OMV starts production at Umm Lulu and SARB fields offshore Abu Dhabi

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NewBase Energy News 01 October 2018 - Issue No. 1202 Senior Editor Eng. Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
UAE: OMV starts production at the Umm Lulu and SARB fields
Source: OMV
OMV has announced the start-up of production at the Umm Lulu and SARB (Satah Al Razboot)
fields offshore Abu Dhabi.
The production start-up of the Umm Lulu and SARB (Satah Al Razboot) fields shows an initial
capacity of 50,000 barrels per day (10,000 barrels per day net to OMV), which will increase to
129,000 barrels per day (25,800 barrels per day net to OMV) by the end of 2018 and 215,000
barrels per day (43,000 barrels per day net to OMV) by 2023.
In April 2018 OMV, the international integrated oil and gas company based in Vienna, signed an
agreement for the award of a 20% stake in the offshore concession Abu Dhabi – SARB (with the
satellite fields Bin Nasher and Al Bateel) and Umm Lulu as well as the associated infrastructure.
The agreed participation fee amounted to USD 1.5 bn and the duration of the contract is 40 years.
The SARB field, 120 km away from Abu Dhabi, and the Umm Lulu field, about 30 km away from
Abu Dhabi, are both located offshore in shallow waters. The early production in Umm Lulu started
in the fourth quarter of 2016.

OMV’s share of the reserves, for the period of the concession agreement, would amount to
approx. 450 mn barrels oil for the two main fields, with upside potentials from the satellite fields
Bin Nasher and Al Bateel. OMV’s capital expenditures over the contract term are estimated to
amount to approx. USD 2 bn, thereof approx. USD 150 mn will be spent per annum during the first
five years.
the long-term strategic agreement with OMV, as well as the other seven offshore concession
agreements concluded recently, underscores ADNOC’s commitment to maximising value from
Abu Dhabi’s substantial resources for the benefit of the nation, in line with the leadership’s
directives.
"The expansion of the global economy and increasing demand for oil, refined products and
petrochemicals, provide us with new opportunities to create value across our upstream and
downstream business. To seize these opportunities, we will work closely with OMV, and our other
partners to further optimise operational efficiencies, enhance performance, and capture future
growth opportunities. OMV’s strong track record in deploying advanced technologies to cost-
effectively increase recovery rates from mature fields will help enable ADNOC to continue to be a
reliable supplier of oil for decades to come," Dr. Sultan added.
Today’s agreement completes the round of offshore concession awards, which has seen ADNOC
bring on board with many more partners who bring value to the table, in terms of market access,
capital, technology and expertise. Collectively the offshore agreements, concluded since the start
of the year, have contributed AED29.1 billion (US$ 7.92 billion) in participation fees and secured
markets for 40% of the UAE’s oil for the next 40 years. Over the life of the concessions many
more millions of dirhams will be generated as oil production increases and new markets are
secured.
OMV, Austria’s largest listed industrial company, joins Spanish integrated oil and gas company
CEPSA (20%), which is wholly owned by the Mubadala Investment Company, as a shareholder in
the offshore concession. The SARB and Umm Lulu concession award to OMV strengthens
ADNOC’s strategy to maximize returns from its resources, expand its downstream business, and
retain value for the UAE.
OMV contributed a participation fee of AED 5.5 billion (US$1.5 billion) to enter the concession,
which also takes account of previous investments made by ADNOC in the SARB field. ADNOC
retains a majority 60% stake in the offshore concession that will be operated by ADNOC Offshore,
a subsidiary of ADNOC, on behalf of the concession partners.
The concession area comprises two producing fields, Umm Lulu, part of the former ADMA–OPCO
offshore concession, and SARB. The ADMA-OPCO concession has been divided into three
separate concessions in order to maximise commercial value, broaden ADNOC’s partner base,
expand technical expertise, and enable greater market access.
The agreement, which has a term of 40 years, effective from March 9, 2018, was signed by Dr.
Sultan and Dr. Rainer Seele, Chief Executive Officer of OMV.
OMV is already working with ADNOC on a number of other projects across the company’s value
chain, including appraisal of the Shuweihat sour gas field. In May, 2017, ADNOC and OMV also
agreed to work together to explore potential opportunities in support of ADNOC’s downstream
businesses and the company’s 2030 smart growth strategy. The agreement provides for
cooperation in a number of areas, including the evaluation of opportunities in downstream
projects, the exchange of knowledge and experience in refining operations and refinery-
petrochemical integration and optimization, and downstream technical and maintenance support.
8

UAE: Adnoc LNG awards Dh3.16bn construction deal for gas
development expansion project.. The National -Sarmad Khan
Adnoc's LNG facility. The company has awards a Dh3.16bn construction deal for the phase two of
its gas development expansion project to a consortium of Spanish and UAE firms. Courtesy
Adnoc
Adnoc LNG, a subsidiary of Abu Dhabi National Oil Company, awarded a Dh3.16 billion ($860m)
engineering, procurement and construction (EPC) contract to a joint venture of Spanish and UAE
companies as the unit moves ahead with developing the second phase of its Integrated Gas
Development Expansion (IGD-E) project.
Adnoc LNG signed the engineering, procurement and constr uction contract with Spain's
Tecnicas Reunidas and Abu Dhabi’s Target Engineering Construction, it said in a statement on
Wednesday. Around half of the contract's value will flow into the local economy in line with
Adnoc’s mission to capture financial returns for the UAE, it said.
Tecnicas will lead the JV and carry out the engineering and procurement for the project, while
Target will undertake the construction and commissioning works on Das Island.
“This agreement is a significant milestone as we work across the gas value chain to further
integrate our offshore and onshore gas systems,” Fatema Al Nuaimi, the acting chief executive of
Adnoc LNG, said. “It will enable us to deliver greater efficiency and performance, maximise the
value of our gas assets and pursue our strategic objective to ensure a sustainable and economic
gas supply that meets Abu Dhabi’s growing energy needs.”
The UAE last year approved a five-year spending plan of Dh400bn to be invested in exploring for
the country’s sour gas reserves as well as acquiring and developing downstream assets abroad.
Adnoc's facilities currently process 10.5 billion standard cubic feet of gas per day and produce

some 40 million tonnes annually of refined products, such as granulated urea, liquefied petroleum
gas, naphtha, petrol, jet fuel, gas oil and base oils, fuel oil, as well as feedstock for chemicals.
Work on Adnoc’s Dh40bn IGD-E programme began in 2009, with the aim of transferring 1 billion
cubic feet a day (cfd) of high-pressure gas from the offshore Umm Shaif field, via Das Island, to
Adnoc gas processing’s onshore facilities at Habshan and Ruwais, which was completed in 2013.
The first phase of the IGD-E project was launched in 2015 and finished in August this year. That
helped boost Adnoc’s offshore gas processing capacity by 400 million cfd to 1.4 billion cfd. Phase
one included the construction of a fourth gas dehydration unit and dry gas compression
aftercooler on Das Island, gas pipelines with a 117-kilometer offshore segment and 114-kilometre
onshore segment and modifications to the Habshan gas processing complex.
The second phase of Adnoc’s IGD-E project will take 54 months to complete. It will add 245m cfd
of associated gas to 1.4bn cfd of offshore gas to be processed for use in power generation.
The full scope of the contract encompasses engineering, equipment and material supply,
construction, installation, testing and commissioning of compression, drying and gas treatment
units, as well as power generation and other auxiliary services, Adnoc said.
The consortium will construct and commission the new gas processing facilities on Das Island,
which includes a new booster compression train with a capacity of 60m cfd, as well as two feed
gas compression and dehydration trains, each having a capacity of 123m cfd and two amine-
based fuel gas treatment units with 80m cfd capacity each, the company said.
Abu Dhabi Gas Industries (GASCO), a joint venture between Abu Dhabi National Oil Co. (ADNOC), which holds a
68% share, Shell (15%), Total (15%) and Partex (2%), is responsible for the facility. The FSRU will be able to supply
an extra 14 million cubic metres of gas per day to the grid.
The FSRU was deployed quickly to meet Abu Dhabi’s immediate gas needs. Plans to build a 9 mtpa land-based
terminal in Fujairah were put on hold earlier this year and Abu Dhabi pressed ahead with its first FSRU as a quicker
route to LNG imports.

Africa:Hydro and fossil fuels fuel electricity growth in Sub-Sahara
Source: U.S Energy Information Administration, International Energy Statistics
According to EIA’s international electricity statistics, hydroelectric and fossil fuel-powered
generation were the top sources of growth between 2005 and 2015 in Sub-Saharan Africa (SSA),
defined as the 49 countries fully or partially south of the Sahara Desert.
During that period, hydroelectric generation increased by about 40% in the region, while fossil
fuel-powered generation increased by 15%. SSA electricity generation totaled about 420 billion
kilowatthours (kWh) in 2015, including distribution losses and exported electricity, an increase of
22% during the decade.

Most of this growth occurred in nations other than South Africa. Although South Africa accounted
for more than half of all generation in the region in 2015, its electricity generation only grew 1%
during the previous decade. South Africa primarily uses fossil fuels for electricity generation, and
bituminous coal accounted for more than 90% of its domestic electricity generation between 2005
and 2015, according to the International Energy Agency.
South Africa has started to diversify its generation portfolio, adding generation from wind, solar,
and biomass in recent years. Outside of South Africa, total generation grew by 63% from 2005 to
2015. Hydroelectric generation was the largest source of electricity. Unlike South Africa, natural
gas fueled almost all of the added fossil fuel-powered electricity in the rest of the region.
Sub-Saharan Africa consumed about 372 billion kWh of electricity in 2015, up from about 304
billion kWh in 2005. The remaining generation went to distribution losses and exports. South
Africa was by far the largest electricity consumer in the region, accounting for about 209 billion
kWh (56%) of consumption. South Africa also accounted for more than 5% of SSA’s population
and generated about 20% of SSA’s overall gross domestic product in 2016. Electricity
consumption grew by 2% in South Africa from 2005 to 2015, while the growth rate averaged about
63% across the rest of SSA.
Growth in electricity consumption depends on improved electricity access. According to the U.S.
Agency for International Development’s Power Africa report, about two-thirds of Sub-Saharan
Africa’s population does not have access to electricity, the highest percentage for a major world
region. Industry experts estimate that the share of the population that has access to electricity in
SSA will grow by 2030, driven by initiatives such as Power Africa, the United Nations’ Sustainable
Development Goals, and a broad range of policy commitments and pledges made by
governments and private industry in SSA.
Despite these efforts, about 600 million people in the region will likely remain without electricity
access in 2030. According to EIA’s International Energy Outlook 2018, in both the Reference
Case and the High Economic Growth Case, Africa is the only region with a projected decrease in
per capita energy consumption—including electricity—from 2015 to 2040, a result of projected
population growth across the continent exceeding energy consumption growth.

NewBase 01 October 2018 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Brent oil hits 83.3 highest 2014 before U.S. sanctions on Iran
Reuters + Bloomberg + NewBase
Brent crude oil hovered close to its highest since November 2014 on Monday, supported by
supply concerns before U.S. sanctions against Iran come into force next month.
Benchmark Brent LCOc1 was up 16 cents at $82.89 a barrel by 0852 GMT, after touching $83.32,
the highest level in almost four years. U.S. light crude CLc1 was up 4 cents at $73.29.
“Saudi Arabia are signaling that they do not have a lot of prompt spare capacity available, or that
they don’t have the will to really use it on a proactive basis,” Petromatrix strategist Olivier Jakob
said.
“There’s nothing right now that gives a strong incentive to be a strong seller of the market,” he
said.
Oil price special
coverage

Investors have indicated they see prices rising, loading up on options that give the holder the right
to buy Brent crude at $90 a barrel by the end of October. Open interest in call options at $90 a
barrel has risen by nearly 12,000 lots in the last week to 38,000 lots, or 38 million barrels.
Higher oil prices and dollar strength, which has battered the currencies of several big crude
importers, could hit demand growth next year, analysts said.
But, for now, the focus is on U.S. sanctions on Iran’s energy industry that will apply from Nov. 4
and are designed to cut crude exports from the third biggest producer in the Organization of the
Petroleum Exporting Countries.
Several major buyers in India and China have signaled they will cut purchases of Iranian oil.
China’s Sinopec (600028.SS) said it had halved loadings of Iranian oil in September.
“If Chinese refiners do comply with U.S. sanctions more fully than expected, then the market
balance is likely to tighten even more aggressively,” Edward Bell, commodity analyst at Emirates
NBD bank wrote in a note.
Hedge funds have increased bets of a further price rise. Exchange data shows the combined net
long position in Brent and U.S light crude futures and options at its largest since late July,
equivalent to about 850 million barrels of oil. [CFTC/] [O/ICE]
With about 1.5 million barrels per day of Iranian oil expected to go offline on Nov. 4, prices could
“rocket higher with the flashy $100 per barrel price tag indeed a reasonable sounding target” if
investors doubted the Saudi ability to respond with enough extra output, he said.

U.S. oil drillers add fewest rigs in quarter since 2017: Baker Hughes
U.S. energy companies cut oil rigs for a second consecutive week as new drilling stalled in the
third quarter with the fewest additions in a quarter since 2017 due to pipeline constraints in the
nation’s largest oil field.
Drillers cut three oil rigs in the week to Sept. 28, bringing the total count down to 863, General
Electric Co’s Baker Hughes energy services firm said in its closely followed report on Friday.
For the third quarter, the increase of five oil rigs was the smallest since drillers cut three rigs in the
fourth quarter of 2017. They added 50 rigs in the first quarter and 61 rigs in the second quarter of
2018.
For the month of September, meanwhile, the oil rig count was up one, the same rise as in August.
The U.S. rig count, an early indicator of future output, is higher than a year ago when 750 rigs
were active as energy companies have been ramping up production in anticipation of higher
prices in 2018 than previous years.
The rig count has held mostly steady since June as spot crude prices in the Permian region in
western Texas and eastern New Mexico have collapsed due to a lack of pipeline infrastructure
needed to transport more fuel out of the region.
On a quarterly basis, drillers in the Permian are still adding rigs, but the pace of those additions
has slowed each quarter this year to just 13 added in the third quarter from 31 in the second
quarter and 44 in the first quarter.
Production in the Permian is forecast to rise to 3.5 million barrels per day in October, just below
output from Iran, OPEC’s third largest producer.
More than half the total U.S. oil rigs are in the Permian, the country’s biggest shale oil formation.
Active units there declined by two this week to 486.
Overall, U.S. oil production rose to a record high 11.0 million bpd in July, according to federal
data, rivaling output from top producers Russia and Saudi Arabia.

U.S. crude futures were trading near $74 per barrel on Friday, putting the contract on track to rise
for a third week in a row as U.S. sanctions on Iran tighten global oil supplies. The contract is on
track to rise almost 5 percent this month but down more than 1 percent for the quarter.
So far this year, U.S. oil futures have averaged $66.79 per barrel. That compares with averages of
$50.85 in calendar 2017 and $43.47 in 2016.
Looking ahead, crude futures were trading over $73 for the balance of 2018 and near $72 for
calendar 2019.
In anticipation of higher prices in 2018 and 2019 than last year, U.S. financial services firm Cowen
& Co this week said the exploration and production (E&P) companies it tracks have provided
guidance indicating an 18 percent increase this year in planned capital spending.
Cowen said the E&Ps it tracks expect to spend a total of $85.3 billion in 2018. That compares with
projected spending of $72.2 billion in 2017.
Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, this week
forecast the average combined oil and natural gas rig count would rise from 876 in 2017 to 1,031
in 2018, 1,092 in 2019 and 1,227 in 2020.
Since 1,054 oil and gas rigs were already in service, drillers would only have to add a handful of
rigs during the rest of the year to hit Simmons’ forecast for 2018.
So far this year, the total number of oil and gas rigs active in the United States has averaged
1,019. That keeps the total count for 2018 on track to be the highest since 2014, which averaged
1,862 rigs. Most rigs produce both oil and gas.

Oil’s leap toward $100 softens the blow of Russia sanctions
Bloomberg
When former US President Barack Obama first imposed sanctions on Russia in 2014, a plunge in
global crude prices turned the penalties into a crushing blow. This time round, oil markets are
doing the opposite.
As US lawmakers mull a new round of “crippling” sanctions, some traders are predicting the price
of Russia’s main export will hit $100 a barrel for the first time since 2014. The windfall from higher
oil revenue could end up mitigating the effect of even the harshest measures under discussion in
Washington and investors are picking up Russian government bonds on the back of crude’s gains.
“The surge in oil prices should outweigh the sanction fear,” said Viktor Szabo, a portfolio manager
at Aberdeen Standard Investments in London. “Russia is one of the strongest among emerging
markets in terms of fundamentals.”
The renewed threat of US penalties lumped Russian assets in with the worst performers amid the
summer’s broader emerging-markets slump, but the subsequent crude-oil rally and central bank
rouble support have sparked a rebound. In Washington meanwhile, US lawmakers continue to
brandish sanctions that could see a ban on new sovereign debt sales and even shut Russian
banks out of the international financial system.
Strong Position
Paul McNamara, a London-based fund manager at GAM UK Ltd with an overweight position in
Russian rouble bonds, says he added to his holdings after the Russian central bank paused its
policy of topping up reserves with hard-currency purchases to avoid exacerbating rouble
weakness.
While he concedes that the tougher version of the penalties would mean “more downside” for
Russian markets, “major macro issues” can be avoided with oil trading where it is. And if sanctions

don’t materialise in their harshest form, current oil prices “put Russia in a very strong position,” he
said.
The rouble headed for its third weekly advance on Friday, the longest winning run since January.
Yields on 10-year local debt have fallen 19 basis points this week to 8.50 per cent, the lowest level
since August 15.
Daleep Singh, a former Treasury official who helped pen the sanctions against Russia in 2014,
admitted in a recent testimony that most of the economic contraction in the country was caused by
the decline in oil, not by limiting some Russian companies’ access to capital markets. “Most
credible estimates” are that 10 per cent to 40 per cent was caused by US sanctions, Daleep said.
Roller-coaster
After skipping four local bond sales in a row, the longest stretch since the 2014 crisis, Russian
officials say they have no need to rush back into the market and meet investors’ demand for a
yield premium. The recent rouble weakness and elevated oil prices mean that the value of a barrel
of Brent in rouble terms is close to a record, bolstering the budget and helping the government
meet its local-currency spending goals.
“The higher price of oil helps because it insulates the economy from needing access to the debt
markets, if that were touched in a worse-case scenario,” said James Barrineau at Schroders, who
has also been picking up local OFZ debt. “It will help sovereign savings to grow and thus make
market access less important in the short term,” as well as giving the government funds to support
banks should the US curtail their market access, he said.
While the impact of oil on the economy is easy to put a number on, the background threat of
sanctions that may or may not materialise can’t be quantified. The US Congress is unlikely to pass
any new sanctions on Russia before the US midterm elections in November, according to a
Republican aide and a lawmaker.
“Sanctions are a roller-coaster,” Erich Arispe, director of sovereigns at Fitch Ratings Ltd said in an
interview. “What we’ve seen repeatedly is that sanctions don’t stop. We are factoring that in for the
foreseeable future.”
What Oil at $100 a Barrel Would Mean for the World Economy
Bloomberg - Enda Curran
Rising oil prices are prompting forecasts of a return to $100 a barrel for the first time since 2014,
creating both winners and losers in the world economy.
Exporters of the fuel would enjoy bumper returns, giving a fillip to companies and government
coffers. By contrast, consuming nations would bear the cost at the pump, potentially fanning
inflation and hurting demand.
The good news is that Bloomberg Economics found that oil at $100 would mean less for global
growth in 2018 than it did after the 2011 spike. That’s partly because economies are less reliant
on energy and because the shale revolution cushioning the U.S.
Ultimately, much depends on why prices are pushing higher. A shock amid constrained supply is a
negative, but one due to robust demand just reflects solid growth. Both forces are now in play,
driving Brent crude up about 22 percent this year.

Read more on why traders say oil at $100 a barrel is coming
1. What does it mean for global growth?
Higher oil prices would hurt household incomes and consumer spending, but the impact would
vary. Europe is vulnerable given that many of the region’s countries are oil importers. China is the
world’s biggest importer of oil and could expect an uptick in inflation.
There are also seasonal effects to consider, with winter looming in the Northern hemisphere.
Consumers can switch energy sources to keep costs down, such as biofuels or natural gas,
although not quickly. Indonesia already has instituted measures to push more use of biofuels and
limit the economy’s reliance on imported fuel.
For a sustained hit to global growth, economists say oil would need to hold above $100. The
dollar’s gain of this year doesn’t help though given crude is priced in greenbacks.
2. How can the world economy absorb oil at $100?
Bloomberg Economics found that $100 oil will do more harm than good to global growth. Yet there
are important differences in the condition of the world economy today compared with 2011.
“The shale revolution, lower energy intensity, and higher general price levels mean the impact will
be smaller than it once was,” economists led by Jamie Murray wrote in a recent report. “The price
of a barrel will have to go much higher before global growth slips on an oil slick.”
3. How will Iran and Trump impact the market?
Geopolitics remains a wild card. Renewed U.S. sanctions on Iran are already crimping the Middle
East nation’s oil exports. While President Donald Trump is pressuring the Organization of
Petroleum Exporting Countries to pump more, there is limited spare production capacity. In
addition, supply from nations including Venezuela, Libya and Nigeria is being buffeted by
economic collapse or civil unrest. Still, Goldman Sachs analysts predict $100 will not be passed.

4. Who wins from higher oil prices?
Most of the biggest oil-producing nations are emerging economies. Saudi Arabia leads the way
with a net oil production that’s almost 21 percent of gross domestic product as of 2016 -- more
than twice that of Russia, which is the next among 15 major emerging markets ranked by
Bloomberg Economics. Other winners could include Nigeria and Colombia. The increase in
revenues will help to repair budgets and current account deficits, allowing governments to
increase spending that will spur investment.
4. Who loses?
India, China, Taiwan, Chile, Turkey, Egypt and Ukraine are among the nations who would take a
hit. Paying more for oil will pressure current accounts and make economies more vulnerable to
rising U.S. interest rates. Bloomberg Economics has ranked major emerging markets based
on vulnerability to shifts in oil prices, U.S. rates and protectionism.
One of the biggest winners might also find itself on the losing end: Oystein Olsen, Norway’s
central bank governor, warned that western Europe’s biggest petroleum producer risks problems if
the industry takes its eyes off controlling costs.
5. What does it mean for the the world’s biggest economy?
A run-up in oil prices poses a lot less of a risk to the U.S. than it used to, thanks to the boom in
shale oil production. The old rule of thumb among economists was that a sustained $10 per barrel
increase would shave about 0.3 percent off of U.S. output the following year. But tallies now,
including that of Moody’s Analytics chief economist Mark Zandi, pencil in a hit of around 0.1
percent.
While the diminishing American reliance on imported oil has positive economic consequences at
the industry level, poorer households would feel the weight of higher prices at the pump. They
spend about 8 percent of their pre-tax income on gasoline, compared to about one percent for the
top fifth of earners.
6. Will it lead to higher inflation around the world?
Energy prices often carry a heavy weight in consumer price gauges, prompting policy makers
including those at the Federal Reserve to focus simultaneously on core indexes that remove
volatile energy costs. But a substantial run-up in oil prices could provide a more durable uptick for
overall inflation if the costs filter through to transportation and utilities.
7. What does it mean for central banks?
If stronger oil prices boost inflation, central bankers on balance will have one less reason to keep
monetary policy loose. Among the most-exposed economies, central bankers in India already are
warning about the impact as the nation’s biggest import item gets more expensive. Greater overall
price pressures also could prompt faster monetary policy tightening in economies such as
Thailand, Indonesia, the Philippines and South Africa.

NewBase Special Coverage
News Agencies News Release 01 October. 2018
How Much Oil Can Saudi Arabia Really Pump? We’re About to Find Out
By Javier Blas + NewBase
Does Saudi Arabia have the extra oil?
Today another Middle East crisis is stretching the Saudi oil machine. U.S. sanctions on Iran are
crippling exports from Iran, prompting buyers to look to the world’s largest exporter for
replacement barrels.
In a pithy description of its role during a supply crisis, Majid Al-Moneef, a former Saudi senior oil
official, told U.S. lawmakers a few
years back that "Saudi Arabia is
the ‘Federal Reserve of oil,’"
according to American intelligence
cables published by Wikileaks.
Yet, unlike a central bank, the
Saudis can’t print unlimited
amounts of money. Their crisis-
fighting tool is finite: a buffer of
wells sitting idle in the desert. Use
them now, and there’s nothing left
for the next crisis.
"Any unforeseen outages such as
those from Libya, Venezuela or
elsewhere could potentially expose
the lack of OPEC’s spare capacity
-- particularly of Saudi Arabia," said
Abhishek Deshpande, an oil
analyst at JPMorgan Chase & Co.
The Saudis and their OPEC allies
seem aware that using their spare
capacity is a now a double-edged
sword: it may cool down prices, but
the impact could be limited by the
risk-premium as the market worries
about what’s left. Oil’s already
passed the $80 mark despite
assurances from Riyadh and its
allies that it can fill Iran’s gap.
Some traders are predicting oil could reach $100 this winter as the impact of sanctions ratchets
up.
The United Arab Emirates’s energy minister, Suhail Al-Mazrouei, told reporters last week the
cartel had to be cautious and not "overuse" its limited buffer.

Thin Buffer
OPEC spare capacity is heading to its lowest level since 2008, when oil prices zoomed to $150 a
barrel. And that's before the impact of the disruption in Iran.
Source: U.S. Energy Information Administration
OPEC’s current spare capacity is relatively thin. The U.S. Energy Information Administration, puts
it at just 1.4 million barrels a day, and estimates that it will drop to 1.2 million by late 2019, one of
the lowest levels on record and similar to 2008 when oil prices zoomed to $150 a barrel.
Nonetheless, Riyadh says there’s lots of extra oil at hand. Energy Minister Khalid Al-Falih last
week said more barrels can flow "within days and weeks." Officially, the kingdom claims to be able
to pump at a maximum of 12.5 million barrels a day, up from a near-record 10.4 million produced
in August -- spare capacity of more than 2 million barrels.
Demand for Saudi crude in October could range from 10.5 million to 10.6 million barrels a day,
and the kingdom is able to supply this, Al-Falih told reporters in Algiers on Sep. 23. Vienna-based
consultant JBC Energy GmbH pegged the country’s daily output at 10.6 million barrels this month,
in a note published on Friday.
Before the sanctions were announced in May, Iran was exporting between 2.5 million and 2.8
million barrels a day. By the time the sanctions take effect in November sales may drop to just 1
million barrels, far lower than anticipated. On paper, the Saudis should be able to fill the 1.5 million
to 1.8 million gap -- but only just.
"The market is discovering that margins are not so high," Patrick Pouyanne, the head of French oil
giant Total SA, said in an interview.
The energy industry is increasingly worried. The angst was evident at the annual Asia Pacific
Petroleum Conference -- one of the biggest annual gatherings of the oil-trading industry -- this
week in Singapore. In client meetings, conferences and the round of evening cocktail parties,
executives were privately doubtful the Saudis can quickly lift output beyond 11 million to 11.5
million barrels a day -- not enough to replace Iran.
"Near-term spare capacity is effectively maxed out," Amrita Sen of consultant Energy Aspects Ltd.
said, echoing a widely held view across the industry.

Testing the Limit
Saudi oil production is approaching an all-time high, leaving relatively little left to offset output
outages in Iran, Venezuela and elsewhere
Source: Bloomberg
Spare capacity is a fluid concept. For some, it means extra output that can flow at the flick of a
switch. Realistically, most industry executives define it as production that can be brought
onstream in 30 days, and then sustained for a at least three months. Beyond that, some of the
spare capacity is simply oil on the ground that can be pumped by drilling new wells, requiring
more time.
Over the years, Saudi Arabia has been cagey about how much of its spare capacity falls in each
bucket. But Ali Al-Naimi, who was oil minister for nearly 25 years until 2016, offered a glimpse in
2012.

"I believe we can easily get up to 11.4, 11.8, almost immediately in a few days," Naimi told CNN in
2012. "All we need is to turn valves," he added. The other 700,000 barrels a day to reach about
12.5 million requires three months of work, however. "And the 90 days is for one thing: to mobilize
additional drilling," he said.
There’s one more complication: of the 12.5 million barrels a day, only 12 million is controlled
directly by state-owned company Saudi Arabian Oil Co., or Aramco. The other 500,000 barrels a
day lies in the so-called Neutral Zone shared with Kuwait. But the region hasn’t produced a single
barrel for nearly two years due to a dispute between Kuwait and Riyadh.
Beyond production, Riyadh has another line of defense to meet a supply outage like Iran: a vast
network of storage facilities, both in the kingdom and overseas, that can be drawn down
temporarily.
Al-Falih said last week that "as the supply shortfalls were a concern" for customers, "we did make
a determined effort to top up the storage that was not already full." As well as domestic storage,
Saudi Arabia has filled up its strategic storage in Okinawa, Japan; Sidi Kerir in the Mediterranean
coast of Egypt; and in the European oil hub of Rotterdam.
Dwindling Stockpile
Saudi Arabia has drawn down nearly a third of its crude oil stockpile since late 2015, leaving it at
its lowest level in almost nine years
Source: Joint Organisations Data Initiative

Officially, Saudi Arabia declared stocks of 229 million barrels in July, the latest data available,
down from a record high of 329 million in October. Yet again, as with the spare capacity data, the
market also has its doubts. Antoine Halff, an executive at Kayrros, a company that uses satellite
data to track storage, takes issue with the Saudi numbers.
"From the sky, we see 70 million barrels in storage," he said, out of the 125 million barrels that the
kingdom can store in 231 tanks spread across with terminals and refineries. "We don’t see
anything extraordinary either in Saudi overseas tanks."
The naysayers should be wary, however. The kingdom has been here before, and proved its
doubters wrong: it tapped its spare capacity and pumped more than expected during the Iranian
revolution in 1979, the Iran-Iraq war between 1980 and 1988 and during the first Gulf War in 1990-
91. To a lesser extent, it also tapped its spare capacity during turmoil in Venezuela in 2003.

Moreover, Riyadh is taking measures to reinforce its production machine, bringing onstream
300,000 barrels a day of new production from the Khurais oil field. The expansion was meant to
compensate declines elsewhere, but over the short-term it could help to boost spare capacity.
Others within OPEC are also trying to help. The United Arab Emirates is bringing forward the
expansion of the offshore Umm Lulu and SARB fields, which will pump 129,000 barrels a day by
the end of the year, up from 50,000 barrels a day now. Iraq is bringing on stream the expansion of
its Halfaya oilfield, doubling output to 400,000 barrels a day.
Yet, despite the efforts, the Saudis and OPEC face a huge challenge to replace Iran.
Pouyanne, the head of Total, puts it in simple terms: "You need to mobilize the wells, the rigs... It’s
not immediate. In our industry, you don’t push a button and then oil flows. It’s more complex!"

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
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Khaled Malallah Al Awadi,
Energy Consultant
MS & BS Mechanical Engineering (HON), USA
Emarat member since 1990
ASME member since 1995
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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

OMV starts production at Umm Lulu and SARB fields offshore Abu Dhabi

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OMV starts production at Umm Lulu and SARB fields offshore Abu Dhabi