New base 491 special 07 december 2014

Copyright © 2014 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced,

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NewBase 07 December 2014 - Issue No. 491 Khaled Al Awadi

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

Saudi firm outbids rivals for second phase of Mohammed bin Rashid Al Maktoum solar park ( The National )

Dubai Electricity and Water Authority are considering proposals for a major solar power contract in the emirate. A Saudi company has submitted a bid which is reported to be underbidding rivals, including Masdar, for the second phase of the Mohammed bin Rashid Al Maktoum solar park.

Acwa Power, a Riyadh-based company, bid an unprecedented, and unsubsidised, 5.98 US cents per kilowatt hour (kWh) for the 100 megawatt (MW) phase, trumping the previous lows in Brazil and India at 8 and 9 cents.

The Berlin-based global management consultancy Apricum believes this will set the standards for tenders. “The public readout of the bids provoked awe in the room and is now sending ripples through the Gulf power sector,” said Moritz Borgmann, a partner at Apricum.

A joint venture between the Spanish developer Fotowatio Renewables and the Saudi newcomer Abdul Latif Jameel Energy came in a close second at 6.13 cents. “The extremely low winning bid and the close second bid mark worldwide record lows for the cost of solar electricity,” Mr Borgmann said.

Masdar and its partner, Isolux Corsan of Spain, as well as other industry big players First Solar, SunEdison and EDF submitted proposals in the range of 8 to 9 cents per kWh. “The results also




indicated that a few applicants were apparently out of sync with the market as demonstrated by bids as high as 14.7 cents per kWh,” Mr Borgmann said.

Dubai Electricity and Water Authority (Dewa) launched the Mohammed bin Rashid Al Maktoum solar park two years ago as part of Dubai’s 2030 energy diversification goals aimed at bringing clean energy’s contribution to the emirate’s total power generation to 12 per cent.

The first phase of 13 MW was brought online in October last year by First Solar. The tender for the second phase for a 100 MW plant is still open and is currently under evaluation. The solar park is to have a total generating capacity of 1,000 MW once complete.

Dewa issued the tender for the second phase on November 20 under a build-own-operate model, shortlisting 10 firms out of the 49 initial qualified bidders. Independent power producers (IPPs) were selected after submitting the lowest tariff on a per-kilowatt-hour basis.

Officials at Dewa and Masdar could not be reached for comment yesterday.

This solar tender is a game changer for the industry with Acwa taking an aggressive approach to go ahead and bid for the remaining 1,000 MW at a tariff of 5.4 cents under a 25-year power purchase agreement. The Saudi company also said the park could be completed in 2018, long before the 2030 date proposed by Dewa.

The alternative proposal from Acwa became public only through a glitch in the readout process, according to Apricum.

“[The bid] is a testament not only to the commercial competitiveness of solar energy in the Gulf region, but also to the confidence with which serious market players would commit to extremely fast large-scale deployment of solar PV power,” said Mr Borgmann.

A 13 megawatt (MW) photovoltaic (PV) power plant, marking the first phase of Dubai's

Dhs12 billion Mohammed bin Rashid Al Maktoum Solar Park .




In Acwa’s 2013 annual report, the chairman said that the company’s strategy was to decrease the cost of renewable energy. “In fact, we are showing considerable industry leadership by rapidly reducing the cost of renewable energy,” said Mohamed Abunayyan.

The economic viability of these rates will rely heavily on Acwa’s ability to cut costs on the components of a PV power plant while maximising performance. “You want to use as little material as possible and you want to build as fast as possible,” said Mr Borgmann.

“It’s optimisation of the construction of the plant itself and how its constructed starting from design to implementation.”

Apricum said that the tariff rates proposed by Acwa are feasible thanks to local financiers. Mr Borgmann said a number of regional banks are making statements that they are willing to support renewable energy project finance. “Banks see renewable energy project finances and they really want to position themselves as being available.”

Acwa is also said to be a front-runner, along with the Spanish giant Abengoa, in the tendering process for another Morocco concentrated solar power (CSP) project totalling 350 MW.

The Saudi company said in October that it was looking to gain more than $7 billion worth of projects in the renewable energy sector, focusing on wind and solar in the Mena region. Acwa’s current solar portfolio includes a 60 MW PV plant in Bulgaria, a CSP plant in South Africa totalling 50 MW and a 160 MW CSP plant in Morocco.

About ACWA Power

ACWA Power International (ACWA Power) is a developer, investor, co-owner and operator of plants with a generation portfolio of 15,731 MW of power and 2.37 million m3/day of desalinated water with an investment value in excess of USD 23 billion and providing employment to more than 2,300 people.

The company, incorporated in the Kingdom of Saudi Arabia, with a paid-up capital of approx. USD 1.4 Billion is owned by eight Saudi conglomerates besides Sanabil Direct Investment Company (owned by the Public Investment Fund) and by the Saudi Public Pensions Agency. ACWA Power’s core business is the delivery of electricity and desalinated water by operating assets in which the company has a meaningful level of investment to exercise operational control.

The current portfolio of assets and investments delivers over 6,050 MW of power and around 2.3 million m³/day of desalinated water in Saudi Arabia; 1,550 MW of power in Jordan; 427 MW of power and 91,000 m³/day of desalinated water in Oman and 60MWp using photovoltaic technology in its solar plant in Karadzhalovo, Bulgaria. The portfolio also includes the world’s first two sea going barge mounted, self-contained water desalination plants each capable of producing 25,000 m³/day of water. New capacity of 5900 MW of power generation, 55 000 m3/day of desalinated water and 2 270 tons per hour of steam capacity is under construction in Saudi Arabia. Also under construction is a 50 MWe Concentrated Solar Power (CSP) plant at Bokpoort in South Africa, 160 MWe CSP plant at Ouarzazate in Morocco and a 45,000 m³/day of water desalination project at in Oman. In addition, an 850 MW gas fired plant in Turkey is in advanced stages of development.

From its head office in Saudi Arabia, ACWA Power is expanding throughout the GCC, and to Jordan, Egypt and further afield to Turkey, Morocco, and the southern region of Africa.




RAK Petroleum raises stake in offshore Ivory Coast block The National + NewBase

RAK Petroleum has upped its stake in an Ivory Coast offshore block as the UAE company seeks

to boost its holdings in Africa.

RAK Petroleum’s stake in Block CI-27 has risen to 9.1 per cent via a US$10.6 million investment

through its one-third owned Foxtrot International. Foxtrot and its joint venture partners bought the

stake held by Energie de Cote d’Ivoire.

“Development of the previously discovered Marlin oil and gasfield and the nearby Manta gasfield is on track [and is] part of a four-year, US$1 billion, expansion programme on Block CI-27,” RAK Petroleum said in a statement yesterday.

Once the second production platform on the block is completed, it will help to increase output from the block next year. The first platform has been in operation since 1999 and currently processes

on average 145 million cubic feet of gas a day, 70 per cent of Ivory Coast’s total.

RAK Petroleum, which holds a 42.8 per cent stake in Norway’s DNO, raised $25 million in an initial public offering on the Oslo exchange in November.

DNO holds stakes in 20 blocks in various stages of exploration, development and production both onshore and offshore in Iraq’s Kurdish region, Yemen, Oman, the UAE, Tunisia and Somaliland.

RAK Petroleum’s net profit in 2013 plunged 78.6 per cent to Dh58m from Dh271.6m a year earlier.

DNO meanwhile reported a $41.6m third-quarter loss owing to the reduction in local Kurdish sales. DNO has been struggling financially as it awaits payment from the Kurdistan Regional Government on its arrears.

Rak Petroleum rose 15 percent to 18.5 krone in afternoon trading yesterday.




Shale boom may lead to Mideast talent drain Gulf Times

North America’s shale oil and gas industry workforce is expected to jump by almost 50% to 2.5mn jobs, giving more choices for employment other than those offered in the Middle East, an industry expert has said.

Delivering a lecture in Doha at the weekend, KPMG global head (talent management) Robert Bolton quoted the International Energy Agency (IEA) to predict the US would produce more petroleum than Saudi Arabia or Russia by 2015.

The shale boom will boost employment in North America’s energy sector next year by nearly 50% to 2.5mn jobs before reaching 3mn jobs by 2020. Hilda Mulock

Houwer, partner at KPMG and global head (advisory, energy and natural resources) added that this would create an impact on the Middle East’s hydrocarbon industry as experts like engineers and geoscientists have more choices in terms of employment.

Houwer said the Oil & Gas Journal reported in 2011 that talent management “was such a crisis” and that “strategies should be implemented.” In 2014, she added, the Financial Times said there was a crisis in the energy sector “from a talent point of view.”

She added that by 2017, many experts occupying key and specialised positions are set to retire from the energy industry.

This was echoed by Bolton, who said KPMG’s ‘2014 Global Talent Crisis Survey’ revealed that the primary concern of the energy industry was the gap between a retiring workforce and the shortage of experienced, qualified people within the sector to replace them.

But Houwer was quick to note that “production will not stop and people will not disappear in one day come 2017. The forecast for 2017 was based on data, scenario, planning, and estimates. There is enough time to start addressing these gaps but it is a short time frame.”

Bolton added, “The 2017 scenario is going to put a break on the growth, projects are going to take longer to come on stream, and there will be delays. You’re not going to grow as fast as your corporate plan says you will unless you crack this issue.”

Bolton said KPMG’s research has shown that globally only 32% of companies have detailed strategic workforce plans and two out of three don’t have succession plans. “By focusing on strategic requirements and taking a global view to talent management, oil and chemical companies in Qatar can ensure that they attract and retain the best talent.”

He also recommended that strategic workforce planning “should get back into the picture” to understand where gaps are going to occur and how to deal with them. “Also, organisations are now looking at getting more women into the workplace, creating more partnerships with educational institutions to feed their resource needs, and keeping workers beyond retirement age by offering unique packages or deals that provides a transition into retirement,” Bolton added.

Houwer (left) and Bolton: Time to start addressing the talent drain




Total inaugurates major oil project off Angola

AFP + NewBase

French oil firm Total has inaugurated a major project off Angola with a capacity of 160,000 barrels per day as the company touted its African investments in the face of falling prices.

New chief executive Patrick Pouyanne inaugurated the CLOV project, which draws from four deep-water fields off Angola in the Atlantic off southwestern Africa.

CLOV was launched in 2010 at a cost of $8bn (€6,5bn). Thursday’s inauguration came with petroleum-producing nations and the industry struggling with falling oil prices.

“Total has three particular strengths: ultra-deep water, liquefied natural gas and Africa,” Pouyanne said at the ceremony, adding that Total was the largest producer on the continent.

It is also the largest producer in Angola. “Despite the volatility of oil prices, we are keeping a long-term vision and we are maintaining the projects that have been announced, such as Kaombo in Angola,” he said.

The development of the Kaombo project however, which the company hopes will produce 230,000 barrels per day, has seen a budget cut, from $20bn to $16bn. A third of Total’s production as operator — some 670,000 barrels per day — occurs in Africa. Pouyanne, who took

over after the recent death of Christophe de Margerie in a Moscow plane crash, visited Gabon as well during his trip and plans to visit Nigeria in January, where Total also has investments.

Nigeria remains Africa’s largest oil producer at some 1.88mn barrels per day in October, according to the International Energy Agency. Angola is the second-largest, with October production at 1.72mn barrels per day.




India's Reliance With PEMEX for Oil, Gas Exploration in Mexico Source RIL + NewBase

India's Reliance Industries Limited (RIL) has agreed to cooperate with Petroleos Mexicanos (PEMEX) to explore for oil and gas in Mexico.

As per the Memorandum of Understanding (MoU) signed between the two companies RIL will cooperate with PEMEX for assessment of potential upstream oil and gas business opportunities in Mexico and jointly evaluate value added opportunities in international markets, the Indian company said Friday in a statement.

RIL and PEMEX will also share expertise and skills in the relevant areas of oil and gas industry including for deep-water oil and gas exploration and production.

“The MoU envisages sharing of RIL’s pioneering expertise in deepwater development and best practices in east coast of India and RIL’s experience in shale gas in United States,” RIL said.

RIL will also provide technical support and share experience with PEMEX for refining value maximisation and other technical optimization strategies.

RIL stated that cooperation with PEMEX is in line with its growth strategy to explore opportunities to expand its international asset base in regimes having internationally attractive competitive terms.




World oil transit chokepoints critical to global energy security Source: U.S. Energy Information Administration analysis based on Lloyd's List Intelligence,

International energy markets depend on reliable transport routes. About 63% (56.5 million barrels per day) of the world's oil production in 2013 moved on maritime routes. World chokepoints for maritime transit of oil are a critical part of global energy security because of the high volume of petroleum and other liquids transported by these routes.

Blocking a chokepoint, even temporarily, can lead to substantial increases in total energy costs and world energy prices, as disruptions to these routes can affect oil

prices and add thousands of miles of transit in alternative routes. Chokepoints also leave oil tankers vulnerable to theft from pirates, terrorist attacks, shipping accidents that can lead to disastrous oil spills, and political unrest in the form of wars or hostilities.

The Strait of Hormuz, leading out of the Persian Gulf, and the Strait of Malacca, linking the Indian and Pacific Oceans, are the world's most important strategic chokepoints measured by volume of oil transit, accounting for a combined 57% of all seaborne oil trade.

In 2013, about 17 million barrels per day traveled through the Strait of Hormuz, which connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Strait of Malacca is the shortest sea route between the African and Persian Gulf suppliers and the Asian consumers. At the end of 2013, trade through Malacca was 15.2 million barrels per day.

The Suez Canal and SUMED Pipeline, located in Egypt, are strategic routes for Persian Gulf oil and natural gas shipments to Europe and North America. The Bab el-Mandeb Strait is a chokepoint between the Horn of Africa and the Middle East, and it is a strategic link between the Mediterranean Sea and the Indian Ocean. The Danish Straits and the Turkish Straits are key oil export routes to Europe for Russia and other Eurasian countries, including Azerbaijan and Kazakhstan.

Over time, the relevance of the Panama Canal and the Trans-Panama Pipeline to global oil trade has diminished. Many modern tankers are too large to travel through the Panama Canal, and falling oil production from Alaska's North Slope decreased oil volumes going through the pipeline. However, the Panama Canal is undergoing an expansion, scheduled to be completed next year, that will allow transit of larger ships with greater volumes, including liquefied natural gas tankers.

The increase in U.S. domestically produced crude oil is changing trade patterns through world chokepoints. Historically, U.S. refiners have been major consumers of African crude oil, primarily light sweet crude from Nigeria, Algeria, and Angola. However, with increased U.S. production of light, sweet crude, the U.S. has imported less crude oil from Africa, and more African crude has been sent to Asia through the Strait of Malacca.




US:32% of natural gas pipeline capacity into the Northeast could be bidirectional by 2017 . Source: U.S. Energy Information Administration, Pipeline Projects Spurred by growing natural gas production in Pennsylvania, West Virginia, and Ohio, the natural gas pipeline industry is planning to modify its systems to allow bidirectional flow to move up to 8.3 billion cubic feet per day (Bcf/d) out of the Northeast. As of 2013, the industry had the capacity to

transport 25 Bcf/d of natural gas from Canada, the Midwest, and the Southeast into the Northeast. In addition to these bidirectional projects in the Northeast, the industry plans to expand existing systems and build new systems to transport natural gas produced in the Northeast to consuming markets outside the region. Flows on ANR Pipeline, Texas Eastern Transmission, Transcontinental Pipeline, Iroquois Gas Pipeline, Rockies Express Pipeline, and Tennessee Gas Pipeline accounted for 60% of flows to the Northeast in 2013. Flows on these pipelines in 2013 were between 21% and 84% below 2008 levels, with the largest percentage decline occurring on the Tennessee Gas Pipeline. In 2014, the Tennessee Gas Pipeline and the Texas Eastern Transmission began flowing gas both ways between states along the Northeast and Southeast region borders. As a result of these pipelines being underutilized, the pipeline companies have announced plans to modify their systems to allow for bidirectional flow, adding the ability to send natural gas out of the Northeast region:

- Columbia Gulf Transmission completed two bidirectional projects in 2013 and 2014 that enable the system to transport natural gas from Pennsylvania to Louisiana.

- ANR Pipeline, Tennessee Gas Pipeline, Texas Eastern Transmission, and Transcontinental Gas Pipeline are planning to send natural gas from the Northeast to the Gulf Coast because of the potential of industrial demand and LNG exports from the Gulf Coast. These projects total 5.5 Bcf/d of flow capacity.

- The Rockies Express Pipeline's partial bidirectional project (2.5 Bcf/d of capacity) is primarily to flow Marcellus natural gas to more attractive markets in Chicago, Detroit, and the Gulf Coast.

- The Iroquois Gas Pipeline's bidirectional project (0.3 Bcf/d of capacity) will deliver natural gas from the Marcellus to Canada. Iroquois will receive gas from the Dominion, Constitution (expected in service in 2016), and Algonquin pipelines.




Rationales for modifying existing pipelines rather than building new pipelines include:

- Modifying existing pipeline to enable bidirectional flow requires significantly less capital investment, fewer regulatory permits, and lower construction and labor costs, while resulting in fewer environmental impacts.

- Existing long-haul pipeline capacities to flow gas into the Northeast are underutilized. Modifying these systems to be bidirectional can be executed quickly to respond to new market dynamics that will improve pipeline utilization rates.

-

In addition to bidirectional pipeline projects, the industry is planning to build 35 Bcf/d of additional capacity to support the growth of natural gas production in the Northeast. As of November 7, 2014, the industry added more than 2 Bcf/d of additional capacity in the Northeast, following 1.6 Bcf/d of additional capacity coming online a week earlier. Even though the Northeast has seen increased natural gas production and new infrastructure, consumers in New England continue to pay high natural gas prices during peak demand days. Algonquin Gas Transmission and Tennessee Gas Pipeline, which supply most of the natural gas to New England, plan to increase their capacities into New England by 4.1 Bcf/d by the end of 2018. These proposed additions could increase natural gas supply in New England and reduce extreme prices at the Algonquin Citygate, near Boston on peak demand days.




China State Grid to spend $65bn on power networks Bloomberg + NewBase

China State Grid Corp will spend about 400bn yuan ($65bn) this year on its electricity networks as the nation, which last month reached a deal with the US to curtail fossil fuels, copes with an unprecedented influx of clean energy and higher demand. Spending will need to be maintained at current levels for the next five years to accommodate higher electricity consumption and contributions from new energy sources, Zhang Zhengling, a spokesman for China’s biggest power distributor, said in an interview in Beijing last week.

The spending throws a spotlight on China’s challenge to get electricity from where it’s generated to where it’s needed. Already, about one in every 10 of the nation’s wind turbines are sitting idle because of inadequate transmission capacity.

The International Energy Agency estimates China will need to spend more than $4tn from now until 2040 to overhaul the way it transmits and distributes electricity. “Grid investment is mainly driven by government policies,” said Shi Yan, an analyst at UOB-Kay Hian Ltd in Shanghai. China is trying to “upgrade and update the networks with ultra-high voltage and smarter technology.”

China’s annual energy consumption surged 51% from 2008 to 2013 and is expected to peak between 2035 and 2040, according to a report earlier this year from Climatescope, a research project whose partners include Bloomberg New Energy Finance and the UK Department for International Development.




Under last month’s agreement reached between US President Barack Obama and Chinese President Xi Jinping, China would be required by 2030 to install as much as 1,000 gigawatts of new zero-emissions energy, exceeding the amount of coal-fired power generation the nation has today. Absorbing and transmitting that “will be a huge challenge for us,” China State Grid’s Zhang said.

China will “see a larger scale of clean energy development between 2020 and 2030” as the proportion of coal power in its electricity mix falls and energy demand grows, Zhang said. China State Grid must hasten its use of the most advanced ultra-high voltage transmission technology, Zhang said.

China State Grid currently connects more than 100 gigawatts of wind and solar capacity using its networks, an amount exceeding the total renewable capacity Germany had at the end of 2013, according to Bloomberg New Energy Finance data.

Zhang forecasts China will need at least 400 gigawatts of hydroelectric power, 500 gigawatts of wind power and 300 gigawatts of solar power by 2030. The problem is distance. Much of China’s newly added hydroelectric capacity is in the southwest and coal is generated in the north. Consumption is heaviest in the east, south and areas around Beijing.

“China is a developing country and our energy consumption demand will continue to grow” at a

pace faster than developed countries, Zhang said. “We have large-scale, long-distance energy needs,” he said.

The push to connect renewables and curb air pollution means spending about 180bn yuan on eight ultra-high voltage lines by 2017, Zhang said, adding that the company has proposed to the government that another 13 such networks be built.

The technology, which the state-owned grid operator began to promote a decade ago, can “deliver larger power capacity over a long distance with higher voltage but less transmission loss,” Zhang said.

China State Grid operates a grid line capable of handling 8 gigawatts of wind power and 1.25 gigawatts of solar power from Hami in the northwestern province of Xinjiang to Zhengzhou in central China, Zhang said, describing the line as the first of its kind in the world. The company is doing preliminary work on another 3,500-kilometre line stretching from Zhundong to Anhui.




Oil Price Drop Special Coverage

Low oil prices in for the long haul

CRUDE markets are in for some more battering!Last week Saudi Aramco extended its January discount for Arab Light sales to Asia to $2 a barrel below a regional benchmark - the lowest in at least 14 years. The Arab Light Official Selling Price to the United States was also set at a premium of $0.90 a barrel to the Argus Sour Crude Index (ASCI) for January, down 70 cents from the previous month. “This is the second salvo in the OPEC price war, a new offensive by the Saudis,” Phil Flynn, analyst at the Price Futures Group in Chicago was quoted as saying. During the OPEC ministerial in Vienna, it was agreed initially that all producers, both within and outside the OPEC, must contribute to the proposed output cut. But when Russia and some others refused to partake in the constraint regimen, allies had little option. They marched, hand in hand, to protect their market share. It would be better to endure short-term pain from low oil prices than risk losing market share in the long run. Saudi Arabia and other producers would only consider adjusting production if other members of OPEC adhered to the group’s quotas and stopped making “under the table” deals to sell crude. Prices thus had to go down. Early on Friday, Brent crude was poised for the lowest close in more than five years. Futures too slid as much as 1.1 percent in London and were headed for a second weekly decline. When would it bottom out, remains a big if. The Gulf states “don’t have a price target, and if prices drop further below $60, it won’t be for a long time,” a Gulf oil official was quoted as saying by The Wall Street Journal (WSJ). Iran’s parliament too has recommended basing next year’s budget on an oil price of $75-80 a barrel, down from $100 in the 2014 budget. “Parliament and the planning commission recommend an oil price of about $80 a barrel to the government,” Gholamreza Tajgardoon, head of parliament’s planning and budget commission said recently. And the rot continues. Even after plunging almost 40 percent in five months, WTI crude oil prices will continue to fall in coming weeks, Oppenheimer senior energy analyst Fadel Gheit told CNBC. Canadian Natural Resources CEO Murray Edwards told reporters Friday he expects oil to hit bottom around $30, before bouncing back to around $70 or $75 in the medium term. “Prices could spike down to $30, $40. It got down to $35 in 2008, for a very short period of time.” “This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” said eminent analyst Daniel Yergin, on Bloomberg Radio. “There’s a change in psychology. There’s going to be a




higher degree of uncertainty.” Many analysts are claiming that shale production in the US and investments in the sector could be two major casualties of the existing uncertainty and the bottoming crude prices. However, it won’t be easy to accomplish. Argus Media quoted the Iranian oil minister as saying that squeezing non-OPEC production out of the market will take years rather than months. Oil majors ExxonMobil and Chevron are now insisting they weren’t losing sleep over the price drop. In fact, they could survive oil as low as $40 per barrel. Exxon CEO Rex Tillerson told CNBC on Wednesday his company’s massive energy projects are decade-long investment decisions that have been tested to be successful even “at the bottom of the cycle.” He emphasized “we test across a range all the way down to $40 and up to $120.” Chevron also believes it could weather the storm down to $40 a barrel, says analyst Fadel Gheit, citing a recent conversation with executives from the energy giant. Most producers in North Dakota’s Bakken formation, an area that’s been a key contributor to the shale revolution, can remain profitable even if oil falls to $42 per barrel, the IEA said last month. Paul Stevens of Chatham House in London too believes some US shale producers may break even at $40 a barrel or less. “US shale producers are surprising resilient. They will drill as long as they have cash flow from their operations,” said Per Magnus Nysveen of Rystad Energy. But the days of $100 oil might be a thing of the past for now. Leonid Fedun, a board member at Russia’s Lukoil though is of the view that by maintaining output levels, OPEC would bring about an outright crash among US shale drillers. “In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.” Tony Roth, chief investment officer at Wilmington Trust, told Reuters “crude seems to have no floor right now, and we could easily see the price drop into the low $60s.” Ed Morse, global head of commodities research at Citigroup, told WSJ “there’s lower prices ahead.” Downward spiral hence continues!

Oil price drop threatens $150b in global investments AFP + NewBase

Oslo: The continued fall of oil prices could lead to postponement of $150 billion (Dh550.5 billion) worth of projects in the sector worldwide, a Norwegian consulting firm said Friday.

“Everything will depend on what oil companies decide to do, but if they don’t exploit the fields which break even with the barrel above $80, $150 billion will go down the drain,” chief analyst at Rystad Energy, Per Magnus Nysveen, said.

On Friday, Brent crude fell close to $69 a barrel in London, a drop of 40 per cent from June. Falling oil prices combined with high production costs in the sector force oil companies to postpone or even cancel developments of oil finds in order to maintain their cash flow.

Norway’s energy giant Statoil, for example, has delayed decisions on its Johan Castberg project, a massive offshore oilfield in the Arctic with an estimated 400 to 600 million barrels in which operations are expected to be costly.




“Anything with high costs will be vulnerable: the Arctic, oil sands and small deepwater projects,” Nysveen said. “All countries will suffer. Russia will suffer because of the Arctic. Canada and Alaska will suffer ... whereas US shale oil has become less expensive to produce and should therefore not suffer that much.”

Rystad Energy refuses to publish its estimates on the future evolution of barrel prices but, according to Nysveen, there are no signs of a pickup in the near future. “The offer is really overabundant in the market today and we think that it’ll be even more overabundant at the beginning of next year,” he said.

The market had already dived last

week after the Organisation of

Petroleum Exporting Countries

(Opec) left its output ceiling

unchanged, despite a global

supply glut.

Crude futures have now slumped by about 40% since June, faced also with cheaper oil being extracted from North American shale rock.

Weak economic data has added to the pressure, with worse-than-expected manufacturing figures in China, the world’s largest energy consumer. Commodities were also hit late Friday as the dollar rallied on bright data showing the US economy created 321,000 new jobs in November, some 90,000 more than expectations.

OIL: Crude futures sank to fresh five-year lows on Monday, with New York crude hitting $63.72 a barrel—the lowest level since July 2009. London Brent oil touched an October 2009 low of $67.53 a barrel, before staging a technical rebound.

“Prices have once again turned lower as concern about the excessive supply continues to weigh,” said Forex.com analyst Fawad Razaqzada. Oil dipped Tuesday after the Iraqi government and autonomous Kurds struck a deal that will boost the nation’s crude oil exports to an already oversupplied global market.

Under the deal, due to take effect at the start of 2015, 250,000 barrels per day of oil will be exported from the autonomous region and another 300,000 bpd from the disputed province of Kirkuk.

The agreement could help push Opec member Iraq’s daily output past three million barrels per day, up from around 2.5mn barrels in November. The oil market diverged Wednesday as traders digested a drop in US crude inventories, which tends to signal strong demand.

However on Thursday and Friday, crude futures hit reverse gear once again, dented by reports that Saudi Arabia has trimmed its export prices and is doing nothing to tighten supplies. Saudi Arabia is the biggest and most influential member of the 12-nation Opec cartel.




Reports said Riyadh cut January prices for its crude to Asian and US buyers, as the world’s leading exporter defends its market share and, some analysts speculate, seeks to drive high-price producers out of the market.

By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in January sank to $68.36 a barrel compared with $73.05 one week earlier. On the New York Mercantile Exchange, West Texas Intermediate or light sweet crude for January dived to $65.31 a barrel from $69.13 a week earlier.

Junk backing US shale boom facing $8.5bn loss Bloomberg

Bond investors who helped finance America’s shale boom are facing potential losses of $8.5bn as oil prices plummet by the most since the financial crisis.

The $90bn of debt issued by junk-rated energy producers in the past three years has fallen almost 10% since crude oil peaked in June. Halcon Resources Corp, SandRidge Energy and Goodrich Petroleum Corp have been among the hardest hit as Opec’s refusal to ease a supply glut pushed prices to a five-year low of $66.15 a barrel last week.

The oil selloff is deepening concern among bond investors that the least-creditworthy oil explorers will struggle to pay their obligations and prompt bankers to rein in credit lines as revenue slumps.

Halcon, SandRidge and Goodrich are among about 21 borrowers operating in the costliest US shale-producing regions that will be unprofitable if crude oil falls below $60 a barrel, according to data compiled by Bloomberg.

“We are concerned that there will be defaults and that was even before oil fell as much as it has,” Ivan Rudolph- Shabinsky, a New York-based money manager at Alliance Bernstein Holding, said in a telephone interview. “There was too much money going into this space that would have resulted in problems long term - now that timeline has been accelerated.”

Junk Bonds the 9.3% loss for junk-rated energy debt from US and Canadian companies since January 2012 compares with a 1.55% decline for the broader US speculative-grade market, Bank of America Merrill Lynch index data show.

Non-investment grade energy bond yields average 8.54%, the most since July 2010, from a low this year of 5.68% in June. Halcon Resources’s $1.15bn of 9.75% securities issued in April 2013 have lost 29% since June 30, while SandRidge’s $750mn of notes sold in October 2012 have plunged 26%, Bloomberg data show.

Goodrich Petroleum’s $275mn of debt issued at the start of 2012 has dropped 34%. Scott Zuehlke, a spokesman at Halcon, Daniel E Jenkins, a spokesman at Goodrich, and Duane Grubert at SandRidge didn’t return calls seeking comment on exposure to oil prices.

Advances in horizontal drilling and hydraulic fracturing, or fracking, have helped US drillers pump the most in three decades. Companies have relied on debt financing to make up for cash shortfalls as they expanded, doubling energy bonds’ share of the high-yield market to 17% since 2008, according to an October 14 report by Citigroup.




Falling Oil High-yield, high-risk debt is rated less than Baa3 by Moody’s Investors Service and under BBB- at Standard & Poor’s. West Texas Intermediate crude dropped from a June high of $107.26, falling 17.9% in November after the Organization of the Petroleum Exporting Countries decided last week to keep its production target of 30mn barrels a day. Output in the US will climb to 9.5mn barrels a day next year, the most since 1970, the Energy Information Administration estimated October7. Demand nationwide will slip this year to the lowest since 2012, the government predicted. Lower oil prices will “affect cash flow but also capital spending, which in turn, affect projected production and cash flow in a downward spiral,” Gary Stromberg and Jan Trnka- Amrhein, analysts at Barclays, wrote in a note to clients dated yesterday.

Borrowing Limits Because the amount oil and gas companies are permitted to borrow from bank lenders is directly tied to the value of their reserves, falling commodity prices increase the risk they will face a cash squeeze, according to an October 9 report by Spencer Cutter, an analyst at Bloomberg Intelligence in Skillman, New Jersey.

The extra yield investors demand to hold the bonds of energy companies instead of comparable US Treasuries increased to 7.63 percentage points yesterday, more than double the premium in June, Bloomberg data show. The price of crude collapsed 35.7% during that period.

The issuance of debt has helped contribute to production growth in the US and falling prices will make it harder for companies to meet their obligations, according to Virendra Chauhan, a London-based oil analyst with Energy Aspects.“My sense is we’re just on the cusp of bad news there and we’ll see things get worse before they get better,” David Kurtz, global head of restructuring at Lazard, said at Beard Group’s Distressed Investing conference in New York.





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

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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 07 December 2014 K. Al Awadi




Economy & Finance

New base 491 special 07 december 2014