New base 761 special 04 january 2016

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NewBase 04 January 2016 - Issue No. 761 Edited & Produced by: Khaled Al Awadi

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UAE subsidy reductions a step in the right direction The Natiomal - Anthony McAuley

The UAE took a major step last year by starting to dismantle energy subsidies, a far-reaching move that used the unprecedented oil price slump as an opportunity to introduce changes that many felt were an essential step toward fully modernising the economy.

Subsidising energy – especially transport fuel – had seemed an intractable policy for many countries, especially the petro-powers of the Arabian Gulf. It was seen as part of the social contract between the citizens and rulers of oil-rich countries in the Arabian Gulf and elsewhere, despite long-standing arguments from a range of respected institutions that it was a wasteful and counterproductive policy.

The International Energy Agency – the OECD countries’ energy watchdog – the IMF and the World Bank had teamed up early last year to press countries to reduce their fuel subsidies on grounds that it made little economic sense in the current environment. The argument had gained




force because the oil price slump had put pressure on oil-dependent economies to trim budgets that were rapidly heading towards deficit, with subsidy spending an obvious target.

But there was also a compelling case to be made – especially in a year when the international community was hoping to reach a landmark climate-change deal in Paris – that it was high time for reform by countries that were among the world’s highest per capita emitters of greenhouse gases.

When it made its move on transport fuels in late summer, the force of logic for the UAE’s policy change was quickly recognised by its Arabian Gulf neighbours, which soon began instituting similar policies.

“The timing ... was well chosen,” said Jean-Michel Saliba, an analyst at Bank of America Merrill Lynch, “because the lower oil prices reduce the differential between market and subsidised prices, and make the size of the initial one-off adjustments more manageable”.

In other words, with the oil price slump having dragged down transport fuel prices, the impact on consumers would not be great, at least not in the short term. In fact, UAE prices for January were about 6 per cent lower for petrol compared to a year earlier, and about 12 per cent lower for diesel.

Before it moved to liberalise the transport fuel market, the IEA had ranked the UAE the eighth-most generous country in the world in terms of fuel subsidies, which it estimated to have an economic value of more than 5 per cent of the country’s GDP in 2013.

The flip side of the minimal consumer impact is that the low oil price environment means the budget impact of reducing subsidies will be lower than it otherwise would have been.

The policy change was not just about saving money, however, and the government spelt this out. It was about changing the culture, changing attitudes on the environment and the underlying need to diversify the economy.

“The UAE’s decision to cut energy subsidies was a strong signal for the Emirates’ willingness to implement long overdue fiscal and economic

reforms,” said Kevin Koerner, an analyst at Deutsche Bank, noting that “the UAE government justified the move with environmental, generational and economic development reasoning rather than fiscal considerations.”

Saudi Arabia introduced its more modest cuts in fuel subsidies, as well as selective increases in utilities bills, which the UAE also had instituted last year, as part of 20 billion riyals (Dh19.5bn) of cuts in next year’s 840bn-riyal government budget.

Soon All GCC countries

will have the same Fuel

prices in all retail outlets .

“ says an Energy expert ,

KHDMOHD , UAE ..




Although subsidy reform has been announced for Oman, Kuwait and Bahrain, it remains to be seen how deep it will go.

While the IMF estimated the fuel subsidy burden for the UAE at US$12.6 billion in 2014 – or about 2.9 per cent of GDP – it was greater for some other countries in the region. It was more than 4.5 per cent for Saudi Arabia and Bahrain, for example, although less at between 1.2 and 1.8 per cent for Oman, Qatar and Kuwait.

The fuel subsidy burden was greatest for Iran, which two years ago spent more than 20 per cent of its GDP on it.

The UAE’s move also inspired countries further afield. Nigeria, Africa’s biggest oil producer and a member of Opec, said it would scrap fuel subsidies this month, allowing petrol to fall initially to 85 naira (Dh1.56) per litre from 87 naira.

Nigeria’s system has been particularly costly and ineffective, as the poor condition of its refinery sector means it has had to import most of its transport fuel, with the government paying overseas refineries for the product it sells at a loss domestically.

Nigeria’s previous government had attempted to end fuel subsidies in 2011, but that led to a week of strikes and protests across the country, which meant they had to be rolled back.

The country’s president, Muhammadu Buhari, who took office last May, had continued the subsidies, which – at more than 1 trillion naira – accounted for almost a quarter of last year’s budget.

Previous attempts at reform by Saudi Arabia and Kuwait had been rolled back. The real test of the policy reforms will be how firmly the governments in question are committed to sticking by them if, and when, oil prices begin to rise again and consumers feel the effect.




Saudi Arbia: GE wins $1 billion Saudi power plant contract The National Michael Fahy

GE has been awarded a contract worth almost US$1bn (Dh3.7bn) to design and build gas turbines for a new power plant at Waad Al Shamal in northern Saudi Arabia.

The combined cycle power plant is being built for Saudi Electricity Company and will support the development of the $7.5bn phosphate mining complex under construction for a joint venture between Saudi Arabian Mining Company, Maaden, The Mosaic Company and Saudi Basic Industries. Once complete, the complex will be one of the biggest integrated phosphate fertiliser production sites in the world.

GE said its 48-month contract involves the delivery of the power plant, including four heavy duty gas turbines and one steam turbine. It will produce 1,390 megawatts, which is enough to power more than 500,000 Saudi homes.

Most of the turbines will be manufactured in GE’s plant at Greenville in South

Carolina in the US, but one will be assembled at GE’s new technology centre at Damman in Saudi Arabia’s Eastern Province. GE’s Middle East and North Africa president and chief executive of gas power systems, Mohammed Mohaisen, said: “Waad Al Shamal brings significant value to the Kingdom by strengthening the northern grid and through its potential to energise the local industrial sector.

By installing a gas turbine that is fully assembled at GE’s centre in Dammam, we are delivering on our commitment to provide stronger localisation support to our partners.”

Ziyad Al Shiha, the chief executive of Saudi Electricity Company, said: “We continue to strengthen the Kingdom’s power infrastructure to meet the growing demand for electricity and to accelerate all-round growth.”

Last week, Saudi Arabia announced that transport and infrastructure spending in 2016 will be cut by 63 per cent as the kingdom responds to continued lower oil prices. Funding for projects has dropped to 23 billion Saudi riyals - down from 63 billion riyals in 2015.

In October, BMI Research had predicted that growth in the kingdom’s power generating capacity would slow as projects are delayed or cancelled. Growth in power generating capacity will peak at about 6.3 per cent this year as new projects come on line, but will fall to just over 5 per cent next year and 4 per cent in 2018, the company said. “Certain projects - such as the Fadhili gas project - which are crucial to the Saudi energy sector will be realised but others will not,” BMI Research said.




Woodside Strike Gas Offshore Vietnam Woodside

Woodside on Monday said it has intersected gas offshore Vietnam. The Shwe Yee Htun-1 exploration well in Block A-6 in the Rakhine Basin, located in the western offshore area of

Myanmar, intersected a gross gas column of approximately 129 m, the company said adding that approximately 15 m of net gas pay is interpreted within the primary target interval. The well was spudded on November 27, reached its original target on December 23 and wireline logging concluded on December 29.

Woodside CEO Peter Coleman said he was pleased by the successful evaluation of the prospect, which provided evidence of a working petroleum system in the Rakhine Basin deep water.

“Further analysis will be undertaken to understand the full potential of the play, but this de-risks a number of leads which will now be matured,” Coleman said. “This discovery is an encouraging outcome for future exploration and appraisal activity in the area.”

Woodside has 40 percent interest in A-6. Woodside Energy (Myanmar) Pte Ltd (Woodside Myanmar) is the joint operator with MPRL E&P Pte Ltd (MPRL E&P) (20 percent interest).

MPRL E&P is operator with respect to government liaison and Woodside Myanmar is the operator with respect to all other operations, including drilling. Total E&P Myanmar holds a 40 percent, non-operated interest.




NewBase 04 January 2016 Khaled Al Awadi

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

Oil surges on Saudi Arabia, Iran tensions as 2016 trading starts Reuters + NewBase + Bloomberg

Oil prices surged during the start of 2016 trading as relations between top crude producers Saudi Arabia and Iran deteriorated, raising concerns about potential supply disruptions, though weak Asian manufacturing data kept a lid on bullish expectations.

Saudi Arabia, the world's biggest oil exporter, cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran. The diplomatic row between the two major oil producers escalated following Riyadh's execution of a prominent Shi'ite cleric on Saturday.

Global oil benchmark Brent LCOc1 climbed more than a dollar to a high of $38.50 per barrel on Monday, before easing back to $38.10 at 0350 GMT (10.50 p.m. ET Sunday), still up over 2 percent. U.S. crude's West Texas Intermediate (WTI) futures CLc1 were up 77 cents, or 2.08 percent, at $37.81 a barrel.

Oil traders said the crisis between Saudi Arabia, also the world's second-largest oil producer, and Iran, which holds some of the largest proven oil reserves, was pushing up prices. The clash between the two Middle Eastern rivals also comes as Iran hopes to ramp up oil exports following the expected removal of sanctions against it after reaching a deal over its alleged nuclear weapons development program.

Oil price special

coverage




"With increased geopolitical tensions between Saudi Arabia and Iran, the market has put a premium on prices just when markets opened (in 2016)," brokerage Phillip Futures said on Monday.

Revolutionary, mainly Shi'ite Muslim Iran and Saudi Arabia's conservative Sunni Muslim monarchy have clashed for years in the Middle East in political conflicts that have followed along sectarian lines. Most recently, Saudi Arabia has led its military against Iranian-back Houthi Shi'ite militias in Yemen.

Despite Monday's jump, oil prices are down by two-thirds since mid-2014 on ballooning oversupply as producers including the Organization of the Petroleum Exporting Countries (OPEC), Russia and the United States pump between 0.5 million and 2 million barrels of oil every day in excess of demand.

"OPEC, Russia and the U.S. beat our initial supply expectations, adding to an existing inventory headwind. For 2016 we think of it as the market rebalancing year, but only from 2H (the second half of 2016)," Alliance Bernstein said.

"Next year will be the year of undersupply which means we should see at least an eighteen month bull market from the middle of this year," it added. Alliance Bernstein said it expected average Brent prices to fall from $53 per barrel last year to $50 in 2016 but to recover to $70 a barrel in 2017 and to rise to $80 per barrel in 2018.

For the moment, oil markets remain dominated by oversupply.

Iran plans to raise output by half a million to 1 million barrels per day (bpd) post sanctions, although Iranian officials said they did not plan to flood the market with its crude if there was no demand for it. Iran's oil exports have fallen to around 1 million bpd, down from a peak pre-sanctions peak of almost 3 million bpd in 2011.

In Russia oil output hit a post-Soviet high in 2015, averaging 10.73 million bpd. On the demand side, concerns over Asia's slowing economies weighed as China's factory activity shrank for a 10th straight month in December as surveys across Asia showed industry struggling with slack demand.




NewBase Special Coverage

News Agencies News Release 04 January 2016

Tesla Hits Low End of Goal, Shipping 17,400 Autos in Quarter Bloomberg - Dana Hull

Billionaire Elon Musk’s Tesla Motors Inc. hit the low end of its latest target to deliver at least 50,000 vehicles for the year, shipping 17,400 in the fourth quarter.

The maker of electric cars and energy storage devices delivered 50,580 Model S sedans and Model X sport utility vehicles in 2015, Tesla said in a statement Sunday. While that’s less than the 55,000 Tesla had projected in a February letter to shareholders, it was within the range of its revised estimate of 50,000 to 52,000 from November.

Tesla’s guidance changed during the year as it grappled with manufacturing more than one vehicle and a steep production ramp. It’s producing the two all-electric vehicles on a shared assembly line in Fremont, California.

Musk, the chief executive officer, turned over the first six Model X SUVs to owners at a high profile event on Sept. 29, and the deliveries accelerated over the holidays. It shipped 208 Model Xs in the quarter and produced 507.

“It’s good news,” Ben Kallo, an analyst with Robert W. Baird who rates the shares as “neutral,” said in an interview Sunday. “They hit within their guidance. The X number is lower than some expectations, but production has picked up nicely.”




Musk, who got the first Model X, has been candid about the challenges of engineering and manufacturing the SUV. The vehicle has complex and distinct features such as “falcon-wing” doors, independently operable second-row seats and a large, panoramic windshield.

“Model X deliveries are in line with the very early stages of our Model X production ramp as we prioritize quality above all else,” the company said in the statement. Based on the daily production rate in the last week of the year, weekly output would be about 238 SUVs, Tesla said.

The fourth-quarter deliveries were near the low end of Teslas’s projected range. In its November letter to shareholders, the company had said it expected to ship 17,000 to 19,000 vehicles.

Tesla shares rose 7.9 percent in 2015, closing at $240.01 on Dec. 31 to give it a market capitalization of $31.4 billion. The stock had closed as high as $282.26 in July.




Big oil Companies to cut investment again in 2016 REUTERS

With crude prices at 11-year lows, the world's biggest oil and gas producers are facing their longest period of investment cuts in decades, but are expected to borrow more to preserve the dividends demanded by investors.

At around $37 a barrel, crude prices are well below the $60 firms such as Total , Statoil STO.OL and BP need to balance their books, a level that has already been sharply reduced over the past 18 months.

International oil companies are once again being forced to cut spending, sell assets, shed jobs and delay projects as the oil

slump shows no sign of recovery.

U.S. producers Chevron and ConocoPhillips have published plans to slash their 2016 budgets by a quarter. Royal Dutch Shell has also announced a further $5 billion in spending cuts if its planned takeover of BG Group goes ahead.

Global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22 percent fall to $595 billion in 2015, according to the Oslo-based consultancy Rystad Energy.

"This will be the first time since the 1986 oil price downturn that we see two consecutive years of a decline in investments," Bjoernar Tonhaugen, vice president of oil and gas markets at Rystad Energy, told Reuters.

The activities that survive will be those that offer the best returns.

But with the sector's debt to equity ratio at a relatively low level of around 20 percent or below, industry sources say companies will take on even more borrowing to cover the shortfall in revenue in order to protect the level of dividend payouts.

Shell has not cut its dividend since 1945, a tradition its present management is not keen to break. The rest of the sector is also averse to reducing payouts to shareholders, which include the world's biggest investment and pension funds, for fear investors might take flight.

Exxon Mobil and Chevron benefit from the lowest debt ratios among the oil majors while Statoil and Repsol have the highest debt burden, according to Jefferies analyst Jason Gammel.

FEW LARGE DECISIONS




With only a handful of major projects approved in 2015, including Shell's Appomattox development in the Gulf of Mexico and Statoil's giant $29 billion Johan Sverdrup field in the North Sea, 2016 is also likely to see few large investment decisions.

Projects that could be green-lit include BP's Mad Dog Phase 2 in the Gulf of Mexico, which the company now expects to cost less than $10 billion, around half the original estimate, and Chevron's expansion of the Tengiz project in Kazakhstan, according to Gammel.

Industry-wide, costs will be cut by reducing the size of projects, renegotiating supply contracts and using less complex technology.

After rapidly expanding in the first half of the decade when oil prices were above $100 a barrel, companies are now expected to focus on the most profitable activities, said Brendan Warn, oil and gas equity analyst at BMO Capital Markets.

"Companies want to reduce their range of activity and pick those with the highest returns on capital," Warn said.

Shell, which plans to complete its $54 billion acquisition of BG in February, intends to focus on the attractive liquefied natural gas (LNG) market and on deep water oil production, especially in Brazil, both areas in which BG is a leader.

With similar priorities in mind, BP is increasingly focused on the Gulf of Mexico and Egypt, where it approved a $12 billion development in 2015.

While tens of thousands of jobs have already been cut in 2015, more redundancies are expected this year as companies narrow their focus, Warn added.

On top of reducing spending by scrapping and delaying projects, oil majors will see costs come down as contractors agree to further price reductions. For example, the annual cost of hiring a drilling ship fell to an average of $332,000 in 2015, compared with $405,000 in 2014, according to Rigzone, which collects industry data.

The drop in investment bodes badly for services and contractor companies, which are seeing their work dry up.

HOLD YOUR NERVE

But with fewer projects approved, fewer fields developed and less maintenance work undertaken, companies are putting their growth at risk. "You've got to hold your nerve. If you cut too deeply, it is very, very difficult to take advantage of the price rebound when it comes," a senior official at a European oil major told Reuters.

Tumbling oil prices have cut billions of dollars from oil companies' revenue streams, although strong profits from refining have softened the blow for most. And while their in-house oil and gas production growth comes under pressure, companies might opt to acquire rivals with less resilient balance sheets, as with Shell's proposed acquisition of BG.

"In the second half of 2016, if we see price stabilization, I expect companies will be looking to replace reserves inorganically, by making acquisitions," Warn said.




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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.

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

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New base 761 special 04 january 2016