new base energy news issue 952 dated 21 november 2016

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NewBase Energy News 21 November 2016 - Issue No. 952 Edited & Produced by: Khaled Al Awadi

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UAE & Region’s refiners need a reality check They must use the current low-cost environment to renegotiate ongoing projects.. Gulf News -

The refining industry in the region is in the news again. Delays, even cancellations, of many projects have been the result of the downturn caused by the economic and financial crises of 2008 and the persistent decline in oil prices since mid-2014.

Despite excess capacity in the global refining industry, projects in our region have the advantage of location close to the crude oil supply and the need to provide for an increasing and changing domestic demand for oil products. These make them competitive enough to export surplus products, especially if they are designed around environmentally sound specifications.

The proposed refinery in Fujairah is one example of projects that have suffered delays. The site is near the outlet of a 1.5 million barrels a day pipeline carrying oil from UAE fields to the Gulf of Oman, making it a perfect location. Fujairah is now one of the major oil hubs of the world and the second largest port for bunkering after Singapore.




The refinery is of 200,000 barrels a day distillation capacity with complex processing units to produce more gasoline and middle distillates of high specifications to supply demand in the Northern Emirates and export the surplus. The sponsor, Abu Dhabi International Petroleum Development Company (IPIC), was in 2015 in the process of awarding the engineering, procurement and construction (EPC) contract for packages of the $3.5 billion (Dh12.8 billion) refinery, having completed its front-end engineering and design in 2013.

While the project was due for completion this year, it is now estimated it will happen only by end 2018.

Joint venture

In Oman, the same sort of delays have affected the Duqm refinery, a complementary project to Fujairah’s where IPIC was a 50 per cent partner with Oman Oil Co (OOC). The project was conceived in 2009 and the joint venture agreement with IPIC signed in 2012. However, IPIC recently withdrew from the project to concentrate on Fujairah and other projects within the UAE.

“Downstream Monitor” recently reported that Kuwait Petroleum International (KPI) is to replace IPIC and it signed a deal for the 230,000 barrels a day refinery and petrochemicals complex. It is the “centrepiece of the wider Duqm development” as a special economic zone. The memorandum signed by KPI with OOC is to “cooperate on the development of Duqm Refinery & Petrochemical Complex” and to explore “additional participation from strategic third-parties”.

The parties agreed that the petrochemicals complex will be added “at a later phase” and a final investment decision may be made “in the second quarter of 2017”.

The front-end engineering and design study of the $6.5 billion (Dh23.8 billion) project has been completed and “technical bids were finally submitted in late March for the two main packages, covering the process units and the off sites and utilities” for award by the end of this year and “scheduled completion in late 2020”.

The project is expected to be externally financed and “export credit agencies were reported to have received preliminary approaches over a debt package earlier in the year.”

The KPI and OOC agreement is significant among GCC countries and could be much more profitable than previous KPI ventures in Europe where divestment assets is now going on after the sale of KPI refinery in Rotterdam.

Competition

On signing the deal, Kuwait Petroleum Company (the owner of KPI) CEO Nizar Al Adsani said: “We all hope that this project will be the catalyst and ignition towards the start of similar projects in the energy field eventually leading to a move from classical competition between GCC countries towards integrating and complimenting each other.”

In Iraq, the delays in refinery projects seem endless. Even the Karbala refinery, supposedly financed from the Ministry of Oil budget, is suffering delays and at this late hour the Ministry is seeking external finance without success.

Payment to the contractor is now made by the delivery of crude oil rather than cash. Construction progress is thus dependent on how much crude can be allocated for the project at a time when large portions of Iraqi production is allocated to international oil companies engaged in oilfield developments.

Due to the decline in oil prices, many hydrocarbon projects, services and material costs have been renegotiated downwards. It is incumbent on authorities in our region to do the same and take advantage of lower costs to expedite refinery projects before the next round of escalation.




Sizable gas allocation for Orpic’s LPIC project in Oman Oman observer - Conrad Prabhu

The Omani government has allotted 3 million standard cubic metres per day (mmscm3/d) of natural gas as feedstock for the $6.5 billion Liwa Plastics Industrial Complex (LPIC) project currently under implementation by Orpic, the nation’s refining and petrochemicals flagship, at Sohar Port.

The allocation, coming amid supply constraints that have limited gas allotments to only vital consumers such as power generation and water desalination schemes, underscores the strategic importance of the LPIC project to the Sultanate’s strategic national goals.

“We have been allocated 3.0 mmscm3/d of gas for 20 years by the (Financial Affairs and Energy Resources Council),” said Henk Pauw (pictured), General Manager — Liwa Plastics Industries Complex Project.

“Following LPIC’s commissioning, polymers production is forecasted to increase by more than 1.1 million tonnes, giving Orpic a total of 1.4 million tonnes of polyethylene and polypropylene production,” he added in comments to the Observer.

Pauw described the LPIC scheme as the biggest of three strategic growth projects (the other two being the Sohar Refinery Improvement Project SRIP 2016 and the Muscat-Sohar Product Pipeline MSPP 2017), being undertaken by Orpic to achieve its vision of building an Omani integrated refining and petrochemicals business.




“Upon commissioning in 2020, Liwa Plastics Industries Complex will transform Orpic’s product mix and business model, double our company’s profit, create new business opportunities, generate significant employment opportunities and support the development of a downstream plastics industry in Oman,” the Pauw stated.

Significantly, natural gas as feedstock for the project will come from Fahud, an important hub from where gas is supplied to major consumers across the northern half of the Sultanate.

Pauw explained: “Fahud is the northern Omani hub for gas collection as several gas fields come together, including (BP’s) Khazzan gas, before it goes to the end customers who are mainly in Muscat and Sohar. LPIC’s facility (NGL Extraction Plant) there is a straddling this supply, so we are not relying on one source of gas but have multiple sources.”

The project — billed as the largest industrial investment in Oman’s history — is on track with Orpic staff currently deployed at the offices of LPIC’s engineering-procurement-construction (EPC) contractors in Seoul, Milan, The Hague and New Delhi. Following the groundbreaking at LPIC’s Sohar site last month, site preparation and piling have since commenced, he said.

Asked for his take on the potential for downstream investments that capitalize on LPIC’s polymer output, the General Manager said: “This depends on the needs of the local businesses but there are various opportunities to supply services, consumables but also for converting LPIC polymers into new products. Similar clusters in the GCC exist and have shown huge potential for growth.”

Orpic can support the creation of a downstream plastics industry in Oman by providing them with high quality raw materials and also support them with technical expertise, the official further noted.

The company’s decision not to secure long-term offtake agreements covering LPIC’s output — a step that’s generally prescribed when tapping international institutions for funding — was a testament to the project’s robust commercial viability, he noted.

“This is one of one of LPIC’s achievements that we were able to convince our lenders we do not need offtake agreements. Orpic’s Sales and Marketing team will take care of our products. This is yet another example of keeping as much value as possible in Oman, gain valuable experience to use in other areas and create highly skilled jobs for Omanis,” Pauw said.

“With the highly integrated complex in Sohar including the Refineries, Aromatics Plant, Steam Cracker and the downstream Polypropylene and Polyethylene Plants, the operation will be one of the best integrated refinery and petrochemical facility combinations in the region,” the Pauw added.




NewBase 21 November 2016 Khaled Al Awadi

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

Oil prices climb on expectation of OPEC-led output cut Reuters + NewBase

Oil prices rose around 1 percent on Monday as producer cartel OPEC moved closer to an output cut to rein oversupply that has kept prices low for over two years. International Brent crude oil futures were trading at $47.35 per barrel at 0023 GMT, up 49 cents, or 1.05 percent, from their last settlement. U.S. West Texas Intermediate (WTI) crude was up 0.98 percent, or 44 cents, at $46.14 a barrel.

Traders said that markets were being supported by advancing plans by the Organization of the Petroleum Exporting Countries (OPEC) to cut production in a bid to prop up the market following over two years of low prices as a result of output exceeding demand. Such a deal has proved tricky to agree as some producers, most notably Iran, have been reluctant to cut output. But an agreement has become more likely as Iran, keen to increase output after international sanctions against it were lifted last January, was expected to be given an exemption if it agrees to cap its production rather than cutting it, leaving the onus of a an outright reduction on other OPEC-members, including its political rival and de-facto OPEC-leader Saudi Arabia. As a result, Barclays said that some form of production cut deal was likely, but the bank added that any such agreement might have little impact on markets. "We expect OPEC to agree to a face-saving statement," the British bank said, but added that "U.S. tight oil producers can grow production at $50-55 (per barrel) and will capitalize on any opportunity afforded to them by an OPEC cut". Beyond the talk of a potential production cut, there were also signs of ongoing market weakness.

Japan, the world's fourth biggest oil consumer, on Monday reported a fall of 9.5 percent in crude oil imports in October from the same month a year earlier, to 2.78 million barrels per day.

Oil price special

coverage




The Very Real Risks That OPEC Won’t Cut Crude Oil Production Julian Lee Grant Smith

OPEC says it’s close to a deal to cut oil output for the first time since 2008, a move that may halt a 2 1/2-year price slump. The actions of individual member states tell a different story. Here’s a look at the prospects for an agreement ahead of OPEC’s November 30 meeting:

Math isn’t the issue

The simple math supporting cuts looked solid at OPEC’s meetings in June and December. Prices then were way below most members’ fiscal break-even points. An output cut now of 1.5 million barrels a day, or 5 percent, would need to boost the oil price by only $2.50 a barrel for OPEC nations collectively to be better off. A $5 price increase would boost the value of what they pump by about $100 million a day.

They didn’t make those cuts. Why? Because Saudi Arabia was set on a policy of defending its own share of the global market and putting pressure on high-cost producers elsewhere, particularly surging output from U.S. shale formations. The world’s biggest exporter insisted that it wouldn’t tackle a global surplus alone.

‘Four pillars’

At an extraordinary Organization of Petroleum Exporting Countries meeting in Algiers on September 28, the 14-nation group agreed in principle to production cuts that are to be ratified in Vienna on November 30. OPEC suggested curbing output to between 32.5 million and 33 million barrels a day. The group’s output in October was about 33.6 million barrels a day, according to its most recent Monthly Oil Market Report.

The first, most important, question that came out of the Algiers meeting was whether Saudi Arabia’s approach had really changed and, if so, to what extent? What’s now known is that the




kingdom wants OPEC’s policy built around four pillars: action must be collective, equitable, transparent and credible with the market.

Critically, this means Saudi Arabia thinks Iraq must cut and Iran must freeze crude output. - The two nations are OPEC’s second and third largest producers and the main drivers of the group’s supply growth.

“The Saudis are in two minds,” said Bill Farren-Price, chief executive officer of Petroleum Policy Intelligence, a Winchester, U.K.-based consultancy. “It’s fairly straightforward what they need to do, but the willingness is not quite there as there’s a considerable lack of trust at this stage.”

Will either country play ball?

Iraq initially rejected OPEC’s proposed baseline for cutting production, a stance that showed signs of thawing on Friday. The nation submits one set of numbers for output, but OPEC publishes a second set. Because that second set would be used as the starting point -- and because those secondary figures are lower than the ones that Iraq itself reports -- Iraq would have to make a deeper commitment than the country believes is justified. Fixing that in a credible way remains a hurdle. Iraq’s Oil Minister Jabbar Al-Luaibi said Friday he was optimistic a deal would be reached, without going into details.

Iran in January emerged from international sanctions relating to its nuclear program. Accepting OPEC-related, Saudi Arabia-led restrictions could be a challenging decision domestically. Iran has said it won’t accept limits.

This means a deal isn’t clear cut, according to Helima Croft, chief commodities strategist at RBC Capital Markets LLC in New York.

“There’s a one in four chance it doesn’t fly, and that’s based on the Iranians being too aggressive in their negotiations -- that Iran’s just going to free ride off the Saudis,” she said in a phone interview. “That’s just dangerous.”

Non-OPEC’s role

What’s still not clear yet is the extent to which non-member nations, in particular Russia, would join the effort if Saudi Arabia itself is to limit supply, or whether their participation is a deal-breaker. Saudi Arabia’s oil minister Khalid Al-Falih said on Oct. 19 that “many” non-member states are ready to cut.

But in practice, almost no non-OPEC nations will make deep, material cuts to their output that weren’t going to happen anyway. Russia is producing at a post-Soviet era high and has said it prefers a freeze to a cut. Forget about participation from the U.S. or Canada. In fact, they could be beneficiaries if there are restrictions, fetching higher prices and selling more crude to make up for the OPEC reduction.

Work to do

OPEC Secretary-General Mohammed Barkindo has been touring member nations to shore up support for an agreement before the Nov. 30 meeting. Some OPEC ministers traveled to Doha for talks last week, as did Russian Energy Minister Alexander Novak.

The meeting didn’t resolve much. It certainly didn’t tackle any of the thorniest questions that OPEC must still overcome if coordinated measures are to happen. “The road from the OPEC agreement in Algiers to the next official OPEC meeting in Vienna is long and bumpy,” said Harry Tchilinguirian, head of commodities strategy at BNP Paribas SA in London.




Oil Bets Are the Biggest in 9 Years Amid OPEC, Trump Volatility

Money managers, producers and consumers made the biggest bets on West Texas Intermediate crude prices in nine years, amid signals more volatility is coming.

Global markets were roiled after Donald Trump’s election as U.S. president and as OPEC continued negotiations on a deal to cap output. The U.S. dollar climbed to the highest since January. A measure of oil volatility surged last week to a seven-month high, a sign that traders were anticipating bigger price swings.

Wagers on higher and lower prices held by speculators and hedgers reached 1.47 million contracts in the week ended Nov. 15, the most since 2007, U.S. Commodity Futures Trading Commission data show. Trading volume of calls giving investors the right to purchase WTI futures surged to a record that day. The CBOE Crude Oil Volatility Index reached the highest since April.

"There’s tension in the market, with both producers and consumers worried about what OPEC does or won’t do on Nov. 30," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "They want to be protected from surprising price moves."

OPEC Meeting

Investors are weighing the chances that the Organization of Petroleum Exporting Countries will complete a deal to cap output at its Nov. 30 meeting in Vienna. While Saudi Arabian Energy Minister Khalid Al-Falih told Al Arabiya television he’s optimistic a deal will be reached, only 7 of 20 analysts surveyed by Bloomberg last week expect the group to set output targets for its members.

OPEC agreed in September to cut their collective output to 32.5 million to 33 million barrels a day and has been trying to persuade other suppliers, notably Russia, to join the cuts. OPEC Secretary




General Mohammed Barkindo said he’s confident the group can reduce record oil inventories and bring forward the rebalancing of the market.

"The Saudis are working hard to reach a deal," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "You don’t fight the Fed in the bond market and when it comes to oil you don’t fight the Saudis."

The September agreement marked the end of OPEC’s two-year long experiment with pumping at will. Saudi Arabia led the group in the effort to grab market share and curb the development of more expensive reserves such as U.S. shale.

U.S. Production

While U.S. production has dropped from last year’s 44-year high, the decline is slowing. The Energy Information Administration this month raised its output forecast for 2017. Rigs targeting oil in the U.S. rose the most in 16 months last week, according to Baker Hughes Inc.

Producers and merchants increased short positions, or protection against lower WTI prices, to the highest level since March 2011. They added 66,613 bearish contracts over the past two weeks as prices retreated from last month’s peak at above $50 a barrel.

"The Saudis want higher prices but won’t sacrifice just to see a major competitor, U.S. shale, benefit," said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. "The Trump election changes things. In one day the U.S. shale business got better. The government will be more responsive to the industry."

Money managers’ net-long position in WTI advanced for the first time since mid-October, climbing by 3,906 futures and options to 163,321. Shorts climbed 14 percent while longs rose 8.1 percent. WTI gained 1.8 percent to $45.81 a barrel in the report week, before settling at $45.69 on Nov. 18.

In fuel markets, net-bullish bets on gasoline decreased 35 percent to 25,796 contracts, as futures slipped 2.5 percent in the report week. Money managers were net-short 393 contracts of ultra low sulfur diesel, from net-long 7,791 the previous week. Futures advanced 0.2 percent.

"I suspect that when the OPEC meeting is over there will have been a lot more smoke than fire," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "If they don’t come up with a convincing agreement, they’ll be forced to revisit the issue before long."




NewBase Special Coverage

News Agencies News Release 21 November 2016

How Opec’s leaders can smash the Texas upstarts The National - Robin Mills

The Permian period, which ended 250 million years ago, was a good time for the global oil industry. The rocks of that time now hold much of the Middle East’s gas, including the world’s largest field, between Qatar and Iran. But Permian rocks on the other side of the world are now a threat to Opec, and an alluring but dangerous prize for international oil companies.

The Permian Basin of west Texas and Mexico has emerged as the most resilient play in the US oil sector. Proximity to pipelines, low drilling cost and a layer cake of geology that offers multiple drilling targets have kept activity high. A well that cost up to US$11 million in 2014 can now be drilled for about $7m. This month, the United States Geological Survey published its estimate that just one rock formation – the Wolfcamp Shale – in this area contains another 20 billion barrels of oil and 16 trillion cubic feet of gas yet to be found. In September, the oil corporation Apache estimated it had found 75 trillion cubic feet of gas and 3 billion barrels of oil in part of the basin it called the Alpine High area. While the number of rigs in other leading US shale areas has plummeted, the Permian rig count has been rising since May. Its production is forecast to reach 2.065 million barrels per day by next month, twice the total of Oman.




The Permian Basin has become this season’s must-have accessory. Even companies with strong assets in the Middle East, such as Occidental, or in Africa, such as Anadarko and Apache, spend most of their time on investor calls talking about their US prospects. Apache gets 28 per cent of its output from Egypt but spent just $52m out of a -total $415m of capital in the third quarter of this year in the country. Almost half of spending went to the Permian Basin. Rising output and falling costs in west Texas have slowed the drop in overall US production, frustrating the strategy of major Opec producers such as Saudi Arabia to squeeze out shale oil producers. As prices have risen modestly amid chatter of an Opec deal, rigs have gone back to work in the Permian. Opec itself expects oil prices to reach $65 per barrel by 2021, from just below $47 on Friday. In the current mindset, honed by a few years above $100 per barrel, this seems low. But the inflation-corrected average since the first oil shock of 1973, the era in which the exporters’ organisation has exerted market power, is $57 per barrel. In the age of shale, with Russian output also remaining strong, it’s a bold bet that a fractured Opec could hold prices above historic norms. Instead of comforting the market with talk of a production cut, which would anyway be modest, leading Opec countries could pursue the opposite strategy. With reservoirs still far larger and better quality than any in the US, they could continue boosting output, gaining market share and driving out high-cost competitors. They can adapt US tight-oil production technologies, make their national oil companies nimbler and more cost-effective and open up more difficult fields to international investors. The weak, such as Venezuela, Nigeria and Libya, would be left to the wolves. Other high-cost oil around the world – in mat-ure fields, China, the North Sea and deepwater – would be forced into decline. Investors’ confidence in shale, outside the very best plays and companies, would be broken. The Permian period ended in the greatest ever mass extinction, when about 90 per cent of all species died out. In today’s ruthless struggle for oil market survival, Opec’s best option may be to make some of its Texan competitors extinct.




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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 26 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 November 2016 K. Al Awadi

new base energy news issue 952 dated 21 november 2016

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