New base 10 october 2017 energy news issue 1082 by khaled al awadi

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 Energy News 10 October 2017 - Issue No. 1082 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Adnoc strikes strategic agreements with Japan
The National
Dr Sultan Al Jaber, Minister of State and Adnoc Group chief executive, said the long-term energy
partnership between Japan and the UAE is one that goes back to before the establishment of
Adnoc.
The Abu Dhabi National Oil Company (Adnoc) signed several agreements with Japan, which
imports quarter of its crude from the group, that put in place a framework for cooperation on
strategic business development; upstream technical cooperation; and training and development
programs for company employees.
“The long-term energy partnership between Japan and the UAE is one that goes back to before
the establishment of Adnoc, with Japanese companies playing, and continuing to play, an
important role in the development and expansion of the country’s oil and gas industry,” Dr
Sultan Al Jaber, Minister of State and Adnoc Group CEO said in a statement.
The memorandum of cooperation agreements were signed with Japan’s ministry of economy,
trade and industry (Meti) and the Japan Oil, Gas and Metals National Company.

“Today we are strengthening that
partnership by pursuing new opportunities
that will help us unlock greater value from
our resources,” Dr Al Jaber said. “This is a
clear example of how our expanded
approach to partnerships presents unique
opportunities for both new and existing
partners to invest alongside Adnoc to capture
growth opportunities and deliver future
prosperity.”
Adnoc has supplied Japan with oil, gas and
refined products since its foundation in 1971.
The company is Japan’s second-largest
supplier of crude oil and a major provider of
gas and refined products. In 2016, Adnoc’s
crude oil exports to Japan averaged 513,000
barrels per day, or 25 per cent of Japan’s
crude oil imports.
In January, Japan’s Meti extended its agreement with Adnoc to store crude oil at the Kiire Oil
Terminal, in Kagoshima City, for two years. Under the deal, Adnoc can store up to 6.29 million
barrels of crude oil, providing the UAE company with greater access to Asian markets while giving
Japan priority access to reserves in times of tight supply.
The tie-up “marks a new phase in Japan’s long and successful relationship with Adnoc, an
important and valued energy supplier,” said Hiroshige Seko, Japan’s minister of economy, trade
and industry. “We believe the changing oil and gas market dynamics require a smart response,
one based on long-term, value add partnerships that create new opportunities and drive economic
growth.”
The UAE began shipping oil to Japan in 1962, from Abu Dhabi’s offshore Umm Shaif oilfield.
Since then, Japanese companies have partnered with Adnoc to develop the emirate’s oil and gas
resources with the Japan Oil Development Company (Jodco) having a 40 per cent share of the
Satah concession; 12 per cent of the Umm Al Dalkh concession and 12 per cent of the Upper
Zakum concession, operated by Zadco.
In addition, Jodco has a 12 per cent share of the Adma concession and 5 per cent of the Adco
concession and Mitsui has a 15 per cent share of the Adgas joint venture. Adnoc’s Japanese
partners also contribute to the company’s training and research and development programmes.

UK: First UK shale gas frack only weeks away - Third Energy confirms
Source: BT
The first frack for shale gas in the UK is just weeks away, according to the company preparing to
undertake the controversial technique in North Yorkshire. Third Energy says it hopes to
complete five test fracks before the end of the year, producing gas for its nearby power station.
The firm’s KM8 well site, just outside the village of Kirby Misperton, has been besieged by
protesters since Third Energy began moving lorries of equipment into the compound last month.
The demonstrators have been accompanied by large numbers of police who have made a number
of arrests, including women who locked themselves to a concrete-filled tube and another who
protested on top of a lorry.

North Yorkshire Police said: 'A total of 26 people were arrested at the site in September 2017.
Two were released with no further action, two accepted cautions, and the other 22 have been
charged to court for offences including obstructing the highway, assaulting a police officer, and
obstructing a police officer.'
Third Energy’s technical director Alan Linn said his message to the protesters was: 'Allow us to do
this and we will be able to demonstrate to you that you don’t have anything to worry about.'
Speaking at the site, Mr Linn said the final regulatory sign-off was 'imminent'.
He said: 'We’re beginning to prepare for the work-over phase of the well and that should
commence shortly. It will probably take us about two weeks. Once we’ve completed that
successfully then we would begin to move into the frack. We can’t do that until we’ve got our final
regulatory approvals in place and we hope those will happen imminently.
The existing brownfield
site at Kirby Misperton
(Source: Third Energy)
'We expect to be
finished and wrapped up
with the actual fracking
before the end of the
year. If we’re successful,
we should hopefully, by
that stage, be producing
some gas into the
Knapton generating
station and producing some electricity.'
He said he thought the Kirby Misperton fracks would change the tone of the conversation about
the technique in the UK.
'There’s not been an onshore hydocarbon frack done in the UK, this is the first time,' he said. 'The
conversation about fracking in this country will be informed by an actual frack. For me that will
change everything. So there will be no speculation. We will be able to demonstrate and show
people the figures. And we will see whether, technically, it works or doesn’t work and how the
work was undertaken safely.'
Mr Linn said the protests led to delays on some days but his team had caught up and was broadly
on track. He spoke as contractors on the well site continued to build a nine-metre sound barrier
around a core of shipping containers and scaffolding. But Mr Linn said he was not anticipating any
noise issues from the fracks, which each last around 90 minutes to two hours and will take place
only during the day.
Outside the gates on Thursday, protesters continued their demonstration on the quiet country road
just south of the village. Eddie Thornton, who says he is a 'protector not a protester', said: 'We’re
determined as a community to stop this well and the 10,000 wells that will follow. We’re doing our
utmost to disrupt them economically.'
Mr Thornton, from nearby Pickering, said: 'This is just the thin edge of a very frightening wedge.
We know this is a pivotal well. It all starts with one well and were determined to stop this one. The
huge majority of the people who turn out every day are local, they tend to be retired – middle
England, basically.'

UK: Statoil drills two dry UK wells, makes one discovery
Reuters Staff
Statoil’s exploration campaign off Britain yielded one discovery and two dry wells this year, the
company said on Monday. Results of the Mariner Segment 9 and Jock Scott wells were
disappointing, while the third, a sidetrack to Statoil’s Verbier well in the outer Moray Firth, proved
at least 25 million barrels of oil.
“Whilst the results of the other two exploration wells were disappointing, we are convinced of the
remaining, high-value potential on the UK continental shelf,” Jenny Morris, Statoil’s vice president
for UK exploration, said in a statement.
“The Verbier result certainly gives us the confidence and determination to continue our exploration
efforts,” she added.
The preliminary results suggest that
the Verbier discovery could hold from
25 million to 130 million barrels, but
more drilling will be needed to refine
the range and potential for commercial
development, Statoil said.
Statoil holds 70 percent in the license,
Jersey Oil and Gas 18 percent and
CIECO Exploration and Production
(UK) 12 percent.
At the dry Mariner well, Statoil’s
partners were JX Nippon, Siccar Point
Energy and Dyas, while the Jock Scott
was a partnership with BP.

Italy's Oil Giant Taps Mediterranean Diet to Turn Fats Into Fuel
Bloomberg - Chiara Albanese
Each week, Friggi Oil Service pays a visit to Ai Due Otri, a traditional Sardinian restaurant in
central Rome, to pick up what’s left in the frying pan. Leftover oil from this and other restaurants
is trucked to a collection area just outside the capital. It’s then taken to a refinery operated by Eni
SpA, Italy’s oil and gas giant, to be turned into fuel.
While biofuels represented little more than 1 percent of the country’s total energy output in 2015,
it’s a growing market. The government, driven by European Union renewable-fuel targets and a
national diet rich in olive oil, is luring producers with financial incentives.
As a result, Ai Due Otri is just one of about 100,000 restaurants nationwide recycling their
grease. But Italy must persuade households to do the same if Eni is to process as much as it
plans.
"Italy is a country where we make large use of vegetable cooking oils," said Giuseppe Ricci, chief
refining and marketing officer at Eni. Recycling them reduces the quantity of edible crops needed
to make biofuels and cuts the volume of waste clogging up drains, he said.
The initiative is given impetus by the EU, which aims to get 10 percent of transport fuel from
renewable sources by 2020 and offers payments for biofuel production in a bid to attract
investment in the industry.

Eni’s bio-refinery in Venice can process 360,000 tons a year of vegetable oil and other fats and
feedstocks. An upgrade at the plant in 2020 will allow it to process 600,000 tons, yielding about
420,000 tons of biodiesel -- a significant quantity considering Italy’s total biofuel output in 2015
was 575,000 tons. Eni also plans to invest 240 million euros ($282 million) to build a second bio-
refinery in Gela, Sicily.
The growth in capacity raises the need for feedstock. Conoe, the umbrella body for Italy’s oil-
collection and treatment companies, says about 70,000 tons of used oil are gathered every year,
yet most of that comes from restaurants. The volume could exceed 200,000 tons if more
households were signed up to the program, according to the organization.
"Adding families into the picture would be a real game-changer,” Conoe Chairman Tommaso
Campanile said in an interview in Rome.
Italians are renowned for their home-cooking. Among euro-zone nations, the country is second
only to Greece in consumption of oils and fats, according to Eurostat. Yet the incentive for families
to take leftover oil to a waste station remains limited. While collection points are increasing, they
rarely get full and about two-thirds of the oil that could be reprocessed isn’t turned in, according to
Campanile.
Conoe will start an awareness-raising campaign next year to encourage households to
participate. "Used oil from a pan, oil in canned food, oil used to preserve in food preparations,"
Campanile said. “We are now working to get it.”
China Used oil to EU:-
According to the regulations in the document, the management of gutter oil will be regarded as a
key task for food safety control measures during China’s "13th Five-Year" plan. Meanwhile,
Chinese government is establishing an incentive system to stop the gutter oil recycling back to
restaurants and hope to thoroughly eradicate the problem of illegal gutter oil business.

All these new measures indicate that more and more UCO will be properly collected and flowed to
legal market, and thus the supply of UCO will be guaranteed. The UCO price might be going
steady or slightly lower.
European buyers are not very satisfied with the UCO quality from Chinese market. As matter of
fact, the main reason is that pure UCO is hardly to collect in China.
90% of the pure UCO was sold to the animal feed plants as a kind of ingredients in the past due to
the higher demand and price.
On the other hand, most of the UCO exporters you met online are simple purifiers instead of the
real UCO collectors, when the demand of animal feed oil is very high, no pure UCO will be
exported due to the price gap, the oil collectors can profit much more in domestic market than
exporting in such cases.
The chart above shows that the huge growth of Chinese used cooking oil export to European
market this year. As for Netherlands and Spain, the export volume of used cooking oil from
January to May 2017 already exceeds the quantity of last year.
As for UK, the export volume also increased than the same period. As a major raw material basis,
China will play an important role in the future. With the new policy published, the supply of used
cooking oil will continue to increase in the next years.
Under the circumstance of weak domestic markets, Chinese UCO collector and factories have to
find the opportunities from the overseas energy market, it would be enhanced competition among
Chinese exporters.
We believe that more and more European biodiesel plants will come to China to source UCO this
year and China UCO would be much more competitive after the new policy is effectively
implemented soon.

Guinea: Total signs TEA to study deep and ultra deep Conakry
Source: Total
Total and the National Office of Petroleum of Guinea (ONAP) have signed a Technical Evaluation
Agreement to study deep and ultra deep offshore areas located off the coast of Guinea Conakry,
covering approx. 55,000 sq kms.
'By taking this position on a new under-explored area, Total pursues its exploration strategy
targeting deep offshore prospective basins,' declared Kevin McLachlan, Senior Vice President
Exploration for Exploration & Production at Total.
'Therefore, Total has the opportunity to evaluate a very large area, located in an extension of the
prolific Mauritania/Senegal basin where we already are. This will allow us to capitalize on our
know-how and experience acquired in West Africa.'
According to the terms of this agreement, Total will have a year to assess the potential of the
basin on the basis of existing data. At the end of this period, the Group will select three licenses to
start an exploration program. As part of the agreement, Total will also train ONAP staff to develop
their technical skills in exploration and production.

NewBase October 10 - 2017 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Oil prices slightly rise as OPEC says market is rebalancing
Reuters + NewBase
Oil prices edged up on Tuesday as OPEC said there were clear signs the market was rebalancing
and as U.S. production remained offline following Hurricane Nate.
U.S. West Texas Intermediate (WTI) crude futures were trading at $49.65 per barrel at 0648 GMT,
up 7 cents, or 0.1 percent, from their last close. Brent crude futures, the international benchmark
for oil prices, were up 12 cents, or 0.2 percent, at $55.91 a barrel.
Traders said prices were supported as the Organization of the Petroleum Exporting Countries
(OPEC) said oil markets were rebalancing fast after years of oversupply.
“There is clear evidence that the market is rebalancing,” OPEC’s secretary general Mohammad
Barkindo told Reuters on Monday, repeating the message again in India on Tuesday.
Oil price special
coverage

“The process of global destocking continues, both onshore and offshore, with positive
developments in recent months showing not only a quickening of the process but a massive
drainage of oil tanks across all regions,” he said.
OPEC has led an effort to cut output to end years of overproduction that created a huge supply
overhang.
Tighter market conditions are reflected in the shape of the Brent crude forward curve, which has
flipped from contango - when future deliveries are priced higher than those for immediate sale -
into backwardation, when it is more profitable to sell oil promptly than storing it for sale later.
STRONG ENOUGH DEMAND?
The OPEC-led production cuts started in January and are set to expire at the end of March 2018.
There have been talks about extending the curbs, but no formal agreement has been reached.
JP Morgan said that previous “concerns that OPEC compliance would fade into the fourth quarter
now appear unfounded”, and that “stronger than assumed economic growth offers the potential for
tight market conditions to continue if OPEC extends the current deal for another nine months”.
Short-term price support was also coming from the United States, where 85 percent of U.S. Gulf
of Mexico oil production, or 1.49 million barrels a day, was offline following Hurricane Nate,
according to the U.S. Department of the Interior’s Bureau of Safety and Environmental
Enforcement late on Monday.
Oil companies evacuated staff from Gulf platforms and curtailed output ahead of the storm, which
hit the region last weekend.

Traders said they did not expect the disruptions to last long.
“Units that were shut down as a precautionary measure in the advent of Tropical storm Nate have
commenced restarting of operations. Not much damage appears to have been done,” said Sukrit
Vijayakar, managing director of consultancy Trifecta.
Since the start of the year, U.S. oil production has risen by 10 percent to over 9.5 million barrels
per day (bpd), potentially undermining OPEC’s efforts to re-balance the market.
“OPEC ... cannot afford to let up, because more oil is coming and the question is: ‘Is the demand
increase big enough to absorb that?',” Torbjorn Tornqvist, chief executive of trading house Gunvor
told Reuters on Tuesday.
WTI Oil Dawdles Near $50
Oil crept toward the $50-a-barrel mark after OPEC’s chief dangled the possibility of prolonging
supply curbs well into next year.
Oil producers led by Saudi Arabia and Russia are succeeding in shrinking a worldwide glut of
crude, yet may need to take further steps to sustain the effort, OPEC Secretary-General
Mohammad Barkindo said. The Saudi’s state-owned oil company announced the “deepest
customer allocation cuts in its history,” a reference to how much oil it intends to ship next month.
Futures fluctuated in a 66-cent range amid light volume on the U.S. Columbus Day holiday.
“It’s kind of a day of indecision,” Michael Hiley, head of over-the-counter energy trading at New
York-based LPS Partners, said by telephone. Until producers formally agree to extend the cuts,
the market is likely going to ignore OPEC headlines, he said.
Oil on Friday capped the steepest weekly decline since May as Hurricane Nate turned out to pose
little threat to Gulf Coast crude and refining assets. The Saudi kingdom and Russia were leading
consultations between the Organization of Petroleum Exporting Countries and other major

suppliers about the future of their supply caps, Barkindo said Sunday in New Delhi. Bullish
developments during the last few months have been largely offset by surging supply additions
from U.S. shale drillers.
U.S. explorers raised crude production to 9.56 million barrels a day in the week ended Sept. 29,
the fourth straight increase since Hurricane Harvey slammed south Texas and forced some wells
to shut down. Output has risen 9 percent this year, on track for the largest annual increase since
2014, when crude averaged more than $92.
“With rising production levels and no definitive word from OPEC and the Russians that they are
going to extend the cut or deepen it, the rally seems to have lost its momentum,” Gene McGillian,
a market research manager at Tradition Energy in Stamford, Connecticut, said by telephone.
Brent at $55 and WTI at $50 is an inflection point and the market is “waiting to see what the next
shoe to drop is now.”
West Texas Intermediate for November delivery added 29 cents to settle at $49.58 a barrel on the
New York Mercantile Exchange. Total volume traded was about 36 percent below the 100-day
average. Prices slid $1.50 to $49.29 on Friday, capping a 4.6 percent drop for the week.
Brent for December settlement rose 17 cents to end the session at $55.79 on the London-based
ICE Futures Europe exchange, and traded at a $5.86 premium to WTI for the same month.
Waterways, pipeline terminals and offshore platforms shut during Nate’s passage over the Gulf
Coast during the weekend began reopening. About 85 percent of oil production in the Gulf
remained shut as of Monday, according to the Bureau of Safety and Environmental Enforcement.

NewBase Special Coverage
News Agencies News Release 09 October -2017
OPEC Finds an Unlikely Savior
By Julian Lee
There's nothing like a crisis to create unlikely friends and, goodness knows, there are enough
crises in the Persian Gulf to create the unlikeliest of alliances. The visit by King Salman of Saudi
Arabia to President Putin of Russia may not reflect a complete about-face by the desert kingdom,
but it sends a very clear message that the U.S. is no longer the only great power calling the shots
in the Gulf.
Big Beasts
Saudi Arabia and Russia, the world's biggest oil exporters, are drawing closer together
The relationship between the world's two largest oil exporters has been growing closer ever since
King Salman came to the throne and Mohammad bin Salman began his rise towards assuming
the crown.
The deal to cut oil production, which has helped stabilize prices and is beginning to drain excess
stock, was only achieved through the collaboration of the two countries. Even though OPEC
countries have made much deeper cuts than their partners, action by OPEC alone wouldn't have
been nearly so effective. Cooperation between Saudi and Russia has “breathed life back into
OPEC," according to the kingdom's oil minister Khalid Al-Falih, and the Russian president has
indicated he is willing to extend cooperation beyond March 2018 if necessary.
There's no real chance Russia will seek to join OPEC, nor that it would be welcomed. President
Putin ruled out such a move on Wednesday. But he'll continue to work with the group when their
interests coincide.

Russia's help on the oil price hasn't gone unnoticed and Salman's visit -- plus the deals that go
with it -- are part of the reward. They'd have been unthinkable five years ago. Now, they reflect
Russia's importance in the Gulf; in particular, its dominant role in Syria.
Spending $3 billion on Russia's S400 air defense missile system is tiny compared with
May's $110-billion deal with the U.S., but that it happened at all shows alliances are shifting.
Securing Gulf oil may seem less vital to the U.S. in the age of shale, but the region's ability to
influence oil prices -- deliberately or accidentally -- is undiminished.
Cutting the Ties
U.S. shale oil has reduced U.S. purchases of Persian Gulf oil by as much as 50 percent
The Putin-Salman great pals act comes despite Moscow's deep bond with Iran. That relationship
isn't about to change. Until the Soviet Union's 1991 breakup, governments in Moscow and Tehran
shared a common border of close to 1,200 miles, parts of which date to the 16th century. The
Saudis clearly hope Russia can help keep Iran in check.
Could a Russian entity even become a cornerstone investor in the Saudi Aramco IPO, scheduled
for next year? Both parties deny any discussions, but access to cheap-to-extract Middle Eastern
crude could be attractive to Rosneft Oil Co PJSC, much of whose future development portfolio
consists of expensive Arctic oil that may be uneconomic in a $50 world.
Russian oil companies have built a string of upstream assets in Iraq and are among early bidders
for Iranian projects. Taking an Aramco stake isn't unimaginable.
In a barely disguised dig at the U.S., Putin explained Russia's new-found attractiveness to Middle
Eastern countries, saying (while keeping a straight face): "The most significant advantage we
have is that we never double-deal. We are always honest with our partners."
That Moscow can speak directly with Saudi Arabia and Iran -- something the U.S. hasn't been
able to do since the '70s -- gives it a real chance to reduce tensions between the two, should it so
choose.
We're a long way from seeing a Russian fleet based in the Gulf, but Moscow is showing itself as
the emergent regional power and Riyadh seems to be playing along despite Iran. Don't expect
Putin to leave his new friend in the lurch by abandoning the OPEC output deal. Russia's playing
the long game.
This column does not necessarily reflect the opinion of NewBase and its owners.

China’s oil giants brace for electric car crash
Katrina Hamlin + ( images by NewBase)
China’s moves to slash reliance on the internal combustion engine signal tough times for the
country’s oil majors. A push into new energy vehicles (NEVs) – including battery-powered and
hybrid cars – could curb demand for black gold. Sinopec and PetroChina will be hardest hit. The
policy will also add to downward pressure on global crude prices.
The People’s Republic is ultimately hoping
to outlaw traditional gasoline-fueled cars
entirely, cleaning up the air and relieving it
of dependence on oil imports. There is no
official deadline for the move, but Wang
Chuanfu, founder of Chinese electric
vehicle maker BYD, reckons the ban could
come as early as 2030.
As a battery maker poised to profit from the
shift, Wang’s guesstimate is certainly self-
interested, and probably wishful thinking.
Electric cars accounted for less than 2
percent of China’s market share in 2016,
and a bottleneck in battery production will
hamper the transition.
But there is no doubting China’s
determination to push the pace. The
Ministry of Industry and Information
Technology says NEVS should account for
a fifth of auto sales by 2025. As soon as
2019, regulators want automakers to make
NEVs at least 10 percent of total sales.
That means China’s $440 billion retail fuel
market is in for a bumpy ride.
GIANT PROBLEM
Sinopec will be hit hardest. Gasoline sales made up around a quarter of total revenue at the
group’s listed unit China Petroleum & Chemical Corporation in 2016, and the energy giant runs
almost a third of the country’s 100,000 or so service stations. These hubs boast more than 23,000
convenience stores, a valuable sideline. Non-fuel sales could grow by as much as 25.5 percent a
year in the period 2016 to 2019, according to research by brokerage CLSA. There are plans to
launch a Hong Kong IPO for the group’s marketing unit, but the outlook has clouded of late. There
is no public prospectus, and the offering – expected to raise around $12 billion – now looks
unlikely to materialize this year.
PetroChina will feel the pinch too. It controls some 20,000 petrol stations, and sold more than 62
million tonnes of gasoline last year, worth about 357 billion yuan at 2016 prices. PetroChina is
slightly less dependent on refining than Sinopec – gasoline sales made up roughly a fifth of
revenues. However, investors appreciate the higher margins the company earns from refining and
other downstream operations when oil prices are subdued, as they are now.

If one fifth of auto sales are absorbed by the NEV market in 2025 as planned - assuming China
hits its target of 35 million units sold that year - that would rob gas stations of 7 million
automobiles, enough cars to support the equivalent of 3,500 gas stations, according to a
conservative Breakingviews calculation.
When combined with new environmental and industrial policies, a successful EV push could make
a real dent in long-term global oil demand. Absent government intervention, S&P projects China’s
oil consumption would probably balloon to 41 million barrels of oil a day by 2050, compared to
10.9 million barrels a day in 2015. On the other hand, if Beijing manages to meet all its ambitious
published targets for electric vehicles, emissions
reductions and industrial efficiency upgrades, oil
demand would attain barely half those levels, the
study shows. Sinopec, PetroChina, and even
upstream operator CNOOC could be vulnerable.
TRICKY MANEUVER
There is time to plan. It might be decades before
the fleet of combustion engines actually shrinks.
Even so the big Chinese players are already
looking to diversify. Downstream operators might
recalibrate refineries to focus on petrochemical
products like plastics, while pushing further into
natural gas. Sinopec says it is exploring
geothermal energy and biomass, too. Offshore
markets could help as well; exports of gasoline
and diesel from Chinese refineries have been
rising for the past few years.

Another strategy might be restructuring the retail business to accommodate electric vehicles.
Perhaps the gigantic network of service stations could be converted into charging stations; drivers
waiting for cars to charge, or swapping batteries, might shop at the convenience stores too.
Sinopec is working with State Grid to offer charging services, state-backed China Daily reported
earlier this year. Unfortunately in these areas the oil incumbents have little or no advantage over
other competitors. Gas stations aren’t particularly convenient places to recharge compared to,
say, parking lots.
Whichever route they take, energy conglomerates will still enjoy massive financial scale and
unparalleled influence in the halls of government. It seems unlikely Beijing will stand aside and let
them collapse. Even so, investors will watch closely to see if the oil majors can shift gears before
it’s too late.
BEIJING’S GRAND PLAN FOR ELECTRIC CARS
To true believers it is a demonstration of the economic superiority of central planning. In 2015,
Beijing declared its plans to dominate the world’s electric car industry by the year 2025. And to
benchmark progress it set targets: in 2016
Chinese car manufacturers would sell 500,000
electric vehicles into the domestic market.
Sure enough, last year, China sold half a million
electric vehicles, making it by far the world’s
biggest market. About 340,000 of those were
passenger cars, the rest were mostly buses. In
contrast, manufacturers in the world’s second
largest market, the United States, shifted just
155,000 electric passenger cars.
What is more, China’s electric vehicles are manufactured overwhelmingly by locally owned
producers, not foreign joint ventures, and they are based on Chinese technologies. Last year
China’s leading electric vehicle maker, Shenzhen-based BYD, turned out 100,000 cars. The
leader in the US, Tesla, managed to sell 76,000 into its home market.
An electric car on a sidewalk in B eijing. Photo: AFP

Stated in these bald terms, it looks as if China is well on the road to achieving Beijing’s aim of
global market dominance by 2025; a vindication of the merits of government directed central
planning.
Dig a little deeper, however, and the growth of China’s electric vehicle industry is rather less
impressive than it first appears.
The rapid increase in electric car sales has been powered by generous government subsidies and
incentives. Last year, China’s central government offered subsidies of 30,000 yuan (HK$35,000)
to buyers of plug-in hybrid cars, and as much as 55,000 yuan to purchasers of pure electric cars.
Some local governments offered additional subsidies of the same amount, to total 60 per cent of
the vehicle’s sticker price.
Together, these reduced the price of electric vehicles so that they were competitive with
conventional cars. However, in many cases, local governments offered additional incentives. In
Shanghai, the buyers of conventionally powered cars can pay as much as 80,000 yuan at auction
for a permanent licence plate. Licence plates for electric cars and plug-in hybrids are free.
An electric vehicle charging st ation in Beijing. China is
desperately short of charging st ations. Photo: AP
The generosity of these subsidies produces some curious market distortions. For one thing, China
is desperately short of charging stations to power up all the electric cars it has sold. As a result,
private buyers tend to purchase plug-in hybrids to take advantage of the incentives, and then run
them using only their conventional petrol engines. It makes economic sense for the buyers, but it’s
deeply inefficient in energetic and environmental terms, exacerbating rather than alleviating
roadside pollution.
Beijing’s strategy has produced other distortions, too. The prevalence of subsidies has meant
almost every one of China’s 169 domestic car makers, most of which are backed by local
governments, has rolled out models of electric car. The majority are low-tech and poor quality, and
struggle to make sales in the commercial market.

As a result, the biggest customers for these cars are often the local governments that support their
manufacture. This shows up in China’s quarterly sales figures for electric vehicles. In 2016, more
than 40 per cent of all electric vehicles sales for the year were booked in the final quarter as local
governments ramped up their purchases to ensure they met Beijing’s annual targets.
Pmany cases, these vehicles have
been left idle to gather dust on
government lots. In at least one
example, the vehicles didn’t even
exist. In 2015, a Suzhou company
sold 3,000 phantom buses to the
local government. Its actual sales
of real buses for the year were
reckoned at just 25.
In an attempt to tackle these
distortions, Beijing has announced
plans to reduce the central
government subsidies for electric
cars and to cap those offered by
local governments. This year, the
maximum central government subsidy for a pure electric car will be reduced from 55,000 to
44,000 yuan. And local government subsidies will be capped at half that.
This, of course, will make electric cars a lot less attractive as far as buyers are concerned. So, to
encourage the continued development of the industry, from next year Beijing is proposing to
impose strict quotas for electric vehicle production on the country’s car manufacturers.
Under the new system, manufacturers that exceed their quotas will be awarded credits. Car
makers that fall short of their quotas, which will include the big foreign backed joint ventures, will
have to make up their deficits by buying credits from producers with an excess.
In other words, the big producers of conventionally engined cars will be forced to subsidise the
manufacturers of electric vehicles. And more to the point, as far as Beijing is concerned, foreign-
owned joint ventures will be compelled to subsidise indigenous manufacturers of electric cars.
It sounds like a clever plan. But it is unlikely to ensure China’s technological dominance of the
global electric car market, as Beijing desires. Instead it will simply perpetuate the extreme
fragmentation of China’s electric vehicle sector. Legions of small, locally backed manufacturers
will continue to knock out their low-tech electric clunkers to win credits that they can then sell to
bigger producers such as the foreign joint ventures. And the big producers will continue to build
and sell the highly profitable conventionally engine, gas-guzzling SUVs that Chinese buyers
actually want.
Just as Beijing’s grand plan for global auto dominance failed to displace Japanese and Korean car
manufacturers in the early years of this century, so its grand plan to win dominance of the world’s
electric car market will fail in the coming decade. But then that’s the miracle of central planning for
you.

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
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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 27 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 October 2017 K. Al Awadi

New base 10 october 2017 energy news issue 1082 by khaled al awadi

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