new base 716 special 28 october 2015

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NewBase 28 October 2015 - Issue No. 716 Senior Editor Eng. Khaled Al Awadi

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Saudis looking at raising domestic energy prices – oil minister By Reuters + (http://gulfbusiness.com)

Saudi Arabia is looking at raising domestic energy prices, Oil Minister Ali al-Naimi said on Tuesday, confirming that the kingdom could cut a lavish system of subsidies blamed for waste and surging fuel consumption. Asked on the sidelines of a mining conference whether he expected domestic energy prices to increase in the near term, Naimi told reporters: “What you are asking is: is it under study? And the answer is yes.”

Naimi gave no details of the possible changes. In the past, officials have spoken privately of the reforms, but Naimi’s remarks were the first public confirmation by such a senior official that they were under study. Domestic prices of gasoline, other fuels and the gas feedstock used by Saudi petrochemical producers are heavily subsidised by the government and among the lowest in the world; gasoline costs about 15 U.S. cents a litre. Letting prices rise would be one of the biggest economic changes in Saudi Arabia for many years and, because of the large number of low-income Saudis who rely on cheap fuel, politically

sensitive. But pressure to consider such measures has increased this year as low oil prices have slashed the revenues of the world’s top crude-exporting country, saddling it with a state budget deficit that is expected to be well over $100 billion this year. The International Monetary Fund warned last week that if the kingdom did not take steps to reduce state spending and increase revenues, its huge financial reserves would run out in under five years.




SAVINGS Cutting energy subsidies could make a big dent in the budget deficit; the IMF estimates Saudi Arabia spends $107bn annually on the subsidies, including $86bn on petroleum and $10bn on natural gas. The reform could also hold back burgeoning consumption, which threatens eventually to erode the amount of Saudi oil available for export. Domestic oil product demand rose 5.1 per cent year-on-year to a record 2.98 million barrels per day in June, according to the Joint Oil Data Initiative. However, any action would require approval at the highest levels of government, including the king, and industry sources in the kingdom told Reuters that if changes happened, they would be gradual and cautious. Saudi officials have approached the UAE government, which raised domestic gasoline prices in August, asking for advice on how to conduct such reform, said a Gulf industry source, declining to be named because of the sensitivity of the matter.

“I hear it from the highest level, they will do it soon and I think they will have to do it before the budget announcement,” the chief executive of a major Saudi company told Reuters, speaking of gasoline price rises.

The state budget for next year, which may include other steps to reduce the budget gap such as major cuts in spending on infrastructure projects, is expected to be released by late December.

Analysts at NBK Capital said this month that they believed Saudi natural gas prices would be hiked to $2 per million British thermal units next year from $0.75, where they have been fixed since 1999.




India likely to experience continued growth in electricity use for air conditioning : U.S. EIA Energy Policy

Energy demand for space cooling is growing rapidly in India and around the world, driven by rising incomes and a natural preference for certain ambient air temperatures.

Cooling degree days (CDD) measure temperatures compared with a specific temperature or comfort level and are often used to measure potential weather-related energy consumption. All else being equal, locations with high levels of cooling degree days and large populations tend to have significant demand for air conditioning. For instance, four large cities in India are much larger than Los Angeles, California, and they also have more cooling degree days than Miami, Florida, one of the hottest metropolitan areas in the United States.

Currently, India has a relatively low penetration of air conditioning, while the United States is a much more saturated market. The latest data from EIA's Residential Energy Consumption Survey (RECS) show that 87% of U.S. households have air-conditioning equipment. Similar data for India show just 2% of Indian households have air conditioning. However, air conditioners are among the most prevalent purchases for the growing Indian middle class, with air conditioner sales increasing by 20% annually in recent years. About 3.3 million air conditioners were sold in India during the 2013-14 fiscal year, adding to the 25 million total units in the country.

Greater adoption of air conditioning has implications for electricity demand and reliability. During the summer of 2012, India's power generation was insufficient to meet electricity demand, leading to residential electricity service being cut off for 16 hours a day in some areas of the country and to a large-scale blackout affecting nearly 600 million people. In 2015, India experienced an intense and sustained heat wave, setting records in many parts of the country. For two weeks at the end of May, average temperatures for the country registered nearly 10 degrees Fahrenheit above historical norms, with heat indexes in Mumbai barely falling below 100 degrees Fahrenheit at night.

To help relieve upward pressure on energy demand because of space cooling needs, India began its first efficiency program for air conditioners through the Bureau of Energy Efficiency (BEE) in 2006. The program involves a standard minimum efficiency level with a competitive labeling program above that level so consumers can compare higher efficiency levels when purchasing air




conditioners. BEE also set out a plan to raise the minimum standard and the corresponding competitive labels for units that exceed minimum standards.

An early analysis of the program from Lawrence Berkeley National Laboratory (LBNL) estimated that the standards and labels would save 27 terawatthours (TWh) of electricity use annually by 2020, nearly 14% of projected electricity use for air conditioning in 2020. Without the efficiency program, the study projected a base case consumption of 42 TWh in 2010, 195 TWh in 2020, and 552 TWh in 2030 for air conditioning.




Saudia:keen on overseas buying with potential for knowledge transfer Saudi Gazette

Saudi Arabia’s Public Investment Fund (PIF) holds the government’s stakes in companies including SABIC and National Commercial Bank. Saudi Arabia’s Public Investment Fund is seeking to hire bankers for international deals to help the kingdom acquire overseas technology and expertise, Bloombers News reported late Tuesday, citing four people with knowledge of the matter.

The sovereign wealth fund, which holds about $100 billion worth of stakes in local companies, is looking to appoint Saudi nationals with experience at both local and international investment banks, the people said, asking not to be identified as the talks are private. The hires will help the fund make strategic acquisitions in industries including transport, manufacturing and technology that will give Saudi Arabia access to foreign expertise and know-how, according to the people.

The PIF holds the government’s stakes in companies including Saudi Basic

Industries Corporation, the world’s second biggest chemicals manufacturer, and National Commercial Bank, the Middle East’s second largest bank. Yasir Al Rumayyan, former

chief executive officer at Credit Agricole-backed Saudi Fransi Capital and now an adviser to the Royal Court, is driving recruitment and the PIF’s push overseas, according to three of the people.

“PIF will no longer be an institution that focuses on mainly looking inside the kingdom,” John Sfakianakis, a Riyadh- based Middle East director at Ashmore Group, said by phone. “This is not going to be a strategy of acquiring trophy assets, but a strategy of making substantive acquisitions that have the potential for the transfer of knowledge, experience and technology to the Saudi economy.”

Saudi Arabia is tackling a slump in oil prices by cutting spending, delaying projects, tapping its foreign reserves and issuing debt as it takes on a budget deficit expected to be larger than SR400 billion ($106 billion) this year, according to the International Monetary Fund. Strategic investments would give the PIF a similar remit to Abu Dhabi’s Mubadala Development Company, which has bought stakes in companies from semiconductors to health care as the largest of the United Arab Emirates seeks to diversify its economy.

While the shift in strategy to do more international deals hasn’t been publicly announced, the PIF has already started to invest: In July it took a 38 percent stake in Korea’s Posco Engineering& Construction Company for $1.1 billion and the same month agreed to a $10 billion partnership to invest in Russia with the Russian Development and Investment Fund. It’s also planning a $2 billion investment venture with France. Both PIF and Al Rumayyan didn’t return calls and e-mails seeking comment.




NewBase 28 October - 2015 Khaled Al Awadi

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

Crude oil prices stable after inventory drawdown at Cushing hub

U.S. crude futures rose from multi-week lows in thin early Asian trade on Wednesday after an industry group reported that stocks fell at the Cushing hub in Oklahoma, the delivery point for U.S. oil contracts.

Crude stocks at the Cushing delivery hub fell by 748,000 barrels, data from the industry group, the American Petroleum Institute, showed late on Tuesday. General inventories rose by 4.1 million barrels in the week to Oct 23 to 477.1 million barrels, the data showed.

Gains were limited as a supply glut persists even after U.S. production cuts and investors are awaiting official inventories data due out later on Wednesday that is expected to show further stockpiling.

U.S. crude for December delivery was up 6 cents at $43.26 a barrel at 0049 GMT after earlier rising to as high as $43.48. The contract fell to as low as $42.58 on Tuesday, the lowest since late August.

Brent crude, the global benchmark, was down 3 cents at $46.78. It fell to $46.41 on Tuesday the lowest since the middle of September. U.S. commercial crude oil stockpiles probably rose last week for the fifth consecutive week, an extended Reuters survey showed on Tuesday.

Stocks are likely to have risen 3.4 million barrels to about 480 million barrels in the week ended Oct. 23, the survey of eight analysts showed. The U.S. Department of Energy's Energy Information Administration will release the official data at 1430 GMT on Wednesday.

Oil price special

coverage




NewBase Special Coverage

News Agencies News Release 28 Oct.. 2015

Oil at $60 Is the Magic Number for BP in Prolonged Downturn Boloomberg - Rakteem Katakey

BP Plc, one of the first companies to predict a prolonged price downturn, has “reset” its business to generate surplus cash flow with oil at about $60 a barrel by 2017. It joins Total SA, which last month unveiled investment cutbacks and project delays that will enable it to fund dividend payouts in the same circumstances without the need to borrow.

A year after oil sank into a bear market, the industry is preparing for an extended downturn, with drillers slashing investments in exploration and production by a record 20 percent this year, according to International Energy Agency. With third-quarter earnings season barely under way, producers in the U.S. have already written down the value of their assets by $6.5 billion. BP’s Chief Financial Officer Brian Gilvary doesn’t expect a recovery in prices until late 2016.

“For the next nine months, I can’t see any up move,” Gilvary said in an interview Tuesday. “We’re in the process of resetting the company. Fortunately, we had a sense that the oil price is going to go low sooner than most people anticipated.”




BP, Europe’s third-largest oil company, said Tuesday it will cut capital spending to about $19 billion this year after investing roughly $23 billion in 2014. Annual spending will remain curtailed at $17 billion to $19 billion to 2017, the company said as it reported a 40 percent drop in third-quarter profit.

Total, Europe’s No. 2, has similar plans, trimming investment to $20 billion to $21 billion in 2016 from as much as $24 billion this year, the company said at its annual strategy update last month. Like BP, it plans annual capital spending of $17 billion to $19 billion in 2017, down from a previous target of $20 billion. Safe Dividends

In the first nine months of this year, with Brent crude averaging about $56, BP’s cash flow from operations and asset sales totaled $16.9 billion, not enough to cover $18.5 billion in capital expenditure and dividend payouts, according to the company. If oil recovers to around $60 in two years, the companies say they will have sufficient cash flow to maintain payouts to shareholders while still investing in new projects for the future.

“Total first and now it’s BP,” said Alexandre Andlauer, a Paris-based oil sector analyst with AlphaValue SAS. “The aggressive cost cutting is laying the road towards that target. Maybe there’s more to come with more companies announcing earnings later this week.” Delayed Recovery

Norway’s Statoil ASA reports third-quarter earnings Wednesday, while Royal Dutch Shell Plc, Total and Italy’s Eni SpA follow on Thursday.

Shell is already planning for a long stretch of low prices, Chief Executive Officer Ben Van Beurden said this month. While there may be “the first mixed signs for recovery,” the resilience of the U.S.




shale industry and ample crude stockpiles suggest it’ll take time to rebalance demand and supply, he said.

Brent crude has dropped 45 percent in the past year due to a global supply surplus caused in part by rising output from U.S. shale producers. The price averaged $51.30 in the third quarter, the lowest since 2009. The international benchmark will rise to $63.73 in 2017, according to analyst estimates compiled by Bloomberg. Tough Period

“Bob Dudley is saying BP can adapt to this tough period,” according to Oswald Clint, London-based analyst at Sanford C. Bernstein Ltd. “We believe him.”

The company’s third-quarter profit beat analysts’ estimates as it increased earnings from refining crude and trading natural gas. Clint joins analysts including Barclays Plc’s Lydia Rainforth and Oddo & Cie’s Ahmed Ben Salem who predict that the third quarter may mark a low point for European oil companies’ earnings as the cutbacks help them ride out the slump.

To be sure, BP and its peers may not be done swinging the axe.

There’s no guarantee that oil will rebound to $60 by 2017. The supply surplus is bigger than initially anticipated and crude could fall as low as $20 a barrel, Goldman Sachs Group Inc. said last month. The world is facing a “long winter in commodities,” Morgan Stanley Investment Management Inc.’s Head of Emerging Markets Ruchir Sharma said Sept. 14.

“The oil price has come off a cliff at a rate we haven’t seen before,” Gilvary said. If it’s below $60 in 2017 “then we’ve demonstrated this year we have a lot of things in our armory to be able to look at the sources and uses of cash.”




Wood Mackenzie: Only three O&G projects to be

sanctioned in Africa in 2016

Only one third of Africa’s pre-sanction oil and gas projects are economical at less than $50 per barrel ($/bbl), and only three projects are expected to be sanctioned in 2016, Wood Mackenzie says.

The energy intelligence firm has said that greater collaboration with the service sector, increased focus on project optimisation, and developments that require minimal capital outlay are all crucial to new projects going ahead.

Wood Mackenzie also suggests that Africa’s host governments have a key role to play in ensuring that mandatory local content requirements are reasonable, and fiscal terms are competitive in order to attract investors and unlock new project sanctions.

“More stringent savings would be required to ensure projects get the green light.”

Wood Mackenzie said it undertook a comprehensive study examining the impact of cost deflation on the global upstream sector, concluding that while operators are seeking an average cost reduction of 20-30% on projects, only 10-15% of that can realistically be achieved from the supply




chain and that even more stringent savings would be required to ensure projects get the green light. Wood Mackenzie says this trend is very much apparent in Sub-Sahara Africa – with only three projects expected to be sanctioned in 2016 in the current climate.

Obo Idornigie, Principal upstream Sub-Sahara Africa research analyst says: “We estimate that Pre-sanction projects account for $270 billion of investments in Sub-Sahara and only a third of the projects are economic at less than $50/bbl. On average, operators are looking to achieve a further 15% in cost reductions in order for the majority of pre-sanction deepwater projects to break even at the current oil price. To achieve this in Sub-Sahara Africa, we believe that E&P companies need to increase the focus on project optimisation across the board and adopt smarter ways of working with the service sector to bring costs down to the required levels, as currently Sub-Saharan deepwater projects account for 50% of those that are sub-economical.”

FPSO developments most likely to get approval

He added: “Our latest analysis of the sector shows that deepwater developments requiring minimal capital outlay – such as leased floating production storage, offloading (FPSOs) vessels and subsea tiebacks to existing infrastructure – will be the most likely to progress. Across the

industry, standardisation is a crucial factor in reducing costs. As a result technically challenging projects in Sub-Sahara Africa involving new-build, bespoke facilities and ultra-deepwater cluster developments, which are mainly located in Nigeria and Angola will not go ahead in the current climate.”

I dornigie explains that, while project optimisation will account for additional cost improvements, achieving that will be challenging if local content provisions are not reviewed, as pushing strict requirements pushes up costs and could hamper operators’ ability to standardise specifications and

optimise returns.

Quadruple costs per barrel

According to Wood Mackenzie, deepwater costs per barrel in the region have quadrupled in the last ten years. Idornigie says that operators in Sub-Sahara Africa need to work hard to reset the cost base in this current climate. “Practices such as spreading construction work across multiple shipyards, as set out in some local content agreements, have been one of the key factors driving up costs in the region,” he says.

“Host governments must be pragmatic in the current oil price environment in order to remain competitive in the global market – with pre-sanctioned projects accounting for billions of dollars of capital investment across Sub-Sahara Africa there’s a great deal at stake and additional measures such as fiscal incentives will be required to improve project returns for producers,” Idornigie says.




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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.

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NewBase 28 Octopber 2015 K. Al Awadi

new base 716 special 28 october 2015

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