Microsoft word new base 670 special 23 august 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 23 August 2015 - Issue No. 670 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
U.K. to test roads that charge electric cars as they drive
By Nicole Bogart Tech Reporter Global News
One of the problems facing electric car owners is range anxiety – the worry that you won’t have
enough of a charge to get to your destination, or the next charging station. But what if the road you
were travelling on could give you a battery boost?
Highways England, the U.K. government body responsible for road infrastructure, has announced
it will begin feasible testing of electric “re-charging” lanes, which would provide a charge to
vehicles as they drive along them.
“Vehicle technologies are advancing at an ever increasing pace and we’re committed to
supporting the growth of ultra-low emissions vehicles on England’s motorways and major A
roads,” said Mike Wilson, Highways England’s chief highways engineer, in a press release.

“The off-road trials of wireless power technology will help to create a more sustainable road
network for England and open up new opportunities for businesses that transport goods across
the country.”
The technology would see vehicles equipped with wireless transmitters. Electric cables buried
under the surface of the road would generate electromagnetic fields. The energy would then
picked up by a coil inside the car’s transmitter and converted into electricity.
Similar technology is already being used in South Korea, where there is a seven-mile stretch of
road that charges electric buses as they pass over it. The U.K. testing won’t be done on public
roads yet, however. A test track will be built for the feasibility study that is expected to run for 18
months.
For now, the technology will be implemented as a test for 18 months. After that, the need to
expand the project to public roads will be evaluated. The same system was implemented earlier in
the South Korean city of Gumi, which allow special buses to be charged during a 12km road.

ENOC : to acquire remaining Dragon Oil shares
Source: Dragon Oil + NewBase
On 2 August 2015, Emirates National Oil Co (ENOC) announced that the Offer
for Dragon Oil had been increased to 800 pence in cash for each Dragon Oil
Share, and had become unconditional in all respects.
On 7 August 2015 Dragon Oil announced that the process for delisting Dragon Oil
Shares from the Irish Stock Exchange and London Stock exchange had commenced, and it is
anticipated that delisting will take effect from 8:00 a.m. (Dublin time) on 7 September 2015.
Consequently, the last day of trading of Dragon Oil Shares on the Irish Stock Exchange and
London Stock Exchange will be 4 September 2015.
As at 3.00 p.m. (Dublin time) on 20 August 2015, ENOC had received acceptances of the Offer
valid in all respects relating to 207,023,926 Dragon Oil Shares representing 41.9 per cent. of the
current issued share capital of Dragon Oil and 90.1 per cent of Dragon Oil Shares to which the
Offer relates. As a result, ENOC has received sufficient acceptances of the Offer to compulsorily
acquire any Dragon Oil Shares in respect of which the Offer has not been accepted.
The Offer will remain open for acceptance until 3:00 p.m. (Irish time) on 14 September 2015 and
will close on that date.
Following the Closing Date, ENOC will commence the Compulsory Acquisition Process under the
relevant provisions of Part 5 of the European Communities (Takeover Bids (Directive
2004/25/EC)) Regulations 2006.

Oman: New Sohar, Barka IWPs to be awarded in Q4
Oman Observer
Oman Power and Water Procurement Company (OPWP), Member of Nama Group, has opened
the bids for the development of a new seawater desalination projects in Barka and Sohar. The
scope of the Projects
includes the design,
construction, ownership,
financing, operation and
maintenance of a high
efficiency desalination
facilities with total of
531,000 m3 per day (116.8 million gallon per day) of Potable Water output, to enter into
commercial operation in second quarter of 2018.
The projects, which are estimated to cost RO 200 million, will be structured as Independent Water
Projects (IWP) with OPWP purchasing the Potable Water produced by the projects under a Water
Purchase Agreements with a term of 20 years.
Engineer Ahmed al Jahdhami, CEO of OPWP, commented that this project is considered the largest
desalinated water capacity procured ever in the Sultanate thus would be a vital addition to the main system
and would positively impact water supply in the country.
The project is anticipated to create jobs for the nationals and opportunities for business owners including the
Small and Medium Enterprises. Furthermore, the CEO confirmed that the Request for Proposal (RfP) was
released in April this year to the companies participated in the prequalification process that started in
February 2015. Seven pre-qualified applicants submitted the final bid which indicates the continued strong
interest of investors in Oman’s power and water projects.
The companies that submitted the bids include a consortium led by JGC, a consortium led by GS Inima,
Hyflux, a consortium led by Valoriza, a consortium led by Veolia, a consortium led by Itochu and a
consortium led by Abengoa. The bid evaluation is expected to result in the award and execution of all
project agreements with the successful bidder by the 4th quarter of 2015 and the plants to enter into
commercial operation by 2nd quarter of 2018.

VITOL BUYS OUT OIL TANK PARTNER
Financial Times + Gulf News
Vitol has bought out its partner in a leading oil tank business, as excess supply and growing world
demand create more opportunities f or oil storage providers.
On Friday, Vitol — the world’s largest energy trader — said it had paid $830m (Dh3.05 billion) for
MISC Berhad’s 50 per cent stake in the VTTI BV oil storage business. Buying the Petronas-
controlled shipping group’s half of the venture gives Vitol greater control over a global network of
almost 400 tanks.
“Since inception, we have developed an independent storage company supported by the financial
strength and market insight offered by Vitol,” said Rob Nijst, chief executive of VTTI BV in a
statement. “Our asset footprint will continue to improve and grow.” Nijst will continue to run VTTI
BV as an independent company, the statement said. It added that the purchase was made with
Vitol Investment Partnership, the trading house’s investment arm.
Vitol chief executive Ian Taylor said he was “very excited by VTTI BV’s future potential,” noting
that the company has total gross storage capacity of 54 million barrels, including assets under
construction. A glut of crude globally has led oil traders to look for additional space to store
supplies. Using oil futures contracts, traders can lock-in higher prices for the crude for delivery
months down the line, when the market is expected to be slightly stronger.
Access to oil storage facilities gives traders greater flexibility in moving crude and refined products
around the world. Modern oil storage facilities allow quicker shipment and blending of crudes,
diesel, jet fuel and gasoline. Investment groups Kinder Morgan and 3i infrastructure have also
bought storage facilities in recent months, while private equity players have been looking at a BP
owned terminal in Amsterdam.
ICE Brent, the international benchmark, hit a 7-month low of $46.00 a barrel on Friday.
Meanwhile, the premium for a contract for delivery six-months later has risen to more than $4 a
barrel, the highest since April. This suggests more oil may be moved into storage, allowing tank
operators to earn higher fees due to stronger demand.
MISC Berhad said it wanted to release profits from its stake in VTTI BV to invest in its main
business of oil shipping. It has been under pressure from lower prices, people familiar with the
matter said. VTTI currently has storage capacity of 35.5 million barrels, according to its website,
including sites in North America, the UAE, Europe’s Amsterdam-Rotterdam-Antwerp oil hub and in
Malaysia.
It started building a new facility in Cape Town in July. South Africa has emerged as an increasingly
important way station for oil, with traders able to easily flip barrels east and west from the location
depending on regional demand. South Africa’s giant Saldanha Bay storage facility, which can hold 45
million barrels of oil, was filled to capacity last month by the oil glut, traders said.

Major fossil fuel-producing states rely heavily on severance taxes
Source: U.S. Census Bureau, 2014 Annual Survey of State Government Tax Collections
Several states that produce large amounts of fossil fuels rely heavily on severance tax revenue—
taxes based on the volume and/or value of oil, natural gas, coal, and other natural resources. On
average, severance taxes accounted for less than 2% of state tax collections in 2014, but in three
states—Alaska, North Dakota, and Wyoming—severance taxes provided a much larger share of
total state tax revenue in that year. Pennsylvania, on the other hand, is considering a severance
tax, and currently derives less than 1% of its revenues from a well head fee.
Alaska. Alaska relies on revenues from oil and natural gas production for up to 90% of its budget,
and consequently the state experiences fluctuations in tax receipts that reflect changing oil and
natural gas prices.
The Alaska Clear and Equitable Share Wellhead tax is calculated at 25% of operators' net income
(revenues after operating expenses and capital expenditures) before adjustments and credits. In
the first quarter of 2015, the state lost $5 million in severance tax revenues as production
companies had negative net income because of falling oil prices and the application of tax credits.
Money from Alaska's Permanent Fund as well as statutory and constitutional budget reserve funds
helps the state reduce the effect of year-to-year fluctuations of severance receipts.
North Dakota. The second-largest oil producing state (after Texas) has seen its reliance on
severance tax revenues grow along with the growth of tight oil production in the Bakken region.
Between 2001 and 2014, North Dakota oil production increased from 87,000 barrels per day (b/d)
to 1.1 million b/d, with severance tax receipts over the same period growing from $164.6 million to
$3.3 billion. In 2001, severance taxes accounted for 14% of state tax revenues, growing to 54% in
2014.
First-quarter 2015 severance tax receipts of $442 million are half of the state's all-time high of
$982 million in the third quarter of 2014. In response to low oil prices, in April 2015 the state
passed legislation to revise its severance tax structure, making revenues more predictable. The
legislation reduces the oil extraction tax to 5.0% from 6.5% beginning January 2016 and repeals
existing statutes that trigger severance tax reductions when oil prices stay below a reference price
of $55 per barrel for several months.

Wyoming. The nation's foremost coal-producing state receives nearly 40% of state revenues from
severance taxes. Since 2000, natural gas, rather than coal, has been the largest source of
Wyoming severance taxes because of a significant increase in natural gas production. High crude
oil prices and increases in production elevated crude oil to the second-largest source of severance
tax receipts in fiscal year 2014. Wyoming state and local governments also derive revenue from
property taxes, with coal, oil, and natural gas totaling more than 50% of state-assessed valuation.
Texas. The nation's largest oil- and natural gas-producing state collected $931 million in
severance tax revenues in the first quarter of 2015—more than Wyoming collects in an entire
fiscal year. The first-quarter total is down 46% from the $1.7 billion collected in the third quarter of
2014. However, severance taxes cover only 11% of the state operating budget. Texas state and
local governments also derive greater oil and natural gas revenues from state land leases and
local property taxes. Like Alaska and Wyoming, Texas does not have an individual income tax.
Pennsylvania. Unlike the states discussed above, Pennsylvania, the country's second-largest
natural gas producer, derives revenue not from severance taxes but from an annual wellhead fee
based on the number of wellheads drilled and the wholesale prices of natural gas. From 2011 to
2014 the revenues from the impact fees were relatively flat (from $202 million to $226 million)
despite production growth in the Marcellus region.
This result was because horizontal fracturing techniques yielded increasing natural gas per well
and prices remained low. Pennsylvania's legislature is considering severance tax legislation that
would require oil producers to pay a severance tax of 5% of the production value of oil and natural
gas. The proposed 5% severance tax is estimated to generate up to $1 billion in tax receipts. This
amount would still be less than 3% of the state's total tax collections because of Pennsylvania's
reliance on other sources of tax revenues.

NewBase 23 August- 2015 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices slump despite China’s aggressive buying
The National -Anthony McAuley + NewBase
Oil prices sank to their lowest in more than six years as further signs that China’s economy is
slowing outweighed evidence that China’s big state oil companies have been aggressively buying
crude on international markets.
World benchmark North Sea Brent crude futures closed on Friday at US$45.46 a barrel, down 76
cents on the day and the lowest closing price since spring 2009 after the financial crisis. The oil
sector in recent weeks has been swept up in the bearish sentiment raging through the world’s
financial markets as worries have mounted that China’s long period of economic growth is braking
more sharply than previously expected.
Commodities as well as financial markets have slumped, and Brent futures are down about 30 per
cent since the end of June. The unexpectedly strong demand for refined oil products, such as
petrol and diesel, that had helped oil prices bounce from their lows in the mid-$40s in January to
trade above $60 a barrel through June, has been overtaken by worries that demand will not hold
up in the months ahead.
Oil price special
coverage

That shift in mood comes despite some recent signs that China’s demand for oil has been bucking
the trend and increasing at a healthy rate. Indeed, the latest data from China Customs on Friday
showed that crude oil imports in July were the second-highest monthly total ever, averaging 7.25
million barrels per day (bpd), up 1.64m bpd, or 22 per cent, from the previous July.
Among China’s top suppliers, Saudi Arabia’s crude oil sales were up 9.6 per cent through July, to
average just under 1m bpd. Russia gained even more ground as its crude sales grew 30 per
cent, making it China’s third-largest supplier at about 770,000 bpd.
The UAE has been China’s eleventh-largest supplier of crude, growing at 5.5 per cent through
July to average about 220,000 bpd.
The strong buying by China of Middle East crude oil might continue and, according to the Dubai
Mercantile Exchange and other sources, China’s largest oil trader – Chinaoil, the trading arm of
China National Petroleum Corp – bought a record amount of oil already this month for October
delivery, at 55 cargoes.
However, in the murky world of oil trading it is not clear at this point if Chinaoil will ultimately take
delivery of those cargoes. At the same time as Chinaoil was buying, Unipec, the trading arm of
China’s largest chemical company, was a record seller of cargoes for October delivery.
It has become more difficult to gauge China’s actual demand as its major firms have become
more aggressive traders as part of an effort to gain more control over pricing in the region.
Another aspect of this strategy has been its massive programme to build storage facilities for oil
and oil products. A significant portion of its oil buying in the past year has gone into new storage
facilities, according to industry watchers.
As Energy Aspects analyst Amrita Sen points out, a 19 million-barrel facility at Huangdao and
another 7.6 million barrel commercial storage unit in Hainan both opened in June, which together
with other regular inventory building meant that probably about 32m barrels of July’s crude imports
went into tanks for future use.
Similarly, there was stock building of petrol and diesel, although Ms Sen feels it is too early to
determine whether the overall shrinkage in car sales in China will be outweighed by the move
towards bigger vehicles, such as 4x4s, in terms of slowing growth in transport fuel consumption.
There is no doubt, however, that the overall sentiment in the world oil market is gloomy because
of the supply overhang.
Even though there are more signs of a slowdown in production in the United States, with the
latest rig count data showing a decline of more than half since last year, coupled with a Standard
& Poor’s report showing that oil companies accounted for a fifth of debt defaults this year, there
continues to be worry that world oil supply will outstrip demand in the months ahead.
Analysts such as Goldman Sachs’ Jeff Currie, who predicted in early July that Brent prices would
drop to $45 per barrel by the autumn, see a risk of further declines in the coming weeks.
He still has a forecast that Brent prices will average $63 per barrel next year, but with “significant
downside potential” because of new supply from sources including Iran, once sanctions are
formally lifted on its oil exports.

OPEC concern widens about oil drop, but cuts still ruled out
Reuters + NewBase
Some of OPEC's Gulf members are concerned about the latest drop in oil prices which had not
been expected, OPEC delegates said, but they see little chance of the exporting group diverting
from its policy of defending market share.
Brent oil LCOc1 is trading near $46 a barrel, close to its 2015 low after an 18 percent drop in July,
pressured by abundant supplies and concern about the health of the Chinese economy, the
world's second-largest oil consumer.
Despite this, the delegates including from Gulf OPEC members who declined to be identified say
China is still buying and stockpiling crude and they expect strong global demand growth should
push prices back to $60 next year.
"There is a concern about the health of the Chinese economy, but as numbers have shown the
need to import oil is increasing," an OPEC delegate from a Gulf oil producer said. "Oil prices will
remain volatile... but they will recover," the delegate said this month, adding that he does not
expect OPEC to take any step now "due to unclarity" in the market.
Prices have more than halved since June last year.
OPEC's Gulf members, relatively wealthy, are better able to cope with low oil prices than the
African members, Iran or Venezuela. Led by Saudi Arabia, the Gulf members drove OPEC's
strategy shift last year to allow prices to fall to discourage growth in competing supply sources.
While non-Gulf members of the Organization of the Petroleum Exporting Countries have
frequently expressed concern since then about the drop in prices, Gulf members have rarely
voiced such sentiments. But there is no indication they expect OPEC's policy to change.
"Of course everyone is concerned, but we hope by the fourth quarter the market will start
recovering," a second OPEC source said, citing the end of seasonal refinery maintenance that will
boost crude demand.

CHINA CONCERNS
OPEC officials reconfirmed its market-share strategy at its last meeting in June. At the time,
delegates were expecting a recovery in prices towards the end of 2015, supported by expected
higher global demand.
But those
sentiments have
changed with the
latest oil price drop
and as concern
grows about the
demand outlook in
China. "Prices are
expected to stay
under downward
pressure until the
expected
enhancement in
demand next year,
then they can reach
around $55-60 a
barrel," a third OPEC delegate said. OPEC currently expects an acceleration of growth in world oil
demand next year to 1.34 million barrels per day, from 1.28 million bpd this year, as well as an
increase in the demand for its own crude as non-OPEC supply expansion slows.
Although China's crude demand has so far remained strong as authorities take advantage of
cheap oil to build up strategic reserves and consumers kept spending despite the slowing
economy, there are signs of weakening, with the devaluation of the yuan potentially denting fuel
imports.
OPEC delegates and industry sources say it is hard for Saudi Arabia to reverse the policy it
championed, particularly at a time when both Iran and Iraq are gearing up to boost their crude
exports.
"The Gulf states are worried about the decline but there will be no change of direction unless
Saudi was to lead it," an industry source and OPEC expert said. "At the moment, Saudi is still in
charge and they will stick with it."
Adding to the uncertainty over the health of the Chinese economy is concern about rising global
oil production in a market that OPEC's own forecasts indicate is already oversupplied by more
than 2 million bpd. Saudi Arabia and Iraq, OPEC's top two producers, have been pumping this
year at record highs, and others like Russia have kept production levels elevated.
OPEC does not meet until Dec. 4 and has rebuffed calls for an emergency meeting by Algeria.
While OPEC rules say a simple majority of the 12 OPEC members is needed to call an
emergency meeting, insiders say unless Saudi Arabia is among those in favour no meeting is
likely. "Emergency meetings need coordination and agreement or at least a proposal before the
ministers go for it, and I don't see this happening," said the second OPEC source.

Falling oil prices test Opec’s mettle
Syed Rashid Husain – Energy Outlook
Markets are sinking. Global benchmarks, WTI and Brent, are hovering around their 6-1/2-year
lows - heading for the eighth consecutive week of fall - the longest losing streak since the crash of
mid-80s. Then too oil prices had slumped to $10 from around $30, over a five-month period, as
OPEC raised output to regain market share following a surge in non-OPEC output.
Supply continues to be strong. Despite falling prices, US inventory levels are rising, now at “near
levels not seen for this time of the year in at least the last 80 years.” Contrary to expectations of a
decline, the amount of oil held in US commercial stockpiles rose last week to 456.2 million barrels
last week - up from 453.6 million the preceding week.
The growing supplies are impacting the market balance “The stunning fact is that Saudi Arabia,
Iraq and the US together added 2 million bpd to world oil supply since the price collapsed,” Daniel
Yergin of IHS was quoted as saying. “And this is even before Iran came back to the market.”
And in the meantime, demand too is on a slippery slope. Chinese industrial output shrank at its
fastest pace in almost 6-1/2 years in August as domestic and export demand dwindled, generating
the specter of lower crude consumption by the world’s second-largest crude consumer.
Yet, the floor is yet not there, most insist. Prices are to go down further, as with the summer
driving season coming to a close, demand traditionally slows down and refineries around the
globe go into their regular maintenance. “Demand for crude will soon fall nationally from current
levels in September with the onset of seasonal refinery maintenance, leading to further builds (in
stockpiles),” BNP Paribas said in a report.
A consensus seems emerging that prices might have to fall further. There’s a “conceivable
reality,” the US oil prices may plummet to a new 11-year low of $33 a barrel or lower this year, a
Citigroup report released last week said. This new “How low can oil go?” report contends that
capital markets are “getting nervy” and one of the only ways to stop this downward trend is for
North American shale companies to lose more access to capital during the next phase of
borrowing negotiations in October, called redetermination.

In February 2009, closing US oil prices last bottomed out at $33.98 a barrel during the Great
Recession. As per a CNBC survey, majority of traders and analysts now see oil falling to the same
range - $30 to $40 in the near term.
Cumberland Advisors’ David Kotok thinks the worst may be yet to come. “We could go back to
$15 or $20, this is a downward slope, we don’t know a bottom,” Kotok said in an interview with
Bloomberg.
And this is playing havoc with most, if not all, OPEC producers. As oil prices slump, the risk of
worsening political turmoil is rising within ‘most vulnerable’ in OPEC. The Fragile Five’ listed by
RBC Capital Markets Ltd included Algeria, Iraq, Libya, Nigeria and Venezuela.
Venezuela “appears poised for a near-term crisis” amid protests and shortages of basic goods,
RBC analysts Louney and Helima Croft underlined. Nigeria is no different. Its currency naira has
weakened 7.8 percent against the dollar this year, pushing inflation outside the central bank’s
upper target of 9 percent, and, the recovery of Nigeria’s depleted cash reserves has hit a plateau.
Iraq, facing instability from the ongoing fight with ISIS, has also seen its problems compounded
by the fall in oil prices, causing its budget to shrink significantly. According to Fitch Ratings, Iraq
may post a fiscal deficit in excess of 10 percent this year, and all the savings accrued during the
years of high oil prices have been depleted. The government is now tapping the bond markets for
the first time in years, looking to issue $6 billion in new debt.
Libya’s risks of further political chaos are among the highest within OPEC, matched only by Iraq,
says RBC. Threats have also intensified in Algeria as it faces “a looming leadership transition.”
The economies of both North African nations tipped into a current account deficits last year after
more than a decade of surpluses.
Others too are faced with crucial issues. The world’s ninth-largest oil producer, Mexico hedged oil
exports for 2016 at an average price of $49 a barrel, down 36% from the hedge for this year -
$76.40 a barrel. The Mexican crude-oil benchmark is currently trading near $38, some 60% lower
than a year ago.
Norway’s economic growth too is slowing as plunging crude prices sap investments and drive up
unemployment in western Europe’s biggest petroleum producer.
OPEC kingpin Saudi Arabia too is faced with hard choices. Saudi Arabia’s real GDP growth is
expected to slow to 2.8% this year, and further to 2.4% in 2016 as government spending begins to
adjust to the lower oil income, the IMF said. The fund forecasts a fiscal deficit of 19.5% of GDP in
the kingdom this year. Suggesting ways to plug the gap, IMF underlined “sizable multiyear fiscal
adjustment” by taking measures such as revising energy subsidies, controlling public sector
wages, and expanding revenues not stemming from oil, a value-added tax, or VAT and a land tax.

Saudi gets the 1998 feeling as oil fall threatens wealth
Bloomberg + NewBase
The oil price was near its lowest in more than a decade, cash reserves were being depleted,
emerging markets were in turmoil and Saudi Arabia was beginning to panic.
“It was a very scary moment,” said Khalid Alsweilem, former head of investment at the Saudi
Arabian Monetary Agency, the country’s central bank. “And luckily at that point, oil prices started
going up. Not by design, by good luck.”
That was 1998, and now Saudi Arabia’s fortunes threaten to turn again. This time, luck might not
be enough as the government tries to protect the wealth of a nation whose economy has swelled
by five times since then. Saudi Arabia is also paying for an expanding role in regional conflicts in
the face of a resurgent Iran and Islamic State extremists who have bombed Saudi mosques.
Economists are predicting a budget deficit of as much as 20% of gross domestic product and the
International Monetary Fund forecasts a first Saudi current-account deficit in more than a decade.
Reserves at the central bank tumbled 10% from a year ago, or by more than $70bn.
As a result, bets on the devaluation of the riyal are surging. The Tadawul All Share Index lost 18%
in the past three months and dragged stocks down across the Gulf region. The benchmark’s
moving averages made a so-called death cross on August 18, a sign to some investors that more
losses are ahead.
The Saudis have “played a waiting game,” Robert Burgess, Deutsche Bank’s chief economist for
emerging markets in Europe, the Middle East and Africa, said from London. “The budget for next
year is going to be a very important milestone that the markets are going to be focusing on quite
intently.”

With oil prices down by more than half over the past 12 months to below $50, Saudi Arabia faces
many of the same financial problems it did in 1998. The difference is the sheer cost of
maintaining the state as an employment machine and guarantor of the riches that Saudis have
become accustomed to since the last squeeze.
“The Saudi government can’t continue to be the employer of first resort, it can’t continue to drive
economic growth through the big infrastructure projects and it can’t keep lavishing on subsidies
and social spending,” said Farouk Soussa, chief Middle East economist for Citigroup Inc in
London.
That’s not to suggest Saudi Arabia is headed for the kind of spending cuts and tax increases more
familiar to austerity-hit Europeans. The government, for instance, could tax wealthy landowners,
Jamal Khashoggi, a former media adviser to Saudi Prince Turki al-Faisal, said by phone from
Riyadh. “There’s a long list of things that Saudi officials can do before touching the livelihood of
ordinary Saudis,” said Khashoggi. “Yes, it’s a difficult time and maybe it could have been much
better if we did what we’re doing today a couple of years ago when the price of oil was in the
$100s.”
It’s also not like Saudi Arabia has no control over its destiny. Oil rebounded after 1998 – the price
of crude advanced in 11 of the 16 calendar years since then – not least because the Saudis used
their clout as the de facto leader of the Organisation of Petroleum Exporting Countries, or Opec.

The country has declined to cut production and lift prices over the past year to gain market share
from the shale industry in the US and other producers with higher expenses, even if that’s come at
a cost to its finances. Saudi Arabia still has $664bn of net foreign assets, equal to almost 90% of
the economy, and little debt.
“I wouldn’t say there’s any kind of crisis or even a crisis on the near horizon,” said David Butter,
associate fellow at Chatham House in London. “They’re in the oil business. They’ve had it pretty
good for quite a long time and that’s not typical.”
Even so, the IMF recommends that Saudi Arabia control its growing wage bill, make changes to
government subsidies for fuel and electricity and bring in more non-oil revenue through taxes. The
country’s breakeven oil price – the point at which it can balance its budget – is about $100, said
Soussa at Citigroup.
Fuel subsidies alone will cost Saudi Arabia as much as 195bn riyals ($52bn) this year, or 8% of
GDP, Riyadh-based Samba Financial Group said in an August 18 report. Central bank Governor
Fahad al-Mubarak already has called for a review of price subsidies.
A new economic council headed by Deputy Crown Prince Mohammed bin Salman could help
make the changes if it can move quickly, said Alsweilem, the former investment chief who is now
a fellow at Harvard University’s Belfer Center.
While less per capita than in Gulf states Qatar and the UAE, the relative wealth of Saudi Arabia
means the government might need to tread carefully. Any adjustment will be “jarring,” said
Soussa.

NewBase Special Coverage
US oil imports rise as contango encourages storage
By John Kemp/London is a Reuters market analyst. The views expressed are his own.
US crude imports topped 8mn barrels per day (bpd) last week for only the second time this year,
spurring an unexpected rise in stockpiles and sending US oil prices down to a fresh post-crisis
low.
The US imported 56.3mn barrels of crude in the week ending Aug. 14, up from 53.0mn barrels the
week before, according to the US Energy Information Administration. The difference is equivalent
to the arrival of between one and two very large crude carriers (VLCCs), tankers that can carry up
to 2mn barrels each.
Higher imports largely accounted for the reported 2.6mn barrel increase in commercial crude
stocks, though refinery processing also slipped as a result of problems at BP’s Whiting refinery in
Indiana. Increased imports are not particularly surprising since refiners and traders currently have
a strong incentive to maximise the amount of crude in storage.
The contango in futures prices implies the market will pay around 75 cents per barrel per month to
store oil in the US between September and December. At one point last week, the fourth-quarter
contango was running at almost $1 per month, far above the cost of leasing tank space and
financing the inventory.
Refining margins for turning crude into gasoline have softened in recent days but remain at some
of the highest levels in the last decade. Refiners can earn around $17 per barrel for converting
every barrel of imported oil into gasoline, up from about $11 this time last year, before operating
costs, depreciation and taxes.
There is an enormous incentive for refiners to stock up on relatively cheap crude, maximise sales
of expensive gasoline, and hedge to lock in the generous refining margin. And there is plenty of
room at refineries and especially tank farms to load up in the next few months in response to
market incentives.

US commercial crude stocks stand at 456mn barrels.
But according to the US Energy Information Administration, there was space to store 659mn
barrels at the end of March, or 541mn if tank bottoms are excluded.
In principle, US stockpiles could rise by another 85mn barrels if the right financial incentives are in
place before storage capacity runs out. In practice there are some operational constraints on filling
every storage tank to maximum capacity.
But set against this, extra storage has probably been added since March, and current stocks
include around 100mn barrels of pipeline fill and other oil in transit. The basic point, however, is
that there is room to hold tens of millions of barrels of extra crude currently lying empty or only
partially filled.
As long as the financial incentives are right and storage space is available, it makes sense to fill it,
which should result in more tankers arriving in the US over the next few weeks and months and an
increase in reported stockpiles over the fourth quarter.
Whether strong imports and stock builds are bearish is a matter of perspective.
In one sense imports and rising stocks are not really new information since they should have been
anticipated because of the structure of crude and gasoline futures prices. In another sense, they
underscore how much surplus crude is around in the market.
The fact the futures market responded to a relatively small increase in stockpiles by pushing US
oil prices down by $1.70 per barrel in a few hours to a new post-2009 low underscores how
bearish sentiment has become.

China devaluation may affect global economy: QNB
Gulf News + NewBase
The global economy in 2015, according to QNB a few months ago, is likely to be dominated by
two factors: the sharp decline in commodity prices, especially oil, and the large movements in the
exchange rates market.
Lower commodity prices shift income from commodity-exporting countries to commodity-importing
ones. Exchange rates movements tend to shift growth from countries with appreciating currencies
to those with depreciating currencies.
The two forces,
therefore, have
important distributional
implications, and they
create winners and
losers in the global
economy. This lens to
view the world economy
is useful in analysing
China’s recent decision
to devalue its currency
and the global
implications of the
devaluation, QNB said
in a report.
Due to its soft peg to the
US dollar, the renminbi
appreciated against
most global currencies.
The appreciation has
hurt Chinese exports,
making China one of the
losers from the large global exchange rate movements.
This provided one motivation for the Chinese authorities to delink the renminbi from the US dollar.
The impact of the decision is unlikely to be confined to China but would probably spillover to the
global economy, particularly through commodity prices and the movement of currencies, the
report said.
Commodity prices fell in the aftermath of China’s devaluation. Oil prices have fallen by nearly 6%
since August 11, while copper have fallen by 5% over the same period. The Thomson
Reuters/Core Commodity CRB Index (a broad measure incorporating agricultural, precious metal,
industrial metal, and energy commodities) has fallen by almost 4% since the devaluation.
According to QNB, investors interpreted the devaluation decision as a signal of weakness in the
Chinese economy. And given that commodity prices have been driven by Chinese activity in
recent years, the fall is not surprising.

However, if the devaluation succeeds in stimulating Chinese exports and therefore growth, then
commodities might get a boost from the move. So the decline in commodity prices induced by
China’s devaluation may turn out to be short-lived, the QNB report said.
“Commodity prices might fall of course. In fact we argued recently that oil prices are likely to
remain low through 2016. But this would happen for reasons unrelated to China’s devaluation,”
QNB said.
China’s devaluation has also resulted in depreciations of a host of currencies. These include
currencies in commodity-rich countries such as Australia, Indonesia, South Africa, and Latin
American nations.
These also include neighbouring Asian countries with large trade exposure to China like Taiwan,
Thailand, and South Korea.
QNB pointed out that the latter set of countries might even respond with measures to weaken their
own currencies further and maintain their export competitiveness. Indeed, Vietnam already
widened its currency’s trading band and followed that with a 1.0% devaluation a week later, the
report further said.
Other Asian countries, especially those with low and falling inflation and stuttering growth such as
the Philippines and Taiwan, may cut interest rates, which is likely to lead to the depreciation of
their currencies, QNB said.
“As a result, China’s devaluation means that not only has it now joined the global currency race to
the bottom, but it is also inducing other countries to follow suit. This implies that, with the possible
exception of the UK pound, the US dollar is virtually the only major currency that is currently
appreciating,” QNB said.
It added, “A stronger US dollar could hurt US exports and hence GDP growth as it so painfully did
in the first quarter of this year. Coupled with the decline in commodity prices which is expected to
continue into 2016, a stronger US dollar can also reduce US inflation from its already low levels.”
Market participants still expect at least one rate hike from the Fed this year. But lower growth and
slowing inflation driven by a stronger US dollar could prompt the Fed to rethink its position, the
QNB report said.

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Your partner in Energy Services
NewBase energy news is produced daily (Sunday to Thursday) and
sponsored by Hawk Energy Service – Dubai, UAE.
For additional free subscription emails please contact Hawk Energy
Khaled Malallah Al Awadi,
Energy Consultant
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME member since 1995
Hawk Energy member 2010
Mobile: +97150-4822502
khdmohd@hawkenergy.net
khdmohd@hotmail.com
Khaled Al Awadi is a UAE National with a total of 25 years of experience in
the Oil & Gas sector. Currently working as Technical Affairs Specialist for
Emirates General Petroleum Corp. “Emarat“ with external voluntary Energy
consultation for the GCC area via Hawk Energy Service as a UAE
operations base , Most of the experience were spent as the Gas Operations
Manager in Emarat , responsible for Emarat Gas Pipeline Network Facility &
gas compressor stations . Through the years, he has developed great
experiences in the designing & constructing of gas pipelines, gas metering &
regulating stations and in the engineering of supply routes. Many years were spent drafting, &
compiling gas transportation, operation & maintenance agreements along with many MOUs for the
local authorities. He has become a reference for many of the Oil & Gas Conferences held in the
UAE and Energy program broadcasted internationally, via GCC leading satellite Channels.
NewBase : For discussion or further details on the news above you may contact us on +971504822502 , Dubai , UAE
NewBase 23 August 2015 K. Al Awadi

6th
– 8th
Oct.

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