newbase 653 special 26 july 2015

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

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NewBase 26 July 2015 - Issue No. 653 Senior Editor Eng. Khaled Al Awadi

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

UAE oil price deregulation to boost economy, government finances The move, which comes into effect from August 1, will increase fuel prices for residents By Aarti Nagraj + Gulf Business

The UAE’s move to deregulate oil prices will help the country’s economy and boost government finances, the Institute of Chartered Accountants in England and Wales has said.

Under the new move, announced on Wednesday, gasoline and diesel will be deregulated from August 1 and a new pricing policy linked to global levels will be introduced in the UAE.

“Deregulating fuel prices will help decrease fuel consumption and preserve natural resources for future generations,” official news agency WAM quoted energy minister Suhail bin Mohammed al-Mazroui as saying.

“It will also encourage individuals to adopt fuel-efficient vehicles, including the use of electric and hybrid cars.” According to ICAEW’s regional director Michael Armstrong, deregulating oil prices will also help consolidate government finances.

“The context of sustained lower oil prices means that the UAE has chosen the right period to adjust oil subsidies,” he said.

“As ICAEW’s recent Economic Insight report noted, removing subsidies during a period of subdued global oil prices should mean the inflationary impact will be felt less sharply. The more so as consumer protection is a stated focus of the new fuel price committee,” he added.




Oil prices have fallen around 50 per cent compared to June 2014, mainly due to increasing supply and sliding demand. UAE officials have stated that the deregulation will cause fuel prices to only increase “slightly.”

“Even though prices should not shift dramatically in the immediate future, the knowledge that households and businesses alike will no longer be isolated from global oil prices through government spending should influence behavior,” said Armstrong.

“Households will start to think about how they can reduce their reliance on fossil fuels in case of future price hikes. Businesses will start to develop energy use strategies in case of market price rises.

“This policy should therefore incentivise reduced consumption – and thereby protect the environment and preserve natural resources – going forward,” he added. GCC states have traditionally offered heavy fuel subsidies to their residents, causing a sharp rise in consumption.

A report by British think tank Chatham House estimates that the GCC consumes more primary energy than the whole of Africa despite its population being only one-twentieth the size of the continent’s.

However, the Gulf states are looking at weaning away from subsidies – Bahrain announced earlier this year that it will begin cutting subsidies for expatriate residents and companies.

Kuwait has also been reviewing a proposal to cut down subsidies on petrol, water and electricity after the IMF warned of its burgeoning state expenses.




Others could follow UAE’s move to cut fuel subsidies, says Fitch The National

The ratings agency Fitch said the recent move by the UAE to remove the subsidy on transport fuel could encourage other countries in the region to follow suit if it is successful.

“We think that governments in the region understand the benefits of subsidy reform, including both fiscal cost savings, and more efficient resource allocation and energy consumption,” Fitch said. “However, reforms have so far been uneven and incomplete.”




Fuel prices in the UAE will be deregulated from next month and a new policy linked to global prices will be adopted, the Ministry of Energy said last week. The UAE has some of the most affordable petrol prices in the world at Dh1.72 a litre, which is less than a third of the cost in western Europe. However, the cost of fuel in the UAE is already three times the price of other GCC countries, according to a study by Carmudi, an online car marketplace.

Fitch said pre-tax energy subsidies in the UAE are slated to amount to 2.8 per cent of GDP this year, while the figure for Saudi Arabia and Bahrain is almost two-thirds higher at 4.6 per cent of GDP. In Kuwait and Qatar, those figures are 1.8 per cent and 1.6 per cent, respectively.

“The Kuwaiti experience shows that cutting or removing subsidies can be politically contentious,” Fitch said. “However, we do not expect adverse political repercussions in Abu Dhabi, which enjoys very high GDP per capita and good growth prospects. Successful implementation in the UAE while oil prices are low could increase public acceptance of subsidy reform elsewhere in the region, boosting the prospects for reform.”

Total seeks buyer for half of Texas refinery Reuters + Gulf News + NewBase

French oil major Total SA is selling a 50 per cent stake in its sole US refinery in Port Arthur, Texas, and has retained investment bank Lazard to advise on the deal, according to a source familiar with the matter.




Total, which has been trying to reduce its downstream exposure for three years, intends to remain operator of the 225,000 barrels-per-day (bpd) plant, which it has owned for more than 40 years, the source said.

The move reflects the company’s efforts to shift more capital toward production, two people familiar with refining transactions added.

A Total spokesman later confirmed the group was studying the possibility of a tie-up with a long-term strategic partner to develop Port Arthur, like it has with its other non-European platforms in Saudi Arabia, Qatar and South Korea.

“It’s a high-quality asset which meets the market’s needs particularly well thanks to the large investments that were made recently,” the spokesman said.

Lazard declined to comment.

The sale would be the latest step by a big oil company to move away from the downstream sector, which has long been considered a low-margin drag on earnings.

More recently, however, US refiners — particularly those along the Gulf Coast — are reaping near-record profits, with plants like Total’s soaking up low-cost Canadian oil sands crude and US shale while exporting fuels to premium markets.

In June, Exxon Mobil Corp and Petroleos de Venezuela SA sold their 192,500 bpd Chalmette, Louisiana, plant to PBF Energy for $322 million, or about $1,672 per barrel.

At that measure, a 50-percent share of Total’s refinery would be worth $188 million, although other factors like location, complexity and legal risk will affect the price.




The proposed Port Arthur deal involves the refinery, of which Total owns 100 per cent. The petrochemical part of the site is operated through a joint venture that is 60 per cent owned by BASF, with Total owning the remaining 40 per cent.

The two sources familiar with refining transactions suggested the refinery could fetch more than Chalmette on a per-barrel basis.

FOOTHOLD Total’s intent to continue as the plant’s operator will provide a unique opportunity for an oil producer eager to establish a refining beachhead in the United States, according to the sources familiar with refining transactions.

They said potential bidders could include companies from Canada’s oil sands patch which are shipping growing volumes of heavy crude to the US Gulf, like Cenovus Energy Inc, or those simply seeking a foothold in the world’s biggest fuel market, like PetroChina, which has explored potential North American refinery deals in the past.

PetroChina did not immediately reply to requests for comment. Cenovus spokesman Brett Harris declined to comment, citing a company policy. Port Arthur is one of Total’s six integrated refining and petrochemical platforms around the world.

The Paris-based oil major has been trying to cut its exposure to refining since 2012, and plans to have reduced its European refining and petrochemical capacity by 20 per cent by 2017. Its chief executive has said the industry is in a “crisis.” But more than a third of Total’s refining capacity is in France, where labour laws and strong unions make it difficult to sell or close down capacity. The group announced a restructuring plan for its French refineries in April that will include capacity cuts at its La Mede refinery in Marseille and investments at Donges on the Atlantic coast.

Meanwhile the refining business is thriving in the United States, thanks in part to a federal law preventing the export of crude, making feedstock cheap.

The Port Arthur plant’s use of imported crudes has fallen by a third in five years to around 70,000 bpd last year, most of that from Mexico, Venezuela and Kuwait, according to government data.

Refined products like gasoline and diesel can be freely exported, however, and overall shipments have doubled in five years to 4.4 million bpd.

Despite the downturn in oil prices, demand for gasoline and other refined products has remained robust, boosting profits for refiners, and creating an exit point for those who wish to jettison less desirable plants from their holdings.

It is unclear how efforts to sell the stake would relate to Total’s announcement last month regarding plans to build a $1.6 billion ethane cracker at the site.

Reliance plans $5bn investments in refining, petchem TradeArabia News Service




India’s Reliance Industries has said it will invest $5 billion across its refining and petrochemicals business by next March, after strong refining margins boosted its quarterly profit. Reliance is India’s second-largest company by market value and runs the world’s largest refinery complex, said a report in the Gulf Daily News (GDN), our sister publication.

It beat forecasts with a near 12 per cent jump in net profit for the quarter through June, its fiscal first quarter, from a year earlier to 63.18 billion rupees ($987 million). That topped analysts’ estimate of 63.08 billion rupees, as the company said its refining margins reached a six-year high. Reliance is investing heavily to add capacity and expects its gross refining margin to increase after the expansion is completed in two years. “It would be fair to say that about half of the value of the (benefit from) expansion should come in 2016/17,” Reliance’s joint chief financial officer V Srikanth said, referring to the fiscal year that will begin next April. Reliance saw its gross refining margin rise to a six-year high of $10.40 in the June quarter, compared with $8.7 in the same period a year earlier. The company, which derives most of its revenue from its core refining and petrochemicals businesses, has been expanding in recent years into consumer-facing businesses such as retail and telecoms to aid growth. Its Reliance Jio unit, which is building India’s largest 4G broadband network, will begin an “extensive” test launch in the next few weeks and will have access to about 75,000 mobile towers at the time of its commercial launch planned for December, Srikanth said. Reliance re-entered the telecoms sector in 2010 but has yet to launch services, highlighting the challenges it faces with infrastructure and a new technology. It has already invested more than $15 billion in the telecoms business.

With options dwindling, BP seized a chance to settle oil spill case

Reuters + NewBase

Reliance's technical, operational and logistic strengths act as the fulcrum to leverage

its refineries' asset utilisation and optimisation, the key components of the R&M

business model. These strengths, coupled with our highly integrated plants and

automated processes, augment our R&M business's operating efficiencies. Moreover,

our refineries are strategically located on the west coast of India, offering the benefits

of low transportation costs for feedstock and proximity to high-growth markets.




IN early May, with its legal options dwindling and investors impatient, BP Plc. saw a chance to negotiate what became a $18.7 billion settlement that ended five years of litigation over the worst offshore oil spill in US history. An unexpected opportunity to secure a global deal that would wipe the slate clean of hundreds of claims and untold billions of dollar in penalties opened up when Chief Executive Bob Dudley met with Patrick Juneau, the lifelong Louisiana litigator who BP had panned for handing out “absurd” sums of money as part of a class settlement in 2012.

The British giant was ready to bury the hatchet after years of acrimony over payouts, which had ballooned to more than $10 billion. It had bigger problems: unresolved claims by the federal government, five Gulf of Mexico states and hundreds of local municipalities stemming from Macondo well blowout. Toward the end of an over hour-long conversation about the claims, Juneau, a mediator by trade, steered it toward the bigger cases BP still faced from the 2010 disaster that killed 11 men and gushed oil into the Gulf of Mexico for 87 days.

“I suggested to Mr. Dudley that it seemed to me that I, along with Judge Shushan and Louie Freeh, thought that those matters can be and should be addressed,” he said. Sally Shushan, the eastern Louisiana district court magistrate, and former Federal Bureau of Investigation director Freeh, who had been enlisted to investigate Juneau’s oil spill claims program, were already deeply steeped in the issue. Within weeks, District Court Judge Carl Barbier, who had overseen years of acrimonious lawsuits, had designated this trio to shepherd the sides to what would be the largest corporate settlement in US history, according to people involved. Within a day, BP signaled its interest in further talks, Juneau said. Its executive board put chief financial officer Brian Gilvary, a mathematics PhD and career BP man, in charge of the effort, hoping it would turn out better than in 2012, when an initial round of settlement talks collapsed. Dudley returned to meet Juneau, Shushan and Freeh in New Orleans later in May, bringing the credibility of an American who grew up just a two hour drive away in Hattiesburg, Mississippi. “That’s how you settle: you get the CEO to walk into the room,” said Jim Hood, the attorney general of Mississippi, one of the five states involved in the settlement. It took BP nearly two months of 10-hour sessions, often through the weekend, to reach the provisional agreement signed a week ago, finally putting a price tag on the spill’s civil damages. The deal swelled BP’s total bill for Macondo to $53.8 billion, yet provided a sense of closure for investors and boosted the share price of the company valued around $120 billion by as much as 5 percent.

Florida Attorney General Pam Bondi speaks at a

news conference in Tampa, Fla., about a

settlement with oil company BP for the

Deepwater Horizon oil spill of 2010.




With a federal confidentiality order still in effect and a final agreement yet to be signed, much is still unknown about the secret negotiations that headed off what could have been another decade of litigation. But conversations with half a dozen people directly involved or briefed on the matter show how a series of legal decisions and deft maneuvering by a trio of insiders paved the way. “They were losing at every count,” said New Orleans attorney Walter Leger Jr., who represented several local parishes and municipalities in the litigation against BP. “I think they finally realized that all the forces of the universe suggested they’d better talk.” ROAD TO A DEAL The road toward a settlement was laid by a series of rulings by Barbier, New Orleans-based Eastern Louisiana District federal court judge who has been involved in Macondo-related cases since a few months after the accident. In September 2014, he ruled BP was “grossly negligent” in the disaster and last January set the size of the spill at 3.19 million barrels. Taken together, the rulings meant the BP was on the hook for a fine of up to $13.7 billion under the Clean Water Act alone. Billions more could be levied from a federal Natural Resource Damage Assessment. Then, in March, BP took a pivotal step and withdrew a bid to remove Juneau as the administrator overseeing the payouts of individual and business damage claims from the uncapped 2012 class-action settlement. Juneau said he med Dudley shortly thereafter to “reset the button.” Freeh had set up the meeting. By early May, Barbier had named the “panel of neutrals” to guide the process. TIME TO MOVE BP was also under mounting internal pressure to free itself from a financial albatross that stymied planning. Executives feared an unexpectedly large penalty could force a new round of asset sales, undercutting growth. The company also hoped state attorneys would be more flexible on a payout after an oil market crash that had halved prices since mid-2014, sliced BP’s earnings and threatened jobs in oil states such as Texas and Louisiana. A BP spokesman in Houston declined to comment. Weeks of meetings and hundreds of phone calls, with anywhere from 5 to 50 people at a time, followed. The trio mostly used conference rooms at two New Orleans hotels, but also Freeh’s office in Washington, D.C., to hold meetings with everyone from federal lawyers to community representatives, Juneau said. Shushan, a former commercial litigator who has served as US magistrate judge since 1999 and often negotiated settlements in complex cases, proved particularly pivotal as she was seen taking a firm hand when necessary. “The magistrate started pulling the bull by the horns,” said Hood. “That lady worked hours and hours and hours, and if anybody deserves the credit in this thing, it’s Judge Sally Shushan.”




MILESTONES While the talks continued under wraps, a series of milestones related to Macondo passed by, eliminating some of the uncertainty stemming from the disaster. Barbier held off making a final ruling on the Clean Water Act penalty, as widely expected, while the talks continued in private. On May 20, BP resolved a chunk of messy litigation by settling all cross-claims from the spill with well services company Halliburton Co and driller Transocean Ltd. Then, the deadline for submitting business or individual claims from the accident closed on June 8. Finally, just three days before the settlement was announced, the Supreme Court dealt BP another blow, dismissing the company’s appeal of Barbier’s ruling that the company was liable under the Clean Water Act. At this point, Barbier could formally penalize the company at any moment. On the morning of July 2 BP signed the deal: $5.5 billion for Clean Water Act violations, less than the maximum; $8.1 billion for natural resources damages; $4.9 billion to settle economic claims from the Gulf of Mexico states; and up to $1 billion reserved for local government claims. It is not quite over. Local entities, including the La Fourche Parish Veterans district in Louisiana, must still approve the agreement, and it may take months to complete the legal paperwork for the federal agreement and get a binding deal approved by the court. The hard work, however, appears finished. With the ink not yet dry on the deal last week, CFO Gilvary was already heading back to London to begin a holiday. “It was quite an exhausting marathon,” one person said. —

Oil Price Drop Special Coverage




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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.

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

NewBase 01 July 2015 K. Al Awadi

newbase 653 special 26 july 2015

Business

deregulating oil prices

deregulating fuel prices

oil subsidies

uae uae oil price deregulation

khaled al awadi newbase

new fuel price committee

fuel consumption

uae officials