NewBase 593 special 29 April 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,

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NewBase 29 April 2015 - Issue No. 593 Khaled Al Awadi

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

Dubai Electricity and Water Authority unveils its 2021 Strategy www.dewa.gov.ae/news/details.aspx?nid=1194

HE Saeed Mohammed Al Tayer, MD & CEO of Dubai Electricity and Water Authority (DEWA) has launched DEWA's Strategy 2021 and the Second Sustainability Report 2014. These support the directives of HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai and promote the green development of the UAE in line with the UAE Vision 2021. DEWA’s efforts enhance the competitiveness of the UAE, promote Dubai's position as a global hub for sustainability and green economy, and consolidate a culture of excellence, creativity, and innovation.

The launch ceremony in Grand Hyatt hotel, Dubai was attended by HE Dr. Matar Al Neyadi, Undersecretary of the UAE Ministry of Energy, HE Fatima Al Foora Alshamsi, Assistant Undersecretary for Electricity, Clean Energy and Water Desalination at the Ministry of Energy, HE Abdullah bin Kalban, CEO and Managing Director of Emirates Global Aluminium (EGA), and Saif Humaid Al Falasi, CEO of Emirates National Oil Company (ENOC). It was also attended by DEWA’s Executive Vice Presidents, Vice Presidents, officials from the

public and private sectors, and members of the media.

The theme of DEWA's Strategy 2021 is ‘DEWA at Work: Smarter and brighter energy future for Dubai.’ It includes different sections such as seizing opportunities, meeting challenges, strategic drivers, renewed commitment to drive value, mission, strategic goals and priorities, and DEWA’s research and innovation map, among other sections. “In line with the UAE Vision 2021, and Dubai Plan 2021, to set a roadmap of ambitious initiatives and developmental projects for economic growth, energy sustainability and a clean environment, and to promote DEWA's vision to become a sustainable innovative world-class utility, we work to provide the best government services and implement the best international practices to make people as satisfied and happy as possible. We harness excellence and creativity in our daily work to improve performance, efficiency, and services to match the highest international practices. Through our initiatives, we contribute to making Dubai the smartest city in the world and support the sustainable social, economic, and environmental development of Dubai in particular and the UAE in general. Today, we announce




DEWA Strategy 2021, which emphasizes the need to continue these efforts to take Dubai to the next level on its journey to celebrate the Union’s Golden Jubilee in seven years,” said Al Tayer in his keynote speech. “This strategy will provide the support for the process to make effective strategic decisions, and develop a road map that enables DEWA to support Dubai’s ongoing development. It will serve as a reference point during the strategic planning process that supports DEWA’s operational planning. This comprehensive strategy defines our strategic objectives and our relationship with our stakeholders and partners. We have also developed the map for research and innovation, which will enhance our journey towards achieving more success and excellence,” he added. “Today, we also launch DEWA’s second annual Sustainability Report, to inform our stakeholders about DEWA’s sustainability performance and practices. The report was prepared in accordance with the Global Reporting Initiative (GRI) G4 Guidelines’ Core option. The GRI produces a globally-recognised sustainability reporting standard, used by organisations around the world to communicate their sustainability performance and impact. The report addresses the most important sustainability issues relevant to our performance and our stakeholders, such as economic development, energy efficiency and climate change, customer relations, water availability and quality, environmental protection, employee relations, stakeholders and community. The report also showcases case studies which highlight DEWA's achievements with regards to the economic, social, and environment pillars of sustainability,” noted Al Tayer. “I would like to thank all DEWA’s partners and customers. I hope that DEWA Strategy 2021 and the Sustainability Report 2014 will be key contributors to improving our services and making society happier,” concluded Al Tayer. At the event, Dr. Abdulla Al Hammadi, Vice President of Strategy & Performance Management at DEWA, reviewed DEWA’s Strategy 2021, and Mohammed Al Shamsi, Senior Manager of Sustainability and Climate Change, at DEWA highlighted the Sustainability Report 2014.




UAE: Asian oil firms in limelight as Inpex bags concession deal Gulf News + NewBase Credit: Supplied

Asian energy firms will play a greater role in exploration in the Gulf in the future after a Japanese firm bagged an important stake in Abu Dhabi concessions on Monday, experts said.

Inpex Corporation was awarded a 5 per cent stake in the development of 15 principal onshore oil fields in Abu Dhabi for a period of 40 years starting from January 1, 2015. The value of the deal was expected to be worth $1.1 billion (Dh4.04 billion), according to reports.

The company is the first Asian firm to be awarded the prestigious contract. French energy major Total won a 10 per cent stake in January this year, while other companies are yet to be selected by Abu Dhabi government.

A number of international oil companies are in the fray including Royal Dutch Shell, British Petroleum, Occidental Petroleum, Stat Oil, Korea National Oil Corporation, China National Petroleum Corporation and ENI. Exxon Mobil, which was part of the old agreement, is not participating in the new bids.

The government of Abu Dhabi is awarding new contracts after a decades-long concession agreement with Western oil majors ended in January last year.

Francisco Quintana, head of economic research at Asiya Investments, expects more of these concessions to be allocated to Asian firms in the future at the expense of big American and European producers. “Asia is where net demand will be coming from over the next decade. The region has savings and growing firms, backed by government money, in strategic sectors,” he said. “China, India [and] South Korea will play a greater role in exploration in the Gulf in the future.”

Richard Mallinson, an energy expert at London-based Energy Aspects, said Asian companies are certainly interested in projects in the Gulf region because of expanding Asian demand.

“Producing nations would also like to develop these relationships, but they may have some concerns about the fact Asian firms still have less experience that western majors. We have seen this cause difficulties on several Iranian projects in recent years where the government has become frustrated about the progress being made by Chinese operators,” he said.

Tokyo-based Inpex has more than 70 active projects across 25 countries. Since 1966, Inpex has steadily expanded its business in Japan and in other parts of the world, from its core business areas in Australia and Indonesia to the Middle East, the Caspian Sea region, the Gulf of Mexico and North and South America.

The company is already involved in a number of projects in Abu Dhabi including the production of oil at the Umm Shaif, Lower Zakum, Umm Lulu, Nasr, Upper Zakum, Umm Al Dalkh, Satah and Abu Al Bukoosh oil fields..




Ipic presses on with investments as Cepsa chemical plant opens in China The Natioanl + NewBase

International Petroleum Investment Company (Ipic), the Abu Dhabi fund, is proceeding with its investment plans even as its top staff are reshuffled. Companía Espanola de Petróleos (Cepsa), which is wholly owned by Ipic, yesterday inaugurated a €300 million (Dh1.2 billion) chemical plant in Shanghai.

“The new plant will allow us to tap into the world’s largest market for phenol in China, as well as open up new opportunities for the company to expand across Asia,” the company said . The plant, which has a capacity of 250,000 tonnes of phenol and 150,000 tonnes of acetone, will make Cepsa the world’s second-largest producer of the products, behind Europe’s Ineos Phenol.

The plant is part of Cepsa’s “international growth and expansion plans established with shareholder Ipic”, the Spanish company said.

Major staff changes at Ipic were ordered by presidential decree on April 22. This resulted in Khadem Al Qubaisi, formerly the managing director, leaving his post, with the energy minister Suhail Al Mazrouei taking up the position.

Mr Al Qubaisi is still the chairman of the Cepsa board, according to its website. He had by last week also left his role as the chairman of Aabar Properties, an Ipic-owned real estate firm. Mr Al Qubaisi was also not included on a list of nominees this month for the board of directors of Arabtec Holding, in which an Ipic subsidiary has a 36 per cent stake.




Saudia: ready to supply rising Asian oil demand Saudi Gazette + NewBase

Asian demand for oil will remain strong and Saudi Arabia is ready to meet all needs, Saudi Arabia's Oil Minister Ali Al-Naimi said on Tuesday during a visit to China, as the world's top crude exporter aims to maintain its market share.

addressing the Energy Forum in the Chinese capital Tuesday under the title of '”The strength of the partnership'”, he said the Kingdom was ready to supply China with additional oil if required.”Asian demand for oil remains strong and we are ready to supply whatever is required. As the Asian population grows, and as the middle class expands, so the demand for energy will increase,” Naimi said. He said “Kingdom of Saudi Arabia as does China, carries out a historic task of development and growth, whereas we take at the moment, steps to grow our economy, create jobs and improve the standard of living of our citizens and that energy is an essential element for that, and there are many common things between our two countries, expressing happiness to stand in front of them today to talk about the strength of the partnership that unites us.” He further said fair and stable oil prices will benefit producers and consumers, allowing global supply and demand to grow at a steady pace. “Oil is a long-term business, requiring long-term plans and investment,” Naimi said in a speech to mark the inauguration of state oil firm Saudi Aramco's new research and development center in Beijing. “Sudden rises or falls in the cost of oil are not welcome.... it's in all our interests to ensure stable prices,” he added. “For many producers, the price drop presented difficult challenges. But while Saudi Arabia remains reliant on the revenues it receives from oil, the situation in the Kingdom was not dramatically different. The reason for this is that, during the period of high prices, Saudi Arabia saved and invested the revenues wisely. We fixed the roof while the sun shined,” he remarked.




Qatar: Officially inaugurates $1 Bn Gas Recovery Project To cut LNG wastes and reduce CO2 emissions. AFP + Gulf Times The newly-inaugurated Jetty Boil-off Gas Recovery (JBOG) Project in Ras Laffan represents a significant milestone in Qatar’s efforts to reduce carbon emissions from its liquefied natural gas (LNG) industry, Qatargas CEO Sheikh Khalid bin Khalifa al-Thani said. Sheikh Khalid said the project will result in a 90% reduction in current flaring at Ras Laffan LNG loading berths, equivalent to annual greenhouse gas (GHG) savings of 1.6mn tonnes of carbon dioxide (CO2), which is the same amount of annual GHG emissions of 175,000 vehicles.

He also said the JBOG project will provide savings of 29bn standard cubic feet (bscf) per year flaring reduction, which is enough gas to produce 750MW to power 300,000 homes “Environmental protection and sustainable development of our natural resources is a key requirement of Qatargas’ direction statement, and is in line with the wider goals of the Qatar National Vision 2030. “The Qatar National Development Strategy 2011-2016 calls for halving gas flaring to 0.0115bn cubic metres per million tonnes of energy produced from the 2008 level of 0.0230bn cubic metres per million tonnes, and our JBOG facility is the main reason that Qatargas has achieved this target well before 2016,” he explained. According to Sheikh Khalid, the project was designed to recover the boil off gas from simultaneous multiple ship loadings at Ras Laffan, the world’s largest LNG export terminal and the only facility where six LNG ships can be loaded simultaneously. “As the -160°C LNG is loaded onto the ships, around 1% of the LNG evaporates (boil-off gas) due to temperature difference between the cold LNG and the warm ship tank. This boiled-off gas is flared at the berth because there is no outlet for the low-pressure gas,” he further explained. He added that the boil off gas from the ships will then be transported to a central compressors

A general view of the Central Compressor Area of the JBOG project. It will

provide savings of 29bn standard cubic feet per year flaring reduction, which

is enough gas to produce 750MW to power 300,000 homes.




area where the gas is compressed and then sent back to the LNG plants to be used as fuel gas or converted into LNG. “The entire boil off gas train is the largest in the world. Today, there has never been an LP boil off gas compressor ever built requiring such large volumes at such a low suction pressure,” Sheikh Khalid said. Qatar on Wednesday officially unveiled a $1 billion project to capture wasted gas, reported news agency AFP. The Jetty Boil-Off Gas Recovery Project (JBOG) will allow Qatar to recover a further 29 million cubic feet of gas per year. The main shareholders of the JBOG project are Qatar Petroleum, ExxonMobil, Total, Conoco Phillips and Shell, while the facilities are operated by Qatargas and RasGas, the two largest LNG producers in the world. This $1bn environmental project is designed to eliminate flaring at the LNG terminal. The JBOG facilities started up successfully during the first week of October, Qatargas said in November last year adding around 100 million standard cubic feet per day of natural gas which used to be burnt and wasted during LNG ship loading is now being recovered and utilized in the LNG production plants as fuel. Officials say it will result in a 90 per cent reduction in flaring at the Ras Laffan port in northern Qatar, AFP reported. According to the Qatargas, over a period of 30 years the JBOG project will save nearly one trillion cubic feet of gas for Qatar.




PDO upbeat about Khulud tight gas project Oman Absorber + NewBase

Petroleum Development Oman (PDO) says it is making headway in maturing its showcase Khulud tight gas development, the success of which could open the way for the potential

commercialisation of other unconventional and tight gas plays in its Block 6 concession. Khulud is the majority government-owned oil and gas producer’s first tight gas project located in the Yibal-Fahud area of its sprawling concession. It is also one of the deepest tight gas accumulations in the world, requiring capital intensive innovative and complex drilling, completion and hydraulic fracturing practices. Around a dozen wells have so far been drilled into the tight gas formation, of all which are in various stages of fracking and completion, according to

PDO. Since January 2014, six of the wells have been producing through an Early Production System (EPS) that was commissioned during the previous year. The facility, which has a capacity to process one million cubic metres per day of natural gas, is key to the long-term testing of the field, as well as to understand decline rates and overall output per well. These insights, according to PDO, are critical to a final decision on the full-scale development of the field, its longer-term potential, and prospects for the development of similar fields in the area. “Such extended well tests are an important component for the commercialisation of tight gas reservoirs and for the future gas supplies to the country,” said PDO in its 2014 Annual Report. “The project is currently self-funding through (Early Production System) revenues with the wells outperforming break-even levels and horizontal well data is anticipated by Q4 this year. A major milestone was achieved with the handover of the Khulud project from the Exploration Directorate to the Gas Development Directorate in January 2015,” the report stated. Further insights into the challenges of maturing PDO’s maiden foray into tight gas exploitation were revealed at a seminar hosted by the Oman Section of the Society Petroleum Engineers (SPE) in Muscat recently. The head of PDO’s Tight Gas Delivery Team outlined their role in developing the Khulud Tight Gas fields towards commercialisation. The chief aim is to capitalise on early gas monetisation by accelerating the development of recognised sweet spots, further appraise the resource volume and mature low productive areas through reduction of well costs and increase of estimated ultimate recovery (EUR) per well. Estimated resources, according to the team, are in the range of several trillion cubic feet (Tcf). Khulud’s ‘tight’ gas characteristics require the use of unconventional — and expensive — techniques to unlock the gas and make it flow to producing wells. Hydraulic fracturing — or fraccing — will be needed to make the gas, trapped in tight rock of extremely low permeability, flow from the extremely hot reservoir into production wells. Compounding the challenge of producing this gas is the depth at which the reservoirs in Oman are often located — typically in excess of 5.5 kilometres — far deeper than tight gas found elsewhere in the world, say experts.




Egypt Plans to Get Second LNG FSRU at Adabiya Port Daily News Egypt + NewBase

Egypt is preparing Adabiya port in Suez in order to receive the second LNG regasification unit, Daily News Egypt reported Monday. Originally, Sokhna Port was set to receive the unit but would not happen due to security reasons. A senior Egyptian Natural Gas Holding Company (EGAS) official said that a committee, which was set up to look into the issue, said that the Adabiya port can be prepared within a period of three to six months so that it can receive the second gasification ship to import an additional 500m cubic feet of gas daily. According to the official, EGAS is negotiating with a number of foreign companies to supply the regasification unit by the end of this year, Daily News Egypt reported. Earlier this month, Hoegh Gallant floating storage and regasification unit (FSRU) from Norway's Hoegh LNG arrived in Egypt on the Gulf of Suez. In November last year, Hoegh LNG finalised a five year deal with EGAS to supply FSRU by the end of first quarter of 2015.v Höegh LNG had signed a Letter of Intent (LOI) with EGAS in May last year for the use of one of its FSRU as an LNG import terminal in the port of Ain Sokhna, located on the Red Sea's Gulf of Suez. The FSRU was scheduled to start operations in the third quarter of 2014 but was delayed.




Floating LNG regasification is used to meet rising natural

gas demand in smaller markets Source: EIA, based on World LNG Report, 2014 Edition,

Floating regasification is a flexible, cost-effective way to receive and process shipments of liquefied natural gas (LNG). Floating regasification is increasingly being used to meet natural gas demand in smaller markets, or as a temporary solution until onshore regasification facilities are built. Of four countries planning to begin importing LNG in 2015, three of them—Pakistan, Jordan, and Egypt—have chosen to do so using floating regasification rather than building full-scale onshore regasification facilities.

Floating regasification involves the use of a specialized vessel called a floating storage and regasification unit (FSRU), which is capable of transporting, storing, and regasifying LNG onboard. Floating regasification also requires either an offshore terminal, which typically includes a buoy and connecting undersea pipelines to transport regasified LNG to shore, or an onshore dockside receiving terminal. An FSRU can be purpose-built or be converted from a conventional LNG vessel. Floating regasification offers a flexible, cost-effective solution for smaller or seasonal markets, and can be developed in less time than an onshore facility of comparable size. It can also serve as a temporary solution while permanent onshore facilities are constructed, and an FSRU can be redeployed elsewhere once construction is completed. There are currently 16 FSRUs functioning as both transportation and regasification vessels and 5 permanently moored regasification units that have been converted into FSRUs from conventional LNG vessels. The use of floating regasification has grown rapidly in recent years, particularly in emerging markets facing short-term supply shortages. Floating regasification was first deployed in the U.S. Gulf of Mexico in 2005 and, since its deployment, it has been used in nine other countries: Argentina, Brazil, China, Indonesia, Israel, Italy, Kuwait, Lithuania, and the United Arab Emirates.




Floating regasification capacity totaled 7.8 billion cubic feet per day (Bcf/d) at the end of 2014, representing 8% of the global installed regasification capacity, according to data from the International Gas Union. The three floating terminals that are scheduled to come online in 2015 will add 1.4 Bcf/d of new capacity.

Pakistan received its first LNG import cargo on March 27, 2015 after completing the development of receiving infrastructure for an offshore regasification terminal (0.3 Bcf/d capacity) located near Port Qasim, Karachi, which will be served by an FSRU. Egypt, a traditional natural gas exporter, has formerly supplied natural gas to international buyers by both pipeline and through two LNG export terminals. Faced with domestic supply shortages because of rapid growth in natural gas consumption for power generation, Egypt suspended exports and scheduled all natural gas production for domestic consumption. Egypt began building infrastructure for an offshore regasification terminal in 2012, and recently contracted an FSRU. The terminal (0.5 Bcf/d capacity) received its first LNG cargo in early April. Jordan lacks domestic energy reserves and has struggled to meet rapidly growing domestic natural gas demand after Egypt suspended pipeline exports to the country. Floating regasification became the only short-term option for natural gas supply, and Jordan has made significant progress in building regasification infrastructure since 2013. Jordan has secured an FSRU vessel that will be located offshore Aqaba, in the Red Sea, and the regasification terminal (0.5 Bcf/d capacity) is scheduled to come online in May 2015. Uruguay is building infrastructure for an offshore regasification terminal (0.4 Bcf/d capacity) located near Montevideo to supply its domestic market and to potentially provide natural gas for export by pipeline to Argentina. Originally planned to come online in mid-2015, the regasification terminal has been delayed until 2016. Four more floating regasification terminals totaling 1.3 Bcf/d are currently being developed in India, the Dominican Republic, Colombia, and the Philippines, with expected online dates in 2016-17. Floating regasification is likely to remain a preferred technology option for emerging markets because of its flexible deployment capabilities, smaller capacities, quick start-up, and relatively low costs compared with those of onshore terminals.




India” Hazira LNG Terminal to Boost Capacity by 50% in 2016-17 Source: Reuters + NewBase

India’s Hazira LNG Ltd will increase the capacity of its LNG terminal on the west coast by 50 percent to 7.5 million tonnes per annum (mtpa) in the financial year 2016-2017 (Apr-Mar), news

agency Reuters reported Tuesday citing a government panel report. Hazira is a partnership between Shell Gas B.V and Total Gaz Electricité Holdings France. Shell and Total have a shareholding of 74 percent and 26 percent respectively in each of the companies that comprise the Hazira LNG Terminal and Port project. “The increase in (Hazira LNG) capacity from 5 million to 7.5 million tonnes a year will become available at the end of year 2016/17,” the report said. India’s import and

regasification capacity, which currently stands at 25 mtpa, will rise to 41 mtpa in 2016-2017. The report said that new terminals with capacities of up to 27 mtpa were at various stages of planning on both the eastern and western coasts of India.

Oilex Completes Cambay-73 Oil, Gas Production Facilities in India's Gujarat State

Oilex has completed the Cambay-73 oil and gas production facilities in India’s Gujarat state on budget and ahead of schedule. In a statement released Tuesday Oilex said that the facilities are

now ready for start-up and awaiting arrival of the low pressure gas pipeline to site. Construction of the pipeline has commenced and it is expected to be at site ready for connection to the production facilities during May 2015 which will enable final commissioning to be completed, the company said. Cambay-73 will supply gas to a low pressure gas market in the vicinity of the Cambay field and is expected to produce approx. 50-60 boepd of gas and condensate. Oilex has also started an assessment of nearby legacy wells which may be capable of

being tied into the Cambay-73 facilities should they have surplus capacity. Managing Director of Oilex, Ron Miller, said; “Gas production will lead to increased cashflow from the Cambay Field and is significant step in our 2015 programme.”




Oil Price Drop Special Coverage

Oil dips as oversupply outweighs Saudi royal reshuffle Reuters + NewBase

Oil prices dipped on Wednesday as oversupply outweighed political uncertainty in Saudi Arabia where King Salman relieved the crown prince as well as several senior ministers and the chief executive of national oil company Saudi Aramco .

In a surprise move, Saudi King Salman bin Abdulaziz on Wednesday sacked his younger half brother as crown prince and appointed his nephew, Deputy Crown Prince Mohammed bin Nayef, as the new heir apparent, state television said.

He also appointed his son, Prince Mohammed bin Salman, as deputy crown prince, and replaced veteran foreign minister Prince Saud al-Faisal with

the kingdom's Washington ambassador Adel al-Jubeir as well as appointing several other new ministers.

In another move, Khalid Al-Falih, chief executive of Saudi Aramco, was appointed as health minister and switched to become the national oil company's chairman, a position previously held by veteran oil minister Ali al-Naimi.

Internal reshuffles in Saudi Arabia often move oil prices as stability in the world's biggest oil exporting country is key to global supplies. Traders said they were closely observing who would become Aramco's new CEO and whether oil minister Naimi's position would be affected.

Naimi, who is 79 years old and has been oil minister since 1995, has seen several oil price crashes in his tenure. He is seen as have played a crucial role in Saudi Arabia's decision last November not to cut production in support of prices, which have halved since June 2014.

Benchmark Brent crude futures were down 10 cents at $64.54 per barrel at 0300 GMT, rising from a low of $64.40 prior to the Saudi announcements. U.S. WTI crude , less affected by the Middle East than internationally traded Brent, was down 17 cents at $56.89 a barrel.

Outside politics, analysts said that fundamentals pointed to ongoing weakness, although price volatility was seen to be high.




IEA: Global growth to underpin oil demand Forecasters estimate that the world economy will grow by between 2.8% and 3.8% this year about one percentage point lower than last year’s consensus forecasts. Yet as monitors of the global economy lower their expectations for 2015, executives are increasingly focusing on opportunities presented by diverging growth rates among regions, countries, and even sectors.

Having bottomed out in the second quarter of 2014, global oil demand growth has since steadily risen, with year-on-year gains estimated at around 0.9m barrels per day (mb/d) for the final quarter of last year and 1.0mb/d for the current quarter, the International Energy Agency’s (IEA) March Oil Market Report revealed. The IEA’s forecast of demand growth for all of 2015 was raised by 75 kb/d to 1.0 mb/d, bringing global demand to an average 93.5 mb/d. Global supply rose by 1.3 mb/d year-on-year to an estimated 94 mb/d in February, led by a 1.4 mb/d gain in non-OPEC output. Declines in the US rig count have yet to dent North American output growth. Final December and preliminary current-quarter data show higher-than-expected US crude supply, raising the 2015 North American outlook. The IEA’s view is supported in part by latest estimates of the International Monetary Fund (IMF) in October 2014 which said world GDP growth was measured at 3.3%. For 2016, the IMF and other organizations have lowered previous global GDP growth projections to 3.1% to 4.1%. Most forecasters expect a robust US economy to continue to lead the way, and the euro zone’s new program of quantitative easing is a sign the




region is ready for expansion. And while falling oil prices weigh heavily on growth prospects for commodities-dependent Brazil and Russia, China and India are benefiting from easing inflationary pressures. According to the IEA, the IMF’s view that the global economy will grow by 3.7% this year will help oil demand reach 93.5 mb/d in 2015, an increase of 1% on 2014. The markets did not reach positively or seem to share the IEA’s enthusiasm. Following the IEA’s statement, Brent futures for April lost 1.82% trading at $56.04 and WTI diving 4% to $45.17. All in all, the oil price has more than halved since June 2014. Nonetheless, the IEA revised upwards its demand growth forecast for 2015 by 75,000 b/d to 1.0 mb/d. This comes after oil demand came in better than expected during 4Q2014 and 1Q2015, which it said was likely a reflection of improving macroeconomic conditions and “one off” factors such as the impact of colder weather in the northern hemisphere and a base effect boost from 2013.

The forecast of demand growth for all of 2015 was raised by 75 kb/d to 1.0 mb/d, bringing global demand to an average 93.5 mb/d. OPEC crude output edged down by 90 kb/d in February to 30.22 mb/d. The slightly higher demand forecast has raised the "call" on OPEC crude for the second half of 2015 to 30.3 mb/d, above the group’s official 30 mb/d target. Global oil production in February rose in annual terms by 1.3m barrels per day to 94m with an increase of oil production outside OPEC of 1.4m barrels per day, according to energy specialist Platts. Omar Al-Nakib, senior analyst at National Bank of Kuwait, said the fall in OPEC output was its lowest level in two years. “The drop of 330,000 b/d compared to January was primarily a reflection of outages in Libya and Iraq. Libyan output declined further to 341,000 b/d in February as the conflict between the country’s two rival governments continued to impact oil fields and installations. Since last October’s high of 900,000 b/d, two thirds of the country’s oil production has been taken offline,” Al-Nakib noted, adding: “In Iraq, meanwhile, storage constraints at the country’s southern tank farms and bad weather in the Shatt Al-Arab saw crude production decline by almost 260,000 b/d to 2.7 mb/d during the month. This is the second month in a row since December that production has fallen. Output had reached a 35-year high of 3.6 mb/d last December.” Saudi Arabian production was also down, by 44,000 b/d to 9.6 mb/d during February.

Nevertheless, since OPEC’s

Saudi-led decision in November to hold off on cutting output below the group’s official target level of 30 mb/d, the Kingdom has

steadfastly stuck to its




strategy of protecting market share and kept its production relatively steady. “While February saw OPEC output exceed the 30 mb/d level for the tenth consecutive month, improving global oil demand this year should help narrow the OPEC supply-demand mismatch to 0.7 mb/d if OPEC maintains production at current levels for the remainder of the year. OPEC would thus need to cut output by 0.7 mb/d to 29.5 mb/d (the “call on OPEC crude and stock change) in order to balance expected demand this year. Often during the second half of 2014, OPEC was producing at least 1.2 mb/d in excess of the call,” he added. North Sea Brent crude oil spot prices decreased by $2/bbl in March to a monthly average of $56/bbl. This decrease followed a $10/bbl increase in February, the first increase in eight months. Several factors put upward pressure on Brent prices in February, including news of falling US crude oil rig counts and announced reductions in capital expenditures by major oil companies. This upward price pressure abated in March, as the combination of robust world crude oil supply growth and weak global demand contributed to an increase in the rate of global inventory builds. Inventory builds are projected to average 1.7m bbl/d through the first half of 2015. Total global oil inventories are estimated to have increased by 2.1mbbl/d in March alone however, compared with a 0.9mbbl/d increase in February. Despite concerns that inventories are rising rapidly, the IEA thinks that inventory builds will moderate during the second half of the year, as demand rises and non-Organization of the Petroleum Exporting Countries (OPEC) supply growth slows, particularly in the United States, because of lower oil prices. No surprise then perhaps that the monthly average WTI crude oil spot price decreased to an average of $48/bbl in March, down $3/bbl from February. WTI prices fell in March in large part because of commercial crude oil inventories in Cushing, Oklahoma, which increased to a record 58.9mbarrels as of March 27th. The record inventory levels have put downward pressure on the price of crude oil for prompt delivery compared with the price of crude oil for delivery in later months.

EIA projects the Brent crude oil price will average $59/bbl in 2015, with prices rising from an average of $56/bbl in the second quarter to an average of $67/bbl in the fourth quarter. The Brent crude oil price is projected to

average $75/bbl in 2016. However, this price projection remains subject to the uncertainties surrounding the possible lifting of sanctions against Iran and other market events (see analysis box below).




WTI prices in 2015 and 2016 are expected to average $7/bbl and $5/bbl, respectively, below Brent. The Brent-WTI spread for 2015 reflects continued large builds in US crude oil inventories. The current values of futures and options contracts continue to suggest a high degree of uncertainty in the price outlook. WTI futures contracts for July 2015 delivery traded during the five-day period ending April 2nd averaged $52/bbl, explains the IEA, while implied volatility averaged 46%, which it said, “(established) the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in June 2015 at $35/bbl and $78/bbl, respectively. The 95% confidence interval for market expectations widens over time, with lower and upper limits of $32/bbl and $97/bbl for prices in December 2015. Last year at this time, WTI for July 2014 delivery averaged $99/bbl, and implied volatility averaged 17%. The corresponding lower and upper limits of the 95% confidence interval were $85/bbl and $115/bbl,” in its April STEO report. Given the high level of uncertainty in oil markets, several factors could cause oil prices to deviate significantly from current projections. Among them is the potential lifting of sanctions against Iran if a comprehensive agreement is reached. The level of unplanned production outages could also vary from forecast levels for a wide range of producers, including OPEC members Libya, Iraq, Nigeria, and Venezuela. The degree to which non-OPEC supply growth is affected by lower oil prices will also affect market balances and prices. Most commentators believe that any lifting of Iran sanctions could substantially change the short term forecast for oil supply, demand, and prices by allowing a significantly increased volume of Iranian oil to enter the market. “If and when sanctions are lifted, the baseline forecast for world crude oil prices in 2016 could be reduced $5-$15/barrel (bbl),” said the IEA. Iran is believed to hold at least 30m barrels in storage, and the EIA believes Iran has the technical capability to ramp up crude oil production by at least 700,000 bbl/day (bbl/d) by the end of 2016. This, in addition to even moderate levels of global inventories, means that global production continues to exceed demand. However, if the new framework agreement between the P5+1 and Iran results in a comprehensive deal and a lifting of sanctions, it could significantly change the short term energy outlook forecast for oil supply, demand, and prices, which still assumes that Iran’s production will stay close to the current level through 2016.




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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 29 April 2015 K. Al Awadi




Economy & Finance

NewBase 593 special 29 April 2015