NewBase 596 special 04 May 2015

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NewBase 04 May 2015 - Issue No. 596 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
Oman’s regulator: Electricity subsidy reform vital
Oman Observer + NewBase
Oman’s power sector regulator is warning that the ongoing subsidisation of the electricity sector,
at enormous cost to the government and the wider economy, is unsustainable and would need to
be reviewed and reformed in the longer term interest of the country. For example, a staggering 85
per cent of residential customers continue to enjoy access to electricity at a paltry 10 baisas per
unit introduced at the outset primarily for the benefit of low-income customers.
This non-discriminatory nature of electricity subsidy, which confers equal benefits on the well-to-
do and less-well-off customers alike, at a time of significant challenges for the sector, needs to be
reevaluated, according to a top official of the Authority for Electricity Regulation — Oman.
“We are actively advocating the need for a relook of the level and allocation of subsidy provided
by the government to the electricity sector due to the current tariff structure,” said Qais bin Saud
Al Zakwani, Executive Director. “Of course, the government is the ultimate decision-maker in
this matter, but the Authority will continue to provide all the
necessary information and analysis to support any eventual
decision on subsidy reform,” he added.
Speaking to the Observer in an interview to mark the 10th
anniversary of the establishment of the Authority, the
Executive Director said a decision on cost reflective tariffs
which can be seen as a first step towards tariff reform was in
the cards. “The Authority has been talking about the
introduction of cost reflective tariffs for a long time, and this
issue has gained momentum of late, with a decision on the
subject now imminent. This is one mode of removing subsidy
from industrial, commercial and government customer groups,
and to ensure it is targeted at customers who need it the
most.”
The Authority, Al Zakwani said, has the informational
wherewithal to assist the Omani government in arriving at judicious decisions in restructuring the
subsidy regime. “We have data on every customer group, their demand projections, usage levels,
timings of usage and other parameters.
On behalf of the government, we can map out different scenarios and sensitivities, and advise the
government on the impact on subsidy if it chooses to adopt a specific tariff structure. We could
not offer such detailed input back in 2004 when subsidy was provided in an aggregate form to the
entire sector, but we have all of the requisite data now to assist in the decision-making.”
Looking at other potential challenges looming for the electricity sector going forward, the

Executive Director warned that the issue of escalating electricity demand growth also needs to be
suitably tackled.
“Demand is growing at 10 – 11 per cent annually, and we just cannot keep building new power
plants to meet this growth. We need to work on providing incentives to customers to reduce this
demand especially during peak periods of the day. We have not done a lot on energy efficiency –
whether it is in the implementation of building codes, advocating the efficient use of appliances,
the way people use electricity at home, and so on. All of these issues need to be addressed.”
According to the executive, energy efficient building construction can make a significant
contribution in alleviating the surge in electricity demand. “With all of these huge buildings coming
up — both in the government and private sectors — if we can work to incentivise them to
undertake some energy efficiency measures then it’s a good start. Muscat Municipality, for
example, can also consider offering incentives to developers when they apply for building permits,
for example, in the use of insulation blocks or energy efficient windows.”
Privatisation: Importantly, power sector privatisation — one of the success stories of Oman’s
restructured industry — is expected to pick up pace in the coming years, says Al Zakwani.
The privatisation of the generation market is well documented and the procurement market will be
going through a transition phase. Some generators will still have an asset life, but don’t have an
agreement with PWP to sell that power. PWP is developing that structure. It’s a normal
transitioning of the market from a procurement perspective.
Privatisation, he stresses, is a key route to boosting efficiency, skills development, and the overall
modernisation of the sector and was always seen as an objective of the restructuring that
happened ten years ago. “We need to see improvement in the overall efficiency of the sector.

Of course, in some areas, we have made considerable improvement. Electricity sector losses, for
example, have decreased from 25 per cent in 2004 to under 10 per cent presently. But to go from
10 per cent or 8 per cent, will require a lot of expertise, which we lack in certain areas within the
sector. To achieve this, we do need to get international companies to buy into licensees and start
ratcheting up standards to international levels. This can happen only through privatisation.”
The Authority, Al Zakwani said, is optimistic that
at least one or two government-owned electricity
companies will be privatised over the next five
years. Initial studies aimed at assessing the
economic feasibility of privatising Muscat
Electricity Distribution Company (MEDC) are
now underway.
He said the oversubscription of the 10-year
benchmark US dollar bond issue of Oman
Electricity Transmission Co (OETC) represented
a powerful shot in the arm for the government’s
privatisation objectives. With the finance raised
via the bond issue, OETC now has the funding
resources it needs to expand and modernise its
massive network, without having to rely on the
government for finance, he noted. Furthermore,
the strength of interest in the bond issue attested to the robust credentials of Oman’s electricity
sector and its embrace of best practice regulation, he stated.
Energy security: Another major priority for the Authority is energy security, said Al Zakwani. Final
submissions on a long-term National Energy Security Strategy 2040 are to be made to the
government by a high-level panel of experts. The strategy spells out a diverse portfolio of fuel
resources including local gas supplies, renewables and other fuel sources that Oman must access
in order to secure its long-term energy needs.
Significantly, renewables is a key ingredient in the proposed energy mix. “Once the government
approves a quota for renewables in the energy mix, based on the recommendations of the
National Energy Security Strategy, we can then ask Oman Power and Water Procurement
Company (OPWP) to go out and start procuring renewables-based generation capacity.
“We need to move away from a 100 per cent reliance on gas for electricity generation and include
an element of renewables in the mix. I believe a decision is imminent.”

Saudi energy sector poised for unprecedented growth
Saudi Gazette
The Oil & Gas Year (TOGY) – a series of annual, country-specific energy reports on petroleum
provinces worldwide – has appointed Annie Michailidou as the new country director for Saudi
Arabia who will lead and oversee the preparation of its third energy report on the country.
Following the success of the 2014 edition, TOGY
continues to provide the most comprehensive
business intelligence report dedicated to Saudi
Arabia’s energy industry. Michailidou and her team of
analysts have already conducted high-level meetings
with leaders in the country’s oil and gas industry
since she arrived in April for the upcoming “The Oil &
Gas Year, Saudi Arabia 2015”. Besides, she also has
held talks with dozens of representatives from the
industry’s foreign delegations.
Armed with a good track record, Michailidou is
optimistic that though it is her first time in the country,
her vast experience will allow her to establish
TOGY’s foothold in the world’s première energy economy. She is enthusiastic to working in the
Kingdom knowing that a competitive local oil and gas industry will ensure Saudi Arabia, along with
UAE, is one of the top economies in the region in which to do business.
Michailidou forecast that the Saudi energy sector – from upstream to downstream – remains of
vital importance to the economy, and is poised for unprecedented growth, diversification and
profitability. She noted that foreign investment (in the sector) has increased 500 percent over the
last 10 years to SR1.05 trillion ($280 billion) at present, underpinned by a $90-billion
petrochemicals industry.
“The timing of TOGY entering the Saudi Arabian market is apparent at this stage. The decisions
made within the oil and gas industry in 2015 complement sound investment decisions in the
world’s most important petroleum province with production at 10 million barrels of oil per day – at
the vanguard of the Organization of the Petroleum Exporting Countries (OPEC),” she said.
She further said that TOGY’s role in Saudi Arabia in 2015, after speaking with the country’s
decision-makers, is to provide better understanding through the most comprehensive business
intelligence report on why a robust energy industry and its sub-sectors bode well for long-term
investment in the country.
Eric Gay, TOGY regional director for the GCC, said “as TOGY commences interviews for its 2015
edition, Saudi Arabia's oil production has been near record-high levels. A continued production
push from the country will be the backdrop for a high-profile exploration and production chapter in
the report.”
He observed that Saudi Arabia's production boost is on the lips of most oil and gas executives,
and provides an interesting perspective for the 2015 edition. Recently audited by Business
Publications Audit of Circulations (BPA) Worldwide, The Oil & Gas Year series’ readership
includes 69,000 energy and finance executives in 101 countries together with key government
ministries and oil and gas executives in the GCC and globally.

Saudi Sadara enters into 20-year supply accord with Halliburton-TAQA
Saudi Gazette + NewBase
SADARA Chemical Company and Energy Chemical Sources Company (ECSC), a newly formed
joint venture between Halliburton and TAQA, have signed a long-term supply agreement through
which ECSC will purchase product from Sadara to feed a new chemical production facility to be
built in PlasChem Park located in Jubail Industrial City II. PlasChem Park is a 12 km2 industrial
park adjacent to Sadara and is being developed under the collaborative efforts between Sadara
and the Royal Commission for Jubail and Yanbu
(RCJY).
Under the agreement, Sadara will supply
ethylene oxide (EO) and propylene oxide (PO) to
the new ECSC facility in PlasChem Park over a
period of 20 years. ECSC is a local Saudi
company that specializes in providing oilfield
chemicals for the oil and gas industry.
Ziad Al-Labban, Sadara’s Chief Executive
Officer, said “this strategic, long-term supply
agreement with ECSC is a key step forward in the development of the local oil and gas chemicals
market. Capitalizing on TAQA and Halliburton’s combined knowledge and experience, and
utilizing the chemicals that Sadara will be producing, we will together support the Kingdom’s oil
and gas industry through the manufacturing of essential oil and gas chemicals locally.”
“PlasChem Park is uniquely positioned to enable and support downstream opportunities in many
market segments. Specifically, we will enable many industries that rely on EO and PO, supplying
60,000 tons of EO and 20,000 tons of PO per year via pipeline to the PlasChem Park tenants, and
we look forward to welcoming ECSC as the first tenant and the second in Jubail 2 after the Dow
Reverse Osmosis Membrane project. PlasChem Park investors will benefit from the many shared
services that are being developed in PlasChem Park, simplifying and streamlining their operations
in the long run,” said Mohammad Alazzaz, Director of Value Park, Sadara.
Mohammed Y. Rafie, Chairman of TAQA and ECSC, said “we are delighted to have completed
this agreement with Sadara and we have every confidence that this strategic relationship will fulfill
our ambitious plan to create a world class chemical production facility in Jubail to support Saudi
Aramco Exploration & Production activities and customers in the wider region.”
The PlasChem Park is expected to attract diversified investments for downstream applications
such as the production of oil and gas chemicals, construction materials, paints and coatings, as
well as home and personal care products. These investments will create new jobs for Saudi
nationals in the Kingdom’s downstream industry, as well as contributing to the fulfillment of the
government’s vision to diversify the Kingdom’s economy.

US: The Shale Boom Has Already Gone Bust - At Least For Now
The meteoric rise in U.S. oil production has ended, easing a global glut and driving a rebound in
crude prices from below $50 a barrel, according to crude trader and hedge fund manager Andrew
J. Hall.
Oil production from Texas to North
Dakota peaked at almost 10 million
barrels a day in February and has
been falling since then, Hall said in a
letter Friday to investors in Astenbeck
Capital Management LLC, his
commodities hedge fund. A drastic
reduction in drilling rigs is starting to
shrink U.S. oil output, according to
U.S. government data cited by Hall.
That’s helped drive a 36 percent rally
in the past six weeks, and prices will continue to rise because it will be harder for producers to
ramp up than it was to cut back, Hall said in his letter. Lower crude prices have also boosted
demand, while the risk of supply disruptions across the Middle East is growing amid sectarian
tensions.
“We have now reached a turning point,” Hall wrote. Growing demand and supply pullbacks
“rendered all the doomsday forecasts self-defeating.” West Texas Intermediate, the U.S.
benchmark crude, settled at $59.15 a barrel Friday, marking a 3.5 percent rise for the week.
Astenbeck funds were up more than 10 percent through April, and gained 10 percent in 2014 even
as oil fell by more than half, according to people familiar with its performance, who declined to be
identified because the information was not public.
$100 Million
Known for making aggressive bets on rising oil prices, Hall became renowned in 2009 after being
paid about $100 million while at Citigroup Inc., a bank that received government assistance during
the financial crisis. For more than two decades he led Phibro LLC, a commodities trading
company bought from Citigroup by Occidental Petroleum Corp.
Phibro is in the process of being shuttered by Occidental. Hall separated from Phibro last year and
is now exclusively focused on Astenbeck. Founded in 2010, Astenbeck manages a total of about
$3 billion.
Hall’s production estimate is based on weekly data from the U.S. Energy Information
Administration. The EIA’s numbers have been closely watched by the market for signs that a
record pullback in the number of rigs drilling for oil since October has begun to reduce output.
The EIA has predicted that oil output from major shale plays would begin to decline in April. Total
average daily U.S. production will peak this year in the second quarter before falling by 210,000
barrels in the third quarter, the agency said in a report last month.

Oil Adjustments
Hall says the EIA data is derived from estimates at state agencies that generally lags months
behind, making it “essentially an artifice.”
A more accurate gauge of U.S. output is an “adjustment” the agency uses, which, in addition to
the weekly number, adds up changes to how much oil is in storage, how much was used in
refineries and how much was imported and exported, Hall said.
Paul Sankey, an energy analyst at Wolfe Research, also noted the trend in a report Thursday to
investors. The amount of production that isn’t accounted for has fallen “dramatically” in the last
two weeks, suggesting U.S. daily output may have fallen by as much as 200,000 to 300,000
barrels in April, he said.
“That number seems high to us, but it does support the notion that U.S. production is rolling over
at present,” said Sankey, a former analyst at the Paris-based International Energy Agency.
Buy Hate
Imports, refinery demand and storage level data all come from surveys the EIA conducts with oil
companies. Export data comes from the U.S. Census Bureau. Production data comes from a
variety of sources, including state and federal regulatory agencies.
In a perfect world, the supply and disposition would equal each other, said Mike Conner, a
petroleum analyst at the EIA. But they often don’t, so the EIA uses the adjustment figure to
balance it out.
“All we really know for sure is the supply components are not enough to make up for the volume
on the disposition side,” Conner said. “We don’t know if the error is in field production, imports,
refinery inputs or what have you. Different analysts are going to have different interpretations.”
Hall, who said earlier this year that he planned to invest in the shares of U.S. shale producers,
believing they would rally, said it is now better to bet on oil.
“Many years ago we were told by a veteran of the commodities business that the secret to making
money was to ‘buy it when they hate it and sell it when they love it,’” he wrote. “We do not base
our decisions on nostrums but there is a certain logic to this old saw. The market is forward-
looking. If the consensus is universally bearish then that view will already be reflected in the
price.”

Russian oil production remains at post-Soviet high in April
Source: Reuters+NewBase
Russian oil and gas condensate production, among the world's largest, remained at a
post-Soviet record level of 10.71 million barrels per day in April, underpinned by a
recent recovery in oil prices, Energy Ministry data showed on Saturday.
Global oil prices jumped 21 percent in April to over $66 a barrel due to slowing
drilling activity and increasing political tensions in the Middle East, having collapsed
from a peak of $115 per barrel in June last year. The price slump has significantly
hurt the Russian economy, which relies on oil and natural gas for around half the
federal budget revenues. Russia's GDP contracted by 3.4 percent in March year on
year.
Russian production of oil and gas condensate, a type of ultra-light oil, stood at
43.830 million tonnes in April, the data showed.
A Russian Energy Ministry delegation will fly to Vienna next month to meet officials
from the Organization of the Petroleum Exporting Countries. So far Russia, which is
not an OPEC member, has failed to persuade OPEC to cut oil output in order to prop
up prices. Last month, OPEC oil supply jumped to its highest in more than two
years, boosted by record or near-record supplies from Iraq and Saudi Arabia.
Rosneft, Russia's leading oil producer, cut its oil production by 0.1 percent in April
to 3.81 million barrels per day. Total Russian oil exports via pipeline
monopoly Transneft edged up by 0.7 percent to 4.4 million barrels per day, or
18.021 million tonnes in April.
Russia is aiming to increase its crude oil exports in the coming years and the Energy
Ministry expects exports to be 3 million tonnes higher this year. Natural gas output
was 52.64 billion cubic metres (bcm), or 1.75 bcm per day, down from 1.78 bcm per
day in March. The Energy Ministry did not publish gas output data for Gazprom , the
world's top natural gas producer.

Oil Price Drop Special Coverage
Brent rattling around towards $66, today
Reuters + NewBase
Brent crude oil prices ups and downs the $66 a barrel on today Monday 4th
May 2015 as weak
Chinese data added to demand fears, while near-record supplies from OPEC producers
maintained worries about oversupply.
China, the world's second-largest oil consumer, posted its biggest drop in factory activity in a year
to 48.9 in April, a private business survey showed on Monday. The sub-50 point level indicates a
contraction compared with the previous month.
The data came on the heels of a top government think tank's forecast that China's economic
growth could slow further to 6.8 percent in the second quarter.
"The Chinese data is weaker but it seems the oil market has had a limited reaction. What the
market really wants to see is supply being cut to match the demand level," said Ric Spooner, chief
market analyst at Sydney's CMC Markets.
Oil supplies from the Organization of the Petroleum Exporting Countries, which produces about 40
percent of oil supplies, climbed 0.2 percent to a more than two-year high in April, a Reuters survey
showed.
Brent June crude futures dropped 11 cents to $66.35 a barrel by 0412 GMT, after hitting a 2015
peak of $66.93 on April 30. U.S. June crude declined 7 cents to $59.08 a barrel. WTI hit its
highest this year at $59.90 on May 1.
Brent crude has recovered by more than 40 percent since its near six-year low of $45.19 a barrel
in January, as geopolitical tension in the Middle East and declining U.S. rig counts provided
support.

Both Brent and U.S. crudes posted their biggest monthly price rise in nearly six years in April.
But the U.S. oil rig count is beginning to decline more slowly, after falling for a record 21 straight
weeks to its lowest level since September 2010, in a possible sign that the collapse in drilling
could be coming to an end.
Speculators cut their net long U.S. crude futures and options in the week to April 28, the
Commodity Futures Trading Commission said on Friday. Investors could look towards the U.S.
nonfarm payrolls data later this week for oil price direction based on the greenback's strength,
analysts said.
A stronger dollar makes dollar denominated commodities, including oil, more expensive. "We
would expect prices to move upwards after U.S. crude inventories (data) but this upside could be
dampened by a stable USD strength," Phillip Futures said in a note on Monday.
Excluding the global financial crisis, oil prices are now at their lowest level in a decade,
roughly 50% below last year's peak of $115. Oil exporting countries are facing significant
headwinds, but the strength of the headwinds vary substantially among them. The cost of
producing a barrel of oil diverges significantly between countries.
The main reason for the difference resides in the extraction method. According to Morgan
Stanley, oil prices must be above $65 per barrel for the average North American shale
company to be profitable. Extracting oil from sands, a common method in Canada and the
Arctic, is even more expensive, with an average price of $70 and $75 per barrel
respectively. In stark comparison, the average cost of onshore, close to the surface Gulf oil
is only $27 per barrel.

Worley Parsons Cuts 2,000 Job on Falling Oil Prices; Shares Slump
Worley Parsons Ltd., Australia’s largest oil services business, said second-half earnings will fall
about 50 percent from the first half as it cuts 2,000 jobs and reduces work due to falling
commodity prices.
There will be about A$125 million ($98 million) in one-time costs to pay for redundancies and
cancel rental contracts early, in particular in North America, the Sydney-based engineer said
Monday in a statement. The forecast drop would result in net income of about A$52 million, about
62 percent below the A$137 million median of three analyst estimates for the period compiled by
Bloomberg.
Falling oil and gas prices are challenging the profitability of the energy companies that buy
WorleyParsons’ services, with a tally of U.S. oil rig numbers falling 55 percent over the past 12
months. The company gets about 73 percent of its revenue from oil and gas and just over 50
percent of its sales are in Canada and the Americas.
“WorleyParsons has experienced deterioration in workload since February,” the company said.
The changes were needed “to adjust its business to market conditions.”
Shares in the company fell as much as 12 percent, the biggest drop in nearly 18 months, and
were down 10 percent at A$10.31 at 11:16 a.m. in Sydney. The stock has risen 2.3 percent so far
this year, trailing an 8 percent gain in the S&P/ASX 200 benchmark.
West Texas Intermediate crude oil futures have risen 6 percent this year but remain 35 percent
below their level a year earlier. U.S. oil production, which has nearly doubled since 2009, has
leveled off so far during 2015.

NewBase For discussion or further details on the news below you may contact us on +971504822502, Dubai, UAE
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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 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 04 May 2015 K. Al Awadi

NewBase 596 special 04 May 2015

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