New base 504 special 24 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 24 December 2014 - Issue No. 504 Khaled Al Awadi
NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE
Power swap on cards for Gulf countries, energy-for-energy
The National + NewBase
Gulf countries will by the first quarter of next year have agreed a deal to pay for shared energy
with energy instead of cash, paving the way for further interconnectivity of regional power grids, an
electricity official said yesterday.
Currently electricity prices across the Gulf are different in each country because of energy
subsidies – a significant challenge to the sharing of power across borders to meet rising regional
consumption.
“We are doing negotiations and final discussions regarding signing the contracts for bilateral
trading in kind, energy-for-energy.
We hope to commission the first
one in the first quarter of 2015,”
said Ahmed Al-Ebrahim, the chief
operating officer at the GCC
Interconnection Authority (GCCIA).
“It would really eliminate the effect
of the subsidies and the different
ways of calculating the price of
electricity between the member
states.” “We are still finalising the
deal between two and three
different countries. “We are 80 per
cent close to the agreement.
Hopefully we sign it in January and
we will start immediately after,” he
said. Consumption is rising between 6 and 10 per cent a year across the region according to Mr
Al-Ebrahim, significantly faster than the global average. In the UAE, between 2008 and 2012,
national power demand grew 37 per cent, said a report from the Dubai Carbon Centre of
Excellence.
In 2009 neighbouring countries in the Gulf began connecting their power grids to exchange power
during emergencies. The Gulf Cooperation Council Countries Interconnection Grid (GCCIG)
initiative, which has a total capacity of 1,200MW, links Saudi Arabia, the UAE, Qatar, Bahrain,
Oman and Kuwait.
Installed capacity across areas covered by the shared grid is 50GW. The UAE – which has some
of the highest electricity tarrifs in the region – linked up to the shared grid in 2011, contributing
Dh800m to the project. From January 1, Abu Dhabi has introduced higher prices for power and
water.

This change will not impact the shared connectivity, Mr Al-Ebrahim said. Member countries could
spend up to US$420 million to boost the capacity of the grid starting in 2019.
The GCCIA, the Saudi-based body in charge of the shared network, is conducting a study into the
proposed expansion, which will likely cost between 20 per cent and 30 per cent of the initial $1.4
billion cost for the project.
“By 2019 we will reach a limitation on the GCC inter-connector, which means we will have to start
expanding,” he said. “We might need to expand by 300 to 400MW, but we wait and see after the
study is done.” The GCC power grid project will save countries over $6bn, equivalent to building
up capacity of 8,000MW, Mr Al-Ebrahim said.
“When the members are sharing resources they don’t need to build as much capacity as they
used to do when they are not interconnected,” he said. “They can rely now on other member
states to supply this reserve power and that will result in them building less power stations than
before, while maintaining the same reliability level.”
The UAE is looking to diversify its energy mix with the goal of generating 24 per cent of its total
output via clean energy projects by 2020. It is building four nuclear power plants in Abu Dhabi,
which will have a total capacity of 5,600MW by 2020. Clean energy firm Masdar also has a
number of solar projects in the country.
The GCC grid will also be able to connect to renewable and nuclear energy power facilities to mop
up any extra capacity, according to Mr Al-Ebrahim.
“For nuclear energy, they (nuclear plants) have to be running on a continuous basis that means
their output shouldn’t be changed much. Because of that whenever there is excess in the nuclear
plants, the interconnector can be used to sell that excess energy to other countries,” he said.
“Solar and wind energy, they come as resources are there and not as the load requires. That’s
why whenever you have excess renewable energy that you don’t need you can export it through
the interconnector member states.”
Gulf countries hope to eventually connect their shared grid to other networks in the Middle East
and North Africa and ultimately to Turkey and Europe. Saudi Arabia, meanwhile, is forging ahead
with linking its power grid with
Egypt’s by early 2018, a project
that is expected to cost around
$1.6bn, to be financed by both
Egypt and Saudi Arabia. The
transmitting capacity of the
project is 3,000MW.
“Everything is ready and the
funds from both sides are
already secured and hopefully
by the beginning of next year in
February 2015 the project will
be ready for bidding,” said
Saleh Al-Awaji, the Saudi
deputy electricity minister. Saudi Arabia is negotiating with Turkey to link up their grids, in order to
eventually connect to the European power network. “Now we are negotiating (with Turkey) and
doing further studies to be sure of the economic feasibility,” said Mr. Al-Awaji.

Oman-India Fertilizer saves $2.3 billion in foreign exchange for India
OEPPA Business Development Dept
Oman-India Fertilizer Company’s (OMIFCO) world-scale plant at Qalhat, a symbol of burgeoning
trade and economies ties between the two countries, has so far delivered around $2.322 billion in
foreign exchange
savings to India,
according to officials in
New Delhi.
The quantum of savings
is seen as a testament to
the partnership model
based on which Indian
public sector
undertakings (PSUs)
have pursued joint
venture (JV)
opportunities with
countries around the
world rich in natural gas
or other feedstock for
fertilizer production.
“There has been a substantial saving on foreign exchange through these JV projects,” said
Hansraj Gangaram Ahir, Indian Minister of State for Chemicals and Fertilizers. “The total foreign
exchange saving in the last 10 years by importing urea from OMIFCO, a JV between Oman Oil
Company and IFFCO/KRIBHCO is around Rs 14,700 crores (equivalent to $2.322 billion),” the
minister stated in response to a query in the Lower House of the Indian Parliament recently.
IFFCO and KRIBHCO and Indian fertilizer cooperatives that together account for India’s 50 per
cent shareholding in OMIFCO. The remainder is held by Oman Oil Company, the state-owned
strategic investment vehicle that represents the Omani government’s investment in the project.
India also imports roughly 90 per cent of its requirement of phosphates, and 100 per cent of
potash for its mammoth domestic fertilizer industry, underscoring the insatiable demand for
fertilizer in this agro-dominant economy.
“Hence, the government has been encouraging Indian companies to establish Joint Ventures in
countries which are rich in fertilizer resources such as gas, rock phosphate and potash,” Ahir
added in his statement.
Launching operations in 2006 with an investment of around $1 billion, OMIFCO has been
manufacturing high quality urea-fertilizer at its state-of-the-art plant near Sur. Production is well-
above the plant’s design capacity of 1.652 million metric tonnes of urea. Around 250,000 metric
tonnes of ammonia is also produced annually as a byproduct of the urea manufacturing process.
Almost all of OMIFCO’s urea-fertiliser output, save for a small proportion earmarked for local
distribution, is destined for the Indian market under a long-term urea offtake agreement (UOTA)
between the Government of India and OMIFCO. Indian offtake of urea-fertiliser from the plant rose
15.71 per cent to 2.121 million metric tonnes during the 12 months ended March 31, 2014, up
from 1.833 million tonnes a year earlier.
• 1.652 million metric tonnes of urea.
• 250,000 metric tonnes of ammonia.

WoodMac sees oil slump have many effects on Asian LNG
Press Release;WoodMackenzie
As LNG contract prices are typically based on the average of the preceding six to nine
months, it will be mid-2015 before suppliers feel the full effects of the low oil price on their
cash flow.
According to Wood Mackenzie, currently, Asian contract prices sit around US$16/mmbtu –
relatively high compared to spot which is trading in the region of US$10/mmbtu. This will provide
an incentive to buyers to reduce contract supply and increase demand for spot LNG which could
drive the price close to the cap set by oil prices.
However, that cap has fallen from US$17-19/mmbtu in Q1 2014 to some US$11/mmbtu and, from
mid-2015, spot priced LNG could trade at a significant discount. By this time, contract prices will
be lower than Wood Mackenzie’s forecast of future oil price levels and demand for spot LNG will
consequently reduce.
Whether the drop in oil price will improve buyer appetite for oil indexation over alternative pricing
arrangements, including Henry Hub from the US, will depend on whether the oil price shift is
perceived as temporary, or a permanent feature of the market. Inevitably a low oil priced
environment reduces the relative attractiveness of US LNG.
Yet there are limitations to a simple comparison of delivered price. Some buyers will continue to
perceive additional value in the flexibility of US LNG, whereas others will always prefer equity
production offered from the more integrated projects outside the US.
In addition, buyers and sellers need to agree mutually acceptable oil indexation terms before
deals can be struck. They have been unable to reach a consensus for the last two years and the
oil price drop could drive them further apart.
WoodMackenzie’s existing base case forecast already expects multiple projects not to proceed
because of impending oversupply and market competition. The fall in oil prices will likely force
some of the less commercially attractive projects to be shelved, enabling companies to shift the
blame for project postponements that should have been made 12 to 24 months ago.
For now, Wood Mackenzie remains comfortable with its expectation that Asian contract pricing will
continue to evolve and that lower oil-indexed pricing with s-curves will be a feature. Wood
Mackenzie are also confident in its expectations of new LNG volumes coming from the US and
elsewhere which will lead to an over-supplied market where all new supply faces challenges on
the road to development.

Pakistan & Russia, Sign Karachi-Lahore Gas Pipeline Deal
Express Tribune + NewBase
Pakistan and Russia signed a $1.7 billion Karachi to Lahore gas pipeline construction deal,
reported local newspaper Express Tribune on Tuesday.
The energy agreement was signed during
the visit of the Russian defence minister.
Pakistan is currently working on two gas
pipelines, the Gwadar pipeline and south
pipeline from Karachi to Lahore, the
newspaper said.
Last month, Beijing and Islamabad have
signed a $3 billion deal under which China
will finance the LNG terminal and Gwadar
pipeline project.
Officials sources told Express Tribune
pointed out that the pipeline would be used
to transport imported LNG from Karachi to
Punjab, adding that LNG terminal was in
progress and first supply of LNG was expected before March next year. At present, existing
pipeline network has capacity of transporting 320 million cubic feet of gas per day (mmcfd) LNG
and therefore the government was going to set up additional LNG pipeline, the newspaper added.

Japanese Firm Signs Alaska LNG Deal
LNG world + NewBase
Alaska Governor Bill Walker Tuesday signed an agreement with Japan’s Resources Energy, Incto
form a partnership in developing Alaska's liquefied natural gas (LNG) market.“This agreement is
an extension of Alaska’s longstanding partnership with Japan in energy markets,” Walker said
adding it is an important step forward in securing Alaska’s energy future.
Resources Energy, Inc. is the American branch of Energy Resources, Inc. a Japanese company.
REI was formed to explore the possibility of purchasing
natural gas from Alaska and to build liquefaction
facilities in order to export LNG to Japan.
REI has contacted many Japanese governmental and
private organizations that also want to buy gas from
Alaska, Governor’s office said in a statement. REI is
also working on a smaller LNG project in Cook Inlet to
begin deliveries by 2020.
The state will work with REI on this project through a
coordinated permitting system and potential partial
funding through the Alaska Industrial Development and
Export Authority (AIDEA).

Thailand: PTTEP to spend $24 billion over five years
Thailand’s oil company PTTEP has allocated $24,3 billion for expenditure over the five-year
period from 2015 to 2019. PTTEP has said that the expenditures (chart below) have been revised
to incorporate the latest business strategies and work programs.
The estimated total expenditure for PTTEP in 2015 is around $4.8 billion.
The following are highlights of the key activities by region:
1. Projects in Thailand account for 52% of PTTEP’s estimated total expenditures in 2015. The
key activities are maintaining the production level of the existing projects which include the
Arthit Project, the S1 Project, the Bongkot Project, the Contract 4 Project and the MTJDA
Project.
2. Projects in Southeast Asia account for 20% of PTTEP’s estimated total expenditures in
2015. The major activities in this region are mainly from Myanmar assets which include
maintaining the production level of the Zawtika Project, development activities for the
Myanmar M3 Project, and exploration activities for the Myanmar PSC G & EP 2 Project, the
Myanmar MOGE3 Project, and the Myanmar MD-7 and MD-8 Project.
3. Projects in other regions which comprise Australia, North America and South America,
Africa and the Middle East, account for 17% of PTTEP’s estimated total expenditures in
2015. The major activities are development activities in the Mozambique Rovuma Offshore
Area 1 Project, the Mariana Oil Sands Project, and the Algeria Hassi Bir Rekaiz Project, as
well as exploration activities in the Brazil BM-ES-23 Project and the Barreirinhas AP1
Project.
4. Corporate and related businesses account for 11% of PTTEP’s estimated total
expenditures in 2015.

Oil Price Drop Special Coverage
OPEC won’t cut output even at $20 a barrel, claims Naimi
AFP + NewBase
The Organization of Petroleum Exporting Countries (OPEC) will not cut oil production even if the
price drops to $20 a barrel and it is unfair to expect it to reduce output if non-members do not do
so, Saudi Arabia said.
“Whether it goes down to $20 a barrel, $40, $50, $60, it is irrelevant,” Ali Al-Naimi, Saudi Minister
of Petroleum and Mineral Resources, said in an interview with the Middle East Economic Survey
(MEES), an industry weekly.
In unusually detailed comments, Naimi defended a decision by OPEC, whose lead producer is
Saudi Arabia, last month to maintain a production ceiling of 30 million barrels per day. The
decision sent global crude prices tumbling, worsening a price drop that has seen them fall by
around 50 percent since June.
Saudi Arabia has traditionally acted to balance demand and supply in the global oil market
because it is the only country with substantial spare production capacity, according to the
International Monetary Fund.
The Kingdom pumps about 9.6 million barrels per day but Naimi said it is “crooked logic” to expect
his country to cut and then lose business to other major producers outside OPEC. The
increasingly competitive global oil market has seen daily United States oil output rise by more than
40 percent since 2006, but at a production cost which can be three or four times that of extracting
Middle Eastern oil.
“Is it reasonable for a highly efficient producer to reduce output, while the producer of poor
efficiency continues to produce?” Naimi asked during the interview conducted with MEES on
Sunday.
“If I reduce, what happens to my market share? The price will go up and the Russians, the
Brazilians, US shale oil producers will take my share.” He added it is “unfair” for OPEC to reduce
output because it is not the world’s major oil producer.

“We produce less than 40 percent of global output. We are the most efficient producer. It is
unbelievable after the analysis we carried out for us to cut,” he told MEES. OPEC tried to seek
market stability through a common front between members and non-members “but there was no
way,” he said.
In Asian trade on Tuesday prices nudged higher on hopes of improved economic figures from the
United States. US benchmark West Texas Intermediate crude for February delivery gained 64
cents to $55.90 while Brent crude for February was up 33 cents to $60.44 in afternoon trade.
Prices were above $100 a barrel earlier this year, a level which Naimi said “we may not” see
again.
Repeating comments he has made elsewhere, Naimi told MEES that oil prices will, however,
improve. “The timing is difficult to know,” he said, but international oil companies have reduced
their future capital expenditures, “which means there is no exploration”.
That, in turn, signals they will not have additional production, he added. The minister said OPEC
was not surprised by the extent of the price drop. “No, we knew the price would go down because
there are investors and speculators whose job it is to push it up or down to make money,” he said.
Arab OPEC Sources See Oil Back Above $70 By End-2015
Reuters + NewBase
Arab OPEC producers expect global oil prices to
rebound to between $70 and $80 a barrel by the end of
next year as a global economic recovery revives demand,
OPEC delegates said this week in the first indication of
where the group expects oil markets to stabilise in the
medium term.
The delegates, some of which are from core Gulf OPEC
producing countries, said they may not see – and some may not even welcome now – a
return to $100 any time soon. Once deemed a “fair” price by many major producers, $100 a
barrel crude is encouraging too much new production from high cost producers outside the
exporting group, some sources say.
But they believe that once the breakneck growth of high cost producers such as U.S. shale
patch slows and lower prices begin to stimulate demand, oil prices could begin finding a new
equilibrium by the end of 2015 – even in the absence of any production cuts by OPEC,
something that has been repeatedly ruled out.

“The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for
some months then come back to an acceptable level which is $80 a barrel, but probably after
eight months to a year,” one Gulf oil source told Reuters.
A separate Gulf OPEC source said: “We have to wait and see. We don’t see 100 dollars for
next year, unless there is a sudden supply disruption. But average of 70-80 dollars for next
year – yes.”
The comments are among the first to indicate how big producers see oil markets playing out
next year, after the current slump that has almost halved prices since June. Global
benchmark Brent closed at around $60 a barrel on Monday.
Their internal view on the market outlook will provide welcome insight to oil company
executives, analysts and traders, who were caught out by what was seen by some as a shift
in Saudi policy two months ago and have struggled since then to understand how and when
the market will find its feet.
NOT AGAIN
For the past several months, Saudi officials have been making clear that the Kingdom’s oft-
repeated mantra that $100 a barrel crude is a “fair” price for crude had been set aside, at
least for the foreseeable future. At the weekend, Saudi Oil Minister Ali al-Naimi was blunt
when asked if the world would ever again see triple-digit oil prices: “We may not.”
Saudi Arabia, the world’s biggest exporter – and its close Gulf allies within the Organization of
the Petroleum Exporting Countries (OPEC) – say it’s time for others, whether that is countries
like major exporter Russia or U.S. shale drillers, to slow down; OPEC can no longer slash
output, ceding market share, to spare them a downturn.
As Naimi told the Middle East Economic Survey (MEES) in an interview this weekend: “It is
not in the interest of OPEC producers to cut their production, whatever the price is.” Without
OPEC to defend prices, oil entered a free-fall, but most of OPEC’s members are holding fast.
At this point, intervening in the market would simply invite new rivals to carry on pumping
crude, eroding OPEC’s market share without any guarantee of a sustained price recovery,
another Arab oil source told Reuters on the sidelines of a meeting in Abu Dhabi of the
Organization of the Arab Petroleum Exporting Countries (OAPEC).
“Every time prices fall, we would be asked to cut,” the source said.
The second Gulf OPEC source reiterated that OPEC would not cut alone. Non-OPEC
producers such as Russia, Mexico, Kazakhstan and “anyone producing more than one million
barrels per day” should also cut or at least freeze their output if they wanted a stable market
and better prices, the Gulf OPEC source said.
NO PRICE TARGET
To be sure, there is no suggestion that OPEC is targeting a specific price, or would want to do
so. The group hasn’t had a formal price goal in about a decade, and Saudi Arabia has long
maintained that it is only seeking price stability, not a set level. But it offers a convenient
metric at a time when traders are struggling to figure out where and when markets will settle
down.

Asked about market signals OPEC is looking for to decide on whether the market is stabilising
or not, irrespective of the price, Naimi said: “ The signals need time, one year, two years,
three years. There is not one signal that we look to and say that’s it… but for sure those who
are the most efficient producers are the one who would rule the market in the future.”
Iraqi oil minister Adel Abdel Mehdi told Reuters in an interview on Monday he thought prices
would stabilise now at about $60 a barrel but could rise to over $70 by mid-next year. “I
believe that m arket has started to stabilise itself now,” Falah al-Amiri, head of Iraq state oil
marketing SOMO told Reuters in Abu Dhabi.
“ The future for next year, I don’t think there would be much optimism in the market that the
price would go to $80 or above. But I don’t even think prices would reach $80,” said Amiri,
citing a resilient shale oil production to current prices.
Low oil prices help Asian nations top up their defence budgets
Gulf Times Correspondent Bangkok
With record-low oil prices, oil-importing countries in East and Southeast Asia are not only
expecting positive net effects on their economy, but are now also able to top up their military and
defence budgets at a faster pace than originally planned. In particular, key markets in the region
such as China, Indonesia, Malaysia and South Korea are all seen to positively adjust their defence
spending to the windfall of saved money from hydrocarbon imports, according to US-based
industry data analyst firm IHS.
This development comes on top of already strong defence expenses over the past years. In April
2014, the Stockholm International Peace Research Institute (SIPRI) said in its annual global
military spending report that military expenditures in Southeast Asia (with the exception of
Cambodia. Laos, Myanmar and Brunei) have climbed steadily, from $14.4bn in 2004 to $35.5bn in
2013, a 147% increase within a decade, and between 2012 and 2013 alone, regional military

expenditures increased by 10%. SIPRI estimated that expenditures are likely to surpass $40bn by
2016. As for China, military expenditure has increased from $40bn in 2004 to $188bn in 2013, a
five-fold increase in a decade.
Drivers of the spending spree are, one the one hand, the region’s aim to decrease their
dependence on foreign military support from the US or Europe and to modernise outdated military
equipment. But the enhancement of military capacity is also rooted in increasing regional tensions
such as the South China Sea conflict, as well as combined security goals of the Association of
Southeast Asian Nations (Asean). Conflict potential is also inherent in the frequent Thai-
Cambodian border clashes and in the occasional intrusions of southern Philippine insurgents in
eastern Malaysia.
Lately, the region has seen a number of large-scale military equipment purchases as defence
manufacturers from the US, Europe and Russia are eager to sell to the region while other markets
such as the Middle East or Latin America are turning sluggish. Vietnam just bought a couple of
brand new submarines from Russia, Indonesia purchased German tanks and Boeing Apache
attack helicopters, and Thailand’s government has just approved a plan to acquire new light attack
aircraft to replace its aging Czech-made Albatros fighter jet fleet, just to quote a few examples.
The countries are also increasingly turning to Asian-made weaponry and army equipment, such
as Japanese attack helicopters, South Korean-made aircraft carriers and various equipment from
China, a country which just earlier in December has impressively shown that it is already at a
technological level to manufacture stealth fighters that could even be sold to Iran and Pakistan.
Consultancy McKinsey & Company in its Southeast Asia Defence Report 2014 released earlier
this year shows that Southeast Asia already makes up the second largest defence import market
behind India, with Singapore, Malaysia, Vietnam and Indonesia being the top buyers. “Warships,
maritime patrol aircraft, radar systems and combat planes, along with submarines and naval
defence systems, were high on procurement lists,” the study says.
Up until 2020, Southeast Asia and the wider Asia-Pacific region “is expected to solidify its role as
the key driver of growth in the defence sector,” says Fenella McGerty, senior defence budgets
analyst at IHS Aerospace & Defence, while she asserts that oil-exporting Middle Eastern countries
will have to trim their military expenditure — after a period of strong growth — in accordance with
their constrained budgets that are impacted by declining returns from the hydrocarbon sector.

Your Guide to Energy events in your area

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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 24 December 2014 K. Al Awadi

New base 504 special 24 december 2014

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