 million, based on a Brent price of $50 a barrel in the fourth quarter. Brent is currently trading at about $48.50.




Indonesia: Pan Orient Energy Flows Gas from Sumatra Well Pan Orient Energy

Pan Orient Energy has announced gas flow from the Akeh-1 exploration well, located in the Batu Gajah PSC, onshore Sumatra, Indonesia.

The well has been tested over four zones within the primary target Lower Talang Akar sandstone formation. The average testing rates for DST 4 (5314-5324 ft) over a combined 12 hour and 37 minute flow period utilizing four different choke settings were 6.8MMscfg per day of natural gas (2% CO2), 269 barrels per day of API 60.1 degree condensate and BS&W of 11.6% (emulsion comprised of 97% condensed water (chlorides 3545.3 mg/l), 2% Sediment, and 1% Condensate (API 60.1 degrees)).

A total of 3.7MMscf of natural gas, 142.2 barrels of condensate and 25 barrels of condensed water was produced during the entire test period.

The next steps will be holding discussions with the Government of Indonesia in relation to having the Akeh structure 'Released from Exploration Status', the company said. A successful release would allow the commencement of a 'Pre-Plan of Development' study to determine the likelihood of the commerciality of the Akeh-1 discovery, which would be followed (if commerciality is deemed likely) by the compilation and submission of a Plan of Development.

Pan Orient is a Calgary, Alberta based oil and gas exploration and production company with operations currently located onshore Thailand, Indonesia and in Western Canada.




Ghana: UAE Taqa starts up 330MW Gas power plant The national + ( images by NewBase)

Abu Dhabi National Energy Company, known as Taqa, said yesterday that its much-anticipated power project in Ghana had begun feeding electricity into the west African country’s grid.

The Takoradi 2 power plant, which began two years ago, can produce 330 megawatts and will account for about 15 per cent of the country’s total output. The plant is badly needed in Ghana, which has a population of about 25 million but generating capacity of just 2,000MW, which means it faces frequent blackouts.

Abu Dhabi’s capacity, by comparison, is 10,000MW to serve a population of 2.2 million. The lack of power has been one of the most significant factors holding back the country’s development.

Ghana has been unable to keep up with annual electricity demand growth of 10 per cent – a factor behind the halving of economic growth in the past couple of years to a projected 3.9 per cent this year. Taqa will retain 90 per cent ownership

of the plant, which can burn either light crude oil or natural gas. Volta River Authority will own 10 per cent and there is a 25-year power purchasing agreement.

The T2 plant is the country’s first independent power project and was backed by the World Bank’s private sector financing arm, the International Finance Corporation.

“The investment Taqa has made to ensure the success of this project underlines the major positive impact it will have for people locally and for our shareholders in Abu Dhabi,” said the Taqa chairman Saeed Mubarak Al Hajeri. Taqa, which has been struggling for the past couple of years to deal with the after-effects of poor speculative upstream investments in North America, has been trying to emphasise focusing more on its steady power and other infrastructure operations.

Taqa noted also that it has also started its Bergermeer gas storage facility in the Netherlands this year. It plans to commission two other power and water projects – one in India, the other in the Emirate of Fujairah – later this year.




India's ONGC targets $10-$12 bln foreign oil and gas investments Reuters + NewBase

The foreign investment arm of India's top oil explorer ONGC is targeting $10-$12 billion of oil and gas asset purchases over the next three years, including more corporate acquisitions, its managing director said. ONGC Videsh Ltd (OVL) hopes to capitalise on cheaper assets after a slump in oil prices and Prime Minister Narendra Modi's diplomatic efforts to boost the global presence of Indian firms.

'Earlier it was an asset-based (strategy) but now we are giving good consideration to M&A,' Narendra K Verma, managing director of OVL, told the Reuters Global Commodities Summit. 'Our mandate is huge and we can acquire a larger portfolio through the corporate acquisition route,' added Verma, who has overseen $7 billion in deals over four years.

OVL, which produces about 175,000-180,000 barrels per day (bpd) from its overseas assets, wants to double output by 2018 and increase it six-fold by 2030.




The firm has stakes in 33 oil and gas projects from Venezuela to South Sudan but its first corporate investment in 2008, buying Russia's Imperial Energy for $2.6 billion, did not turn out as planned with output slumping to 8,000 bpd from an estimated 60,000 bpd. Still, Verma said the firm was not put off and was 'working on some opportunities where we could see a broader portfolio being available to us.'

OVL last month concluded a deal to buy a 15 percent stake in Rosneft's Vankor field to secure access to about 66,000 bpd of oil production at the Siberian field. But Verma said Africa and Latin America were likely to be the hotspots for new investment with some companies financially stressed due to high capital expenditure and low oil prices.

OVL is also better placed than some of its global peers to invest due to the financial strength of its

parent, state-run Oil and Natural Gas Corp (ONGC). The firm was in talks with overseas partners to reformulate exploration and development expenditure as current revenue at oil firms had halved due to weaker oil prices, he said.

OVL also hoped to wrap up talks in two months to refinance $1.7 billion in loans at LIBOR plus 120 basis points maturing in 2021, versus the current LIBOR plus 195 basis points running to 2020, he said.

ONGC and its Indian partners have submitted a $5-billion revised plan to Iran seeking development rights of Farzad B gas field, Verma said. The revised contract offered more flexibility and included a mix of production sharing and service contracts, he said, adding investment could double if infrastructure is built to supply gas to New Delhi.

Narendra K Verma, managing director of OVL




NewBase 21 October - 2015 Khaled Al Awadi

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

Oil falls after industry report shows surge in U.S. crude stocks Reuters + NewBase

Oil prices fell on Wednesday after data from an industry group showed a larger-than-expected build in U.S. crude inventories last week, fanning worries over global oversupply, even as a slightly weaker dollar provided some support.

Brent crude for December delivery had fallen 9 cents to $48.62 a barrel by 0313 GMT after settling up 10 cents in the previous session. U.S. crude for December delivery dropped 24 cents at $46.05 a barrel after settling up one cent at $46.29. The November contract, which expired on Tuesday, finished down 34 cents at $45.55 per barrel.

"Concerns over the potential for a further build (in U.S. crude stocks) in official data (were driving prices lower)", said Michael McCarthy, chief market strategist at Sydney's CMC Markets. "The low volumes and market moves are reflecting that," he said.

Industry data showed U.S. commercial crude stocks climbed by a larger-than-expected 7.1 million barrels to 473 million barrels in the week to Oct. 16, the American Petroleum Institute said on Tuesday. Analysts had expected a 3.9 million barrels increase.

The U.S. Energy Information Administration is due to release official inventory data later on Wednesday, which is expected to show a build in crude stocks for a fourth straight week. It was a

Oil price special

coverage




surprise crude stocks had continued to climb even as the number of rigs had fallen, from about 800 six months ago to 600 now, McCarthy said.

China's crude imports will continue to grow over the next five years at an average annual rate of 3.2 percent, BMI Research said in a report on Wednesday.

"We forecast China's crude oil imports will climb steadily over the next five years, from 6.6 million barrels per day (bpd) in 2015 to 7.7 million bpd by 2020. This will be a result of higher domestic refinery run rates and continued strategic stockpiling activities, which will boost demand for crude imports," the report said.

China's implied oil demand fell slightly in September to 10.13 million bpd, down 0.1 percent from a year ago, according to Reuters calculations based on preliminary government data. Investors are also eyeing the outcome of a meeting of oil experts later on Wednesday involving members of the Organisation of the Petroleum Exporting Countries and non-OPEC oil producers.

With ex-Soviet oil producers, including Russia and Azerbaijan, unlikely to bow to pressure to reduce output in an effort to lift prices there is little chance of a deal between the two sides, industry experts said.




Opec 'has stalled the shale revolution' By John Kemp – Reuters

The resilience of US shale producers has surpassed all expectations as they have wrung extra efficiencies out of their operations and pulled rigs back to the most prolific sections of existing plays. The shale sector's ability to cut costs and sustain their output in the face of plunging prices has been extraordinary and testament to the entrepreneurial spirit and technical skill of the independent producers.

Shale producers are justifiably proud of their ability to survive the perfect storm that has hit their industry since the middle of 2014.But it should not disguise the fact that the collapse in oil prices has paused the shale revolution, with the sector's focus shifting from growth to survival.

The revolution cannot be reversed. Techniques once mastered will not be unlearned. And adversity has forced shale drillers to become more efficient. If and when prices rise, shale output is very likely to start increasing again, and from an even lower cost base.

For the time being, however, lower prices have stunted shale's growth in the US and slowed its spread around the rest of the world.

NORTH DAKOTA

In North Dakota, the oil boom has stalled as low prices have brought formerly rapid production growth to a standstill since the end of 2014. State oil output grew at an compound average rate of just 0.38 percent per month over the last 12 months, according to records published by the Department of Mineral Resources.

By contrast, production increased at a compound rate of 2.37 per month in the 12 months before prices started to crash in June 2014. Output has been flat at 1.2 million barrels per day (bpd) since the end of 2014, the deepest and most protracted pause since the shale revolution began in the state in 2005.

If production had continued rising on its pre-June 2014 trend, output would now be 330,000 bpd higher at 1.52 million bpd. Some analysts question whether the Organization of the Petroleum Exporting Countries (Opec) is winning its price war against high-cost producers.

They point to resilience in shale production in North Dakota and Texas as evidence that Opec's strategy has had only limited success. But the correct comparison is with what would have happened if prices had remained at the pre-June 2014 level of over $100 per barrel and Opec had cut its own production in a bid to support them.

In that case, North Dakota production would probably have grown to over 1.5 million bpd by now and reached almost 1.7 million bpd by the end of 2015. By allowing prices to tumble, Opec has shut in 300,000 to 500,000 bpd of probable shale production growth in North Dakota.




For the United States as a whole, crude and condensates production would have hit 11.3 million bpd by the end of 2015 if it had continued increasing along the pre-June 2014 trend. Instead, the US Energy Information Administration predicts production will end the year at around 9.0 million bpd.

The gap of more than 2 million barrels between actual and pre-June 2014 trend output illustrates why prices could not have remained above $100 and the crash was necessary to rebalance the market. Herbert Stein, chief economic adviser to President Richard Nixon, once observed that "if something cannot go on forever, it will stop." In the case of oil prices and the shale revolution, US production was on an unsustainable trajectory so prices have fallen and the trend has stopped.

The 2 million barrel gap is also an indication of Opec's success shutting in shale production growth and pushing the oil market onto a new trajectory. The 2 million barrel gap is a very rough calculation and should not be taken too literally: the real gap could be 1.5 million or even 1.0 million barrels.

But coupled with demand growth of around 1.5 million bpd in 2015, up from less than 1 million bpd in 2014, it is a measure of how far the oil market has come in terms of rebalancing.

OPEC WINNING

The oil market remains oversupplied, but the oversupply would have been far worse if prices had not fallen by more than half over since the middle of 2014. Opec's strategy, in reality a Saudi strategy, of holding output steady and forcing other countries to adjust their own production has been reasonably successful and there is no reason to discontinue it now.

In any event, it is not clear either Saudi Arabia or the organisation as a whole had much alternative in 2014, or has much choice now. Some countries, including Venezuela and Iran, have indicated Opec should cut production and aim for a price of $70 or even $80 per barrel.

But while most shale producers are struggling with prices below $50, many are ready to start increasing output again if US crude prices hit $60 or $70, which would worsen oversupply in the short term. There has been a lot of speculation about which countries are the intended target of

Saudi Arabia's and Opec's decision to maintain output, allow prices to fall, and curb high-cost production.

US shale producers (authors of the shale revolution), Russia (for geopolitical reasons), and Venezuela (also for geopolitical reasons) have all been mentioned. But Saudi and Opec officials have been careful to say their target is to restrain "high-cost" production rather than

shale. Shale is mid-cost production, at least in the most prolific and well-understood plays like Bakken, Eagle Ford and Permian. In any event, Saudi Arabia and Opec cannot target any particular group of producers. The pain of low prices is widespread. Opec has no control over who buckles first.

By increasing their efficiency, shale producers have pushed more of the adjustment onto non-Opec non-shale producers (NONS) in the North Sea, the Arctic, deepwater, megaprojects and frontier areas, as well as weaker members of Opec in Latin America and Africa.




NewBase Special Coverage

News Agencies News Release 21 Oct.. 2015

Can BP plc, Royal Dutch Shell plc And Tullow Oil plc Cope With “Lower For Longer” Oil Prices? By Jack Tang | Fool.co.uk

Oil prices have recovered somewhat from the lows in August, but current prices are still well below the break-even oil price for the vast majority of oil companies. High oil inventories and weak manufacturing data from around the world would seem to suggest that oil prices will likely to stay "lower for longer". Analysts at investment bank Goldman Sachs go further, suggesting the price of oil could fall to as low as $20 per barrel. With oil prices likely to remain below the break-even price that oil producers need, banks have been tightening credit to oil producers. And without the ability to borrow, many oil producers could struggle to fund investments and afford their regular dividend payments. The shares of BP and Royal Dutch Shell have performed much better than the shares of most smaller oil and gas players. This is because the two oil majors benefit from stronger balance sheets, better access to capital markets and, most importantly, diversification in the form of their downstream operations. Higher downstream earnings has partly offset the decline in upstream earnings for BP and Shell, and explains the more modest declines in operating cash flows. BP and Shell's operating cash flow in the second quarter of 2015 declined by only 20% and 30% respectively, which explains why they have been able to sustain their dividend policies. The growth in downstream earnings acts as buffer against lower oil prices. Refiners benefit from higher margins under such conditions, as they are able to take advantage of the dislocations in the oil market, and the price of refined products are generally sticky and less sensitive to changes in the price of crude oil. But Shell has made a series of high-cost and high-risk investments, including its Arctic oil exploration, investment in LNG facilities in the Russian Far East and, most importantly, its BG acquisition. These investments would most likely increase Shell's break-even oil price and put itself in a weak position to cope with "lower for longer" oil prices. However, Shell is not being complacent. It has announced $4 billion worth of cuts to its annual operating expenses, reduced its capital expenditure budget by 20% this year and, most recently, announced a halt to its expensive Arctic drilling plans. BP, which faces fewer execution risks and is moving on from the Deepwater Horizon oil spill, has acted more swiftly and more boldly in reacting to lower oil prices. It has set a new break-even oil price target of $60 a barrel for new developments, and has cut its capex budget more substantially. The company has also sold peripheral assets and embarked on its cost-cutting plan earlier than its peers.




Tullow Oil's (LSE: TLW) reliance on debt puts it in a weak position to weather the low oil price environment. Despite being one of the industry's lowest-cost producers, with cash operating costs of around $18 per barrel of oil, Tullow needs debt to fund its investments in production and exploration activity. With lower oil prices being a constraint on the company's ability to generate cash flows, banks will likely become increasingly reluctant to extend credit that the company will need to get through the downturn. Tullow has cash and undrawn credit facilities amounting to $2.1 billion, but unless it makes further cuts its investment programme, I believe it will not have enough cash to last more than 2-3 years in today's low oil price environment. All three companies can easily survive over the next few years, but more radical change is probably needed to cope with "lower for longer" oil prices. For BP and Shell, this would probably involve cuts to their dividends or further reductions in capex and more asset sales. Tullow, which has already suspended its dividend, will have fewer options.




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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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