new base 504 special 24 december 2014

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NewBase 24 December 2014 - Issue No. 504 Khaled Al Awadi

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

Power swap on cards for Gulf countries, energy-for-energy The National + NewBase Gulf countries will by the first quarter of next year have agreed a deal to pay for shared energy with energy instead of cash, paving the way for further interconnectivity of regional power grids, an electricity official said yesterday.

Currently electricity prices across the Gulf are different in each country because of energy subsidies – a significant challenge to the sharing of power across borders to meet rising regional consumption.

“We are doing negotiations and final discussions regarding signing the contracts for bilateral trading in kind, energy-for-energy. We hope to commission the first one in the first quarter of 2015,” said Ahmed Al-Ebrahim, the chief operating officer at the GCC Interconnection Authority (GCCIA). “It would really eliminate the effect of the subsidies and the different ways of calculating the price of electricity between the member states.” “We are still finalising the deal between two and three different countries. “We are 80 per cent close to the agreement. Hopefully we sign it in January and we will start immediately after,” he

said. Consumption is rising between 6 and 10 per cent a year across the region according to Mr Al-Ebrahim, significantly faster than the global average. In the UAE, between 2008 and 2012, national power demand grew 37 per cent, said a report from the Dubai Carbon Centre of Excellence. In 2009 neighbouring countries in the Gulf began connecting their power grids to exchange power during emergencies. The Gulf Cooperation Council Countries Interconnection Grid (GCCIG) initiative, which has a total capacity of 1,200MW, links Saudi Arabia, the UAE, Qatar, Bahrain, Oman and Kuwait.

Installed capacity across areas covered by the shared grid is 50GW. The UAE – which has some of the highest electricity tarrifs in the region – linked up to the shared grid in 2011, contributing Dh800m to the project. From January 1, Abu Dhabi has introduced higher prices for power and water.




This change will not impact the shared connectivity, Mr Al-Ebrahim said. Member countries could spend up to US$420 million to boost the capacity of the grid starting in 2019.

The GCCIA, the Saudi-based body in charge of the shared network, is conducting a study into the proposed expansion, which will likely cost between 20 per cent and 30 per cent of the initial $1.4 billion cost for the project.

“By 2019 we will reach a limitation on the GCC inter-connector, which means we will have to start expanding,” he said. “We might need to expand by 300 to 400MW, but we wait and see after the study is done.” The GCC power grid project will save countries over $6bn, equivalent to building up capacity of 8,000MW, Mr Al-Ebrahim said.

“When the members are sharing resources they don’t need to build as much capacity as they used to do when they are not interconnected,” he said. “They can rely now on other member states to supply this reserve power and that will result in them building less power stations than before, while maintaining the same reliability level.”

The UAE is looking to diversify its energy mix with the goal of generating 24 per cent of its total output via clean energy projects by 2020. It is building four nuclear power plants in Abu Dhabi, which will have a total capacity of 5,600MW by 2020. Clean energy firm Masdar also has a number of solar projects in the country.

The GCC grid will also be able to connect to renewable and nuclear energy power facilities to mop up any extra capacity, according to Mr Al-Ebrahim.

“For nuclear energy, they (nuclear plants) have to be running on a continuous basis that means their output shouldn’t be changed much. Because of that whenever there is excess in the nuclear plants, the interconnector can be used to sell that excess energy to other countries,” he said. “Solar and wind energy, they come as resources are there and not as the load requires. That’s why whenever you have excess renewable energy that you don’t need you can export it through the interconnector member states.”

Gulf countries hope to eventually connect their shared grid to other networks in the Middle East and North Africa and ultimately to Turkey and Europe. Saudi Arabia, meanwhile, is forging ahead

with linking its power grid with Egypt’s by early 2018, a project that is expected to cost around $1.6bn, to be financed by both Egypt and Saudi Arabia. The transmitting capacity of the project is 3,000MW.

“Everything is ready and the funds from both sides are already secured and hopefully by the beginning of next year in February 2015 the project will be ready for bidding,” said Saleh Al-Awaji, the Saudi

deputy electricity minister. Saudi Arabia is negotiating with Turkey to link up their grids, in order to eventually connect to the European power network. “Now we are negotiating (with Turkey) and doing further studies to be sure of the economic feasibility,” said Mr. Al-Awaji.




Oman-India Fertilizer saves $2.3 billion in foreign exchange for India OEPPA Business Development Dept

Oman-India Fertilizer Company’s (OMIFCO) world-scale plant at Qalhat, a symbol of burgeoning trade and economies ties between the two countries, has so far delivered around $2.322 billion in

foreign exchange savings to India, according to officials in New Delhi.

The quantum of savings is seen as a testament to the partnership model based on which Indian public sector undertakings (PSUs) have pursued joint venture (JV) opportunities with countries around the world rich in natural gas or other feedstock for fertilizer production.

“There has been a substantial saving on foreign exchange through these JV projects,” said Hansraj Gangaram Ahir, Indian Minister of State for Chemicals and Fertilizers. “The total foreign exchange saving in the last 10 years by importing urea from OMIFCO, a JV between Oman Oil Company and IFFCO/KRIBHCO is around Rs 14,700 crores (equivalent to $2.322 billion),” the minister stated in response to a query in the Lower House of the Indian Parliament recently.

IFFCO and KRIBHCO and Indian fertilizer cooperatives that together account for India’s 50 per cent shareholding in OMIFCO. The remainder is held by Oman Oil Company, the state-owned strategic investment vehicle that represents the Omani government’s investment in the project.

India also imports roughly 90 per cent of its requirement of phosphates, and 100 per cent of potash for its mammoth domestic fertilizer industry, underscoring the insatiable demand for fertilizer in this agro-dominant economy.

“Hence, the government has been encouraging Indian companies to establish Joint Ventures in countries which are rich in fertilizer resources such as gas, rock phosphate and potash,” Ahir added in his statement.

Launching operations in 2006 with an investment of around $1 billion, OMIFCO has been manufacturing high quality urea-fertilizer at its state-of-the-art plant near Sur. Production is well-above the plant’s design capacity of 1.652 million metric tonnes of urea. Around 250,000 metric tonnes of ammonia is also produced annually as a byproduct of the urea manufacturing process.

Almost all of OMIFCO’s urea-fertiliser output, save for a small proportion earmarked for local distribution, is destined for the Indian market under a long-term urea offtake agreement (UOTA) between the Government of India and OMIFCO. Indian offtake of urea-fertiliser from the plant rose 15.71 per cent to 2.121 million metric tonnes during the 12 months ended March 31, 2014, up from 1.833 million tonnes a year earlier.

• 1.652 million metric tonnes of urea.

• 250,000 metric tonnes of ammonia.




WoodMac sees oil slump have many effects on Asian LNG Press Release;WoodMackenzie

As LNG contract prices are typically based on the average of the preceding six to nine

months, it will be mid-2015 before suppliers feel the full effects of the low oil price on their

cash flow.

According to Wood Mackenzie, currently, Asian contract prices sit around US$16/mmbtu – relatively high compared to spot which is trading in the region of US$10/mmbtu. This will provide an incentive to buyers to reduce contract supply and increase demand for spot LNG which could drive the price close to the cap set by oil prices.

However, that cap has fallen from US$17-19/mmbtu in Q1 2014 to some US$11/mmbtu and, from mid-2015, spot priced LNG could trade at a significant discount. By this time, contract prices will be lower than Wood Mackenzie’s forecast of future oil price levels and demand for spot LNG will consequently reduce.

Whether the drop in oil price will improve buyer appetite for oil indexation over alternative pricing arrangements, including Henry Hub from the US, will depend on whether the oil price shift is perceived as temporary, or a permanent feature of the market. Inevitably a low oil priced environment reduces the relative attractiveness of US LNG.

Yet there are limitations to a simple comparison of delivered price. Some buyers will continue to perceive additional value in the flexibility of US LNG, whereas others will always prefer equity production offered from the more integrated projects outside the US.

In addition, buyers and sellers need to agree mutually acceptable oil indexation terms before deals can be struck. They have been unable to reach a consensus for the last two years and the oil price drop could drive them further apart.

WoodMackenzie’s existing base case forecast already expects multiple projects not to proceed because of impending oversupply and market competition. The fall in oil prices will likely force some of the less commercially attractive projects to be shelved, enabling companies to shift the blame for project postponements that should have been made 12 to 24 months ago.

For now, Wood Mackenzie remains comfortable with its expectation that Asian contract pricing will continue to evolve and that lower oil-indexed pricing with s-curves will be a feature. Wood Mackenzie are also confident in its expectations of new LNG volumes coming from the US and elsewhere which will lead to an over-supplied market where all new supply faces challenges on the road to development.




Pakistan & Russia, Sign Karachi-Lahore Gas Pipeline Deal Express Tribune + NewBase

Pakistan and Russia signed a $1.7 billion Karachi to Lahore gas pipeline construction deal, reported local newspaper Express Tribune on Tuesday.

The energy agreement was signed during the visit of the Russian defence minister. Pakistan is currently working on two gas pipelines, the Gwadar pipeline and south pipeline from Karachi to Lahore, the newspaper said.

Last month, Beijing and Islamabad have signed a $3 billion deal under which China will finance the LNG terminal and Gwadar pipeline project. Officials sources told Express Tribune pointed out that the pipeline would be used to transport imported LNG from Karachi to Punjab, adding that LNG terminal was in

progress and first supply of LNG was expected before March next year. At present, existing pipeline network has capacity of transporting 320 million cubic feet of gas per day (mmcfd) LNG and therefore the government was going to set up additional LNG pipeline, the newspaper added.




Japanese Firm Signs Alaska LNG Deal LNG world + NewBase

Alaska Governor Bill Walker Tuesday signed an agreement with Japan’s Resources Energy, Incto form a partnership in developing Alaska's liquefied natural gas (LNG) market.“This agreement is an extension of Alaska’s longstanding partnership with Japan in energy markets,” Walker said adding it is an important step forward in securing Alaska’s energy future.

Resources Energy, Inc. is the American branch of Energy Resources, Inc. a Japanese company. REI was formed to explore the possibility of purchasing natural gas from Alaska and to build liquefaction facilities in order to export LNG to Japan. REI has contacted many Japanese governmental and private organizations that also want to buy gas from Alaska, Governor’s office said in a statement. REI is also working on a smaller LNG project in Cook Inlet to begin deliveries by 2020.

The state will work with REI on this project through a coordinated permitting system and potential partial funding through the Alaska Industrial Development and Export Authority (AIDEA).




Thailand: PTTEP to spend $24 billion over five years

Thailand’s oil company PTTEP has allocated $24,3 billion for expenditure over the five-year period from 2015 to 2019. PTTEP has said that the expenditures (chart below) have been revised to incorporate the latest business strategies and work programs.

The estimated total expenditure for PTTEP in 2015 is around $4.8 billion.

The following are highlights of the key activities by region:

1. Projects in Thailand account for 52% of PTTEP’s estimated total expenditures in 2015. The key activities are maintaining the production level of the existing projects which include the Arthit Project, the S1 Project, the Bongkot Project, the Contract 4 Project and the MTJDA Project.

2. Projects in Southeast Asia account for 20% of PTTEP’s estimated total expenditures in 2015. The major activities in this region are mainly from Myanmar assets which include maintaining the production level of the Zawtika Project, development activities for the Myanmar M3 Project, and exploration activities for the Myanmar PSC G & EP 2 Project, the Myanmar MOGE3 Project, and the Myanmar MD-7 and MD-8 Project.

3. Projects in other regions which comprise Australia, North America and South America, Africa and the Middle East, account for 17% of PTTEP’s estimated total expenditures in 2015. The major activities are development activities in the Mozambique Rovuma Offshore Area 1 Project, the Mariana Oil Sands Project, and the Algeria Hassi Bir Rekaiz Project, as well as exploration activities in the Brazil BM-ES-23 Project and the Barreirinhas AP1 Project.

4. Corporate and related businesses account for 11% of PTTEP’s estimated total expenditures in 2015.




Oil Price Drop Special Coverage

OPEC won’t cut output even at $20 a barrel, claims Naimi AFP + NewBase

The Organization of Petroleum Exporting Countries (OPEC) will not cut oil production even if the price drops to $20 a barrel and it is unfair to expect it to reduce output if non-members do not do so, Saudi Arabia said. “Whether it goes down to $20 a barrel, $40, $50, $60, it is irrelevant,” Ali Al-Naimi, Saudi Minister of Petroleum and Mineral Resources, said in an interview with the Middle East Economic Survey (MEES), an industry weekly. In unusually detailed comments, Naimi defended a decision by OPEC, whose lead producer is Saudi Arabia, last month to maintain a production ceiling of 30 million barrels per day. The decision sent global crude prices tumbling, worsening a price drop that has seen them fall by around 50 percent since June. Saudi Arabia has traditionally acted to balance demand and supply in the global oil market because it is the only country with substantial spare production capacity, according to the International Monetary Fund. The Kingdom pumps about 9.6 million barrels per day but Naimi said it is “crooked logic” to expect his country to cut and then lose business to other major producers outside OPEC. The increasingly competitive global oil market has seen daily United States oil output rise by more than 40 percent since 2006, but at a production cost which can be three or four times that of extracting Middle Eastern oil.

“Is it reasonable for a highly efficient producer to reduce output, while the producer of poor efficiency continues to produce?” Naimi asked during the interview conducted with MEES on Sunday. “If I reduce, what happens to my market share? The price will go up and the Russians, the Brazilians, US shale oil producers will take my share.” He added it is “unfair” for OPEC to reduce output because it is not the world’s major oil producer.




“We produce less than 40 percent of global output. We are the most efficient producer. It is unbelievable after the analysis we carried out for us to cut,” he told MEES. OPEC tried to seek market stability through a common front between members and non-members “but there was no way,” he said. In Asian trade on Tuesday prices nudged higher on hopes of improved economic figures from the United States. US benchmark West Texas Intermediate crude for February delivery gained 64 cents to $55.90 while Brent crude for February was up 33 cents to $60.44 in afternoon trade. Prices were above $100 a barrel earlier this year, a level which Naimi said “we may not” see again. Repeating comments he has made elsewhere, Naimi told MEES that oil prices will, however, improve. “The timing is difficult to know,” he said, but international oil companies have reduced their future capital expenditures, “which means there is no exploration”.

That, in turn, signals they will not have additional production, he added. The minister said OPEC was not surprised by the extent of the price drop. “No, we knew the price would go down because there are investors and speculators whose job it is to push it up or down to make money,” he said.

Arab OPEC Sources See Oil Back Above $70 By End-2015 Reuters + NewBase

Arab OPEC producers expect global oil prices to rebound to between $70 and $80 a barrel by the end of next year as a global economic recovery revives demand, OPEC delegates said this week in the first indication of where the group expects oil markets to stabilise in the medium term.

The delegates, some of which are from core Gulf OPEC producing countries, said they may not see – and some may not even welcome now – a return to $100 any time soon. Once deemed a “fair” price by many major producers, $100 a barrel crude is encouraging too much new production from high cost producers outside the exporting group, some sources say.

But they believe that once the breakneck growth of high cost producers such as U.S. shale patch slows and lower prices begin to stimulate demand, oil prices could begin finding a new equilibrium by the end of 2015 – even in the absence of any production cuts by OPEC, something that has been repeatedly ruled out.




“The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year,” one Gulf oil source told Reuters.

A separate Gulf OPEC source said: “We have to wait and see. We don’t see 100 dollars for next year, unless there is a sudden supply disruption. But average of 70-80 dollars for next year – yes.”

The comments are among the first to indicate how big producers see oil markets playing out next year, after the current slump that has almost halved prices since June. Global benchmark Brent closed at around $60 a barrel on Monday.

Their internal view on the market outlook will provide welcome insight to oil company executives, analysts and traders, who were caught out by what was seen by some as a shift in Saudi policy two months ago and have struggled since then to understand how and when the market will find its feet.

NOT AGAIN For the past several months, Saudi officials have been making clear that the Kingdom’s oft-repeated mantra that $100 a barrel crude is a “fair” price for crude had been set aside, at least for the foreseeable future. At the weekend, Saudi Oil Minister Ali al-Naimi was blunt when asked if the world would ever again see triple-digit oil prices: “We may not.”

Saudi Arabia, the world’s biggest exporter – and its close Gulf allies within the Organization of the Petroleum Exporting Countries (OPEC) – say it’s time for others, whether that is countries like major exporter Russia or U.S. shale drillers, to slow down; OPEC can no longer slash output, ceding market share, to spare them a downturn.

As Naimi told the Middle East Economic Survey (MEES) in an interview this weekend: “It is not in the interest of OPEC producers to cut their production, whatever the price is.” Without OPEC to defend prices, oil entered a free-fall, but most of OPEC’s members are holding fast.

At this point, intervening in the market would simply invite new rivals to carry on pumping crude, eroding OPEC’s market share without any guarantee of a sustained price recovery, another Arab oil source told Reuters on the sidelines of a meeting in Abu Dhabi of the Organization of the Arab Petroleum Exporting Countries (OAPEC).

“Every time prices fall, we would be asked to cut,” the source said.

The second Gulf OPEC source reiterated that OPEC would not cut alone. Non-OPEC producers such as Russia, Mexico, Kazakhstan and “anyone producing more than one million barrels per day” should also cut or at least freeze their output if they wanted a stable market and better prices, the Gulf OPEC source said.

NO PRICE TARGET To be sure, there is no suggestion that OPEC is targeting a specific price, or would want to do so. The group hasn’t had a formal price goal in about a decade, and Saudi Arabia has long maintained that it is only seeking price stability, not a set level. But it offers a convenient metric at a time when traders are struggling to figure out where and when markets will settle down.




Asked about market signals OPEC is looking for to decide on whether the market is stabilising �or not, irrespective of the price, Naimi said: “ The signals need time, one year, two years, three years. There is not one signal that we look to and say that’s it… but for sure those who are the most efficient producers are the one who would rule the market in the future.”

Iraqi oil minister Adel Abdel Mehdi told Reuters in an interview on Monday he thought prices would stabilise now at about $60 a barrel but could rise to over $70 by mid-next year. “I believe �that m arket has started to stabilise itself now,” Falah al-Amiri, head of Iraq state oil marketing SOMO told Reuters in Abu Dhabi. �“ The future for next year, I don’t think there would be much optimism in the market that the price would go to $80 or above. But I don’t even think prices would reach $80,” said Amiri, citing a resilient shale oil production to current prices.

Low oil prices help Asian nations top up their defence budgets Gulf Times Correspondent Bangkok

With record-low oil prices, oil-importing countries in East and Southeast Asia are not only expecting positive net effects on their economy, but are now also able to top up their military and defence budgets at a faster pace than originally planned. In particular, key markets in the region such as China, Indonesia, Malaysia and South Korea are all seen to positively adjust their defence spending to the windfall of saved money from hydrocarbon imports, according to US-based industry data analyst firm IHS.

This development comes on top of already strong defence expenses over the past years. In April 2014, the Stockholm International Peace Research Institute (SIPRI) said in its annual global military spending report that military expenditures in Southeast Asia (with the exception of Cambodia. Laos, Myanmar and Brunei) have climbed steadily, from $14.4bn in 2004 to $35.5bn in 2013, a 147% increase within a decade, and between 2012 and 2013 alone, regional military




expenditures increased by 10%. SIPRI estimated that expenditures are likely to surpass $40bn by 2016. As for China, military expenditure has increased from $40bn in 2004 to $188bn in 2013, a five-fold increase in a decade.

Drivers of the spending spree are, one the one hand, the region’s aim to decrease their dependence on foreign military support from the US or Europe and to modernise outdated military equipment. But the enhancement of military capacity is also rooted in increasing regional tensions such as the South China Sea conflict, as well as combined security goals of the Association of Southeast Asian Nations (Asean). Conflict potential is also inherent in the frequent Thai-Cambodian border clashes and in the occasional intrusions of southern Philippine insurgents in eastern Malaysia.

Lately, the region has seen a number of large-scale military equipment purchases as defence manufacturers from the US, Europe and Russia are eager to sell to the region while other markets such as the Middle East or Latin America are turning sluggish. Vietnam just bought a couple of brand new submarines from Russia, Indonesia purchased German tanks and Boeing Apache attack helicopters, and Thailand’s government has just approved a plan to acquire new light attack aircraft to replace its aging Czech-made Albatros fighter jet fleet, just to quote a few examples.

The countries are also increasingly turning to Asian-made weaponry and army equipment, such as Japanese attack helicopters, South Korean-made aircraft carriers and various equipment from China, a country which just earlier in December has impressively shown that it is already at a technological level to manufacture stealth fighters that could even be sold to Iran and Pakistan.

Consultancy McKinsey & Company in its Southeast Asia Defence Report 2014 released earlier this year shows that Southeast Asia already makes up the second largest defence import market behind India, with Singapore, Malaysia, Vietnam and Indonesia being the top buyers. “Warships, maritime patrol aircraft, radar systems and combat planes, along with submarines and naval defence systems, were high on procurement lists,” the study says.

Up until 2020, Southeast Asia and the wider Asia-Pacific region “is expected to solidify its role as the key driver of growth in the defence sector,” says Fenella McGerty, senior defence budgets analyst at IHS Aerospace & Defence, while she asserts that oil-exporting Middle Eastern countries will have to trim their military expenditure — after a period of strong growth — in accordance with their constrained budgets that are impacted by declining returns from the hydrocarbon sector.





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Khaled Malallah Al Awadi, Energy Consultant MSc. & BSc. Mechanical Engineering (HON), USA ASME member since 1995 Emarat member since 1990

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 24 December 2014 K. Al Awadi

new base 504 special 24 december 2014

Economy & Finance