New base 764 special 13 january 2016

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 13 January 2016 - Issue No. 764 Edited & Produced by: Khaled Al Awadi

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

Saudi's USD 100 Billion in Renewable Energy Projects to

Meet Skyrocketing Power Needs

(WAM) - More than USD 100 billion in Saudi renewable energy projects will help meet its skyrocketing energy demand and diversify its energy sector, industry experts said today in the build-up to the World Future Energy Summit.

The Kingdom's energy demand is expected to grow by 45 percent from 69 gigawatts in 2014 to 100 gigawatts in 2040, an amount that is nearly as much as all of the rest of the GCC combined, according to a recent report by Frost & Sullivan.

In anticipation, the Kingdom plans to spend USD 109 billion to install 54 gigawatts of renewable energy by 2040, added Frost & Sullivan. By 2020, Saudi projects alone will account for 70 percent of the total value of the GCC's renewable energy projects.

"With the Middle East's renewable energy sector rapidly advancing, Saudi Arabia holds the region's biggest potential for both solar and wind power," said Roberto De Diego Arozamena, CEO, Abdul Latif Jameel Energy and Environmental Services, which will be one of the key sponsors of the World Future Energy Summit 2016 in Abu Dhabi, UAE.




"Renewable energy can help Saudi Arabia meet its growing energy demand, and also help diversify its economy, shift government energy subsidies, and provide jobs for the Saudi workforce," added Roberto De Diego Arozamena.

Solar power in particular is seeing the strongest take-up, with the Kingdom planning to install 41 gigawatts of solar power by 2040, according to an Arthur D Little report.

To support solar, Arthur D Little calls for easy financing of solar projects, strategic partnerships, deploying before manufacturing, and proactive energy policy reforms.

"The market has significant innovation support thanks to its world-class universities. Generally, for a successful renewable sector, governments need to implement holistic plans that boost both the innovation and manufacturing capacity to deliver practical, affordable, and competitive energy solutions," said Robert De Diego Arozamena.

Abdul Latif Jameel Energy and Environmental Services covers power infrastructure development, sustainable power generation, alternative resources, and energy efficiency. Through its portfolio company Fotowatio Renewable Ventures (FRV), a leading global developer of large-scale solar power plants the Company holds a 4.3 GWdc pipeline of projects in emerging solar markets including the Middle East, Australia, Africa, and Latin America.

The World Future Energy Summit 2016, including Solar Expo and Sustainable Transport Zone, will be held at the Abu Dhabi National Exhibition Centre on 18-21 January 2016. Co-located events featured are the International Water Summit and EcoWASTE.




UAE moves to quash talk of OPEC emergency meet as oil slumps REUTERS - RANIA EL GAMAL AND MAHA EL DAHAN

The United Arab Emirates moved to quash talk of a potential emergency meeting of the Organization of the Petroleum Exporting Countries (OPEC) after Nigeria's oil minister said on Tuesday a "couple" of members had requested a gathering.

Benchmark Brent crude futures slipped toward $30 a barrel to a near 12-year low before rising slightly. They have shed almost three-quarters of their value since mid-2014 due to oversupply. Such market conditions supported an emergency meeting to review whether OPEC should change strategy, Nigerian Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu told reporters on the sidelines of an energy conference in Abu Dhabi.

However, UAE Energy Minister Suhail bin Mohammed al-Mazroui later told the same conference the current OPEC strategy was working, adding that time was needed to allow this to happen -- perhaps between one and 1-1/2 years. "I'm not

convinced OPEC alone can change or can solely unilaterally change this strategy just because we have seen a low in the market," Mazroui said.

Mazroui added that while the first half of 2016 would be "tough" for the oil market, there would be a gradual recovery later in the year, aided by an expected drop in non-OPEC production. The Nigerian minister did not specify which OPEC members wanting a meeting and said any such gathering would be in February or March. OPEC's next scheduled meeting is not until June 2.

But two OPEC delegates from outside the Gulf were skeptical an emergency conference would take place. "There won't be any meeting," said one of the OPEC delegates from an African OPEC country.

OPEC's strategy of maintaining production levels, instead of reducing supply to allow prices to recover, has been aimed at defending market share at the expense of higher-cost producers such as those in the U.S. shale sector.

The supply glut is likely to be exacerbated in 2016 by the return of Iranian supply to the market, once Western sanctions have been lifted. "I think all the members including Iran have the right to increase their production. I don't think we are going to restrict anyone," Mazroui said.

Such prospects have led oil analysts to downgrade their forecasts in recent days, with Standard Chartered saying prices could drop to $10 a barrel. The likelihood of a meeting taking place will hinge on the attitude of OPEC heavyweight Saudi Arabia, which has been at the vanguard of resistance to a production cut.

"Saudi Arabia has never held the position that it does not want to talk," Kachikwu said. "In fact, it was very supportive of a meeting before June, at the time when we held the December meeting, if (there was a) consensus call for it."




Angola: Eni starts production of Mpungi offshore field at the West Hub Development in Angola

Eni has started production from the Mpungi field in the West Hub Development Project, within Block 15/06 of the Angolan Deep Offshore. The start-up of Mpungi will bring to a production ramp-up to approx. 100,000 boed in Q1 2016.

The start-up of Mpungi field, which follows the West Hub’s first oil from the Sangos field in November 2014 and the Cinguvu field in early April 2015, will bring to a production ramp-up to approx. 100,000 barrels of oil per day in Q1 2016.

The West Hub Development Project encompasses the development of the Sangos, Cinguvu, Mpungi, Mpungi North, Ochigufu and Vandumbu fields in a water depth ranging from 1,000 to 1,500 meters. The wells are arranged in clusters and connected to the N’Goma FPSO (Floating Production Storage and Offloading Unit), which has a treatment capacity of 100,000 barrels of oil per day.

'The third start-up milestone of the West Hub Development project has been achieved both on budget and on schedule. This achievement reflects our ability to deliver major projects and confirms our excellent track record in terms of efficiency, technology and innovation', commented Eni’s CEO Claudio Descalzi.

Eni is also continuing its exploration programme in Block 15/06: if successful, new discoveries would be connected to the existing production infrastructure with an important reduction of time and costs production.

Eni has been present in Angola since 1980 with a net production of about 105,000 barrels of oil equivalent per day. Eni is the operator of Block 15/06 with a 36.84% stake, the other Partners of the joint venture are Sonangol Pesquisa e Produção (36.84%) and SSI Fifteen Limited (26.32%) The block 15/06 also includes the East Hub Development Project, which is under development and will start producing in 2017.




Tanzania Secures Site for LNG Plant

Tanzania’s plan to build its first LNG plant moved a step forward with Tanzania Petroleum Development Corporation (TPDC) acquiring the land title deed of the project site. Talking to Tanzanian newspaper Daily News over the weekend, TPDC Director of Exploration and Development, Kelvin Komba said the government is now officially ready to begin work on the construction of the plant.

The government had paid $6 million for assessment and compensation of 450 people in the backwater coastal town in Lindi in the process of acquiring the site. However, he said that the actual LNG plant was still many years away as various technical processes needed to be accomplished. The chosen 6,800-acre site, which will have an LNG plant on 2,000 acres, and an industrial park, is viewed as one that would turn around prospects of the country, particularly in the southern parts, Daily News reported. The plant will receive and treat reservoir gas from the fields in blocks 1, 2, 3 and 4. The East African nation has seen large natural gas discoveries in recent years. Estimates suggest the country may hold recoverable natural gas resources to up to 55 tcf.

Construction of the 10 million-ton-a-year liquefied natural gas plant would probably be complete around 2020, said Willington Hudson, a director at state-run Tanzania Petroleum Development Corp. BG Group Plc and Statoil ASA are still drilling the fields that would feed the plant, he said.

Discoveries in East Africa this decade have established the region as the newest gas province and raised the prospect of exports to world markets. While rival projects from North America to Australia promise to boost global shipments, BG and its peers in Tanzania and Mozambique are pressing ahead on the expectation demand will outstrip supply in the coming decades.

“You need to look at energy demand for the next 50 years,” Hudson, director for downstream operations, said in an interview in London. “Demand for gas will continue going up.” Tanzania’s first offshore gas discovery was made in 2010. Since then a series of finds has expanded the country’s potential reserves to 55 trillion cubic feet, enough to meet about 11 years ofdemand from U.S. homes. Almost 90 percent of the resources are far out at sea, making extraction difficult, Hudson said.




Malaysia: Lundin Petroleum spuds Bambazon exploration well,

Lundin Petroleum has announced that its wholly owned subsidiary Lundin Malaysiahas

commenced drilling of the Bambazon exploration well in Block SB307/SB308, offshore East

Malaysia.

1. The Bambazon Prospect is in shallow water and lies to the north of a major producing field in offshore East Malaysia. The well will target hydrocarbons in Miocene aged sands. According to information on the Lundin Petroleum web sitr, the well will taget net unrisked prospective resources of 48 MMboe, with an estimated chance of geological success of 36%. Bambazon will be drilled with the West Prospero jack-up rig to a total depth of approximately 1,250 metres below mean sea level. The drilling of the well is expected to take approx. 25 days.

2. Lundin Malaysia holds 85 percent working interest inSB307/SB308. Partner is PETRONAS Carigali with a 15 percent working interest. Lundin Malaysia operates six Blocks in Malaysia, namely PM307, PM319, PM308A, PM328, SB307/308 and SB303.




China Imports Record Crude as Price Crash Accelerates Buying Bloomberg News

China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners.

The world’s largest energy consumer increased imports last year by 8.8 percent to a record 334 million metric tons, or about 6.7 million barrels a day, according to preliminary data released by the Beijing-based General Administration of Customs on Wednesday. Inbound shipments in December jumped to 33.19 million tons, while oil product exports rose to 4.32 million metric tons, both also records.

China has exploited a plunge in crude prices by easing rules to allow private refiners, known as teapots, to import crude and by boosting shipments to fill emergency stockpiles. The nation’s overseas purchases may rise to 370 million metric tons this year, surpassing estimated U.S. imports of about 363 million tons, according to Li Li, a research director with ICIS China, an industry researcher.

“China’s crude appetite will continue to be driven by a boom in teapot imports this year and the filling of strategic reserve sites amid multi-year low prices,” Li Li said by phone from Guangzhou. “In the meantime, U.S. dependency on oil imports will gradually decline with higher domestic output.”

China may start four additional strategic petroleum reserves this year as part of a plan to stockpile enough oil to cover 100 days worth of net imports by 2020 and thirteen independent refiners have been granted import quotas totaling a combined 55 million tons, or 18 percent of the nation’s annual imports. December Imports




The nation’s crude imports last month was equivalent to 7.85 million barrels a day, 6 percent higher than the previous record of 7.4 million in April, Bloomberg calculations show. Oil shipments typically increase near year-end as refineries fulfill import targets and build stockpiles for use during Chinese New Year, which will fall in February this year, according to Amy Sun, an analyst with ICIS China.

Chinese refiners have been flooding regional markets with diesel as they raised crude processing to meet gasoline demand, leading to swelling stockpiles. Distillate exports surged 61 percent in the first 11 months in 2015 from a year ago, according to customs data. The nation more than doubled its first-batch of 2016 fuel-export quotas to 20.93 million tons to alleviate domestic oversupply, ICIS China said on Jan. 6. Recovery Signs "This could be the beginning of an improvement in China’s trade data," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "When the exchange rate starts to move it usually takes about three to six months for trade data to respond. Last August was the beginning, so it makes sense for the trade data to

respond after three to four months. "

Going forward, Ding expects a "very stable" effective exchange rate against a basket of currencies. "That will help China to regain competitiveness," he said. China imported a record amount of crude last year as oil’s lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. The world’s largest energy consumer increased imports by 8.8 percent to a record 334 million metric tons (about 6.7 million barrels a day) in 2015, according to preliminary data released by the Beijing-based General Administration of Customs on Wednesday. Seasonal Jump The increase in exports last month may prove to be a temporary one due to a seasonal jump at the end of the year and it doesn’t represent a trend, a spokesman for the customs office said after a briefing in Beijing. Exports to Hong Kong rose 10.8 percent and those to the U.K. jumped 19.6 percent in dollar terms.

"There will be some front-loading of shipments before the Chinese New Year, but that boost could fizzle again quickly thereafter," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "Exports are unlikely to deliver a growth impulse this year to China and the rest of Asia. It’s all about domestic demand. Don’t look to the external side to pull

Asia out of its growth malaise."




NewBase 13 January 2016 Khaled Al Awadi

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

Crude Falls Below $30/B for the First Time in 12 Years Share on Faceboo kShare on Twitter Oil dropped below $30 a barrel in New York for the first time in 12 years on concern that turmoil in China’s markets will curb fuel demand.

West Texas Intermediate crude tumbled to the lowest since December 2003. Concerns that China’s economic growth may slow has soured investors on the prospects for a quick recovery, turning hedge funds the least bullish in five years. A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, Morgan Stanley said.

Oil extended a 70 percent drop since June 2014 as volatility in Chinese markets fueled a rout in global equities and U.S. stockpiles remained more than 120 million barrels above the five-year average. Saudi Arabian Oil Co., the world’s biggest crude exporter, confirmed on Jan. 8 it was studying options for a share sale, including listing “a bundle” of refining subsidiaries.

"Psychology has completely taken over," said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. "Market sentiment has shifted so far that it’s self-fulfilling. There’s been a big cutback in CFTC positions, which shows that everyone is heading for the exits."

Oil price special

coverage




WTI for February delivery fell $1.28, or 4.1 percent, to $30.13 a barrel at 2:07 p.m. on the New York Mercantile Exchange. The contract touched $29.93, the lowest intraday price since December, 2003. Prices lost 30 percent last year.

Brent for February settlement decreased $1.05, or 3.3 percent, to $30.50 a barrel on the London-based ICE Futures Europe exchange. It touched $30.34, the least since April 2004. The European benchmark crude traded at a 37 cent premium to WTI. Dollar Relationship

Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated Monday. Societe Generale SA cut its average 2016 Brent forecast to $42.50 a barrel from $53.75 on Monday, while Bank of America Corp. trimmed its forecast to $46 a barrel from $50.

Crude also fell as the U.S. dollar strengthened, diminishing the appeal of commodities denominated in the currency. The Bloomberg Commodity Index, a gauge of 22 raw materials slumped to the lowest level since 1999.

"There are no technicals holding up the price so we’re looking at a falling knife," said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. "Concern about global economic sentiment and dollar strength are continuing to weigh on the market."




Crude oil rises for first time in eight days after U.S. stocks fall Reuters + NewBase

Crude futures rose on Wednesday for the first time in eight days, with US oil pulling further away from the widely watched $30-per-barrel level breached the previous session, after US crude stocks unexpectedly fell last week.

US West Texas Intermediate crude (WTI) was up 44 cents at $30.88 a barrel at 0144 GMT. On Tuesday, it fell 97 cents to close at $30.44 a barrel, after touching a low of $29.93, which was last seen in December 2003.

Brent crude, the global benchmark, was up 34 cents at $31.20 a barrel. The contract fell 69 cents to settle at $30.86, after bottoming at $30.34, on Tuesday.

The $30 mark is both a psychological and financial threshold and, in recent days, traders have poured money into $30 put options for expiration in February and March. "$30 may be intermediate support but I really honestly can't say whether this is the bottom," said Avtar Sandu, senior commodities manager at Phillip Futures in Singapore. US crude stocks fell by 3.9 million barrels in the week to 480.071 million, compared with analysts' expectations for a increase of 2.5 million barrels, data from industry group the American Petroleum Institute showed on Tuesday.

Crude stocks at the Cushing, Oklahoma, delivery hub for WTI fell by 302,000 barrels, API said. But the bearish outlook for oil remains after the U.S. government forecast on Tuesday that the global glut will swell until late 2017.

Increased Iranian oil output should feed into oversupply this year with the expected lifting of Western sanctions on that country's exports, the US Energy Information Administration said. The agency forecast that a limited decline in US supplies next year and steady growth in global demand will help ease the glut only in the third quarter of 2017, the first decline after nearly four straight years of gains.

Still, in a reminder that geopolitical tensions could intervene to support prices, Iran is holding 10 U.S. sailors after seizing two Navy boats that allegedly entered Iranian waters in the Gulf on Tuesday.




NewBase Special Coverage

News Agencies News Release 06 January 2016

Tugboats Left Useless by U.S. Shale Boom Finally stearing LNG cargos Bloomberg - Naureen Malik

Just off the coast of Louisiana right now, the Energy Atlantic is waiting to collect an historic cargo: the first exports from America’s shale gas revolution.

Ready to steer the giant tanker into Cheniere Energy Inc.’s $15 billion Sabine Pass terminal is a fleet of tugboats that’s spent the past seven years killing time -- some days holding emergency exercises, some days racing each other. They were all set to escort shipments of natural-gas imports, but the ships never arrived: unexpectedly, the U.S. started producing enough gas of its own.

“The boats are beautiful -- you could eat off the floor in the engine room,” said Richard Ennis, head of natural resources at ING

Capital. With the switch to exports, the tugs will at last have a job to do -- even if it’s not the one they expected. They “may actually get a scratch on them,” Ennis said.

The surge in oil and gas output from U.S. shale drillers has the potential to transform world markets. At home, it’s left a chain of idle import facilities from the Northeast to the Gulf Coast, as energy companies pile onto the export bandwagon instead: $50 billion-worth of terminals are due to come online in the next five years. Not Needed

But if the importers were blindsided by shale, exporters now confront a glut in world markets and slowing demand in Asia that’s making some investors cautious. Cheniere’s CEO was ousted last month as shareholders rebelled against his plans to bet even more heavily on exports.

Cheniere has been able to avoid taking a financial hit on its idle import facilities because customers reserve space there even though they don’t use it. Total SA and Chevron Corp. are contracted to pay about $5 billion over 20 years to keep the tugboats, including a crew of five to seven members each, and the Sabine Pass import terminal in prime shape.

Custom tugboats designed to tug LNG tankers are docked at

the Cheniere's Sabine Pass LNG facility in Cameron,

Louisiana.




For that, each energy giant gets to reserve 1 billion cubic feet a day of re-gasification capacity -- the ability to convert shipments of imported LNG into gas that could be piped around the U.S., if it was needed.

But it isn’t. Nationwide, such plants are operating at less than 1 percent of capacity. The U.S. is now producing 80 billion cubic feet a day of its own gas, and says it’s on course to become a net exporter next year.

Source: Department of Energy, Bloomberg New Energy Finance

So Cheniere and other companies -- including Houston-based Freeport LNG and Dominion Resources Inc. -- have been building liquefaction plants instead: facilities to turn the gas into liquid form so it can be shipped overseas.

At Sabine Pass, the import facility cost $1.6 billion, excluding financing. Liquefaction plants cost about twice that, and Cheniere plans at least five of them -- making a riskier bet.

Bond markets seem to think so. Debt for the liquefaction plants traded to yield about 7.9 percent this week, some 80 basis points higher than comparable bonds for the import facility, whose costs are covered by contracts like the ones with Total and Chevron.

A key question for investors is: do the export facilities enjoy the same kind of guarantees? Good Precedent




The import terminals “set a good precedent even though there is very very little going in,” Mihoko Manabe, senior vice president of Moody’s Investors Service in New York, said in a Dec. 15 phone interview. “We could take comfort in the fact that these contracts are being honored.”

But at least one oil major has paid up to escape a long-term contract that’s no longer needed. ConocoPhillips paid a termination fee of $522 million to Freeport as part of a deal to end its reservation of import capacity, saying it would save as much as $60 million a year.

“History is fraught with people relying on contracts to support the company” only to have “economics go the wrong way,” said Skip Aylesworth, a portfolio manager at Hennessy Funds, which holds a 4.5 percent stake in Cheniere.

“If in fact any one of the major players decides to unilaterally null and void their contract, it could cause a major revenue problem,” he said. It’s the customers who “have all the power.” Chanos Short

At Sabine Pass, Cheniere has contracted 88 percent of the capacity for the first five liquefaction plants. That will bring annual payments of $2.9 billion for two decades once they’re all online.

For Cheniere’s former Chief Executive Charif Souki, such commitments were strong enough to press ahead with more export investments. Last summer he announced plans to boost capacity by another 50 percent -- even before the first plants had come online, which they eventually did on New Year’s Eve.

By then Souki was gone. With gas prices in Asia and the U.S. near multi-year lows, shareholders had gotten nervous. Among them were some high-profile investors. Jim Chanos has said he was shorting the stock amid concerns about growing debt. Carl Icahn, who accumulated a 14 percent stake, questioned Souki’s plans. Souki was forced out last month by the board.




Shareholders wanted Cheniere, which has never posted a profit, to pay its export revenue as dividends instead of using it to fund more growth, said William Frohnhoefer, an analyst at BTIG in New York.

“Investors have said that it’s time to slow down a little bit,” he said by phone last month. Cheniere’s shares slid throughout 2015, reaching a two-year low in late December.

Souki, who’s said he’ll remain a shareholder and board member, told Bloomberg TV on Dec. 17 that “the energy business is a matter of cycles” and Cheniere will be well-placed to expand when the cycle turns again.

That may be some way off, according to Moses Rahnama, an analyst at Energy Aspects. The global LNG surplus is set to triple by 2020 amid a “big wave” of new capacity, while demand has slowed and many buyers are trying to renegotiate contracts. ‘Just Refrigerators’

ING’s Ennis says Sabine Pass and the other export terminals under construction aren’t directly exposed to commodity-price risks.

“They are paid a capacity reservation fee regardless of what the price of gas is or how much gas goes through,” he said. “They’re just refrigerators.”

At Sabine Pass, the refrigerator is filling up -- ready for the Energy Atlantic, which is anchored about 25 miles (40 kilometers) out while government inspectors examine everything from navigation equipment to lifeboats. Checks on the “brand-new” tanker will probably last most of Tuesday, and it will reach Sabine Pass the following day, Andy Kendrick, a Houston-based spokesman for the U.S. Coast Guard, said by phone.

Then, at last, there’ll be work for the ochre-colored tugboats with their fire-engine-red hulls. They’ll no longer be waiting for phantom ships.




GCC energy price reform still long road ahead and fraught with risks Saudi Gazette

Fiscal pressures due to the decline in oil revenues are forcing GCC governments to rationalize their spending and implement long overdue fiscal and economic reforms, including energy prices, this month’s issue of Apicorp Energy Research, a monthly publication by the Arab Petroleum Investments Corporation (Apicorp) – a multilateral development bank wholly-owned by the member states of the Organization of Arab Petroleum Exporting Countries (OAPEC).

The report said Saudi Arabia and the UAE are leading the GCC in raising energy prices and cutting subsidies. While the provision of low energy prices in the past few decades has helped the GCC to achieve key developmental and social objectives, this policy has come at a huge cost and has resulted in a wide range of distortions. Nevertheless, the increase in energy prices will have direct and indirect effects on the welfare of households and the profitability and competitiveness of GCC industry. The ability of the GCC governments to put in place effective measures to mitigate the impact of higher energy prices and develop a coherent communication strategy are key to the success of their reform plans. While the GCC countries have taken a step in the right direction, the path for energy-pricing reform will be long and fraught with risks.




In a clear signal of its willingness to implement fiscal and economic reforms, the Saudi government announced plans in December 2015 to reform prices of water, electricity, natural gas and petroleum products over the next five years, raising the price of various fuels with immediate effect.

This followed the UAE’s June 2015 announcement to liberalize domestic gasoline and diesel prices. Since the Saudi announcement, other countries in the GCC such as Kuwait, Bahrain and Oman have followed suit, outlining plans to increase energy prices in the near future.

While the new prices are still low by international and regional standards, the reforms represent a fundamental shift in the Kingdom’s economic and social policies. For decades, the provision of cheap energy has been a main pillar of GCC development strategy aimed at achieving key economic, social and political objectives.

These include distributing the rent to the wider population; protecting the income of households, especially those with lower income; enhancing the economy’s competitiveness and attractiveness to domestic and foreign investment; promoting industrialization and diversification; and controlling inflation.

Low energy prices have enabled the GCC to achieve some of these objectives, but the policy has come at a huge cost. The inefficient allocation of resources prevents the GCC from maximizing the value of its natural resources.

The negative consequences of low energy prices are well known. They result in rapid growth in energy consumption beyond what can be explained by factors such as the rising income levels and population growth.

They increase a country’s energy intensity of GDP because low prices distort investment decisions towards energy-intensive projects, hindering economic diversification. They also result in low efficiency as consumers and industries have little incentive to conserve energy. They distort




a country’s energy mix by encouraging reliance on oil and gas, limiting the penetration of alternative fuels such as renewables and nuclear power, which struggle to compete with hydrocarbons.

Differences in energy prices also increase cross-border smuggling. Nor are low energy prices neutral in terms of their distributional effects. Low transport fuel and electricity prices reward higher-income households, which tend to consume more. Similarly, the provision of cheap gas to industry increases profits for the owners of industrial establishments and shareholders in these companies who mostly fall within the high-income groups.

Despite all these known distortions, a move to increase energy prices can induce negative shocks affecting households, industries, and the wider economy. Higher energy prices can spur inflation, especially if they result in a shift in expectations and wage-price spirals. Energy-pricing reform reduces the welfare of households both directly by raising the price of electricity, water and petroleum products, and indirectly, by increasing the price of other goods and services that use energy as intermediate inputs.

Higher energy prices also increase input costs for industries, reducing profits. This is especially true for energy-intensive industries that are not able to pass on the cost increase to end-buyers, either due to the competitive structure of the industry (such as petrochemicals) or the imposition of price controls (cement).

SABIC for instance said that as a result of the fuel and electricity price hikes its annual cost would increase by more than 5%; Saudi Arabia Fertilizers Company’s (Safco) production costs would increase by 8%; Yanbu National Petrochemical Company’s (Yansab) costs would increase by 6.5%; while Saudi Cement Company announced that its production costs would rise by SR68m ($18.1m). These companies added that they would increase the efficiency of their plants and cut other costs to offset the input price shock.

Thus, in any energy-pricing reform strategy, it is essential that governments put in place measures to mitigate these negative impacts. For instance, the government should design schemes to compensate households, especially those with low incomes.

It should establish specialized funds that provide technical assistance and soft loans to help industries most affected adjust to the higher cost by increasing efficiency through the introduction of new technologies and equipment upgrading. It is the ability of the GCC governments to put in place such schemes and communicate their policies effectively and transparently that will determine the success of their energy-pricing reform programs in the longer term.

Saudi Arabia: a broad reform

The Saudi government has opted for a gradual (five-year) but broad-based reform that covers a wide range of fuels including natural gas, gasoline, diesel and electricity, as well as water. The price of natural gas has seen some of the highest increases; for methane it was raised from $0.75/mmbtu to $1.25/mmbtu, while the ethane price was raised from $0.75/mmbtu to $1.75/mmbtu.




The impact of these price increases will be mainly felt by the power sector and industry, which account for the bulk of ethane and gas consumption. The government also increased the price of higher-grade unleaded petrol to SR0.90/liter ($0.24) from SR0.60/liter and for lower-grade petrol to SR0.75/liter from SR0.45/liter.

Households will feel the main impact of the increase in gasoline prices given their reliance on personal transport and the limited public alternatives. Diesel, mainly consumed by the power sector and industry, was raised to $14/b while diesel for commercial transport was raised to $19/b.

Households with low levels of consumption (less than 4000kwh) were shielded from the increases in electricity prices, but for consumption levels between 4000kwh and 6000kwh, prices were raised from SR0.12/kwh to SAR0.20/kwh and for consumption levels above 6000kwh, prices were unified and set at SR0.30/kwh.

UAE: Low-hanging fruit

Despite its strong fiscal position, the UAE was one of the first countries in the GCC to liberalize its gasoline and diesel prices. The government still sets the domestic fuel prices on a monthly basis, but these are directly linked to international prices.

While liberalizing prices in the UAE has received wide media attention, the increase in gasoline prices has been rather limited, as prices were already close to international levels; while diesel prices have been cut in recent months. The UAE has introduced electricity reforms, but the impact on the country’s nationals has been limited (especially in Abu Dhabi) with non-UAE nationals bearing the brunt of the reform. Subsidies for natural gas, which account for the bulk of the UAE’s subsidies, remain in place. Compared to Saudi Arabia, therefore, the breadth of the UAE’s reforms has been limited, while sharp increases are needed to bring local Saudi prices closer to international rates.

Kuwait: resistance to reforms

Compared to some of its neighboring GCC countries, Kuwait is in a better financial position to deal with the current weakness in oil prices due to its large fiscal buffers. Nevertheless, the Kuwaiti government has been keen to rationalize spending and balance the budget. In its 2015-16 budget, the government plans to slash expenditure by 20.7% from 2014-15 levels, with subsidy reductions accounting for most of the decline.

In 2014-15, total subsidies cost KD5.769 billion ($19 billion) and the objective is to reduce subsidies to around KD3.776 billion in the 2015-16 budget, a decrease of nearly 35%. Achieving this reduction, however, is ambitious. In January 2015, the government raised the price of diesel at wholesalers and filling stations to KD0.170/liter from KD0.055/liter. The government also increased kerosene prices, used mainly in aviation.

These adjustments, it was hoped, would save the government around $1 billion a year. However, in face of parliamentary opposition, the government was forced to back down on its original plans, cutting the prices of diesel and kerosene at filling stations and providing diesel and kerosene to some customers at the old price. In light of recent price increases in neighboring countries, the government’s attempt to increase prices may get a new boost. The minister of finance recently




announced that his ministry has plans to submit recommendations to the cabinet’s economic committee for increases in fuel prices and other services, although it did not say what these recommendations were. Media reports claim that the next step is to increase the price of gasoline to KD0.100-0.115/liter from its current level of KD0.055/liter. Such an increase is likely to meet stiff opposition in parliament and it is yet to be seen whether the government will succeed in its efforts.

Oman and Bahrain: limited options

With low levels of foreign assets, Oman’s economy is one of the most vulnerable in the GCC to the oil-price slump. Oman posted a budget deficit of OR4.5 billion in 2015 and the government projects the deficit to reach OR3.3 billion in 2016 in its recently announced budget. This is despite the Sultanate’s ambitious plans to boost non-oil revenues and cut heavily on spending.

The government has advanced plans to increase income taxes on businesses and to bring all companies under the taxation system. The parliament (the Shoura council) has already voted in favor of a bill to hike taxes.

Cuts in energy subsidies are key for the government to meet its ambitious target of reducing its expenditure by 11% from the 2015 level. The allocated subsidy for petroleum products, electricity and other goods in the approved 2016 budget is estimated at OR400m; a decline of 64% from the 2015 level. Achieving such a reduction requires sharp rises in energy prices across the board.

In January 2015, Oman doubled gas tariffs for industrial producers and the power sector, to $3/mmbtu, with the provision for annual increases of 3% in subsequent years. The Ministry of Oil and Gas has plans to lift the prices of petroleum products in line with international prices, starting from mid-January 2016, though no specific details have yet been released.

The undersecretary at the Ministry of Oil and Gas told reporters that Oman “will not liberate prices completely, but they will be adjusted in a way where the end result is zero subsidy. Depending on international prices, the committee might choose to subsidize one product against the other”.

Like Oman, Bahrain also raised the price of natural gas to industries in April 2015, to $2.50/mmbtu from $2.25/mmbtu. The last increase, to that tariff, was a 50% hike in 2012. The Bahraini government also introduced a multi-phased adjustment program for gas prices, which will see the price of natural gas increase by $0.25/mmbtu each year on 1 April to top $4/mmbtu in the beginning of 2022. Back in 2013, Bahrain also announced plans to gradually increase its domestic selling price for diesel fuel by BD0.02/liter each year from BD0.12/liter in 2014 to BD0.18/liter in January 2017.

But this plan met heavy resistance in parliament, and the government was initially forced to back down. Following the recent price increases in a number of GCC countries, the Bahraini cabinet has approved a new pricing system for diesel and kerosene that is set to begin in January 2016. The full details are not yet available, but the government announced that there would be a “gradual increase” in the cost of both fuels to domestic customers in the coming years.

Qatar: Sitting on the fence




Qatar has followed an ad hoc approach to its energy-price increases and so it is difficult to talk about a coherent energy-pricing strategy. Back in 2011, the Qatari government increased the prices of petrol and diesel by more than 25%, with the liter price for super 97 octane set at QR1 ($0.27) and the premium petrol price at QR0.85/liter.

The government also raised the price of diesel to QR1/liter and kerosene to QR0.80/liter. There has been no further adjustment to these prices since 2011. But in October 2015 Qatar General Electricity and Water Corporation surprised many by hiking the water and electricity charges with effect from September 2015. In its 2016 budget, the government slashed its expenditure by 7.3% in nominal terms, but with no indication that there would be a cut in subsides or in capital expenditure, with education bearing most of the spending cut. The Qatari government plans to cover its projected deficit by raising debt in international markets.

Step in the right direction, but the road is long

While it is still early on to evaluate the recent announcements of increases in energy prices and their impacts on the wider economy, it is possible to discern some trends, which will shape the reform agenda for years to come.

First, more price increases are very likely in the coming years. Countries such as Saudi Arabia have specified a clear time framework (in its case, five years) while others have shied away from committing to a specific time frame. Second, it is important not to underestimate the spillover effect within the GCC. The UAE and Saudi announcements have encouraged other countries in the GCC to follow suit.

But this can also work in the opposite direction. Any reversal or slowdown in policy in these two countries will have an impact on the reform agenda elsewhere in the GCC. Third, the need to generate revenues in these difficult times has been the main driver of the recent increases in energy prices. This is not ideal. Experience suggests that reforms are better implemented in good times, when the economy is in a better shape. However, a period of weaker oil prices makes it easier for countries to adjust their domestic prices to international levels, hence presenting a unique opportunity to align the two.

It remains to be seen whether governments will continue with their reform agenda when fiscal pressures ease. Fourth, none of the GCC governments has yet put in place mitigating measures to protect the household incomes from the price increases, perhaps because the increases for now remain modest and are starting from a low base.

But designing compensation schemes for households would be essential to avoid backlash from consumers if GCC governments decide to further increase gasoline water and electricity rates, as these have a direct impact on household welfare.

Lessons from neighboring countries can be useful in this context. For instance, increases in energy prices in Jordan were accompanied with direct cash handouts to households with low income while Egypt and Morocco ensured that reforms to LPG prices were minimal to ensure the vulnerable still had access to energy for cooking.




The effectiveness of GCC governments to design and execute such compensatory schemes will be closely monitored. Fifth, the increase in energy prices will affect the cost base of some key industries and companies reducing their profitability. Governments could establish specialized funds to help industries adjust to higher costs by introducing new technologies and upgrading equipment, though any assistance should be on a case by case basis as some of the companies already benefit from different forms of government support and remain highly profitable even after the current increase in energy prices.

Finally, designing an effective communication strategy that transmits information in a timely and transparent manner and that reaches all segments of society impacted by the price increases is key to the success of any reform program. Part of Morocco’s success was a result of a well-orchestrated communication strategy that included public TV and radio discussions, advertisements and debates explaining the reform steps, the reasoning behind the reform and the benefits to society.

The recent experience in most GCC countries is not encouraging in this respect: most countries announced the price increases in an ad hoc manner and without an effective communication strategy to explain the reasons behind them, who the main beneficiaries would be, and whether compensation schemes would be put in place.

While some of the GCC countries have taken a step in the right direction, the road for reform is still long and fraught with risks. The GCC governments can breathe a sigh of relief that the initial announcements did not generate much public opposition. But it is too early to celebrate as experience shows that price reversals are possible.

For reforms to succeed, a clear vision, political resolve, the involvement of different segments of the society, effective and transparent communication strategy, and well-designed compensatory schemes to mitigate the negative impacts on households and industry are all essential. In the GCC countries, the jury is still out as to whether the preconditions for a successful pricing reform program have been appropriately put in place.




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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 13 January 2016 K. Al Awadi




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New base 764 special 13 january 2016