NewBase 635 special 28 june 2015

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

or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this

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NewBase 28 June 2015 - Issue No. 635 Senior Editor Eng. Khaled Al Awadi

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

Masdar’s Nest may be cheaper way to store solar power The National

An energy storage pilot project run by a Norwegian company at Masdar City could drive costs down for the solar sector by 70 per cent over the next five years. New Energy Storage Technology (Nest) is testing its 1-megawatt concentrated solar power (CSP) system at the Masdar Institute’s Beam Down facility, using a concrete mixture to store energy rather than the usual, more expensive, molten salt method.

There is an international push to get the price of CSP down to 6 US cents per kilowatt hour by 2020 from its current average of about 20 cents. In the UAE, this would put the power generated from the technology at grid parity, or the same price as power from natural gas. Another type of solar energy in the country, solar photovoltaic (PV), has already reached grid parity at Dubai’s Mohammed bin Rashid Al Maktoum Solar Park project.

“We want to help make CSP a leader [in power generation technology],” said Nicolas Calvet, the chairman of the Masdar Institute Solar Platform. He pointed out that since CSP is a newer




technology, the sector is still trying to increase its research and development efforts to drive down costs. The price of components is the main obstacle, and energy storage is the main piece of the category’s puzzle, making up about 20 per cent of the total costs of a CSP plant.

Nest said its technology could cut the cost of CSP energy storage systems by half. The company developed the prototype and pays for the operation of the system, while Masdar Institute provides the infrastructure. Nest expects its technology to finish the testing phase in October.

“Nest’s is the first large-scale, pre-commercial-scale thermal energy storage system in the Middle East,” Mr Calvet said. Christian Thiel, the Nest chief executive, said that the storage system should reach commercial markets in the fourth quarter once the pilot is validated.

“We see our system as a revolutionising thermal battery with significant cost reduction,” he said.

The Abu Dhabi-based International Renewable Energy Agency (Irena) has released a cost analysis of various renewable energy technologies. It says the price of CSP plants is dominated by the initial investment cost, or capital expenditure, which accounts for about four-fifths of the total cost. Mr Thiel said the Nest technology could cut capex requirements by 30 to 65 per cent.

Energy storage is one of the biggest obstacles facing renewables as sources of power generation. PV does not have energy storage capabilities, requiring the energy captured from the sun during the day to be immediately fed into the grid. This can curb the use of traditional forms of power generation such as natural gas, but only during daytime hours.

CSP has an advantage in that it is able to save the daytime solar energy to feed into the power grid at night. The current form of storage most widely used for CSP applications is molten salt.

Mr Thiel explained that molten salt, which stores the energy for later use, must maintain a temperature above 275°C or it will crystallise. To do this requires using a constant source of

electricity. Switching to a cement source of storage such as Nest’s frees that electricity to be sold instead, slashing operation costs by 50 to 75 per cent.

The molten salt costs US$500 to $1,000 per tonne, compared with the concrete mixture at $80 per tonne.

Nest expects to break even within two years of commercial operation. Its total investment so far has been $10 million. The technology could be applied to new CSP plants or those already built without storage units, such as Masdar’s

100MW CSP Shams 1 plant in Abu Dhabi.

Mr Thiel said Nest’s priority would be to build its storage units in the Middle East. “The technology has been developed with the [Masdar] Institute, and having a project [within Masdar] would be a nice development.”

“We have a good chance to get our first contract signed by the end of this year, since customer interest is already very high,” he said, adding that the company was in advanced discussions with four potential clients.




UAE: Abu Dhabi fund inks loan deal for Maldives power project The National

The Abu Dhabi Fund for Development (ADFD) has signed a loan agreement with the government of the Republic of Maldives to finance a AED22 million ($6 million) project that will generate energy from waste.

ADFD said the loan agreement is part of its strategy to finance renewable energy in accelerating economic development in developing countries. The agreement was signed by Mohammed Saif Al Suwaidi, director general of ADFD, and Abdulla Jihad, the Minister of Finance and Treasury, Republic of Maldives.

Aimed at contributing to the development of the Maldivian economy, the project will support the energy sector in the northern city of Addu, the second largest city after the capital Male.

The project involves the installation of a power plant that will use waste in an eco-friendly manner to generate about 4 megawatts of energy from heat, meeting 18 percent of the city's electricity needs.

In addition, it will help save about 1.9 million litres of diesel, while reducing 10 percent of the city's total waste. Al Suwaidi said: "The UAE is working through ADFD to promote the widespread deployment of renewable energy towards achieving sustainable economic and social development in emerging economies.

"This loan agreement with the Government of Maldives will significantly contribute to meeting the electricity needs of large portions of the population of Addu city from clean sources." Jihad added: "ADFD's active involvement in financing development projects has had a significant economic impact in improving the standard of living and quality of life in developing countries.

"The bilateral relations between the two countries have grown remarkably over the past years primarily due to the UAE's continued support to the stability and development of the Maldives. We look forward to forging further economic cooperation and joint investments with the UAE for the wider benefit of the two countries."

ADFD has funded four projects valued at over AED68.6 million in vital sectors to Maldives's economy, including housing, communications, transport and energy.




Morocco: Circle Oil announces successful test of LAM-1 on the Lalla Mimouna.. Source: Circle Oi

AIM-listed Circle Oil, the North African focused oil and gas exploration, development and production company, has provided an update on the progress of the LAM-1 well on the Lalla Mimouna Permit, onshore Morocco.

LAM-1, the first well drilled by Circle on the Lalla Mimouna permit, targeted the Miocene gas-bearing sands, similar to the Sebou Permit to the south of Lalla Mimouna. The TD of the well at 1,541 metres MD was reached on 26 May 2015, prospective gas zones were logged, a completion string was installed and the rig relocated to drill the ANS-2 well. The LAM-1 well was then tested using a slick-line unit following the release of the rig. The primary target was perforated at 1,261-1,272 metres and flowed gas at a stabilised rate of 1.9 MMscf/d on a 16/64" choke and the secondary target was perforated at 1,181-1,183 metres MD and flowed at a stabilised rate of 1.1 MMscf/d on a 16/64" choke.

The rig has been mobilised to drill the ANS-2 well, the second well of Circle's drilling campaign on Lalla Mimouna, located on the northern flank of the East-West trending Anasba ridge. This well has a primary target for Miocene gas-bearing sands at 1,007 metres MD and prognosed TD at 1,062 metres MD. Depending on progress rates, initial results could be available in approx. 20 days.

Commenting on the results of the LAM-1 well Mitch Flegg, CEO, said: 'We are delighted that our first well on the Lalla Mimouna Nord Block has such positive results, flowing gas at significant rates from both target intervals. The productivity of this first well is very encouraging for the expansion of Circle's portfolio of Morocco gas fields.'

The Lalla Mimouna permit is a partnership between Circle Oil Maroc Ltd (75%) and ONHYM (Office Nationale de Hydrocarbures et des Mines) (25%).




Saudi Yasref refinery reaches full capacity 400,000BD Reuters + NewBase

Yanbu Aramco Sinopec Refining Co (Yasref), a joint venture between Saudi Aramco and China Petrochemical Corporation (Sinopec), said on Wednesday its new refinery had achieved a milestone processing crude at full capacity of 400,000 barrels per day (bpd).

The second full-conversion refinery in Saudi Arabia makes gasoline, high quality diesel and liquefied petroleum gas (LPG) as well as byproduct sulfur and petroleum coke for export.

“On June 22nd, Yasref reached full capacity of processing 400,000 bpd of Arabian Heavy crude in a full conversion refinery in what we believe is a record time,” Mohammad al-Shammari, Yasref’s CEO, told Reuters in a telephone interview. “All processing units are up and running,” he said. Yasref is 62.5 per cent owned by Saudi Aramco while Sinopec holds the rest. Alshammari said one of the company’s objectives is listing shares in the Saudi stock market but the timing has yet to be set.

The refinery began commercial operations on April 1 and in mid-May hit full capacity processing Arabian light crude before switching to Arabian heavy crude and reaching full capacity on June 22, Alshammari said.

By the end of May, the refinery had exported 20 million barrels of diesel and gasoline and more than 150,000 tonnes of petroleum coke. It has also supplied the domestic market with refined products, he said, and is producing close to the designed capacity target of 90,000 bpd of gasoline and 260,000 bpd of diesel.

Saudi Arabia is investing heavily in upgrading and building new refineries to maximise value from exporting only crude oil. It has traditionally been the world’s biggest exporter of crude and the kingdom’s rapid transition into one of the largest oil refiners adds an extra dimension to global oil markets.

The growth puts Saudi Aramco’s owned or equity stakes in refining at 5.4 million bpd, at least 40 per cent above a decade ago. Aramco itself markets more than three million bpd of that, tying it with Shell as the world’s fourth-largest oil refiner.




Saudi Arabia, Kuwait in talks to resolve oil dispute By AFP + NewBase

Saudi Arabia and Kuwait have begun talks to resolve a dispute that halted oil production in the neutral zone between the Gulf neighbours, the Kuwaiti oil minister said. "A joint committee formed by the two countries... has recently held its first meeting in Riyadh," the KUNA news agency

quoted Ali Al Omair as saying late on Tuesday. The dispute has seen the closure of the Khafji and Wafra oil fields in the neutral zone, which have been pumping for more than half a century. The two fields together produced more than 500,000 barrels per day which was equally shared between the two countries. Omair said there was no timeframe for the talks but that he expected a breakthrough shortly. The offshore Khafji filed was shut down by the Saudi side in October over environmental issues. Wafra was

closed in May for a two-week maintenance and did not resume production. Industry sources say Kuwaiti authorities were unhappy with Saudi Arabia for renewing an operating agreement for the Wafra field with Saudi Arabian Chevron for 30 years in 2009 without consulting them. In response, it stopped issuing or renewing visas for Chevron foreign employees. The halt to output comes amid a worldwide supply glut that has driven down prices of crude. The dispute has been a blow particularly to Kuwait which, unlike its much larger neighbour, has little spare output capacity to compensate for drops in production.

About :-

The Neutral Zone, evenly split between the two Opec nations, is producing 300,000 bpd offshore and 220,000 bpd onshore, says the official. But the Khafji field, which makes up nearly all offshore production, produced far under its potential in the first quarter of this year due to 50 days of maintenance.

The Neutral Zone is a 50-50 partnership of Kuwait Gulf Oil Co (KGOC), a subsidiary of state-owned Kuwait Petroleum Corp (KPC) and Aramco Gulf Operations Co (AGOC), a subsidiary of state giant Saudi Aramco. US major Chevron operates the Saudi share of the onshore partitioned zone, which includes the Wafra field. Kuwaiti officials say Wafra could potentially add an additional 500,000 bpd if Chevron decides to move forward with development of the field’s heavy oil reservoirs.

Chevron delayed a final investment decision on a massive steamflooding project at Wafra. The US major extended its ongoing large-scale pilot (LSP) in order to gain a better understanding of the complicated nature of injecting steam into the field’s carbonate reservoir to extract the heavy 18° API crude.

A significant output hike at Wafra could help compensate for other delayed upstream projects inside Kuwait, which are likely to jeopardise the Opec country’s ability to boost overall production capacity to 4 mbpd by 2020, up from around 3.2 mbpd.




GCC rail to transform regional transportation landscape

Oman Observer

Throughout the world, railways have played a key role in the economy by seamlessly interconnecting different economic centres, raw material sources and markets to facilitate development by providing a fast and economic mode of transportation.

The Gulf Co-operation Council’s (GCC) decision to build an international rail route running from Kuwait to Oman along the Gulf Coast connecting the six GCC countries and their port facilities on the Arabian Sea is envisaged to be a major milestone for the transformation of the regional trade and transport.

The 40,000 kilometres planned railway projects spanning across the six members GCC countries with investments over $200 billion would not only boost trade and logistics but also attract companies, manufacturers, human resources and capital to the region providing a fresh impetus to the overall economic environment and growth.

This project is of immense strategic importance for the member countries as when completed, this railway network will be the alternate connection to the Arabian Sea and help transport oil. At present the Hormuz Strait route is the only way out for the crude oil tankers. Thus 2,177-km GCC rail link will be vital in providing an economic and speedy alternative compared to existing road, air or sea transport.

As a part of the larger project, Oman Rail, the wholly state-owned rail company will build 2,135 km of national railway network which will be the essential lifeline connecting Sultanate’s three deep-sea ports at Sohar, Duqm and Salalah with the GCC rail network.




The overland rail route would offer tremendous savings in time and cost from a supply chain standpoint. According to the Chief Commercial Officer of Oman Rail, volumes going by rail from Sohar to Riyadh or Dammam should normally take two days versus 10-12 or 15 days if shipped by vessel via Jebel Ali.

The whole network will be designed and built to support heavy haulage of containers, mineral commodities, oilfield equipment and other freight, adopting double stack technology for better efficiency.

As the current system of truck-based transportation eventually gives way to rail-based freight, Omani bulk mineral exports are envisaged to grow tenfold with one train of 10,000 tonne capacity that can replace around 300 trucks, increasing volume and efficiency.

Freight trains can reduce energy costs between 60 to 80 per cent over road transport and cost up to 30 per cent less than road transport, according to industry sources. Thus the economic benefits of switching over to railways for transporting goods will also be extended to businesses with local and regional operations in turn enhancing their opportunities, competitiveness and profitability.

Besides commercial advantages, using railways over road transport is estimated to lead to a 50 per cent reduction in carbon dioxide, making them more environment-friendly. According to the top executive of Saudi Arabian Railways, that is building a massive network of 5,000 kilometres of which 1,400 kilometres is operational, the project’s environmental benefits are tangible too.

Since the rail line that has the ability to transport phosphate and bauxite from mines to the manufacturing facilities at the port in Ras Al Khair became operational, it has transported more than 6.5 million tonnes of phosphate and saved 70 per cent of the fuel that would have otherwise been consumed by trucks.

In addition, the internal railways as well as the GCC rail link will also play a transformational role in the public transportation systems catalysing socio-economic growth. In Oman, as the Government’s thrust on tourism continues, the railway project would facilitate easier passenger travel within the country and to and from neighbouring counties, further enhancing its tourist appeal and experience.

Although the sheer scale of the ambitious project does pose some challenges to the

member nations to complete the railway development on time and in budget given the globally lower oil prices, there is a strong commitment from all Gulf Cooperation Council countries to proceed with and complete the project by 2018. High-speed rail is an investment for the long-term growth of our region and the Sultanate would benefit greatly from the same in an economic and social perspective owing to its strategically important geographic position.




Japan: INPEX discovers new oil in Minami-Kuwayama oil field in Niigata Prefecture, Source: INPEX

INPEX announced earlier this week that it has discovered a new oil column at a depth of around 3,900m as a result of exploration drilling in the Minami-Kuwayama oil field in Niigata Prefecture, which has produced approx. 160,000 kiloliters (about 1 million barrels) of oil since trial production began in 2004.

INPEX spudded the Minami-Kuwayama No. 3 well in April this year for the purpose of further developing the oil field and improving its productivity, and confirmed that production can be expected from the 24m thick oil column through analysis of wireline logging data and extracted formation fluid. Wireline logging consists of taking measurements of the resistivity, density and porosity of the formation around the well. Moving forward, INPEX will continue analyzing data retrieved from the well for evaluation purposes, and conduct additional drilling operations in fiscal 2016 in order to bring the discovered oil to production. INPEX expects the current production volume of the oil field at 300~380 barrels per day to triple if the additional drilling operations are successful. INPEX is committed to its sustained engagement in the efficient and effective cultivation of Japan’s domestic energy resources through new exploration and development activities.

The Minami-Kuwayama oil field is located approx. 20km southeast of the city of Niigata.




Oil Price Drop Special Coverage

Oil near flat, Brent up modestly after two-day drop Reuters + NewBase

Crude futures ended little changed on Friday , June 26 2015 , after signs Greece might have a deal by the weekend to avoid a debt default, while Iran faced continued difficulty in securing an nuclear agreement to end sanctions on its oil exports.

Brent rose modestly after falling for two straight days. But U.S. crude extended its downside after indications that the country's oil rig count, a measure for future production, may start rising soon.

Brent settled up 6 cents, or 0.1 percent, at $63.26 a barrel. For the week, it rose 0.3 percent. U.S. crude settled down 7 % , or 0.1 percent, at $59.63. It was down similarly for the week. Among refined oil products, gasoline rose 0.6 percent while ultra-low sulfur diesel settled flat on short-covering after sharp declines in recent sessions. In Vienna, ahead of a June 30 deadline for a final deal between Iran and world powers, major differences remained on key issues such as sanctions relief and U.N. access to Iranian nuclear sites, senior Western diplomat said.

On the data front, oil services company Baker Hughes said the U.S. oil rig count, a measure of future production, fell by 3 this week.

It was the smallest drop in five weeks and a sign that the collapse of U.S. drilling was coming to an end, with crude prices recovering after a 60 percent slump between last June and March this year.

"We're bottoming out and should see an end to this drop in the coming weeks," said Matt Smith, director of commodity research at New York-based Clipper Data, referring to the rig count.




Oil price rally and US tight oil production Morten Frisch My opinion entitled “US tight oil production and the future oil price” published on 12 January 2015 (http://www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid = 2015011223027) addressed the drilling for and production of shale or tight oil in the US Lower 48 states. Since the opinion was published the number of active, onshore, oil-directed, drilling rigs in the US Lower 48 States has fallen from 1,421 to 631, a much larger drop than what was anticipated. However, in spite of 790 oil rigs having disappeared, production of shale or tight oil appears resilient. This begs two questions: How could oil production be kept up under such

circumstances? And how reliable are the published tight oil production figures? Tight oil producers have been working on enhanced drilling efficiencies (pad drilling, “down-spacing”, reduced drilling time per well etc.) and enhanced recovery technologies over a period of time. Estimated Ultimate Recovery (EUR) per tight oil well has typically increased between 25 percent and 45 percent when compared to pre-2012 wells with standard completions, the so-

called “legacy” wells. Production costs have also fallen by as much as 30 percent as oil producers are putting pressure on suppliers and equipment manufacturers. Since January the cost of a typical lateral well in a sweet spot of the Bakken field area in North Dakota has decreased from some $9m to $7.7m, while EUR per well has increased. One must not forget that E&P companies operating onshore in the US are usually required as per their lease agreements to drill a certain number of wells per month or year to retain their hydrocarbon E&P lease. In the first 4 months of 2015, with West Texas Intermediary (WTI) prices fluctuating between $45 and $55 per bbl, many of these oil producers elected to drill and not complete a growing number of wells. In such way they complied with the provisions of their lease agreements, but also saved precious




funds given that completion cost onshore in the US is some 60% of total well capital expenditure. As of February 2015 more than 4,700 onshore US wells — 80 percent of which being oil wells — were drilled, but not completed. At the end of April, when the WTI price started rising towards $60 per bbl, a number of Texas oil field operators were again mobilizing completion crews, as demonstrated in the figure (Graph). Texas is the home of the large tight oil producing areas Eagle Ford and Permian. In spite of this development, in early June there were still more than 3,800 wells, drilled, but not completed. At the current WTI price levels tight oil production could be sustained simply by going back to these uncompleted wells. In fact, with no more new wells drilled, in order for US oil production to stabilize at the current level, it would suffice to complete some 500 tight oil wells each month to the end of 2015. If WTI price rises above $65 per bbl, most E&P companies operating in the Bakken, Eagle Ford and West Texas Permian tight oil basins will return to full drilling, hydraulic fracturing and completion activity. At the current price level of around $60 per bbl we also see increased hedging of future production for the balance of 2015 and the calendar year 2016. Up until recently most companies had only hedged some 10 percent of their production for the remainder of 2015. This number is now increasing to some 50 percent, a situation which likely will help sustain US oil production in 2016. One should not overlook the re-hydraulic fracturing activities of an increasing number of E&P companies. Hydraulic fracturing of legacy wells drilled in 2012 and earlier was frequently performed on a “hit or miss” basis. As tight oil well analysis improved, it became evident that in many cases re-fracturing of a legacy well nearing the end of its producing life could increase hydrocarbon recovery by between 60 and 80 percent of the previous EUR. Currently, the typical cost for this process is between $1.5 and $2m per lateral well and the large service companies have started offering re-fracturing on a “no cure, no fee” basis. Hence, E&P companies should have nothing to lose by applying this procedure. Indeed, taking as an example sweat spots in the Bakken field area where a drilled, hydraulic fractured and completed for production well currently costs around $7.7m, a refracking of a legacy well could prove a very cost-effective investment. Over the last year the US shale or tight oil production has been the world’s marginal oil supply and lots of attention is therefore given to published production data for this class of hydrocarbons. But how reliable is the tight oil production data available today? Statistics for oil production in the US are currently collected on a state and not federal basis. With the exception of North Dakota which produces reliable drilling and production data with a 2 month-time lag, many other states produce such data only annually, and correct information may take up to 2 years to become available, even to the US Department of Energy (DoE). As a result, all oil production data currently published by DoE’s Energy Information Administration (EIA), as well as Texas Railroad Commission, are estimates, in fact derived with misleading input




such as the number of wells drilled, a data group which I discussed in previous paragraphs. Some 13,000 oil and gas well operators are currently active in the United States. A lot of these smaller operators have the tendency to resist “form-filling” as a time-consuming, highly bureaucratic exercise, which they cannot afford. EIA is currently implementing a new system modelled on the EIA-914 form process used already for shale gas, which they hope will provide them with 85% coverage of the larger oil well operators. It will however take time for this system to be applied and properly work. One should also not forget that modern shale oil and gas E&P activities are fairly recent developments, representing an industry going through rapid improvements and change. This is a process clearly accelerated by the low oil price environment, where operators are forced to improve procedures, cut costs and, generally, become more efficient. It is observed that large conventional oil producers and interties that, generally speaking, can influence the international oil market and, therefore, oil pricing, have built large and sophisticated models to predict, not only US, but North American, tight oil production. However, given all aforementioned concerns regarding the reliability of oil production data, modelling of tight oil production will remain at best a haphazard activity, at least until the new EIA process-derived data become available to the industry. Reportedly, Saudi Minister of Petroleum and Mineral Resources Ali Al Naimi stated in St Petersburg on June 18, 2015, that Saudi Arabia will be increasing oil production to capacity over the summer. Although such an action of Saudi Arabia — producing at capacity in an era of soft, and potentially falling prices when the country recently also has started up two large new refineries — makes good economic sense, it also begs the question whether this also is a way to stop the price of WTI rising above $60 per bbl and even approach $65 per bbl. The latter price level is likely to accelerate US oil production growth. Only time will tell if the oil price rally is sustainable. We certainly live in an interesting time. — The writer is the senior partner of Morten Frisch Consulting, UK. He can be contacted at: [email protected] Website: www.mfcgas.com




Oil Seen Rising by Investec Manager as Glut Misjudged by Grant Smith Bloomberg

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Oil will reach as high as $100 in the second half of next year as demand strengthens and supply falls short of forecasts, according to a fund manager who’s worked in the industry for more than three decades.

Demand will exceed supply by about 1 million barrels a day by the end of this year and a shortfall will persist into 2016, Charles Whall, who manages about $1 billion of assets in energy equity funds at Investec Asset Management in London, said by phone Wednesday. Oil probably will reach a range of $90 to $100 in the second half of next year, he said.

Saudi Arabia, the biggest oil exporter, is leading OPEC in a strategy of defending market share rather than prices and is pumping the most crude in about three decades. While Citigroup Inc. and Goldman Sachs Group Inc. say the nation will keep raising output, Whall says the limit may already have been hit.

“The general picture could be quite wrong,” said Whall, whose funds have an “overweight” position on exploration and production companies, particularly in North America. “This looks like a much tighter market next year than people are anticipating.”

Brent crude, a global benchmark, rallied 40 percent to $63 a barrel since reaching a six-year low on Jan. 13. Prices could reach $80 by the end of the year, Whall said. They will average $85 next year, according to Investec’s base case.

Output Peak

Saudi Arabia has been supplanted by Russia as the top supplier to China and that indicates the nation is already at its sustainable output peak, according to Whall.

“They’ve got a battle for market share at the moment,” Whall said of Saudi Arabia. “The Russians are now selling more crude than they’ve ever done to the Chinese. So if they could produce more, of course they would.”

Saudi Oil Minister Ali Al-Naimi said June 18 that output can rise to meet demand and that his nation retains spare daily production capacity of as much as 2 million barrels.

Traders also should be more conservative in their assumptions about how much extra supply will come from Iran, Whall said. The nation’s output was declining before sanctions were imposed, he said.

Iranian Oil Minister Bijan Namdar Zanganeh said June 5 that his country could increase production by 1 million barrels a day within about six months of a deal to lift sanctions. It might actually add only 400,000 barrels a day next year in the event of a deal with world powers over its nuclear program, Whall said.

Falling oil prices have also cut spending across the industry and that will curb future production plans, Whall said. Even if prices rise and U.S. drillers activate more rigs as a consequence, it will take time for that to translate into higher output, he said.




Kingdom, Russia vie for global oil market foothold ENERGY OUTLOOK- Syed Rashid Husain

In the rapidly changing geopolitical environment, Saudi Arabia and Russia are forging ahead - fostering a closer relationship - in major sectors including the all important energy sector. When the Saudi Deputy Crown prince Mohammad bin Salman, accompanied not only by the Foreign Minister Adel bin Jubeir but also the Petroleum Minister Ali Al-Naimi called on Russian President Vladimir Putin in St. Petersburg on June 18, six major deals were signed between the world’s two top crude producers.

The deals ranged from agreement in defense sector to enhanced cooperation in energy development. It also covered greater cooperation on nuclear energy development. Citing unnamed sources, Al-Arabiya reported the kingdom planned to build 16 nuclear reactors and Russia has agreed to play a significant role in operating them. The Saudi atomic and renewable energy body has already signed nuclear cooperation deals with countries able to build reactors, including the United States, France, Russia, South Korea, China and Argentina. Interestingly during the visit, the two sides, who otherwise seem competing, rather intensely these days, for crude market share also announced forming a working group for joint energy projects. “At the end of the year, in October, we will summon a meeting of the (Russian and Saudi) intergovernmental commission, which hasn’t operated for five years,” Russia’s Energy Minister Aleksandr Novak said in St Petersburg. “There are no specific projects in the energy field yet, we only have an agreement to create a working group between our ministry and the Saudi Arabian oil ministry, which, together our companies will work on specific projects,” the energy minister told reporters. He further clarified that his country (through the deal with Saudi Arabia) was not looking to replace its existing oil and gas partners but wanted to create newer ones.




Given that US and EU sanctions limit the transfer of new oil and gas technology to Russian state oil firms, reports indicate that Russia could be seeking enhanced oil and gas recovery and advanced drilling technology from Saudi Arabia, especially for use in the older fields in West Siberia. With a growing list of global research centers in Beijing, Houston, Aberdeen, Massachusetts and others, Saudi Aramco is today regarded as the biggest global investor in new oil and gas technologies. But while Saudi Arabia and Russia seem to be expanding their relationship, an interesting scenario seems emerging too. They continue to compete, rather fiercely, in global crude markets, already faced with glut. The battle for market share is very much on. In May, Russia’s oil output reached a record 10.78 million barrels a day, pretty close to the Soviet era production of 1987. This was significantly up from May last year, when Russian production stood at 10.08 million bpd. The record crude oil output from Russia is certain to continue putting pressure on the global crude oil markets. In near term too, Russia does not appear to be considering any output cut. And the world's leading crude exporter, Saudi Arabia's output is also in top gear. As per OPEC statistics, Saudi output went up by 697,000 bpd between February and May this year, rising to 10.3 million bpd in May 2015 as against 9.69 million bpd a year earlier. And there are indications this could go up further. Al-Naimi said in St. Petersburg the country has about one and a half million to two million bpd of spare capacity, and is ready to raise production if demand calls for such an action. Goldman Sachs and Citi Group are also now projecting that Riyadh will likely start to push production to 11 million bpd in the second half of 2015. “If you are Saudi Arabia and you’re looking at the new oil order we live in, you would go to full capacity,” Jeff Currie, head of commodities research at Goldman Sachs in New York, was quoted as saying by Bloomberg. And the competition between the two is beginning to get brutal too. With the world's largest consumer, the United States, now depending more and more on its domestic output, the focus of major crude producers is on emerging Asia, especially China - already in the process of overtaking the US as the world’s biggest importer of crude. From Moscow to Riyadh and Tehran to Baghdad, all major stakeholders seem to be concentrating on Beijing to ensure a healthy pie of the Chinese cake. And in race to grab a significant share in the Chinese crude market, at least for the time being, Moscow seems to have pipped Riyadh too. In May, China imported a record 3.92 million metric tons from Russia, Bloomberg reported quoting data from the Beijing-based General Administration of Customs. That’s equivalent to 927,000 barrels a day, a 20 percent increase from the previous month. “By our records, which started in 2007, this is the first time Russia is China’s top crude supplier,” Financial Times quoted Amrita Sen, head of oil research at Energy Aspects in London, as saying. Russian exports to China have more than doubled since 2010. And a number of reasons are also being cited for this upsurge in Russian crude exports to China. As Western sanctions over the Ukraine crisis started to bite, Moscow has had to seek alternative markets. It has been, understandably, keen to strengthen ties with Beijing, analysts are underlining all around.




A number of other factors too seem to be aiding Moscow in its bid to expand it crude sales to China - at the expense of Saudi Arabia and others. Moscow's decision to accept the proceeds from oil sales in Chinese currency yuan seems to have helped significantly in the rise in exports to Beijing. Further, in 2013, Russia’s largest oil producer, Rosneft, signed an $85bn deal with China’s Sinopec to deliver 100m tons of crude over 10 years. And then Rosneft also struck a 25-year contract, worth $270 billion, with Chinese state-owned oil company CNPC for the delivery of 365 million tons of oil. The upsurge from Russia was apparently at the expense of Riyadh. Consequent to the development, Saudi crude exports to China, slumped by 42 percent last month from April, to 3.05 million tons - 722,000 bpd. However, despite the intense media debate on the issue, one could not defer underlining that last months' figure may not be truly representative of the market undercurrents. With brute summer around and the Saudi domestic consumption on the rise, crude exports could get compromised during the months. Less export to China may also be a manifestation of that. In April Saudi Arabia’s crude exports fell by 161,000 bpd, to 7.737million bpd from 7.898 million in March as domestic refiners processed more crude, official data confirmed. Domestic refiners processed 2.224 million bpd, up 315,000 bpd from 1.909 million bpd in March, Joint Organizations Data Initiative (JODI) figures showed. The country burnt 358,000 bpd in April versus 351,000 bpd in March. Before reaching a conclusion on the Chinese market, one needs to wait for a few more months. Yet the fact remains that despite growing cooperation, Russia and Saudi Arabia also continue to fiercely compete in the global crude markets. And that is the dichotomy of this otherwise budding relationship.




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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.

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NewBase 635 special 28 june 2015