New base 491 special 07 december 2014

Copyright © 2014 NewBase www.hawkenergy.net Edited by Khaled Al Awadi – Energy Consultant All rights reserved. No part of this publication may be reproduced,
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NewBase 07 December 2014 - Issue No. 491 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Saudi firm outbids rivals for second phase of Mohammed bin
Rashid Al Maktoum solar park ( The National )
Dubai Electricity and Water Authority are considering proposals for a major solar power contract in
the emirate. A Saudi company has submitted a bid which is reported to be underbidding rivals,
including Masdar, for the second phase of the Mohammed bin Rashid Al Maktoum solar park.
Acwa Power, a Riyadh-based company, bid an unprecedented, and unsubsidised, 5.98 US cents
per kilowatt hour (kWh) for the 100 megawatt (MW) phase, trumping the previous lows in Brazil
and India at 8 and 9 cents.
The Berlin-based global management consultancy Apricum believes this will set the standards for
tenders. “The public readout of the bids provoked awe in the room and is now sending ripples
through the Gulf power sector,” said Moritz Borgmann, a partner at Apricum.
A joint venture between the Spanish developer Fotowatio Renewables and the Saudi newcomer
Abdul Latif Jameel Energy came in a close second at 6.13 cents. “The extremely low winning bid
and the close second bid mark worldwide record lows for the cost of solar electricity,” Mr
Borgmann said.
Masdar and its partner, Isolux Corsan of Spain, as well as other industry big players First Solar,
SunEdison and EDF submitted proposals in the range of 8 to 9 cents per kWh. “The results also

indicated that a few applicants were apparently out of sync with the market as demonstrated by
bids as high as 14.7 cents per kWh,” Mr Borgmann said.
Dubai Electricity and Water Authority (Dewa) launched the Mohammed bin Rashid Al Maktoum
solar park two years ago as part of Dubai’s 2030 energy diversification goals aimed at bringing
clean energy’s contribution to the emirate’s total power generation to 12 per cent.
The first phase of 13 MW was brought online in October last year by First Solar. The tender for the
second phase for a 100 MW plant is still open and is currently under evaluation. The solar park is
to have a total generating capacity of 1,000 MW once complete.
Dewa issued the tender for the second phase on November 20 under a build-own-operate model,
shortlisting 10 firms out of the 49 initial qualified bidders. Independent power producers (IPPs)
were selected after submitting the lowest tariff on a per-kilowatt-hour basis.
Officials at Dewa and Masdar could not be reached for comment yesterday.
This solar tender is a game changer for the industry with Acwa taking an aggressive approach to
go ahead and bid for the remaining 1,000 MW at a tariff of 5.4 cents under a 25-year power
purchase agreement. The Saudi company also said the park could be completed in 2018, long
before the 2030 date proposed by Dewa.
The alternative proposal from Acwa became public only through a glitch in the readout process,
according to Apricum.
“[The bid] is a testament not only to the commercial competitiveness of solar energy in the Gulf
region, but also to the confidence with which serious market players would commit to extremely
fast large-scale deployment of solar PV power,” said Mr Borgmann.
A 13 megawatt (MW) photovoltaic (PV) power plant, marking the first phase of Dubai's
Dhs12 billion Mohammed bin Rashid Al Maktoum Solar Park .

In Acwa’s 2013 annual report, the chairman said that the company’s strategy was to decrease the
cost of renewable energy. “In fact, we are showing considerable industry leadership by rapidly
reducing the cost of renewable energy,” said Mohamed Abunayyan.
The economic viability of these rates will rely heavily on Acwa’s ability to cut costs on the
components of a PV power plant while maximising performance. “You want to use as little material
as possible and you want to build as fast as possible,” said Mr Borgmann.
“It’s optimisation of the construction of the plant itself and how its constructed starting from design
to implementation.”
Apricum said that the tariff rates proposed by Acwa are feasible thanks to local financiers. Mr
Borgmann said a number of regional banks are making statements that they are willing to support
renewable energy project finance. “Banks see renewable energy project finances and they really
want to position themselves as being available.”
Acwa is also said to be a front-runner, along with the Spanish giant Abengoa, in the tendering
process for another Morocco concentrated solar power (CSP) project totalling 350 MW.
The Saudi company said in October that it was looking to gain more than $7 billion worth of
projects in the renewable energy sector, focusing on wind and solar in the Mena region. Acwa’s
current solar portfolio includes a 60 MW PV plant in Bulgaria, a CSP plant in South Africa totalling
50 MW and a 160 MW CSP plant in Morocco.
About ACWA Power
ACWA Power International (ACWA Power) is a developer, investor, co-owner and operator of
plants with a generation portfolio of 15,731 MW of power and 2.37 million m3/day of
desalinated water with an investment value in excess of USD 23 billion and providing
employment to more than 2,300 people.
The company, incorporated in the Kingdom of Saudi Arabia, with a paid-up capital of approx.
USD 1.4 Billion is owned by eight Saudi conglomerates besides Sanabil Direct Investment
Company (owned by the Public Investment Fund) and by the Saudi Public Pensions Agency.
ACWA Power’s core business is the delivery of electricity and desalinated water by operating
assets in which the company has a meaningful level of investment to exercise operational
control.
The current portfolio of assets and investments delivers over 6,050 MW of power and around
2.3 million m³/day of desalinated water in Saudi Arabia; 1,550 MW of power in Jordan; 427
MW of power and 91,000 m³/day of desalinated water in Oman and 60MWp using
photovoltaic technology in its solar plant in Karadzhalovo, Bulgaria. The portfolio also
includes the world’s first two sea going barge mounted, self-contained water desalination
plants each capable of producing 25,000 m³/day of water. New capacity of 5900 MW of
power generation, 55 000 m3/day of desalinated water and 2 270 tons per hour of steam
capacity is under construction in Saudi Arabia. Also under construction is a 50 MWe
Concentrated Solar Power (CSP) plant at Bokpoort in South Africa, 160 MWe CSP plant at
Ouarzazate in Morocco and a 45,000 m³/day of water desalination project at in Oman. In
addition, an 850 MW gas fired plant in Turkey is in advanced stages of development.
From its head office in Saudi Arabia, ACWA Power is expanding throughout the GCC, and to
Jordan, Egypt and further afield to Turkey, Morocco, and the southern region of Africa.

RAK Petroleum raises stake in offshore Ivory Coast block
The National + NewBase
RAK Petroleum has upped its stake in an Ivory Coast offshore block as the UAE company seeks
to boost its holdings in Africa.
RAK Petroleum’s stake in Block CI-27 has risen to 9.1 per cent via a US$10.6 million investment
through its one-third owned Foxtrot International. Foxtrot and its joint venture partners bought the
stake held by Energie de Cote d’Ivoire.
“Development of the previously discovered Marlin oil and gasfield and the nearby Manta gasfield
is on track [and is] part of a four-year, US$1 billion, expansion programme on Block CI-27,” RAK
Petroleum said in a statement yesterday.
Once the second production platform on the block is completed, it will help to increase output from
the block next year. The first platform has been in operation since 1999 and currently processes
on average 145 million cubic feet of gas a day, 70 per cent of
Ivory Coast’s total.
RAK Petroleum, which holds a 42.8 per cent stake in Norway’s
DNO, raised $25 million in an initial public offering on the Oslo
exchange in November.
DNO holds stakes in 20 blocks in various stages of exploration,
development and production both onshore and offshore in Iraq’s
Kurdish region, Yemen, Oman, the UAE, Tunisia and
Somaliland.
RAK Petroleum’s net profit in 2013 plunged 78.6 per cent to
Dh58m from Dh271.6m a year earlier.
DNO meanwhile reported a $41.6m third-quarter loss owing to
the reduction in local Kurdish sales. DNO has been struggling
financially as it awaits payment from the Kurdistan Regional
Government on its arrears.
Rak Petroleum rose 15 percent to 18.5 krone in afternoon trading yesterday.

Shale boom may lead to Mideast talent drain
Gulf Times
North America’s shale oil and gas industry workforce is expected to jump by almost 50% to 2.5mn
jobs, giving more choices for employment other than those offered in the Middle East, an industry
expert has said.
Delivering a lecture in Doha at the
weekend, KPMG global head (talent
management) Robert Bolton quoted the
International Energy Agency (IEA) to
predict the US would produce more
petroleum than Saudi Arabia or Russia
by 2015.
The shale boom will boost employment in
North America’s energy sector next year
by nearly 50% to 2.5mn jobs before
reaching 3mn jobs by 2020. Hilda Mulock
Houwer, partner at KPMG and global head (advisory, energy and natural resources) added that
this would create an impact on the Middle East’s hydrocarbon industry as experts like engineers
and geoscientists have more choices in terms of employment.
Houwer said the Oil & Gas Journal reported in 2011 that talent management “was such a crisis”
and that “strategies should be implemented.” In 2014, she added, the Financial Times said there
was a crisis in the energy sector “from a talent point of view.”
She added that by 2017, many experts occupying key and specialised positions are set to retire
from the energy industry.
This was echoed by Bolton, who said KPMG’s ‘2014 Global Talent Crisis Survey’ revealed that the
primary concern of the energy industry was the gap between a retiring workforce and the shortage
of experienced, qualified people within the sector to replace them.
But Houwer was quick to note that “production will not stop and people will not disappear in one
day come 2017. The forecast for 2017 was based on data, scenario, planning, and estimates.
There is enough time to start addressing these gaps but it is a short time frame.”
Bolton added, “The 2017 scenario is going to put a break on the growth, projects are going to take
longer to come on stream, and there will be delays. You’re not going to grow as fast as your
corporate plan says you will unless you crack this issue.”
Bolton said KPMG’s research has shown that globally only 32% of companies have detailed
strategic workforce plans and two out of three don’t have succession plans. “By focusing on
strategic requirements and taking a global view to talent management, oil and chemical
companies in Qatar can ensure that they attract and retain the best talent.”
He also recommended that strategic workforce planning “should get back into the picture” to
understand where gaps are going to occur and how to deal with them. “Also, organisations are
now looking at getting more women into the workplace, creating more partnerships with
educational institutions to feed their resource needs, and keeping workers beyond retirement age
by offering unique packages or deals that provides a transition into retirement,” Bolton added.
Houwer (left) and Bolton: Time to start addressing the talent drain

Total inaugurates major oil project off Angola
AFP + NewBase
French oil firm Total has inaugurated a major project off Angola with a capacity of 160,000 barrels
per day as the company touted its African investments in the face of falling prices.
New chief executive Patrick Pouyanne inaugurated the CLOV project, which draws from four
deep-water fields off Angola in the Atlantic off southwestern Africa.
CLOV was launched in 2010
at a cost of $8bn (€6,5bn).
Thursday’s inauguration
came with petroleum-
producing nations and the
industry struggling with falling
oil prices.
“Total has three particular
strengths: ultra-deep water,
liquefied natural gas and
Africa,” Pouyanne said at the
ceremony, adding that Total
was the largest producer on
the continent.
It is also the largest producer
in Angola. “Despite the
volatility of oil prices, we are
keeping a long-term vision
and we are maintaining the
projects that have been
announced, such as Kaombo
in Angola,” he said.
The development of the
Kaombo project however,
which the company hopes
will produce 230,000 barrels
per day, has seen a budget
cut, from $20bn to $16bn. A
third of Total’s production as
operator — some 670,000
barrels per day — occurs in
Africa. Pouyanne, who took
over after the recent death of Christophe de Margerie in a Moscow plane crash, visited Gabon as
well during his trip and plans to visit Nigeria in January, where Total also has investments.
Nigeria remains Africa’s largest oil producer at some 1.88mn barrels per day in October,
according to the International Energy Agency. Angola is the second-largest, with October
production at 1.72mn barrels per day.

India's Reliance With PEMEX for Oil, Gas Exploration in Mexico
Source RIL + NewBase
India's Reliance Industries Limited (RIL) has agreed to cooperate with Petroleos Mexicanos
(PEMEX) to explore for oil and gas in Mexico.
As per the Memorandum of Understanding (MoU) signed between the two companies RIL will
cooperate with PEMEX for assessment of potential upstream oil and gas business opportunities in
Mexico and jointly evaluate value added opportunities in international markets, the Indian
company said Friday in a statement.
RIL and PEMEX will also share expertise and skills in the relevant areas of oil and gas industry
including for deep-water oil and gas exploration and production.
“The MoU envisages sharing of RIL’s pioneering expertise in deepwater development and best
practices in east coast of India and RIL’s experience in shale gas in United States,” RIL said.
RIL will also provide technical support and share experience with PEMEX for refining value
maximisation and other technical optimization strategies.
RIL stated that cooperation with PEMEX is in line with its growth strategy to explore opportunities
to expand its international asset base in regimes having internationally attractive competitive
terms.

World oil transit chokepoints critical to global energy security
Source: U.S. Energy Information Administration analysis based on Lloyd's List Intelligence,
International energy markets depend on reliable transport routes. About 63% (56.5 million barrels
per day) of the world's oil production in 2013 moved on maritime routes. World chokepoints for
maritime transit of oil are a critical part of global energy security because of the high volume of
petroleum and other liquids transported by these routes.
Blocking a
chokepoint,
even
temporarily,
can lead to
substantial
increases in
total energy
costs and
world energy
prices, as
disruptions to
these routes
can affect oil
prices and add thousands of miles of transit in alternative routes. Chokepoints also leave oil
tankers vulnerable to theft from pirates, terrorist attacks, shipping accidents that can lead to
disastrous oil spills, and political unrest in the form of wars or hostilities.
The Strait of Hormuz, leading out of the Persian Gulf, and the Strait of Malacca, linking the Indian
and Pacific Oceans, are the world's most important strategic chokepoints measured by volume of
oil transit, accounting for a combined 57% of all seaborne oil trade.
In 2013, about 17 million barrels per day traveled through the Strait of Hormuz, which connects
the Persian Gulf with the Gulf of Oman and the Arabian Sea. The Strait of Malacca is the shortest
sea route between the African and Persian Gulf suppliers and the Asian consumers. At the end of
2013, trade through Malacca was 15.2 million barrels per day.
The Suez Canal and SUMED Pipeline, located in Egypt, are strategic routes for Persian Gulf oil
and natural gas shipments to Europe and North America. The Bab el-Mandeb Strait is a
chokepoint between the Horn of Africa and the Middle East, and it is a strategic link between the
Mediterranean Sea and the Indian Ocean. The Danish Straits and the Turkish Straits are key oil
export routes to Europe for Russia and other Eurasian countries, including Azerbaijan and
Kazakhstan.
Over time, the relevance of the Panama Canal and the Trans-Panama Pipeline to global oil trade
has diminished. Many modern tankers are too large to travel through the Panama Canal, and
falling oil production from Alaska's North Slope decreased oil volumes going through the pipeline.
However, the Panama Canal is undergoing an expansion, scheduled to be completed next year,
that will allow transit of larger ships with greater volumes, including liquefied natural gas tankers.
The increase in U.S. domestically produced crude oil is changing trade patterns through world
chokepoints. Historically, U.S. refiners have been major consumers of African crude oil, primarily
light sweet crude from Nigeria, Algeria, and Angola. However, with increased U.S. production of
light, sweet crude, the U.S. has imported less crude oil from Africa, and more African crude has
been sent to Asia through the Strait of Malacca.

US:32% of natural gas pipeline capacity into the Northeast could
be bidirectional by 2017 . Source: U.S. Energy Information Administration, Pipeline Projects
Spurred by growing natural gas production in Pennsylvania, West Virginia, and Ohio, the natural
gas pipeline industry is planning to modify its systems to allow bidirectional flow to move up to 8.3
billion cubic feet per day (Bcf/d) out of the Northeast. As of 2013, the industry had the capacity to
transport 25 Bcf/d of natural gas from Canada, the Midwest, and the Southeast into the Northeast.
In addition to these bidirectional projects in the Northeast, the industry plans to expand existing
systems and build new systems to transport natural gas produced in the Northeast to consuming
markets outside the region.
Flows on ANR Pipeline, Texas Eastern Transmission, Transcontinental Pipeline, Iroquois Gas
Pipeline, Rockies Express Pipeline, and Tennessee Gas Pipeline accounted for 60% of flows to
the Northeast in 2013. Flows on these pipelines in 2013 were between 21% and 84% below 2008
levels, with the largest percentage decline occurring on the Tennessee Gas Pipeline. In 2014, the
Tennessee Gas Pipeline and the Texas Eastern Transmission began flowing gas both ways
between states along the Northeast and Southeast region borders.
As a result of these pipelines being underutilized, the pipeline companies have announced plans
to modify their systems to allow for bidirectional flow, adding the ability to send natural gas out of
the Northeast region:
- Columbia Gulf Transmission completed two bidirectional projects in 2013 and 2014 that
enable the system to transport natural gas from Pennsylvania to Louisiana.
- ANR Pipeline, Tennessee Gas Pipeline, Texas Eastern Transmission, and
Transcontinental Gas Pipeline are planning to send natural gas from the Northeast to
the Gulf Coast because of the potential of industrial demand and LNG exports from the
Gulf Coast. These projects total 5.5 Bcf/d of flow capacity.
- The Rockies Express Pipeline's partial bidirectional project (2.5 Bcf/d of capacity) is
primarily to flow Marcellus natural gas to more attractive markets in Chicago, Detroit,
and the Gulf Coast.
- The Iroquois Gas Pipeline's bidirectional project (0.3 Bcf/d of capacity) will deliver
natural gas from the Marcellus to Canada. Iroquois will receive gas from the Dominion,
Constitution (expected in service in 2016), and Algonquin pipelines.

Rationales for modifying existing pipelines rather than building new pipelines include:
- Modifying existing pipeline to enable bidirectional flow requires significantly less capital
investment, fewer regulatory permits, and lower construction and labor costs, while
resulting in fewer environmental impacts.
- Existing long-haul pipeline capacities to flow gas into the Northeast are underutilized.
Modifying these systems to be bidirectional can be executed quickly to respond to new
market dynamics that will improve pipeline utilization rates.
-
In addition to bidirectional pipeline projects, the industry is planning to build 35 Bcf/d of additional
capacity to support the growth of natural gas production in the Northeast. As of November 7,
2014, the industry added more than 2 Bcf/d of additional capacity in the Northeast, following 1.6
Bcf/d of additional capacity coming online a week earlier.
Even though the Northeast has seen increased natural gas production and new infrastructure,
consumers in New England continue to pay high natural gas prices during peak demand days.
Algonquin Gas Transmission and Tennessee Gas Pipeline, which supply most of the natural gas
to New England, plan to increase their capacities into New England by 4.1 Bcf/d by the end of
2018. These proposed additions could increase natural gas supply in New England and reduce
extreme prices at the Algonquin Citygate, near Boston on peak demand days.

China State Grid to spend $65bn on power networks
Bloomberg + NewBase
China State Grid Corp will spend about 400bn yuan ($65bn) this year on its electricity networks as
the nation, which last month reached a deal with the US to curtail fossil fuels, copes with an
unprecedented influx of clean energy and higher demand.
Spending will need to be maintained at current levels for the next five years to accommodate
higher electricity consumption and contributions from new energy sources, Zhang Zhengling, a
spokesman for China’s biggest power distributor, said in an interview in Beijing last week.
The spending throws a spotlight on China’s challenge to get electricity from where it’s generated
to where it’s needed. Already, about one in every 10 of the nation’s wind turbines are sitting idle
because of inadequate transmission capacity.
The International Energy Agency estimates China will need to spend more than $4tn from now
until 2040 to overhaul the way it transmits and distributes electricity. “Grid investment is mainly
driven by government policies,” said Shi Yan, an analyst at UOB-Kay Hian Ltd in Shanghai. China
is trying to “upgrade and update the networks with ultra-high voltage and smarter technology.”
China’s annual energy consumption surged 51% from 2008 to 2013 and is expected to peak
between 2035 and 2040, according to a report earlier this year from Climatescope, a research
project whose partners include Bloomberg New Energy Finance and the UK Department for
International Development.

Under last month’s agreement reached between US President Barack Obama and Chinese
President Xi Jinping, China would be required by 2030 to install as much as 1,000 gigawatts of
new zero-emissions energy, exceeding the amount of coal-fired power generation the nation has
today. Absorbing and transmitting that “will be a huge challenge for us,” China State Grid’s Zhang
said.
China will “see a larger scale of clean energy development between 2020 and 2030” as the
proportion of coal power in its electricity mix falls and energy demand grows, Zhang said. China
State Grid must hasten its use of the most advanced ultra-high voltage transmission technology,
Zhang said.
China State Grid currently connects more than 100 gigawatts of wind and solar capacity using its
networks, an amount exceeding the total renewable capacity Germany had at the end of 2013,
according to Bloomberg New Energy Finance data.
Zhang forecasts China
will need at least 400
gigawatts of hydroelectric
power, 500 gigawatts of
wind power and 300
gigawatts of solar power
by 2030. The problem is
distance. Much of China’s
newly added
hydroelectric capacity is
in the southwest and coal
is generated in the north.
Consumption is heaviest
in the east, south and
areas around Beijing.
“China is a developing
country and our energy
consumption demand will
continue to grow” at a
pace faster than developed countries, Zhang said. “We have large-scale, long-distance energy
needs,” he said.
The push to connect renewables and curb air pollution means spending about 180bn yuan on
eight ultra-high voltage lines by 2017, Zhang said, adding that the company has proposed to the
government that another 13 such networks be built.
The technology, which the state-owned grid operator began to promote a decade ago, can “deliver
larger power capacity over a long distance with higher voltage but less transmission loss,” Zhang
said.
China State Grid operates a grid line capable of handling 8 gigawatts of wind power and 1.25
gigawatts of solar power from Hami in the northwestern province of Xinjiang to Zhengzhou in
central China, Zhang said, describing the line as the first of its kind in the world. The company is
doing preliminary work on another 3,500-kilometre line stretching from Zhundong to Anhui.

Oil Price Drop Special Coverage
Low oil prices in for the long haul
CRUDE markets are in for some more battering!Last week Saudi Aramco extended its January
discount for Arab Light sales to Asia to $2 a barrel below a regional benchmark - the lowest in at
least 14 years.
The Arab Light Official Selling Price to the United States was also set at a premium of $0.90 a
barrel to the Argus Sour Crude Index (ASCI) for January, down 70 cents from the previous
month.
“This is the second salvo in the OPEC price war, a new offensive by the Saudis,” Phil Flynn,
analyst at the Price Futures Group in Chicago was quoted as saying. During the OPEC ministerial
in Vienna, it was agreed initially that all producers, both within and outside the OPEC, must
contribute to the proposed output cut.
But when Russia and some others refused to partake in the constraint regimen, allies had little
option. They marched, hand in hand, to protect their market share. It would be better to endure
short-term pain from low oil prices than risk losing market share in the long run.
Saudi Arabia and other producers would only consider adjusting production if other members of
OPEC adhered to the group’s quotas and stopped making “under the table” deals to sell crude.
Prices thus had to go down. Early on Friday, Brent crude was poised for the lowest close in more
than five years. Futures too slid as much as 1.1 percent in London and were headed for a second
weekly decline.
When would it bottom out, remains a big if. The Gulf states “don’t have a price target, and if prices
drop further below $60, it won’t be for a long time,” a Gulf oil official was quoted as saying by The
Wall Street Journal (WSJ).
Iran’s parliament too has recommended basing next year’s budget on an oil price of $75-80 a
barrel, down from $100 in the 2014 budget. “Parliament and the planning commission recommend
an oil price of about $80 a barrel to the government,” Gholamreza Tajgardoon, head of
parliament’s planning and budget commission said recently.
And the rot continues. Even after plunging almost 40 percent in five months, WTI crude oil prices
will continue to fall in coming weeks, Oppenheimer senior energy analyst Fadel Gheit told CNBC.
Canadian Natural Resources CEO Murray Edwards told reporters Friday he expects oil to hit
bottom around $30, before bouncing back to around $70 or $75 in the medium term. “Prices could
spike down to $30, $40. It got down to $35 in 2008, for a very short period of time.”
“This is a big shock in Caracas, it’s a shock in Tehran, it’s a shock in Abuja,” said eminent analyst
Daniel Yergin, on Bloomberg Radio. “There’s a change in psychology. There’s going to be a

higher degree of uncertainty.” Many analysts are claiming that shale production in the US and
investments in the sector could be two major casualties of the existing uncertainty and the
bottoming crude prices. However, it won’t be easy to accomplish.
Argus Media quoted the Iranian oil minister as saying that squeezing non-OPEC production out of
the market will take years rather than months. Oil majors ExxonMobil and Chevron are now
insisting they weren’t losing sleep over the price drop.
In fact, they could survive oil as low as $40 per barrel. Exxon CEO Rex Tillerson told CNBC on
Wednesday his company’s massive energy projects are decade-long investment decisions that
have been tested to be successful even “at the bottom of the cycle.”
He emphasized “we test across a range all the way down to $40 and up to $120.” Chevron also
believes it could weather the storm down to $40 a barrel, says analyst Fadel Gheit, citing a recent
conversation with executives from the energy giant.
Most producers in North Dakota’s Bakken formation, an area that’s been a key contributor to the
shale revolution, can remain profitable even if oil falls to $42 per barrel, the IEA said last month.
Paul Stevens of Chatham House in London too believes some US shale producers may break
even at $40 a barrel or less.
“US shale producers are surprising resilient. They will drill as long as they have cash flow from
their operations,” said Per Magnus Nysveen of Rystad Energy. But the days of $100 oil might be a
thing of the past for now.
Leonid Fedun, a board member at Russia’s Lukoil though is of the view that by maintaining output
levels, OPEC would bring about an outright crash among US shale drillers. “In 2016, when OPEC
completes this objective of cleaning up the American marginal market, the oil price will start
growing again,” said Fedun. “The shale boom is on a par with the dot-com boom. The strong
players will remain, the weak ones will vanish.”
Tony Roth, chief investment officer at Wilmington Trust, told Reuters “crude seems to have no
floor right now, and we could easily see the price drop into the low $60s.” Ed Morse, global head
of commodities research at Citigroup, told WSJ “there’s lower prices ahead.” Downward spiral
hence continues!
Oil price drop threatens $150b in global investments
AFP + NewBase
Oslo: The continued fall of oil prices could lead to postponement of $150 billion (Dh550.5 billion)
worth of projects in the sector worldwide, a Norwegian consulting firm said Friday.
“Everything will depend on what oil companies decide to do, but if they don’t exploit the fields
which break even with the barrel above $80, $150 billion will go down the drain,” chief analyst at
Rystad Energy, Per Magnus Nysveen, said.
On Friday, Brent crude fell close to $69 a barrel in London, a drop of 40 per cent from June.
Falling oil prices combined with high production costs in the sector force oil companies to
postpone or even cancel developments of oil finds in order to maintain their cash flow.
Norway’s energy giant Statoil, for example, has delayed decisions on its Johan Castberg project,
a massive offshore oilfield in the Arctic with an estimated 400 to 600 million barrels in which
operations are expected to be costly.

“Anything with high costs will be vulnerable: the Arctic, oil sands and small deepwater projects,”
Nysveen said. “All countries will suffer. Russia will suffer because of the Arctic. Canada and
Alaska will suffer ... whereas US shale oil has become less expensive to produce and should
therefore not suffer that much.”
Rystad Energy refuses to publish its estimates on the future evolution of barrel prices but,
according to Nysveen, there are no signs of a pickup in the near future. “The offer is really
overabundant in the market today and we think that it’ll be even more overabundant at the
beginning of next year,” he said.
The market had already dived last
week after the Organisation of
Petroleum Exporting Countries
(Opec) left its output ceiling
unchanged, despite a global
supply glut.
Crude futures have now slumped
by about 40% since June, faced
also with cheaper oil being
extracted from North American
shale rock.
Weak economic data has added to the pressure, with worse-than-expected manufacturing figures
in China, the world’s largest energy consumer. Commodities were also hit late Friday as the dollar
rallied on bright data showing the US economy created 321,000 new jobs in November, some
90,000 more than expectations.
OIL: Crude futures sank to fresh five-year lows on Monday, with New York crude hitting $63.72 a
barrel—the lowest level since July 2009. London Brent oil touched an October 2009 low of $67.53
a barrel, before staging a technical rebound.
“Prices have once again turned lower as concern about the excessive supply continues to weigh,”
said Forex.com analyst Fawad Razaqzada. Oil dipped Tuesday after the Iraqi government and
autonomous Kurds struck a deal that will boost the nation’s crude oil exports to an already
oversupplied global market.
Under the deal, due to take effect at the start of 2015, 250,000 barrels per day of oil will be
exported from the autonomous region and another 300,000 bpd from the disputed province of
Kirkuk.
The agreement could help push Opec member Iraq’s daily output past three million barrels per
day, up from around 2.5mn barrels in November. The oil market diverged Wednesday as traders
digested a drop in US crude inventories, which tends to signal strong demand.
However on Thursday and Friday, crude futures hit reverse gear once again, dented by reports
that Saudi Arabia has trimmed its export prices and is doing nothing to tighten supplies. Saudi
Arabia is the biggest and most influential member of the 12-nation Opec cartel.

Reports said Riyadh cut January prices for its crude to Asian and US buyers, as the world’s
leading exporter defends its market share and, some analysts speculate, seeks to drive high-price
producers out of the market.
By Friday on London’s Intercontinental Exchange, Brent North Sea crude for delivery in January
sank to $68.36 a barrel compared with $73.05 one week earlier. On the New York Mercantile
Exchange, West Texas Intermediate or light sweet crude for January dived to $65.31 a barrel from
$69.13 a week earlier.
Junk backing US shale boom facing $8.5bn loss
Bloomberg
Bond investors who helped finance America’s shale boom are facing potential losses of $8.5bn as
oil prices plummet by the most since the financial crisis.
The $90bn of debt issued by junk-rated energy producers in the past three years has fallen almost
10% since crude oil peaked in June. Halcon Resources Corp, SandRidge Energy and Goodrich
Petroleum Corp have been among the hardest hit as Opec’s refusal to ease a supply glut pushed
prices to a five-year low of $66.15 a barrel last week.
The oil selloff is deepening concern among bond investors that the least-creditworthy oil explorers
will struggle to pay their obligations and prompt bankers to rein in credit lines as revenue slumps.
Halcon, SandRidge and Goodrich are among about 21 borrowers operating in the costliest US
shale-producing regions that will be unprofitable if crude oil falls below $60 a barrel, according to
data compiled by Bloomberg.
“We are concerned that there will be defaults and that was even before oil fell as much as it has,”
Ivan Rudolph- Shabinsky, a New York-based money manager at Alliance Bernstein Holding, said
in a telephone interview. “There was too much money going into this space that would have
resulted in problems long term - now that timeline has been accelerated.”
Junk Bonds the 9.3% loss for junk-rated energy debt from US and Canadian companies since
January 2012 compares with a 1.55% decline for the broader US speculative-grade market, Bank
of America Merrill Lynch index data show.
Non-investment grade energy bond yields average 8.54%, the most since July 2010, from a low
this year of 5.68% in June. Halcon Resources’s $1.15bn of 9.75% securities issued in April 2013
have lost 29% since June 30, while SandRidge’s $750mn of notes sold in October 2012 have
plunged 26%, Bloomberg data show.
Goodrich Petroleum’s $275mn of debt issued at the start of 2012 has dropped 34%. Scott
Zuehlke, a spokesman at Halcon, Daniel E Jenkins, a spokesman at Goodrich, and Duane
Grubert at SandRidge didn’t return calls seeking comment on exposure to oil prices.
Advances in horizontal drilling and hydraulic fracturing, or fracking, have helped US drillers pump
the most in three decades. Companies have relied on debt financing to make up for cash
shortfalls as they expanded, doubling energy bonds’ share of the high-yield market to 17% since
2008, according to an October 14 report by Citigroup.

Falling Oil High-yield, high-risk debt is rated less than Baa3 by Moody’s Investors Service and
under BBB- at Standard & Poor’s. West Texas Intermediate crude dropped from a June high of
$107.26, falling 17.9% in November after the Organization of the Petroleum Exporting Countries
decided last week to keep its production target of 30mn barrels a day. Output in the US will climb
to 9.5mn barrels a day next year, the most since 1970, the Energy Information Administration
estimated October7. Demand nationwide will slip this year to the lowest since 2012, the
government predicted. Lower oil prices will “affect cash flow but also capital spending, which in
turn, affect projected production and cash flow in a downward spiral,” Gary Stromberg and Jan
Trnka- Amrhein, analysts at Barclays, wrote in a note to clients dated yesterday.
Borrowing Limits Because the amount oil and gas companies are permitted to borrow from bank
lenders is directly tied to the value of their reserves, falling commodity prices increase the risk they
will face a cash squeeze, according to an October 9 report by Spencer Cutter, an analyst at
Bloomberg Intelligence in Skillman, New Jersey.
The extra yield investors demand to hold the bonds of energy companies instead of comparable
US Treasuries increased to 7.63 percentage points yesterday, more than double the premium in
June, Bloomberg data show. The price of crude collapsed 35.7% during that period.
The issuance of debt has helped contribute to production growth in the US and falling prices will
make it harder for companies to meet their obligations, according to Virendra Chauhan, a London-
based oil analyst with Energy Aspects.“My sense is we’re just on the cusp of bad news there and
we’ll see things get worse before they get better,” David Kurtz, global head of restructuring at
Lazard, said at Beard Group’s Distressed Investing conference in New York.

Your Guide to Energy events in your area

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NewBase energy news is produced daily (Sunday to Thursday) and
sponsored by Hawk Energy Service – Dubai, UAE.
For additional free subscription emails please contact Hawk Energy
Khaled Malallah Al Awadi,
Energy Consultant
MSc. & BSc. Mechanical Engineering (HON), USA
ASME member since 1995
Emarat member since 1990
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 07 December 2014 K. Al Awadi

New base 491 special 07 december 2014

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