NewBase 590 special 26 April 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 26 April 2015 - Issue No. 590 Khaled Al Awadi

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

Urbanization key driver towards smarter cities Saudi Gazette + NewBase

The Smart Cities Council on Saturday rolled out a roadmap for smart cities at a Smart Cities Readiness Workshop in collaboration with the Dubai Real Estate Institute and Bechtel. Urbanization is a key driver towards smarter cities. By 2050, over 70% of the world’s population will live in urban areas. Dubai has embraced plans to become one of the smartest cities on the planet. The Smart Dubai project is aimed at embracing innovation to make Dubai one of the best-connected cities in the world.

Studies show that smart cities use up to 40% less water and 30% less energy while delivering greater efficiencies at reduced costs. Reports also show that we are becoming smart citizens. Mobile phone users are demanding more services and information such as traffic volumes or energy use data and in this way are helping cities to grow smarter. The GCC is well positioned to maximize on its young, highly educated and well-connected population to drive the transformation to smart cities. With over 70% of the region’s population under the age of 34, studies show a sizeable increase in mobile government services in the Middle East region, which today represents 24% of the global m-gov services, and the GCC countries taking center stage representing over 85% of the region’s m-gov services.




Governments are clearly integrating smart services across some of their infrastructures, including transport, building technology and government services. Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, called on all government entities to deliver their services to the public through mobile phones and devices, setting the stage for the transformation to m-Government as part of a more comprehensive drive towards smarter cities.

“Dubai is at the forefront of the smart city evolution that is

transforming the way in which we live and work in cities,” said Jesse Berst, Chairman of Smart Cities Council. “By

harnessing technology to

implement smart systems across the city

infrastructure, Dubai is well positioned to be one of the smartest cities on the planet.” Jim Denton-Brown, a

workshop speaker and Manager of Planning and Smart Cities at Bechtel, said: “Amidst the growing challenges of urbanization, shifting demographics and rapid technology changes, cities are recognizing the need to adopt a more holistic, long-term approach to planning. Smart cities such as Dubai are moving from incremental updates to a system-wide approach to infrastructure investment, whilst embracing the power of new technologies to achieve their long-term ambitions.” The workshop offers an interactive and practical session focused on implementing a roadmap to becoming a smarter city. Participants include international experts in planning, infrastructure, finance and technology. The workshop follows the framework of the Smart Cities Council Readiness Guide, a practical roadmap addressing city infrastructure growth strategies. The roadmap started with an assessment of a city’s unique issues and characteristics. It moved onto technology plans, mapping out each element relevant to the implementation of improvements in transport, water and other infrastructure systems. It concluded with the identification of milestones to mark progress and key performance metrics for cities to measure success.




Dubai aims to enhance green credentials with PPP projects The National + NewBase

Dubai is looking to strike more public-private partnerships (PPPs) in renewables and efficiency-related projects, to help it achieve status as a regional green energy hub. “The cost of energy for consumers in Dubai is not subsidised, so this is an attractive proposition to private companies,” said Taher Diab, senior director at Dubai’s Supreme Energy Council.

When electricity is subsidised, the government pays a portion of the power consumed to ease the burden on the end user. This creates a financial strain for governments and companies are only able to receive a fixed price for power generation projects. However, under a PPP model, there is more competitiveness in the sector which allows for a higher rate of return for companies. Mr Diab added that when PPP models are clearly defined, it is a “win-win” situation.

Last week marked the beginning of Green Week, hosted by Dubai Electricity and Water Authority (Dewa), which included several events such as the Water, Energy, Technology and Environment Exhibition (Wetex) and the World Green Economic Summit. Exhibitors, totalling more than 1,500 from 46 countries, were hoping to get their name out in the marketplace - particularly in the UAE.

Ben Cotton, external relationship manager of the UK-based investment firm Earth Capital Partners, said that PPPs would grab the attention of potential investors to funnel more funds into projects. “Dubai has taken this [PPP] process to the next level,” he said pointing to the success of the Dubai solar park currently under construction.

The Mohammed bin Rashid Al Maktoum solar park in Dubai will have a capacity of more than 1,000 megawatts upon completion. The first 13MW is already in production, and the second phase totalling 200MW, is set to be complete in 2017. It recently achieved the lowest price for solar in the world to date, based on the PPP model.

In addition to this large-scale project is Dewa’s initiative to increase the number of solar panels installed on commercial and residential buildings in the emirate. The utility provider is currently in the process of approving distributors for the installation of these schemes.

Panasonic said on the sidelines of Wetex that it was looking to apply later so that it could debut its solar panels on the UAE market. “Before there was no clear direction for rooftop solar,” said Anil Roshan Castelino, Panasonic’s Eco Solutions head.

He said that under the new regulations introduced in Dubai the return on investment for its product would be less than five years. Mr Castelino said that Panasonic was unlikely to be the only company looking to introduce its panels. He expects other solar panel manufacturers are paying closer attention to the Dubai market.

“Dubai is spreading the message to the rest of the world that it can be a hub for solar technologies and PPPs,” Mr Diab said.




Mubadala Petroleum dragged into Thai oil field partners’ dispute www.totaluae.com/news/+ NewBase

Mubadala Petroleum is facing further problems in its effort to recover payments from a partner in one of its offshore oilfields in Thailand and might have to go to arbitration to resolve the issue.

The company, which is the internation al energy unit of the Abu Dhabi government’s strategic investment company, Mubadala Development, has found itself pulled into a bitter dispute between its two partners in the Manora oilfield – the Sydney-listed Tap Oil, which owns a 30 per cent stake, and Northern Gulf Petroleum, controlled by the Thai businessman Chatchai Yenbamroong, which owns 10 per cent.

The dispute began with an attempt in February by Mr Chatchai, who is also Tap Oil’s largest shareholder, to replace the company’s managers with those of his own choosing.

It has also involved claims and counterclaims by Tap Oil and NGP of default on payments, which eventually resulted in Mubadala Petroleum demanding US$27 million from NGP on March 20 for payments required under the terms of the Manora contract.

NGP has since served a notice of default on Tap Oil for $14.6m that it claims it is owed after certain exploration goals on the field were reached.

In a letter to shareholders on Thursday, Tap Oil’s management disputed NGP’s claim, saying the payment was contingent on a final report on reserves by Mubadala Petroleum, which operates the field and owns a 60 per cent stake in the venture.




Tap Oil said that it had more than $25m of cash on hand but objected to NGP’s claims on the ground that the contractual obligations for payment had not yet been reached. Tap further claimed that NGP was still in default.

If true, NGP’s default would already have exceeded 30 days on Thursday, which under the terms of the oilfield contract, would mean that NGP’s share of Manora crude should be split between Mubadala and Tap Oil to cover payments.

The contract also states that after 60 days of default, NGP’s interest in the field would be transferred between Mubadala and Tap Oil.

In his own letter to shareholders three weeks ago, Mr Chatchai wrote, “NGP considers the default notice to be contrary to arrangements in place between NGP and Mubadala”, adding that NGP had “served Mubadala with a notice of dispute, which may result in arbitration in Thailand.”

He also claimed that Mubadala Petroleum had already filed its report on reserves in the field with the Thai oil ministry. Mubadala Petroleum has largely kept quiet about the dispute but has acknowledged that Tap Oil’s public statements about the default notices were accurate.

“Mubadala Petroleum is operating within the clear parameters of the joint

operating agreement that governs the partnership in Manora,” a

Mubadala spokesman said on Thursday. “We take seriously the terms of that

agreement, which include

clear confidentiality

clauses, and as such, I am afraid it would not be appropriate for us to comment on the exchanges between the partners.”

The Manora field is in one of seven offshore Thailand blocks in which Mubadala Petroleum has an interest, and one of four that it operates there. The field started producing in November at 2,000 barrels per day and is expected to peak at 15,000 bpd and run for about 10 years. It has estimated reserves of up to 20 million barrels.

The field is Tap Oil’s principal asset.




Oman: MedcoEnergi seeks extension of Oman oilfields pact Oman Observer + NewBase

Indonesian oil and gas firm MedcoEnergi says it is negotiating a possible extension of the agreement for the operation of the Karim Small Fields cluster onshore Oman outsourced by Petroleum Development Oman (PDO) under a groundbreaking ‘Exploration & Production’ (E&P) Service Contract signed nearly a decade ago. Located in Shuwaymiyah in Dhofar Governorate, the Karim Small Fields (KSF) is a cluster of 18 fields owned by PDO, the Sultanate’s dominant oil and gas producer, as part of its Block 6 concession.

In January 2006, MedcoEnergi won a tender for a first-of-its-kind Service E&P Agreement to operate the cluster as a third part contract operator on PDO’s behalf. Its mandate was to arrest declining production and exploit the potential of the fields, thereby allowing PDO to focus on the development of larger and technically challenging fields within its concession. Leveraging its skill and experience in field rehabilitation, MedcoEnergi says it has delivered consistently high production levels over the past nine years since it had signed the Service Contract. “In 2014, the Company succeeded in drilling 30 production wells and achieved production of 16,965 barrels of oil per day (BOPD), exceeding the production target by 1,950 BOPD. The

production increase was achieved through the drilling of new wells, as well as workover on existing wells,” the Jakarta headquartered international firm said in its 2014 Annual Report. Roughly a third of the output, averaging 6,038 BOPD, came from Simsim, the largest field in the cluster. With the 10-year service contract due to expire in less than a year, MedcoEnergi says it has kicked off negotiations with PDO aimed at securing an extension of the agreement. That arrangement allows MedcoEnergi to recoup all of its costs, as well as earn a fee on the output of oil it produces from the cluster. As third party operator of the field, MedcoEnergi drilled a total of 241 wells over the 2006 – 2014 timeframe, adding to the 115 wells that it acquired at the start of the Service Contract. A further 29 new production wells are proposed to be drilled during the course of 2015, it said. Medco Oman LLC, the joint venture partnership that won the contract from PDO is 51 per cent owned by MedcoEnergi. The other shareholders are Oman Oil Company (25 per cent), Kuwait Energy (15 per cent), and two private Omani companies (9 per cent). Adjoining the Karim Small Fields cluster is Block 56, which was acquired by Medco Arabia Ltd, a subsidiary of MedcoEnergi, under an Exploration and Production Sharing Agreement last November. Covering an area of 5,808 sq km, the block is located in the productive Oman Salt Basin and is believed to contain 370 million barrels of oil in place. According to MedcoEnergi, three hydrocarbon discoveries have already been identified with a further six potential prospects being looked at as well.




Iraq: Low prices, rising threats cool interest in Kurdish oil

The hall for the Erbil Oil and Gas Exhibition this week was crowded with company displays, executives and investors. But conspicuously absent were international oil giants like Shell, ExxonMobil and Chevron that only a year ago were eager to exploit the promising reserves of Iraq’s autonomous Kurdish region.

The threat of Daesh militants, who have swept across much of northern Iraq and are battling Kurdish forces only miles away from the Kurdish capital, Arbil, has dampened international interest. The security threat only increases oil companies’ doubts, on top of falling oil prices and disputes between the Kurds and the Iraqi central government in Baghdad.

At the exhibition — the main oil and gas industry gathering in the Kurdish region — slick displays with giant video screens advertising oil services companies and drilling equipment fill the hall festooned with Kurdish flags as young men in suits bustle around importantly.

But the event, which ends Saturday, just can’t compare to past ones, said Baryam Akdogan of the Turkish Teffen Contracting group. “In the previous years, I saw the exhibition had much bigger participation from oil companies,” he said.




The Kurds estimate their autonomous region in northern Iraq holds some 45 billion barrels of oil and have made no secret of their desire to use this potential source of income to fuel further independence from the central government. But thanks to lower oil prices and instability, those dreams of financial independence may be farther away than ever.

“You have a security backlash, especially with the oil and gas international companies, (since) most of the fields were located in the disputed area, where the Islamic State is near,” said Arian Barzan, of the Kurdish Qaiwan oil company at the exhibition. “Those guys are not willing to risk their employees’ lives, so they pull back.”

Central government opposition

While Kurdish oil is easy and cheap to extract, its attractiveness has waned not just because of the deteriorating security situation, but the 50-percent drop in oil prices in the last six months. Then there is the opposition from the central government.

In early 2014, the Kurdish region began exporting its oil directly to Turkey without going through the central government. That immediately provoked an angry response from Baghdad, which cut off the 17-percent share of the annual budget normally promised to the Kurdish region and began suing companies seeking to directly buy Kurdish oil.

“For the international oil companies, the attractiveness is linked to the amount of money they are going to get out of it and as it is, the Kurds can’t pay the oil

companies there right now,” said Kirk Sowell, a political risk analyst and publisher of Inside Iraqi Politics. “It’s going to take much longer, years longer than expected, to recoup expenses, much less profits.”

Strapped for cash and under assault from the Islamic State, the Kurdish government agreed in December to return to the old deal and send 550,000 barrels per day to Iraq in return for its share of the budget.

The deal is already on shaky ground, with the Kurds not sending their full amount of oil — due to technical reasons, they say — while Iraq has only sent a fraction of the estimated $600 million due every month amid suspicion that the Kurds are still stockpiling their oil to sell independently.

Meanwhile the three international oil companies working in Kurdistan, Genel Energy, Gulf Keystone Petroleum and Norway’s DNO haven’t recouped their already-substantial investment, but they’ve already invested far too much to pull out.

“The Kurdish Regional Government at this point is too big to fail for those who have put a lot of money into it,” said Sowell.




Hiva Mirkhan, a member of the Kurdish parliament’s financial committee, acknowledges that the government has started to receive partial payments from Baghdad, but said it needs that to cover the day-to-day functioning of the government. There isn’t enough to cover maintenance on the oil infrastructure or pay the oil companies.

Direct effect

“Since there’s no money and the oil exportation has gone down, it makes the private companies hesitate to come to the region,” she said.

The situation has had a direct effect on the economy and worsened the employment situation. Young graduates aren’t finding the expected jobs in the oil sector and local companies are laying people off.

Sitting in the Caffe di Italia coffee shop filled with flat screen TVs showing soccer matches, Rami Khasraw, who recently graduated with a degree in petroleum engineering, talked about how close he came to getting a job with the American oil services company Schlumberger.

“Just before my graduation in May, the recruiting staff of Schlumberger came to the university and said they had an offer for me,” he said, as his friends sipped espressos and puffed on water pipes. “I was supposed to start the job with them in June ... but when Daesh drew close to the region on Aug. 6, they put us on hold,” Khasraw said, using the Arabic acronym for the Islamic State group.

Khasraw isn’t optimistic that the oil companies and investment money are going to come flooding back to Kurdistan any time soon as the Islamic State group remains entrenched around Mosul not far from a number of oilfields. Also, just last week on April 17, a bomb exploded outside the US consulate in Arbil.

“In my opinion, there won’t be any improvement in the short term, as you can see, it’s getting worse day-by-day,” he said.




Gas giant GDF Suez changes name to Engie Reuters + NewBase French gas utility GDF Suez said it was changing its name to 'Engie' to reflect an evolving energy sector and the group's growing involvement in renewable power.

'Why this name change? Because the world of energy is changing, we're moving towards a less centralised, less carbon-intensive energy world, away from the centralised world of yesterday,' Mestrallet said at a Press conference at the group's skyscraper in the La Defense financial district of Paris. Mestrallet said 'Engie' , pronounced like the 1973 Rolling Stones ballad Angie, was meant to accompany the organisation's change along geographical lines rather than business sectors announced earlier this month. Asked if dropping GDF, which stands for Gaz de France, meant the former state monopoly was breaking away from France, Mestrallet said: 'A break with a new name doesn't mean we're casting off all moorings.' The new name marks the end of the Gaz de France initials known by French people since the utility was created in 1946 with sister company ElectricitÃ© de France by a communist minister during France's post-war reconstruction effort. 'GDF brought back memories of nationalisations. They're clearly turning the page, the notion of public service is over,' said Marcel Botton, president of branding company Nomen. 'Gas has become a product like any other, they acknowledge that with the name change,' he said. The change also drops the Suez name, inherited from the 2008 merger of GDF with Suez SA '“ the company that built the Suez Canal in the 19th century '“ leaving it to water utility Suez Environnement, spun off after the GDF Suez merger. The French government still owns a third of GDF Suez.-

The change comes as chief executive Gerard Mestrallet prepares to pass the baton of the power and gas utility to his anointed successor and current deputy Isabelle Kocher after the 66-year-old's mandate expires in 2016.




US: EIA report highlights top 100 U.S. oil and natural gas fields Source: U.S. Energy Information Administration,.

The top 100 oil fields in the United States accounted for 20.6 billion barrels of crude oil and lease condensate proved reserves, or 56% of the U.S. total in 2013. The top 100 natural gas fields accounted for 239.7 trillion cubic feet of natural gas proved reserves, 68% of the U.S. total. Proved reserves are defined as estimated quantities of oil and natural gas that analysis of geologic and engineering data demonstrates with reasonable certainty are recoverable under existing economic and operating conditions.

EIA last published the rankings of the top 100 oil and natural gas fields in 2009. Since then, using 2013 data, oil fields in the Eagle Ford and Bakken shale plays and natural gas fields in the Marcellus Shale have become significant contributors to total U.S. reserves. Fields in the Marcellus and Eagle Ford plays appear at the top of the list in their respective categories, whereas in 2009 the Marcellus fields were ranked in the bottom half of the list, and Eagle Ford fields (discovered in 2008) did not appear in the top 100. Alaska's Prudhoe Bay, previously the oil field with the largest amount of reserves, fell to third, behind fields in the Eagle Ford and Permian Basin.

EIA defines a field as an area consisting of a single reservoir or multiple reservoirs grouped on, or related to, the same individual geological structural feature or stratigraphic condition. There may be two or more reservoirs in a field that are separated vertically or laterally by geologic features. However, this definition is not used by all states; consequently, areas classified as individual fields by some states may be combined in EIA's study.

According to EIA's report on U.S. oil and natural gas reserves, both crude oil and natural gas reserves increased in 2013. Oil reserves increased for the fifth consecutive year, reaching 36.5 billion barrels, and natural gas reserves offset their 2012 decline and reached a record high of 354 trillion cubic feet. Because prices affect the economics of production, price changes can have a significant effect on companies' proved reserves.

Using, for example, front-month West Texas Intermediate (WTI) futures closing prices for the first trading day in each month of 2013, this value was $97.28 per barrel (bbl) for 2013. The comparable value for 2014, for which EIA is now collecting proved reserves data from operators, was slightly lower at $94.42/bbl.




Oil Price Drop Special Coverage

Oil surges to highest level in 2015; gold loses its shine

Brent oil prices jumped last week to the highest level so far this year, as the latest Saudi-led air strikes on Yemen stoked supply tensions in the crude-rich Middle East. OIL: Brent prices on Friday hit a four-month peak of $65.80 per barrel, the highest level since December 10,

“Crude oil prices rebounded to reach four-month highs following news that Saudi Arabia renewed its aerial assault in Yemen to target the Shiite rebels,” added senior energy analyst Myrto Sokou at the Sucden brokerage in London. “Brent front month futures rallied ... amid renewed concerns of potential disruption in oil shipping across the Middle East.”

Yemen is not a major oil-producing country, but its coast forms one side of the Bab el-Mandeb Strait, the key strategic entry point into the Red Sea through which some 4.7mn barrels of oil pass each day on ships headed to or from the Suez Canal. The Saudi-led coalition declared Tuesday that the first phase of its operations against the Houthis and their allies was over, but there has been no end to its strikes.

Crude futures had fallen Wednesday after weekly US petroleum data showed higher crude inventories but marginally lower production. US commercial crude reserves in the period ending April 17 rose for the 15th straight week, adding 5.3mn barrels, the Department of Energy said. It added that the increase lifts US oil supplies to the highest level on record.

However, production slipped by 18,000 bpd, following a 20,000 barrel drop in the previous week. Dealers are hoping a slowdown in US shale output could alleviate a global crude oversupply, which led to a collapse in prices of more than 50% between June and January.

By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in June rallied to $65.21 a barrel from $64 the previous week. On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for June leapt to $57.22 compared with $56.12 for the May contract the previous week.




Opec oil giants pump record 2m bpd in Q1 Reuters + NewBase The world's biggest oil exporters in Opec are pumping almost two million barrels per day (bpd) more crude than required, the highest surplus for at least a decade, data from Reuters, top forecasters and energy agencies shows.

The Organization of the Petroleum Exporting Countries produced 30.27 million bpd in the first quarter of this year, Reuters data shows. The cartel is expected to pump even more, around 30.36 million bpd, in the second quarter, the US government's Energy Information Administration (EIA) projects. Analysts say Opec's key members, including Saudi Arabia, Iraq, Kuwait and the UAE, have increased production in recent months in an attempt to build market share ahead of the possible lifting of economic sanctions on Iran. But demand for Opec's oil is way below that level. It averaged just 28.34 million bpd in January-March and is expected to be only fractionally higher at 28.37 million bpd between April and June, major forecasters including Opec and the International Energy Agency say. That leaves a surplus of 1.93 million bpd in the first quarter and 1.99 million bpd in the second - the highest oversupply for at least a decade, pushing oil inventories in many parts of the world to record levels. US crude oil inventories hit an all-time high of 489 million barrels in the week to April 17, EIA data showed.-




Oil prices too fluid yet to predict in not too distant future Syed Rashid Husain + Saudi Gazette + NewBase

Despite slipping a bit on Friday, crude oil markets are still touching 2015 highs. Geopolitical tension in the Middle East, slowing US production growth, a softer US dollar and strong economic indicators in Europe and Asia have been lending support to oil prices, which have already surged by nearly $10 a barrel this month. Is this a turnaround? Has the bottom arrived? Is this sustainable? The debate is on! Some still continue to warn the recent price rise might not be sustainable given the glut on oil markets. “It’s not quite a bright picture from the fundamentals side,” said Eugen Weinberg of Commerzbank, pointing to high inventories in the United States and strong production from OPEC nations. “The hard facts are rather speaking for low prices.” The world’s biggest oil exporters in OPEC are pumping almost 2 million bpd more crude than required, the highest surplus for at least a decade, data from Reuters, top forecasters and energy agencies shows. Saudi output is touching new heights. The Kingdom produced some 10.3 million bpd of crude in March, eclipsing the previously recorded top output of 10.2 million bpd in August 2013. OPEC’s total output too surged to 30.79 million bpd in March, up 810,000 bpd from February. Michael Coleman, chief operating office at RCMA Asset Management, hence appears surprised by the rush among some investors to bet on an increase in oil prices. After the long run of high prices, he said, there’s plenty of costs that can be squeezed out of the system, meaning producers can continue to pump even after prices have fallen. “From our perspective, we don’t think enough damage has been done yet to current production,” Coleman was quoted in the press as saying. “Until demand starts to significantly chew into the big inventories that have been built up, I think the markets are going to be captured by that marginal cost of supply and so we’ll be in the school of 40-60 for WTI for some period of time.” Jorge Montepeque, global editorial director at Platts too agrees, saying that even though the number of oil rigs that operating has fallen, it’s not a foolproof indicator that the supply glut is being cleared. Companies will be able to continue to produce even at lower prices. However, recent gains have prompted some forecasters to raise their projections for oil prices. Societe Generale has now raised its 2015 average price forecast for Brent by $4.33 to $59.54 a barrel and for US crude by $4.28 to $53.62 a barrel. “We also have evidence that the global rebalancing process, taking place on the back of US shale oil, is finally getting under way,” SocGen’s head of commodities research Michael Wittner said in a report. However, it underlined oil prices in May and June will still be under pressure due to US oil stockpiles rising by 1.9 million bpd in the second quarter. Wittner sees the “average” price of Brent being $58 a barrel in the second quarter of 2015, $60 in the third quarter and $65 in the fourth quarter. “US crude production has reached a plateau and is expected to decline soon in May,” he said in the note. “What we are seeing now is improvement, suggesting a recovery within the longer term




downtrend…I’m short-term bullish on Brent,” Roelof van den Akker, a chartist at ING Wholesale Banking, told Matt Clinch of CNBC. He expects the price of Brent crude to reach $72.40 a barrel in the near future. “I would not be surprised by further upside potential in Brent oil towards $78 to $80,” he added. Hedge funds and other money managers are also eyeing a sustainable rally. Market data from the InterContinental Exchange (ICE) Monday showed that hedge fund bets on rising Brent crude oil prices last week hit record levels. Jean-François Lambert, global head of commodity and structured trade finance at HSBC sees growth in demand for oil, leading the way out of the current low prices. Economic growth is starting to pick up in Europe, while China “is going to benefit tremendously from low commodity prices,” he said. Oil and commodities prices in general are likely to “rebound faster than expected because we are going to suddenly have in the second half of this year better [economic growth] figures,” he said. BP’s former CEO Tony Hayward too is now stressing that OPEC’s strategy of maintaining the oil glut has helped drive down prices, crushing the US shale boom. He underlines that oil prices will rally sooner than many expect. Speaking at the Financial Times’ Global Summit in Lausanne, Switzerland, he said the average global price will soon be around $80. And although the oversupply in the market would likely take a year or two to work off, yet, the cuts to oil companies’ capital spending were laying the seeds for the next oil price bull market, he emphasized. “The supply chain in the US is being decimated.” US shale oil production, the source of the current battle among producers for market share, is expected to be flat this month and will decline next month for the first time in 4.5 years, he added. Hayward also dismissed the growing view that shale oil is the new swing producer, able to rapidly increase supply when prices begin to rise. “Even if prices recover, the ability of the supply chain to respond will be severely impaired. It will take several years to get back to where were.” Paul Horsnell, head of commodities at Standard Chartered, said there’s very little spare capacity among global oil producers, and any minor disruption could trigger a rapid turnaround in the market’s view. He said that spare capacity is less than 2 percent of total oil production capacity. “There was never a glut. The global surplus in the first part of the year was 1 percent. It will be gone by July and the market will be in deficit as we move into September,” Horsnell added. And many hence feel that OPEC’s ability to cope with an unexpected surge in demand is diminishing fast. OPEC’s spare capacity could halve to as low as 1.7 million bpd this year, far below the level of more than 10 million bpd in the 1980s, when Saudi Arabia last opted for market share over price. “If the demand and non-OPEC supply responses to lower prices are similar to what was experienced in the 1980s, the very low level of spare capacity carries a risk of a price spike in the not too distant future,” analysts at PIRA Energy reported. Markets are in a flux. And the direction is - still - uncertain!




GCC expected to grow by 3.4% in 2015 despite lower oil QNB report

The movements in oil prices and exchange rates have important “distributional implications”, QNB said although the bank believes the GCC region is likely to be insulated from the fall in oil prices.

“The GCC is likely to be insulated from the fall in oil prices for three reasons,” QNB said. First, most governments have made significant savings during the last oil boom. Second, in some GCC countries, like Qatar and the UAE, growth is mainly driven by large investments in the non-hydrocarbon sector. Third, GCC countries have low levels of public debt, which allow them to borrow cheaply to finance any short-term deficits in their budgets. As a result, the GCC is expected to grow by 3.4% in 2015 despite lower oil prices, QNB said. In its recently-published World Economic Outlook,

the International Monetary Fund (IMF) expects global growth to pick up only marginally in 2015 to 3.5% from an estimated 3.4% in 2014. Global growth is expected to be driven by emerging markets (EMs), which are projected to grow by 4.3% in 2015. Meanwhile, advanced economies are forecast to grow by only 2.4% as the shadows of past crises continue to cloud the outlook. Although growth is expected to be around 3.5%, the picture varies by region and country. The world economy has recently been dominated by two factors,First, the sharp decline in oil prices, which have nearly halved since mid-2014. The fall in oil prices was mostly a result of a supply shock. Shale oil in the US added 1.4m barrels per day (bpd) in 2014, which was much more than expected. In addition, Opec decided to maintain its production at 30m bpd when some market participants expected a cut from the group to rebalance the market. Second, the large movements in exchange rates. Among the advanced economies, the euro and the yen have witnessed major depreciations while the US dollar has appreciated strongly. In EMs, currencies which are linked to the US dollar, such as the Chinese Renminbi, have also appreciated against other currencies. The sharp exchange rate movements have been driven by divergent monetary policies around the world. While the US Federal Reserve (Fed) is expected to raise interest rates later this year, the euro area and Japan are engaged in large quantitative easing programmes. Along with low oil




prices and falling inflation, loose monetary policy in the euro area and Japan has pushed more than two dozen central banks around the world to lower interest rates in recent weeks. The movements in oil prices and exchange rates have important distributional implications. Lower oil prices shift income from oil-exporting countries to oil-importing ones. Exchange rate movements tend to shift growth from countries with appreciating currencies to those with depreciating currencies. The distributional implications of the two forces are likely to dominate the global picture, creating winners and losers in the world economy. The US is losing competitiveness from the large appreciation of the dollar. Since June 2014, the broad real dollar index has gone up by 11.5%, hurting US exports and corporate profits. On the other hand, lower oil prices are expected to benefit the US economy by increasing the income available to consumers to spend on non-oil items. The US economy is also likely to benefit from the strong performance of its labour market. The euro area is possibly the largest beneficiary from the distributional effects of lower oil prices and exchange rate movements. The region is an energy importer and has therefore seen real incomes being boosted by lower oil prices. Furthermore, the euro has depreciated by around 23.0% since March 2014, benefiting the region’s exports. However, the risk of deflation is still high (the IMF estimates the probability of persistent deflation in the euro area to be around 25%) and the region is still recovering from the legacy of its sovereign debt crisis of 2012. Overall, the IMF expects growth in the euro area to accelerate but to remain weak at 1.5% in 2015.

Lower oil prices are also likely to benefit China. But the Renminbi, which is managed to remain stable against the dollar, has appreciated against most global currencies, which is hurting Chinese exports. In addition, the Chinese economy is slowing down as the authorities attempt to change its growth model from an economy driven by investment to one led by consumption. “We expect growth to slow to stabilise around 7.0% in 2015 (from 7.4% in 2014) in line with the government’s target. The slowdown in the Chinese economy and soft commodity prices are having adverse effects on other EMs, especially Brazil and Russia,” QNB said.




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

Your partner in Energy Services

NewBase energy news is produced daily (Sunday to Thursday) and

sponsored by Hawk Energy Service – Dubai, UAE.

For additional free subscription emails please contact Hawk Energy

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 26 April 2015 K. Al Awadi




Documents

NewBase 590 special 26 April 2015