new base 536 special 09 february 2015

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NewBase 09 February 2015 - Issue No. 536 Khaled Al Awadi

NewBase For discussion or further details on the news below you may contact us on +971504822502 , Dubai , UAE

Global oil traders set to celebrate their best market for years Reuters + NewBAse

The oil price crash has meant slashed budgets, staff layoffs and mothballed projects for big producers, but oil traders will celebrate their best market for years this week. As hundreds of dealers flock to London for the annual International Petroleum Week, cocktail circuit talk will be of the chance of huge returns after years of low volatility. For them the market presents near perfect conditions, mimicking the year after the 2008 oil crash when some booked their best profits in history. Then, those with the know-how and storage were able to lock-up millions of barrels of crude until prices eventually recovered.

The bumper profits on offer are reflected in the long list of IP Week parties, with no firms cancelling their events this year, even as they make cuts in other areas. “I haven’t been more positive about trading conditions since 2009,” said Torbjorn Tornqvist, head of trading house Gunvor, one of the world’s largest independent oil dealers, told Reuters. “I see contango in the market, I see the cost of funding going down, I see the dollar strengthening, I see strong refining margins.” Contango – industry jargon for when prices for delivery months in the future are higher than in the spot market - is key to much of the trading boom. Any trader with access to storage, on land or at sea, can buy a barrel of oil today for $58 and sell it 10 months (or less ) down the line for $65, based on current prices. Volatility has also jumped in recent weeks.




After posting a 60% crash from above $115 a barrel June to near $45 in January, Brent crude oil has rallied by as much as 30%, touching $59 a barrel this week. Prices have swung wildly, gaining as much as 9% in one session only to fall 5% the next, as traders wrestle over whether a price floor has really been hit, even as supplies look to continue outstripping demand in the first half of this year. Gunvor and its rivals Glencore, Vitol, Mercuria and Trafigura have seen profits falling in the past five years versus the peak of 2009, although the amount of oil, coal, and gas they move has grown rapidly. While revenues can amount to more than $300bn a year for the biggest trader Vitol, profit-margins are razor thin, shrinking to less than 1% even in the better years. “Whoever has storage this year will win,” the head of Mercuria, Marco Dunand, told Reuters last month. “Not necessarily traders - but oil companies too and even refiners.” Oil majors BP and Shell, which have the biggest trading operations among international energy firms, have both reported improved results from trading divisions over the past week as part of their fourth quarter results. “Since 2009, when a lot of oil was stored onshore and offshore, a lot of new storage capacity has been built and a lot of refineries were turned into storage,” said Dunand. Dunand estimates that by the end of the first quarter of 2015 some 400mn barrels of oil worth $22bn will be stored onshore and offshore as global production volumes are still massively exceeding demand.

However, as storage is being gradually filled in Europe more and more barrels will be sent to the US where storage capacity is still abundant, meaning potentially record profits for traders with a large presence there. “There is a lot of spare capacity in the US and some geographical rebalancing still remains to be done,” said Dunand.




Algeria:Petrofac secures strategic services agreements in Algeria Petrofac + NewBase

Petrofac, the international oil & gas service provider, has entered into two strategic contract agreements with Algerian state-owned Sonatrach.

The first is a five year contract where Petrofac will be providing a range of multi-discipline engineering design and procurement services in support of Sonatrach’s upstream hydrocarbon development programme within the procedures that govern the tendering process. It is anticipated that the contract will cover the early definition of new projects, detailed engineering and services in support of project execution. Around 100 personnel will support the contract throughout its duration.

Under the terms of the second agreement, Petrofac has signed a Memorandum of Understanding with Sonatrach, committing both parties to establish an Algerian Joint Venture to undertake engineering and project

execution of selected upstream and downstream developments. The Joint Venture is expected to be finalised by mid-2015 with first project activity in Q4 2015.

Building local capability and capacity through the transfer of knowledge, systems and processes and customised training is at the heart of both agreements; ensuring the development and mentoring of future generations so they have the skills to take Algeria’s oil and gas industry to the next level. The majority of engineering services will be delivered locally.

Craig Muir, Managing Director for Petrofac’s Engineering & Consulting Services business commented: 'Our track record in Algeria extends more than 15 years and over that time we have had the opportunity to undertake many different types of work. From EPC projects at one end of the spectrum, through operations and maintenance and engineering services, underpinned by our strong local technical training capability.

These two most recent agreements are excellent illustrations of our strategy in action: utilising our international capability to maximise in-country value in key areas of operations. This is an ideal opportunity to support our longer-term sustainability in-Algeria and we look forward to working with Sonatrach to deliver the wide variety of services that these agreements have the potential to offer.'




Saudi Kayan Gets More Gas For Making Ethylene Reuters + NewBase

Saudi Arabia’s Oil Ministry has allocated more natural gas to Saudi Kayan Petrochemical Co for it to expand ethylene production at its petrochemical complex in Jubail, the company said on Sunday.

The ministry has allocated the affiliate of Saudi Basic Industries Corporation (SABIC) an extra 10 million cubic feed a day (scfd) of ethane from July 1, Kayan said in a bourse statement.

The extra gas will allow it to raise ethylene production capacity by at least 93,000 tonnes a year and ethylene oxide capacity by 61,000 tonnes a year by the second quarter of 2017, it said.

The additional ethane supply will also allow the company to reduce its consumption of butane gas, it said. As part of the same deal, SABIC will also

reduce the marketing fees it charges Saudi Kayan, which will save the company 280 million riyals ($74.6 million) this year and 600 million riyals a year once its projects are completed, it said.




UK: Aberdeen feels the pinch from oil slide Donal Griffin, Washington Post + NeBase + Gulf News

In this city built out of granite on Scotland’s North Sea coast, a diamond merchant checks the price of oil every day. Until recently, the dealer, Oscar Ozdaslar, had been accustomed to North Sea oil workers stopping in to buy £3,500 (Dh19,600) diamond rings and earrings in his store on Union Street.

“This Christmas was very quiet compared to the Christmas before,” said Ozdaslar. “The oil guys didn’t come in.”

Just six months ago, Aberdeen was the economic linchpin of Scotland’s campaign to split from Britain as oil traded above $100 a barrel. In the wake of the independence referendum’s failure, it serves as a microcosm of how crude’s slump to nearer $50 is hurting cities from Calgary to Kuala Lumpur.

“Aberdeen has been the focus of a classic oil boom,” said Gordon Hughes, a professor of economics in the University of Edinburgh. “There’s no doubt that the city will go through a bad period now that it’s over.”

What’s more, the North Sea basin is among the most expensive in the world from which to extract oil. About 20 per cent of British production

is “uneconomic” at $50 a barrel, trade group Oil & Gas UK says.

BP CEO Bob Dudley has said it feels like the 1980s when he was living in Aberdeen working as an artificial lift engineer for Amoco before it merged with BP. Prices fell about 70 per cent in a few months after Saudi Arabia increased production and didn’t recover until 1990. Regions worldwide that depend on the industry are having an “enormous shock,” he said in an interview with Bloomberg Television.

At Cafe Boheme, a French restaurant across the street from Ozdaslar’s jewellery store, customers including Royal Dutch Shell cancelled about 30 Christmas bookings in December, said Dominique Mancellon, who owns and runs the eatery. Staff from companies including Shell, Statoil and Petrofac make up about half of his customers. Sales will fall about 10 per cent for the 12 months through July after increasing every year in the past decade, he said.




“If the price of oil stays down, we’ll have to be very careful about how we run our business,” said Mancellon. The fillet steak, which costs 28.50 pounds and was a regular order for oil workers, has declined in popularity, Mancellon said. A white wine from Chateau Mont-Redon from his native Provence region going for more than 70 pounds a bottle was also popular before the oil rout. Sales are now down about 60 per cent as diners choose the house wine instead.

The prospect of a slump has darkened the mood in a town where most of the buildings already are a dull grey and the sun sets by 4pm in January.

Petrodollars have sloshed around the Aberdonian economy since companies started pumping oil from the North Sea in the 1970s, transforming it into one of the wealthiest towns in Britain. The industry supports about 133,000 jobs in the northeast of Scotland, or about half of all those employed in the region, according to the local chamber of commerce.

Before the oil price accelerated its decline, the city’s fortunes were central to the debate about Scotland’s future in an independence referendum on September 18. Voters decided by 55 per cent to 45 per cent to remain in Britain.

Since then, talk has shifted away from the Scottish nationalists’ claim that the city would help underpin Scotland’s economy and onto what can be done to protect jobs. At least 11,000 North Sea jobs are at risk, according to the Aberdeen & Grampian Chamber of Commerce.

Scottish National Party leader Nicola Sturgeon, who heads the semi-autonomous government in Edinburgh, wants to provide tax incentives to make it cheaper to extract oil and called on the UK to act. The SNP forecast an average price of $110 a barrel in its budget projections for an independent Scotland.

British Prime Minister David Cameron said on a trip to Aberdeen in January that the government was in talks with companies on allowances to encourage investment.

Some jobs already have been lost. BP, ConocoPhillips and a venture between Talisman Energy and Sinopec have announced hundreds of layoffs since last year. Companies are freezing wages and reducing pay rates for the thousands of North Sea employees who work on short-term contracts.

Project planner Jules Gardner and fellow contractor Mark Saunders are on contracts that can be cancelled with little notice. Gardner reckons he has a 75 per cent chance of keeping his job this year while Saunders, says he’s closer to 60 per cent. Both have had their pay rates cut.

The two started commuting to Aberdeen every week from outside London in 2012. Six months ago, Gardner was making 78 pounds an hour, the equivalent of about 180,000 pounds a year. His pay is now down about 30 per cent, he said, drawing a contrast with the days when he received two pay increases and enjoyed spreading his cash around Aberdeen’s restaurants, curry houses and pubs.

“It was a party town, a boom,” Gardner said. “I’d eat out three nights out of four. But I don’t do that anymore.” Back on Union Street, diamond-seller Ozdaslar, originally from the town of Marmaris on Turkey’s Mediterranean coast, is trying to remain optimistic. “The oil price will go up,” he said. “It cannot stay like that. It must go up.”




Oil Price Drop Special Coverage

OPEC Delegates See Scant Hope Of Rapid Oil Price Recovery Reuters + NewBase

Growing numbers of OPEC delegates say they expect no rapid recovery in oil prices, even as the market shows signs of a tentative rally from near six-year lows.

One delegate from a country outside the Gulf and a relative price hawk in OPEC said he doubted oil would revisit $100 a barrel this year or next, and that this should encourage less dependence on oil revenue in national budgets.

“Based on supply and demand, the price for this year and next will probably not go beyond $100,” the delegate told Reuters on condition of anonymity. “We have to get a lesson from this. The budgets should not depend on a high oil price.”

The comments come as delegates from the Organization of the Petroleum Exporting Countries and external experts held secretive talks at its Vienna headquarters last week to discuss the 12-country producer group’s long-term strategy. Such meetings do not set production policy.

OPEC’s talks follow its November decision not to cut output despite misgivings from non-Gulf members such as Iran. Back then, Saudi Arabia and its Gulf allies argued that the group needed to ride out lower prices in order to defend market share.




The decision sent prices plunging, extending a decline that began in June and hurting the economies of smaller producers in OPEC, which pumps a third of the world’s oil.

Brent crude has since recovered from a near six-year low around $45 hit in January. Even so, a second delegate from a non-Gulf member was not optimistic about a rapid price rebound.

“What we want is to see the market recovering. Let’s wait until the second half of the year. Then we’ll probably see prices in the range of $60 to $80,” said the delegate, from one of OPEC’s four African members.

Other OPEC delegates, including some from Gulf members, said this week prices may stay depressed until summer, although officials including Secretary-General Abdullah al-Badri have expressed confidence that prices may be bottoming out.

OPEC dropped price targets a decade ago. Top OPEC producer Saudi Arabia’s endorsement of $100 oil in 2012, however, gave rise to a general consensus within the group that it was a fair level.

The group has given little indication of where it sees prices settling in the medium term, although a third non-Gulf delegate said a price aspiration was needed — not so high that it encouraged too much non-OPEC output, and not too low that it hurt higher-cost producers.

“We need to find a price level which could benefit all,” the delegate said. “No oil producer should be driven out of the market as a result of lowering the prices deliberately.”

Oil majors better placed to ride out the downturn By John Gapper, Financial Times + GulfNews + NewBase If only oil-producing countries that got into trouble could merge, bring in fresh management, lay off citizens, cut costs and restructure their operations. At this point in the energy cycle, betting on a national merger wave similar to the corporate one that created supermajors such as ExxonMobil and BP in the late 1990s would be a good investment. Brazil could merge with Venezuela, helping to solve both the Petrobras scandal and the latter’s lurch toward default. The UAE or Saudi Arabia could roll up Nigeria and Russia. Norway could acquire Scotland from the UK.

But countries are not companies, for better or worse. Peaceful mergers are rare. Demergers and spin-offs tend to be more common, along with the occasional hostile takeover and Russian bear hug. Unlike shareholders, who tend to be a fairly dispassionate bunch, citizens have emotional ties.

So here is another investment thesis: sell countries, buy companies. To be exact, short fragile oil exporters, particularly those suffering from corruption and the resource curse, and buy the oil majors. They both look painfully vulnerable to falling oil and gas prices but companies are better at adjusting to a change in circumstances.

BP and BG, the UK oil and gas companies, both did so, applying the brakes sharply to capital investment plans and declaring that the turn in the commodity cycle is like that of 1986, when the price of crude oil dropped to $9 a barrel, having been stable at $30 for the previous three years. This is no time for waiting and hoping for an energy price recovery, they declared.




Bob Dudley, BP’s chief executive, did a fine job of building a hopeful narrative out of a dire situation. “You have got to make the chequebook balance and if you are in denial, the longer that you don’t respond, the more difficulty you get into,” he told journalists. BP’s sale of $40 billion (Dh147 billion) of assets to cover the $43 billion (so far) cost of the 2010 Gulf of Mexico oil spill looks prescient in hindsight.

So far, BP and BG are at the aggressive end of the responses to a fall in the price of Brent crude from more than $100 a barrel last June to about $56, after the recent rally. Exxon cruises onward like a supertanker and Shell has announced only modest cuts to capital expenditure this year, saying that it is “not overreacting”.

The other majors can change course any time they wish and will have a clear incentive to do so if energy prices remain weak and tankers full of oil start to be berthed in terminals as storage. As Dudley emphasised, maintaining dividends to investment funds that depend on them is “the first priority” — developing fields in the Gulf of Mexico or off Brazil’s coast can wait.

Indeed, in terms of cash flow, oil companies can perform better in a downturn than in a boom, when everyone from governments to rig workers and oil services companies takes a slice of the action. When the oil price falls, they are in a better position to bargain.

“In an up cycle, everyone thinks the returns will be fantastic but it never quite happens,” says Martijn Rats, an energy analyst at Morgan Stanley. The oil industry, given half a chance, is inefficient and spendthrift. It loves to throw cash at new prospects, paying whatever it takes to pump oil, only for the proceeds to be taxed heavily by opportunistic governments.

Morgan Stanley estimates that it cost the majors $72 to locate, develop, produce and pay tax on each barrel in 2013-14 — more than the $69 they made in revenue. Over the previous decade, taxes rose, wages outpaced the private sector average by 35 per cent, and labour productivity in exploration halved: it took twice as many workers to produce each barrel of oil.

The more you waste, the easier it is to cut back. Not only can the majors reduce capital expenditure by halting projects, but they can demand better terms. Oil services companies are squeezed and governments are told that new fields will not open without tax breaks. The industry cuts off its stakeholders to protect its shareholders.

This capacity to reduce costs quickly is beyond most countries, even those with well-managed state oil producers and low-cost reserves. The fall in the oil prices depletes their tax receipts and damages economies that rely heavily on the energy industry. They cannot easily adjust by slashing public services and reducing the population.

Meanwhile, just as oil exporters need to raise extra revenue, the oil majors cut back capital expenditure on new projects. Dudley estimates that the price fall equates to a $1.6 trillion shift in value from oil-producing countries to oil-consuming countries. Exporters cannot escape the impact of that; they largely have to live with it.

In countries plagued by corruption, with officials taking bribes from oil companies, the problem is even greater. Maria das Gracas Foster, chief executive of Petrobras, has resigned over a scandal that has damaged Brazil’s economic growth. Moody’s estimates that Venezuela will face a $25 billion funding gap on its external debt by 2017.

In good times, companies and countries are both prone to the resource curse — there is enough cash to give to rent-seekers without a danger of it running out. It is too tempting to sacrifice efficiency for more oil. In bad times, companies repair the damage; countries are stuck with it.




China's foreign trade tumbles 11 per cent in January

BY PTI + NEWBASE

China's foreign trade tumbled 10.8 per cent to $341.16 billion in January, starting the new year ona shaky note amid a slump of its exports and imports putting more pressure on the slowing

second largest economy of the world .

The overall trade dropped to 2.09 trillionyuan ($341.16 billion) year on year inJanuary, China General Administration ofCustoms (GAC) said on Sunday. Exportsdropped 3.2 per cent to 1.23 trillion yuanand imports slumped 19.7 per cent to 860billion yuan, making the trade surplusexpand 87.5 per cent to 366.9 billion yuan,GAC data said, attributing the decline tothe Chinese Lunar year and SpringFestival during which entire China grinds

to halt for over a fortnight

"Spring Festival impacts foreign trade data at the beginning of every year," state-run Xinhua newsagency quoted GAC as saying. The State Council, China's Cabinet, has approved the GAC torelease its trade data in yuan-denominated version since this year

Before 2014, the GAC mainly used the United States dollar in its trade data releases. It started touse both the dollar and yuan to denominate all trade figures in 2014 in an effort to promote theexpansion in use of yuan

The trade decline continued as China's annual growth dropped down to a 24-year low of 7.4 percent last year. Fiscal revenue growth dropped to 8.6 per cent, a 23 year low, while the expenditurerose 8.2 per cent. According to official data, the fiscal revenue stood at 14.04 trillion yuan ($2.3trillion) compared to $2.11 trillion in 2013

China's economy grew 7.4 per cent last year — its weakest expansion in 24 years - due toslowing domestic demand and a fragile global market. The fiscal revenue was hurt by weakfactory output,consumption, investment and corporate profits, officials said

Besides posting its lowest growth since 1990, during which China grew to be second largesteconomy, Chinese economy also missed the official target of 7.5 per cent in 2014 for the first timein recent years rising concerns about a prolonged slowdown

An International Monetary Fund (IMF) forecast said China's growth rate would fall below 7 thisyear as it was expected to further decline to 6.8 this year and 6.3 next year

China is expected saddle with slower growth in fiscal revenue and rising fiscal expenditure, due toa weakening economy, the country's urbanisation drive and industrial structure adjustments thatneed funding, said Gao Peiyong, a fiscal expert with the Chinese Academy of Social Sciencessaid recently




Oil crash to drag on booming Texas economy AFP + NewBase

As the saying goes, everything is bigger in Texas. For the past five years, the economy of the Lone Star State has outperformed the rest of the United States. But the collapse in oil prices has left Texas facing its toughest test since the financial crisis.

A 50 percent tumble in oil prices since June has prompted companies such as Royal Dutch Shell and Chevron to slash billions of dollars in worldwide investment. Oil services companies like Schlumberger and Halliburton have announced thousands of job cuts.

So far, only a handful of petroleum companies have filed layoff notices in Texas this year, and the Texas Workforce Commission actually reported an increase in mining jobs in December. Yet few doubt what lies ahead for the second-biggest US state, by economic output and population, after California.There will be "a major-league contraction in oil and gas activity in Texas," said Karr Ingham, owner of Ingham Economic Reporting based in Amarillo in oil-rich West Texas. "Over the coming months, the industry is going to shed jobs on a regular basis. We're very early in that process ."

Boyd Nash-Stacey, senior economist at BBVA Research in Houston, predicted the downturn would cost some 60,000-80,000 mining jobs in Texas, with an additional ripple effect on other sectors such as retail and hospitality.

The oil slump already has begun to cool the real estate market in Houston, the fourth-biggest US city and an economic powerhouse for most of the 2000s due in large part to the surging energy industry. "It's a question of how bad it's going to get and for how long," said Charles Gordon, a vice chairman of real estate firm CBRE in Houston. "The shock is how fast energy prices fell ."




Texas has been outpacing US growth for some time. In 2013, the Texas economy grew at an annual clip of 3.7 percent compared with 2.2 percent for the whole economy, and in the prior year its pace was more than double the national rate, according to US Commerce Department data.

-A repeat of 1986- ?

The throng of activity into older oil centers like the Permian Basin in West Texas and the newer Eagle Ford shale in southern Texas has been a driver. Economists agree that matching that flaming growth level will be impossible in 2015, but there is debate about just how bad things will get.

JPMorgan Chase chief US economist Michael Feroli suggested in a December report that the outlook for Texas was comparable to 1986, when a steep drop in oil prices was followed by deep layoffs, big declines in the real-estate market and a banking crisis.

"Texas, will, at the least, have a rough 2015 ahead, and is at risk of slipping into a regional recession," the report said. Given its huge size, "the prospect of a recession in Texas could have some broader reverberations ."

But BBVA's Nash-Stacey said many parts of Texas, including big cities Dallas and San Antonio, have limited exposure to oil and should benefit from the relief of lower gasoline prices.

Moreover, since the 1980s, the state has added a major technology center in the Austin area, home to Dell, and built out the giant Texas Medical Center in Houston, which has significant research programs for cancer and other diseases.

"It's not a death blow," Nash-Stacey said. "Texas isn't what it was in the 1980s ."

The Federal Reserve of Dallas also expects positive economic growth in 2015 in Texas.

"The bottom line is it's going to cause growth to slow, but job growth will remain positive," said Keith Phillips, a senior economist with the central bank division in San Antonio. Ingham, the Amarillo economist, agreed that Texas will likely lodge some growth in 2015 statewide.

But Ingham predicted about a 10 percent contraction in the Midland-Odessa oil region, where some 8,000 oil workers will lose jobs and all businesses are affected by the sector. Ingham said oil companies will be cautious in the short run before hiring back staff, even if oil prices recover. That could result in departures from oil towns like Midland.

"You're looking at at least 18 months out into the future before things start to look a little bit better out there," Ingham said. "Who's in a position to ride that out in terms of not having a job and not having income ?"




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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 [email protected] [email protected]

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 01 February 2015 K. Al Awadi

new base 536 special 09 february 2015

Economy & Finance

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