COUNTRY REPORT
INTERVIEW
HR DEVELOPMENT
What Next for Libya?
Managing Director, Value Engineering Centre LLC (VEC)
BP Oman’s Graduate Challenge Programme
Nov-Dec 2011
NATURAL GAS POSITIVE FUTURE OUTLOOK
FROM THE EDITOR’S DESK No 19
Nov - Dec 2011
COUNTRY REPORT
INTERVIEW
HR DEVELOPMENT
What Next for Libya?
Managing Director, Value Engineering Centre LLC (VEC)
BP Oman’s Graduate Challenge Programme
Nov-Dec 2011
GOLDEN AGE OF GAS
In 2010, ExxonMobil became the largest producer of natural gas in the United States. Last year, it bought XTO Energy Inc. (known for shale gas production) for $25 billion. Royal Dutch Shell expects that next year its gas production would prevail over oil production for the first time in the history of the company. Gas is becoming more and more important for the energy players globally!
NATURAL GAS POSITIVE FUTURE OUTLOOK
DESIGN Senior Art Director Sandesh S. Rangnekar Senior Photographer Rajesh Burman Photographer Motasim Abdulla Al Balushi Production Manager Ramesh Govindraj MARKETING Business Heads Jacob George Senior Advertising Manager Avi Titus Advertising Managers Sanjeev Rana Arif Abdul Bari CORPORATE Chief Executive Sandeep Sehgal Executive Vice President Alpana Roy Vice President Ravi Raman Senior Business Support Executive Radha Kumar Business Support Executive Zuwaina Said Al-Rashidi Distribution United Media Services LLC Published by United Press & Publishing LLC PO Box 3305, Ruwi, Postal Code - 112 Muscat, Sultanate of Oman Tel: (968) 24700896, Fax: (968) 24707939 Email: publish@umsoman.com All rights reserved. No part of this publication may be reproduced without the written permission of the publisher. The publisher does not accept responsibility for any loss occasioned to any person or organisation acting or refraining as a result of material in this publication. OER accepts no responsibility for advertising content. Copyright © 2011 United Press & Publishing LLC Printed by Oriental Printing Press Correspondence should be sent to: Oil & Gas Review United Media Services LLC PO Box 3305, Ruwi 112, Sultanate of Oman Fax: (968)24707939 Email: akshay@umsoman.com
We are going to consumer more and more natural gas in the coming decades. Nothing new about the information. But do we know how much is going to be our requirement in the future? If we go by the estimates of International Energy Agency, the global demand for natural gas in 2035 will be 5.1 trillion cubic meters (tcm). To meet the growth in demand, by 2035 annual gas production must increase by 1.8 tcm, about three times the current production of Russia. All over the world, with or without economic recession or slowdown (whatever you term it), the demand for natural has been on the rise at a faster pace. Qatar with the third largest reserves of gas worldwide and a major exporter of gas desperately needs to import gas for its domestic requirement. Despite the slowing growth engine, China will emerge as the world’s largest consumer of gas; by 2035, the Middle Kingdom will consume as much gas as the entire European Union consumes today! China will emerge as one of the largest producers of gas but the production won’t be sufficient to meet the domestic consumption needs. Hence, China will import gas in large quantities. By 2035, demand in India will go up by four times by that of today. Are we heading for an alarming situation in the future with such rapid rise in the demand for gas? Not really but massive efforts needs to be undertaken on the exploration and production front to meet such an expansive growth. According to IEA report, there is enough gas available across the planet. Conventional recoverable resources are equivalent to more than 120 years of current global consumption while total recoverable resources (including unconventional gas) could sustain today’s production for over 250 years. An estimated investment of $8 trillion in the gas-supply infrastructure is the need of the hour! Are we going to see such spending? Akshay Bhatnagar Group Managing Editor akshay@umsoman.com
Read the emag: www.ogronline.com An
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Presentation
Nov-Dec, 2011
DELIVERING THE DIFFERENCE Advanced Technology & Local Expertise offering innovative and Cost effective Solutions
Plan
Engineer
Integrate
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SERVICES
Automation Services • Commissioning and Startup • Scheduled Onsite Support • Emergency Onsite Support • Instrument Verification • Metering Validation Mechanical Services • Retrofitting of Mechanical Seals • Fishing, Milling, Casing patching, Perforation • High Temperature & Pressure Pipeline Repair Valve Automation • Integration & Testing • Repair & Onsite Service
Visit us at OGWA - APRIL 16 – 18, 2012 (STALL No. 711) OMAN INTERNATIONAL EXHIBITION CENTER - MUSCAT, SULTANATE OF OMAN
CONTENT
COVER STORY
NATURAL GAS 24 Impetus on Gas Exploration in Oman 26 Comments by Nasser Al Jashmi, Undersecretary, Ministry of Oil & Gas, Oman 28 Interview with Dr.Jonathan Evans, GM, BP Oman 30 Opinion of B J Crouse, GM-Middle East & Asia, Knowledge Reservoir 32 Booz & Co. Report - Gas Shortage in the GCC
REGULARS: 8 48 72
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8 Oman News 40 Regional Round-up 48 OPEC Market Report 51 Tender Watch 54 Global Round-up
67 Job Postings 72 OGR Classroom 75 Events Calendar 80 Book Corner
CONTENT INDUSTRY
COMPANY REPORT
14 Voltamp’s New Transformer Factory
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CEO SPEAKS
Value Engineering Centre LLC (VEC)
COMMUNICATION
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Interview with Todd Dick, VP-CBU, Omantel
20 ‘Beyond the Spill’ – Bob Dudley, Group Chief Executive, BP
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ENVIRONMENT The World Bank Report Russia, Kazakhstan Lead Way to Reduce Gas Flaring
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COUNTRY REPORT
‘New Level of Collaboration’ – Peter Voser, CEO, Royal Dutch Shell
What Next for Libya? – Reports by Oilprice.com and Wood Mackenzie
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ALTERNATIVE ENERGY America Going Green: US to Provide 71pc of World’s Biofuels by 2021?
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TRAINING & DEVELOPMENT Interview with Hilal Al-Jadidi, HR Lead, BP Oman on ‘Graduate Challenge Programme’
OMAN NEWS
Oman to host IMTEX 2012
An international exhibition ‘The Industrial Machinery, Tools, Hardware and Equipment Expo’ (IMTEX Oman 2012) will be held at the Oman International Exhibition Centre during 10-12 April next year. The three-day trade exhibition, the only event in Oman that directly caters to the needs of both manufacturers and industries, will prominently showcase a full range of products and equipment from local and international companies. Organised by event management firm Global Exhibitions & Conferences LLC (GEC), IMTEX Oman 2012 is being conducted under the patronage of Oman’s Ministry of Commerce and Industry. The event also has the official support of the Public Establishment for Industrial Estates (PEIE), which manages seven industrial estates in different parts of the country as well as the Industrial Innovation Centre (IIC). “IMTEX Oman 2012 is primarily intended to cater to the rapidly growing demand for all types of industrial machinery and equipment. The exhibition will bring together the biggest gathering of decision makers from a wide range of sectors and industry professionals, thus making the event valuable in helping equipment manufacturers to target their potential clients,” said C. J. Paul, Chief Executive Officer of GEC. IMTEX Oman 2012 will prominently showcase everything related to industrial machinery, including electrical products, machine parts, cables, control equipment, generator sets, pollution control systems, construction tools, cutting tools, cleaning machinery, drilling machinery, moulding machinery and cranes. For more details, visit www.imtexoman.com.
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OOCEP sign agreements for Block 42 and 60
Oman Oil Company Exploration & Production LLC has signed two agreements with the Government of Oman. The first contract pertains to the gas sales agreement for Block 60 which is an onshore block covering 1485 sq km and contains the Abu Tubul gas and condensate field which was discovered in 1998. OOCEP is expected to provide up to 90 MSCFD of gas production starting in 2013 by developing the proved gas volumes found in Abu Tubul field in Block 60 as set in the agreed filed development plan (FDP) and stipulated by the Exploration and Production Sharing Agreement (EPSA) ratified by Royal Decree No.56/2011 issued on 12 April, 2011. In another agreement for the exploration and production sharing in Block 42, OOCEP is expected to acquire new seismic data, and drill one exploratory well, in the initial phase, stipulated for three years. According to a press release, Block 42 has been identified as a suitable starting point to implement OOCEP’s goal to conduct exploration operations in Oman. The Block covers an area of about 25,600 sq km. Previous exploration wells in the block indicated hydrocarbon shows, and OOCEP plans to further assess their prospectivity.
140 Omanis to study at German Universities 140 Omani students have received scholarships of the Ministry of Higher Education for higher studies at 13 different German universities. They are joining the group of 69 scholarship holders already studying in Germany. The Omani students and their families were welcomed during an infomeeting by H.E. Angelika Storz-Chakarji, Ambassador of the Federal Republic of Germany to the Sultanate and Dr. Nicola Huson, Representative of the German Academic Exchange Service (DAAD) and Head of German Department at the German University of Technology in Oman (GUtech). “For the first time ever such a large group of Omani students will study in Germany. You will be Ambassadors of your country and all of you will learn German at the beginning. I wish you all the best for your studies,” said H.E. Angelika Storz-Chakarji, German Ambassador to the Sultanate of Oman. This will be the sixth batch of students who are going to study in Germany, they will study at universities in Frankfurt, Berlin, Leipzig, Koethen, Marburg, Hannover, Dresden, Kassel and Heidelberg. The students will first study German for six to ten months and then pass a one year Pre-University Programme. Prior to the Bachelor programme they will have to pass an assessment test, before continuing with their Bachelor programme in Engineering, Biochemistry, Business, Airport Management and German as a Foreign Language.
Picture Courtesy: Topaz
Renaissance adds new OSV vessel in support of BP contract
Topaz Energy and Marine has announced that Roy W Donaldson, Chief Operating Officer for the company’s Topaz Marine division, has been awarded the FRIENDSHIP ORDER of Azerbaijan by Decree of the President for merits in development of the country’s oil industry. On the recent occasion of Azerbaijan’s Oilman's Day, President of Azerbaijan Ilham Aliyev decorated three foreign civilians with the high honor of "Dostlug" or Friendship Order for their contributions, among them Mr. Donaldson. The petroleum industry in Azerbaijan produces an estimated 1 million barrels of oil per day. Topaz Energy and Marine is strategically positioned in the region to supply offshore support vessel operations to the oil producing Caspian countries of Azerbaijan, Kazakhstan, and Turkmenistan. The company’s Topaz Marine division has been active in the Caspian for more than a decade. Donaldson joined BUE Caspian in 2004 followed by Topaz Energy and Marine, with the company’s acquisition of BUE in 2005. During 2005-2007 Roy served as General Manager of the company’s BUE Caspian unit, and in 2008 Roy was promoted to Chief Operating Officer of Topaz Marine. Stephen Thomas, CEO of Topaz Energy and Marine, commented on the distinction saying, “Roy has earned this prestigious award on personal merit. In doing so he has brought great honour and recognition to our company, in particular to BUE Caspian and Topaz Marine.” In 2009, Roy was elected Chairman of the International Marine Contractors Association for its Middle East and India section, having served the Offshore and Marine industry for 43 years.
Shell opens four new service stations Shell Oman Marketing Company has opened four new service stations with state-of-the-art fuelling technology and automated inventory systems. The first Shell Service Station opened at Dibaishi in the presence of Adil Ismail Al Raisi, Managing Director of Shell Oman Marketing Company. The site is strategically located in Ibri, connecting to the proposed road to Saudi Arabia. The station also serves the growing residential area of Dibaishi and also the oil fields of Safah and Daleel. The second service station was opened in Waqaiba in Sohar and caters to a large trade area in the center of the city. The third service station is located at Falaj Al Ohi in Sohar. This station will serve the Sohar Industrial area, the new Sohar airport which is under construction. The fourth service station, Al-Shawaighya, opened on 14 September and is located in Wilayat Al-Mudhaibi, another strategic location on the road to Duqum . It will add to the development of the area which is already the focus of major construction and other infrastructure projects.
The marine division of Renaissance Services has recently acquired the Caspian Provider, an advanced Platform Supply Vessel (PSV), to join the company’s fleet on a four-year contract in Azerbaijan with a value in excess of RO 15.4 million ($40m). The Caspian Provider will be working out of Baku, Azerbaijan, on a contract with oil and gas major BP won by the company’s subsidiary, Topaz Energy and Marine, in 2008. The Provider joins four sister ships already under the management of the Topaz Marine Azerbaijan unit. The Caspian Provider is the fourth vessel delivered to the company after construction in the Simek Yard in Norway. The vessel was ordered in 2010 at a cost of RO 12.3 million ($32m) and is expected to generate exceptional value for the fleet. The Provider is expected to commence its charter with BP in early October 2011. The vessel is currently replacing its wheelhouse and top accommodation deck, having removed them in Turkey prior to transiting the Russian Canal system to enter the Caspian Sea. The land-locked nature of the Caspian Sea creates difficult geographical barriers to entry for PSV and large vessels. Renaissance is strategically positioned in the Caspian Sea where approximately 60 per cent of its offshore support vessel (OSV) fleet operates in Azerbaijan, Kazakhstan and Turkmenistan, where the company benefits from a market share of 55 per cent, 51 per cent and 24 per cent respectively. Renaissance Services’ marine subsidiary, Topaz Marine, is sustaining its fleet upgrade programme which pursues acquisitions and divestments of vessels on a regular basis. Topaz Marine’s OSV fleet ranks within the top ten largest in the world and is among the top three youngest by average vessel age.
Nov-Dec, 2011
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OMAN NEWS
SPE/IADC Middle East Drilling Technology Conference & Exhibition held in Muscat The 2011 SPE/IADC Middle East Drilling Technology Conference and Exhibition (MEDT) was organized in Al Bustan Palace Hotel, Muscat, Oman, attracting over 500 delegates on its first day. The event was held under the patronage of Dr. Mohammed Hamad Al Rumhy, Minister of Oil and Gas in Oman. Nasser bin Khamis Al Jashmi, Under Secretary, Ministry of Oil and Gas, Oman had officiated the event on the first day. Jashmi gave a keynote speech at the opening ceremony about the importance of innovative technologies to the oil and gas industry, followed by a keynote speech from Niels Espeland, IADC Executive Committee Member.
presented include ‘Well Interventions to Comply with the Upgraded Safety Code in a Maturing Field’, ‘Two Years of Progress: Field Driven Rollercone Design Iterations Cut Conglomerate Formation Drilling Costs by 40 per cent in Oman’, and ‘Application of Laser Technology for Oil and Gas Wells Perforation’. Waleed Refaay, Managing Director of SPE, said “As always, we pride in the quality of speakers and technical
content of the conference. This is an opportune event for drilling professionals to network and learn from leaders of the industry especially of this discipline”. A parallel exhibition, with more than 30 exhibitors from renowned oil and gas companies took place at the same venue, showcasing the latest in drilling equipment and technologies. Tesco, one of the main exhibitors at MEDT, has a long term strategic relationship
MEDT, co-organised by the Society of Petroleum Engineers (SPE) and the International Association of Drilling Contractors (IADC), provides a comprehensive arena for drilling and completions professionals of the oil and gas industry. This year the technical programme included an executive plenary session to address the theme “Major Improvements: What Must We Do Differently”; a panel session deliberating “NOC, IOC, and Service Industry Collaboration”; a special keynote session covering “Learning from Other Industries” and a special report on “Post-Macondo Regulatory Trends”. There were over 50 technical presentations and more than 45 poster presentations to cover topics such as directional drilling, advanced bit applications, HSE, etc. Some of the papers
Pictures Courtesy: SPE
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with Petroleum Development Oman who has adopted the CASING DRILLING process to increase safety, operational efficiency, and reduce drilling costs. Tesco’s participation at MEDT was to display some of their leading products such as Casing Drive System (CDS), an automated casing running tool invented by them to rotate, reciprocate, and circulate for casing running, and casing while drilling; XCD3 Casing Drill Bit, used for casing while drilling the well (casing while drilling is the operation of simultaneously drilling and casing the wellbore), and Directional Casing Drilling System. TESCO set 3 world records with Petroleum Development Oman in August 2011 drilling 7 inch casing; steering from vertical to horizontal using a single drill bit; and the longest and deepest 7 inch casing while drilling operation. Other exhibitors include Schlumberger who featured their new PowerDrive Archer, a high build rate rotary steerable system (RSS), which delivers well profiles, previously possible only with motors, and with the ROP and wellbore quality of a fully rotating RSS. FOS Energy exhibited a rig data acquisition system from Pason Corporation and had on display the Zero Spill and Rig Safe Systems from Katch Kan. Kongsberg Oil & Gas Technologies (KOGT) discussed their range of innovative software solutions for upstream applications, from reservoir to process plant. KOGT promoted SiteCom in particular, an industry leading independent WITSML-based drilling and evaluation data management package. The event was sponsored by Petroleum Development Oman, Saudi Aramco, Schlumberger, Baker Hughes, Chevron, GE and KCA Deutag.
Oil & Gas Review was the media partner for the event.
PDO participates in MEOS 2011 Petroleum Development Oman (PDO) had a strong presence at the 17th Middle East Oil & Gas Show and Conference (MEOS 2011) held in the Kingdom of Bahrain in September. At the 4-day event, distinguished speakers representing national and regional oil and gas companies as well as oilfield service and supply companies, addressed the theme ‘Shaping the Future: Innovating Beyond Limits’. PDO presented 10 technical papers covering key themes such as: Smart Field Management, Enhanced Oil Recovery, Measurement of Oil Saturation and Side Track Drilling. PDO’s exhibit attracted a wide range of audience in the industry.“Our exhibition stand played an important role in showcasing PDO as an employer of choice and a company with which contractors can do business” said Engineer Sulaiman bin Mohammed al Mantheri, PDO’s External Affairs and Communication Manager. He added “the conference provided a unique platform for us to share our understanding of the complexities of our reservoirs, as well as to benefit from the expertise of other oil companies that may encounter similar geologies. “The need for cooperation between oil and gas companies is steadily increasing in view of their endeavors to bring massive production projects on line to meet the increasing demand for hydrocarbons globally. The involvement and cooperation of international oil companies (IOCs), national oil companies (NOCs), and service companies is essential,” he concluded.
MBPS develops and test the Commercial Multiphase Flow Meter MB Petroleum Services (MBPS) has become the first company in the Middle East to develop and commercially test an accurate full range (Liquid & Gas) Multiphase Flow Meter. The MB Flow Master designed and assembled within the MB R&D department is a commercial multiphase flow meter based on separation technology. It uses state-ofthe-art technology to separate 100 per cent gas from the liquid (2 phases Oil & Water) to measure the gas and liquid flow rates, water cuts, gas-oil- ratios, pressures and temperatures. Based on individual client requirements, the MB Flow Master is the first ever fully functional commercial multiphase flow meter to be developed in the GCC and possibly in the MENA region. It has been successfully tested in more than 72 oil wells in Occidental and Daleel Petroleum fields across Oman. What makes this Flow Master unique is the fact that the gas, liquid flow rate measurements and the water cut determination are carried out independent of each other by conventionally proven meters. This allows highly accurate determination of the discrete flows and computation of the flow rates and gas fractions. Dr Said al Mufarji, General Manager, R&D, MB Petroleum Services, who has completed his MSc in Multiphase Flow Metering Technology, adds, “After extensive research in this technology, we underwent rigorous actual field testing at Occidental Oman (Oxy) at Wadi Lathem oil field where we successfully tested 64 wells. Prior to that, in Daleel Petroleum we carried out various tests in more than 8 different types of wells and as a result we achieved the service testing certificate from Daleel Petroleum LLC.” Nov-Dec, 2011
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OMAN NEWS
GlassPoint makes a top level appointment in Oman GlassPoint Solar, the leading provider of solar steam generators for enhanced oil recovery (EOR), has appointed Glenn Griffith as Vice President of Oman Projects. With more than three decades in the upstream oil industry, Griffith will lead project execution for GlassPoint in Oman, including its solar EOR project with PDO. “Solar EOR is a compelling solution for the global oil industry, and GlassPoint has demonstrated a clear cost advantage over other solutions. No other solar technology has addressed oilfield specific needs. The glasshouse design protects the system from harsh Middle Eastern desert conditions and produces direct steam with unmatched energy density,” said Griffith. “The Middle Eastern market, rich in sunshine and heavy oil, but with limited gas supplies, is especially well positioned to adopt GlassPoint’s solar steam technology. I’m excited to join GlassPoint in this growing sector and drive solar enhanced oil recovery throughout the region.” Griffith joins GlassPoint from Occidental Petroleum’s (OXY) giant Mukhaizna project, where he successfully insured continuity of operations through a complete surface-facilities transition bringing production from 8,000 barrels of oil per day (BOPD) to 125,000 BOPD. During this transition, steam generation grew from zero barrels of steam per day to over 400,000 barrels of steam per day. Prior to OXY, Griffith led the surface facilities team for AERA’s pioneering work in steaming tight formations of diatomite, opening up production of more than 11 billion barrels of original oil in place (BOOIP) in California. “Glenn has extensive engineering, project management and surface construction experience rooted in two of the world’s largest oil companies,” said Rod MacGregor, President and CEO of GlassPoint. “He brings a depth of capability and oilfield knowledge that no other solar steam provider can offer, underscoring our leadership position in solar EOR.” PDO’s solar EOR facility will use concentrated thermal energy from the sun to produce low-cost, emission-free steam that will be fed directly into PDO’s existing steam distribution network. The PDO project, located in southern Oman, will begin construction this year and span more than four acres at completion. The key to GlassPoint’s cost advantage is its innovative glasshouse architecture, protecting the reflective mirrors from external elements and allowing the use of lightweight, low-cost and prefabricated components. GlassPoint’s Single Transit Trough (STT) technology produces more than 90 barrels of steam per acre, roughly five times more steam than a central tower design. The company has deployed its technology at Berry Petroleum’s 21Z lease in Kern County, California, the world’s first commercial solar EOR project.
Shell to train 180 school bus drivers Stemming from a strong desire by Shell Development Oman to do its part in supporting the efforts of the Ministry of Education in continuing its ongoing development of its educational services, and as a continuation of Shell’s ongoing efforts in the field of road safety, a memorandum of understanding was signed between Shell Development Oman LLC and the Ministry of Education to train (180) school bus drivers from various regions on a specific defensive driving programme conducted by ROP’s Traffic Safety Institute. This progamme will
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enable the participating school bus drivers to apply theoretical and practical learned techniques when dealing with road safety related situations while driving. It will also help reinforce positive driving behaviors, and emphasise on the importance of maintaining safe speed limits, keeping safe distances and wearing safety belts. The participants will also learn road safety concepts like proper journey planning, focusing techniques, responsible driving habits, and adhering to traffic laws.
Pictures Courtesy: ODC
Duqm Dry Dock services the first Very Large LNG Carrier
Oman Drydock Company (ODC) received its first LNG Carrier (MUSCAT LNG), owned by Oman Shipping Company SAOC (OSC). Receiving this kind of ships is a milestone achievement for the company and will contribute to integrating the brand of the company as trust worthy. The step will also open the door wide for more cooperation with OSC, which is one of the major regional operators in the shipping industry, currently operating a large fleet of 29 vessels, with a further 12 on order. The service operation included overhaul of long cargo pumps (2 sets), overhaul of spray pump no.3 (1 set), overhaul of low duty gas compressor (1 set), renewal of water curtain support (p/s), overhaul of LP. turbine (1 set), overhaul maneuvering steam valve for main turbine (1 set), mechanical cleaning for no.1 & no.2 main boilers fire sides (2 sets) and pressure test, overhaul of main boiler no. 1 & 2 mounting valves (92 pcs), no. 1 &2 (100 pcs) main boiler hand holes & plug inspection, overhaul of main boiler safety valves (7 pcs), overhaul of forced draft fan (1 set), overhaul
of no.1 main condenser vacuum pump (1 pc), overhaul of main circulating pump (1 set), overhaul of no.1 ballast pump (1 set), renewal of cable hangers and cables on flying passage (5 locations), installation of cable supports (20 sets) for cable way on under passage and modification of core wires in tube type flourescent light (219 pcs)
optimum customer satisfaction from receiving the vessel at the dry dock till completing the repairs and maintenance as per the world class standards.
OSC CEO Nicholas Fisher, said, “We are pleased to cooperate with Oman Drydock Company. This is the first business relation between the two companies in terms of their providing maintenance and repair services to one of our LNG carriers, namely "MUSCAT LNG.” He added, “Providing OSC vessels with the proper maintenance and repair services comes with the framework of our efforts to provide our trade partners with high quality service besides being part of our repair programme.”
“We spared no effort to allocate all human and financial resources to convey our message to ship owners and the world liners. Our dry and floating docks are strategically located. They are also the largest docks in the region. Moreover, we benefit from the great expertise of DSME, number one in the world in terms of ship building and maintenance. Having such resources has enabled us to have a toehold in the world market since last October. Moreover, we are going to launch the government vision to Oman dry dock project before the end of this year. This will be an added value to our national economy and will help us in being the dock on call for many carriers”, he added.
On the other hand, CEO of ODC said, “We thank Oman Shipping Company for the trust and confidence vested into us to service one of its very large LNG carriers. The partnership between us and DSME helped us to ensure
Sheikh Khalil al Salmi said that the end of this year will witness other major projects on which the Sultanate will rely on generating job opportunities, improving the standards of living and developing a nascent industry in the Sultanate.
INDUSTRY
VOLTAMP’S NEW TRANSFORMER FACTORY INAUGURATED
With the new power transformer factory at Sohar, Voltamp is poised to become a major contributor in the power sector of the Middle East and Africa region
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oltamp Energy’s new power transformer factory was formally inaugurated by HH Sayyid Shihab bin Tariq Al Said in October. Dignitaries present were Sheikh Sa’ad bin Mohammed Al Mardhouf al Sa’adi, Minister of Commerce & Industry and Mrs. W Y Lin, President TATUNG Co, Taiwan and distinguished personnel
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from the ministries, government, semigovernment, utility companies, oil & gas sector, industries, banks, financial institutions, etc. The new green field Power Transformer is one of its kind. It is a world class manufacturing facility built at a project cost of RO 11 million over factory built up area of 14,500 sq m on a plot of
80,000 sq m to the latest global standard. The technology provider is Tatung Company of Taiwan. Tatung is a well -respected and diversified company, with products including heavy electric products like gas insulated switchgears, transformers up to 345 kV class, wires & cables and motors that are exported all over the world including Japan, USA and Australia through branches
Pictures Courtesy: Voltamp
the industrial prowess of the country. The factory is located in Phase V of the Sohar Industrial Area.
in 12 countries. Tatung also specializes in green technologies and has been a leader in photovoltaic system for harnessing the solar energy. Voltamp’s vision is to become a major contributor in the power sector of the Middle East and Africa region by offering quality product and solutions thereby to maximize wealth to stakeholders. Its mission is to be a manufacturing hub for power transformers in the generation, transmission and distribution networks, thereby providing total solutions towards and meeting the requirements of the power systems in the Middle East and
North Africa region. The machinery and equipment have been sourced from the world’s best known vendors like Haefely, Switzerland; Delu, Germany; Hipotronics, Usa; And Lootah Lemmens, Germany. The first batch of Omani trade apprentices trained for six months in association with Ministry of Manpower have already joined the unit in Sohar since June. Voltamp Power gives constant emphasis on increasing Omanization. This factory will make Oman proud and put the country into a hi-tech manufacturing will be a major boost in
Speaking on the occasion, Qais bin Mohamed Al Yousef, Chairman, Voltamp said: “With the completion of this new world class power transformer plant, the dream has come true. We now can cater to Oman’s requirement for the complete range from pole mounted to the extra high voltage 220 kV class power transformers. We can now offer European quality at local prices and local service backup.” A dedicated team of Voltamp engineers provide service during installation and commissioning. Voltamp has a full-fledged Engineering Services Division which will offer repair services now up to 315 MVA 220 kV class power transformers. Voltamp currently produces a large range of power and distribution transformers, low voltage switchgear and package substations through its three manufacturing units at Rusayl. Nov-Dec, 2011
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COMPANY REPORT
DELIVERING UNMATCHED VALUE
Al Sayyid Mohammed Ali Al Said, Managing Director, Value Engineering Centre LLC (VEC), in a conversation with Akshay Bhatnagar, talks about how in a short span of seven years, his entrepreneurial venture has managed to carve a niche for itself in a market crowded by international giants. TO START WITH, TELL US BRIEFLY ABOUT VEC AND YOURSELF. VEC is an engineering consultancy company with an ambition to become an international engineering design company. I started the company in 2004 after spending 10 years in Petroleum Development Oman
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(PDO). I’m an engineering graduate (mechanical) from Imperial College, London University and MBA from Lincoln University. My tenure in PDO ranged from exposure to construction of the facilities to engineering and design of the facilities to maintenance of the facilities and project management.
WHICH PROJECTS DID YOU WORK ON IN PDO? I joined PDO in 1995 and worked on a number of assignments and projects. Initially I worked on the facilities engineering and maintenance of the Tank Farm and export facilities at Mina Al Fahal. Then moved to the oilfields as Field Facilities Engineer responsible
for construction and commissioning of projects, and modification of stations. Later on in 1997, I moved to the head office as a Project Engineer responsible for doubling the handling capacity of the Saih Al Rawl production station. In 1999, I joined PDO’s Qarn Al Alam steam injection project team and was part of concept selection to Front End Engineering Design (FEED) stage. Qarn Al Alam steam injection project is considered to be unique in the Enhanced Oil Recovery (EOR) world as it is believed to be the first large scale steam injection project in fractured carbonate reservoir using Thermal Gas Oil Gravity Drainage (TGOGD) recovery mechanism. Before I left PDO in 2004, I was working for the Government Gas, a department within PDO responsible for gas production on behalf of the government. I was a member of the team responsible for execution of the Saih Al Nihayda Gas Processing Facilities that feed the LNG plants at Sur. WHAT MADE YOU RESIGN FROM PDO AND BECOME AN ENTREPRENEUR? I believed that I could do more by being outside PDO rather than being inside. Whatever job I could do in PDO, there were others in the company who could do the same. PDO is a great company for development of engineers with structured development schemes. Therefore, engineers in PDO, if focused
well, could be developed and carry out any assignment given to them. However, looking at the contracting industry, I realized that there weren’t many indigenous companies serving the oil sector. Until VEC, there was no indigenous engineering company that focused on Front End Engineering and Specialised EOR Engineering. This shortage coupled with access to strong experienced engineers created a perfect opportunity to start VEC. WHAT WAS YOUR VISION WHEN YOU STARTED THE COMPANY? It is quite simple. Generally, when you think of any global firm, the first thing comes to mind is the country of its origin. For example, in case of Worley Parsons one thinks of Australia; Mott MacDonald is UK; TR Engineering is Spain; and Tebodin is the Netherlands. So my vision is to make VEC synonymous with Oman by creating a quality global brand from Oman. TELL US ABOUT THE INITIAL YEARS FOR VEC? On the team front, we started with high-end, experienced international staff. On the work side, we started with small jobs. It wasn’t easy as we faced many challenges. The industry was not ready for an Omani thinking company competing with international giants on an equal or better footing. From 2007 onwards, clients started accepting us after having experienced our quality of
VEC OMAN – BRIEF PROFILE
Value Engineering Centre is an independent, high value and high quality Omani specialist engineering firm in the oil & gas and petrochemical industry. VEC was formed in 2004 to provide Specialist Engineering Consulting and Design Services to oil and gas industries in Oman, with an initial focus on the value creation phase of projects. VEC has since grown and developed to be an extended partner by identifying and delivering value to oil & gas clients both in the design as well as the operation phase of the asset life cycle. VEC’s focus areas include Engineering Design, Process Safety Asset Integrity & Environment, Project Management, Enhanced Oil Recovery (EOR) & Sour Oil & Gas Service Expertise, Production System Optimization and Process Control.
work. From 2010 onwards, clients have started coming to us when they need our expertise as they have understood that we offer unmatched expertise that could add immense value to their business. WHICH PROJECTS WERE VEC INVOLVED IN DURING 2005 TO 2010? DID YOU GET DIRECT PROJECTS FROM LARGE EXPLORATION & PRODUCTION PLAYERS SUCH AS PDO? Till recently, we never had a direct access to PDO projects due to its contracting strategies that were developed based on the market conditions that had been in existence for so long. Other large E&P companies are not any different; they already have established, long term contracts that are infavourable towards a newcomer, especially a small local company, to enter the market , and get a direct access. Therefore, we have maintained good relationships with large multinational engineering companies who have direct contracts from the E&P companies and through these relationships, we have been able to deliver our services to clients. I believe the relationship fostered with some of the multinational engineering companies in Oman was based on a win-win basis and VEC managed to survive, albeit with difficulties. TELL US ABOUT THE KEY ASSIGNMENTS DONE BY VEC. Our key differentiators are EOR and Production System Optimization (PSO). VEC has been involved in many EOR projects in the Sultanate and the GCC region. Starting with the largest two EOR Thermal projects in Oman; PDO and Occidental’s Steam Injection Projects. Our engineers worked with teams of these projects and currently possess the knowledge locally in VEC. Moving on, in the second kind of EOR in Oman, VEC has engineered Polymer Nov-Dec, 2011
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COMPANY REPORT
Flood Designs and Project Management of the execution. The third type of EOR in Oman is Sour Gas Treatment and Miscible Gas Injection. Our engineers have again worked with other engineering firms to facilities’ design and technology selection of sour gas treatment. Mussandam Gas Plant is one of those examples where VEC engineers supported the designers to arrive at a suitable technology and design. VEC has also carried out a number of Production System Optimisation projects where a detailed analysis of the production system is carried out to determine the operational problems that occur after the plants have been operated for a number of years. VEC has in-house capabilities to assess and troubleshoot processing plants’ production limitations and increase production handling without much hardware change. VEC carried out these studies for many E&P companies in Oman including PDO and Occidental. TELL US ABOUT THE STRENGTH OF YOUR WORK FORCE IN VEC. We have around 55 people working in VEC. We are in an aggressive hiring mode. Being a graduate of PDO’s mentoring and development programme myself, I personally take a leadership role in the selection and development of Omani engineering graduates in the company. Our strategy is to recruit the 18
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best internationally experienced engineers in the industry and couple them with talented graduate Omani engineers. It is difficult to have experienced Omani oil & gas engineers outside the main operating companies. Therefore, we decided to develop Omani graduate engineers from the start. The main challenge to this strategy is finding the work that is suitable for their development. Exposure to client field facilities as part of on the job development of our young engineers remain one of the main challenges that we are facing. This is mainly due to the fact that we don’t have direct contracts that could allow our graduate engineers to have an access to client’s production facilities. The main operators in Oman have realized this challenge that VEC faces and active discussions are going on to resolve it. CAN YOU SHARE DETAILS OF VEC ANALYTIC CENTRE OF EXCELLENCE (ACE)? We are very excited about our teaming with SAS, the leading provider of business analytics software and services, to enable the establishment of the region’s first Analytics Centre of Excellence (ACE). The ‘VEC ACE’ is being established to primarily service Oman’s thriving data analytic needs in petroleum industry and it will also target the sharing and transfer of Oman’s expertise and knowledge of the industry to rest of the Middle East
and global market in the next three to five years. The creation of the Centre follows the directives of His Majesty Sultan Qaboos bin Said, Sultan of Oman, to create more job opportunities for Omani citizens and support the Sultanate’s move towards indigenizing technology locally in Oman and creation of employment opportunities for Omani citizens beyond Oman. We have already started recruiting for the Centre of Excellence by targeting highly talented university graduates in engineering and science to join SAS training programme. WHAT IS YOUR STRATEGY TO MAKE VEC A GLOBAL BRAND? We are putting the house in order first. We want to be a credible engineering consultancy force internationally. The next three years are critical to our survival and growth. We have bold plans and so far we are on target. Our vision is to be a recognized ‘Omani brand for excellence’ internationally by 2017. Our strategy is to attract the best in-class professionals to work alongside our Omani talented graduates. WITH OMAN EYING OFFSHORE AS A GROWTH AREA, DO YOU HAVE PLANS TO BRING IN THE EXPERTISE TO THE SULTANATE? Absolutely! Why just Oman? We have opportunities in Saudi Arabia, Abu Dhabi and Qatar. Talking more about our international assignments, we have finished a project in EOR, steam injection to be more precise, in Kuwait. It was a project management job. We are also involved in a project for Saudi Aramco through a local contractor in the Kingdom of Saudi Arabia. However, our focus for the coming three years will be predominantly in Oman while scouting the international market. For more details on VEC, visit www.vecoman.com
COMMUNICATIONS
BEST-IN-CLASS DIGITAL CONNECTIVITY
‘Omantel serves more than 95 per cent of the oil and gas sector in Oman, says Todd Dick, Vice President, Corporate Business Unit of Omantel in an interview with Akshay Bhatnagar.
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WHAT IS THE CRITICAL DIFFERENCE BETWEEN THE TELECOM REQUIREMENTS OF AN OIL & GAS COMPANY AND A NON OIL & GAS CLIENT OF YOURS? Omantel has served the oil & gas sector for more than 40 years. We specialize in the O&G vertical by tailoring our products, services, and technology to the industry as well as employing fully dedicated O&G Account and Support Managers who are committed solely to this vertical, many who have worked for the O&G companies themselves. Our oil and gas customers are running a critical operation for the whole country and hence they require reliable advance services. We understand intimately the upstream, midstream and downstream operations of the O&G field and some of the challenges faced when working in some of the far reaching remote localities. We deliver the most advanced Mobile, Fixed and Satellite services to ensure these remote sites have resilient connectivity with headquarter and headquarter the robust connectivity with their regional and international O&G offices. In addition, Omantel with a base of more than 2,800 employees, is able to respond efficiently to on-site challenges, be it by our remote service teams that are stationed in these remote localities or in the regional offices located around Oman, further supporting ‘always on’ connectivity that is critical to O&G vertical. HOW MUCH OF YOUR BUSINESS COMES FROM THE OIL & GAS AND RELATED SECTORS? Omantel is very honoured to be entrusted to deliver such critical services to the important O&G sector. We currently serve more than 95 per cent of the O&G sector in Oman. Our capability, dedication to service and ongoing commitment to deliver the most advanced services in the O&G field continues
to position us to maintain our strong Leadership in the O&G vertical. WHAT ARE THE DRIVING SERVICES AND TECHNOLOGIES THAT YOU PROVIDE FOR THE NEXT GENERATION DIGITAL CONNECTIVITY IN THE OIL AND GAS INDUSTRY? Omantel has by far the largest, the most diverse and most advanced, Fixed, Mobile and Satellite Networks in Oman. We have installed more than 7,500 km of Optic Fibre Cable throughout the Sultanate and have deployed the widest mobile network covering 97 per cent of populated areas with almost 3,000 cell sites by the end of September 2011. Our ongoing network spend commitment and technology roadmap is quite impressive having already committed and completed LTE testing in July 2010 and also having launched GPON in 2010. In fact we now have the widest 3G mobile network and the fastest fixed network in the Sultanate. In addition, our Wholesale Business has secured and landed several international submarine cables at various landing sites in Oman and we look to grow this to nine international cables by the end of this year, making Omantel the Carrier of Carriers not only for Oman but the whole Middle East and North Africa region. The speed, capacity and redundancy these cables will provide along with the technology rollout of LTE and GPON in Oman will ensure the digital connectivity for the O&G companies in Oman will be by far, the best in the world.
Tell us in detail about your offerings in terms of fiber backbone, wide-band digital radio links, wide band VSAT links and high speed digital access at all oil & gas sites. In terms of the fiber backbone, we are offering fiber to the home and fiber to the building technology (FTTH) for example in “The Wave” and “Muscat Hills” and KOM 4 building which can provide high speed bandwidth to the end user. We have also offered fiber links to oil and gas companies such as Oxy, Shell and Halliburton for their high speed PTP access. Omantel is offering more than 20 add/ drop sites across oil field locations. These sites are serving main companies like PDO, Oxy, BP and other oil field companies like Halliburton, Schlumberger, Daleel Petroleum, etc. Omantel is the only service provider that provides fiber networks in the oil fields, therefore it is considered as the sole telecom backbone provider to the oil & gas companies. Furthermore, in terms of the wide-band digital radio links, we use Radio links to connect nearby sites to the fiber backbone and mobile coverage to cover many of our clients’ contractors’ camps and staff accommodations around their main remote location hubs. On the other hand, we also provide all-inclusive VSAT technology for those locations where no fixed infrastructure can be delivered satisfying our oil and gas clients by allowing them to perform their day to day activities and staying connected with their headquarters. The
Omantel is the only service provider that provides fiber networks in the oil fields, therefore it is considered as the sole telecom backbone provider to the oil & gas companies.
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COMMUNICATIONS
Omantel has also recently installed the latest Optix transmission equipment, further supporting network resilience, to ensure our service and business continuity is always one step ahead. VSAT technology allows our clients such as oil and gas companies to not only have the reliable data connectively that is crucial for their operations, but we also provide full voice data to perform and receive calls from their remote areas to anyone in Oman and internationally. In addition to providing voice over VSAT connectivity, another major advantage and benefit supporting our oil & gas companies through VSAT is having a back-up link for their services which can be supportive in case of emergency or service interruptions. HOW RELIABLE IS THE NETWORK AND SECURITY OF THE DATA AS OIL & GAS IS A VERY SENSITIVE INDUSTRY? Omantel’s MPLS networks is ISO 27001 globally certified; the infrastructure is built on reinforced redundancy router policy and our resilient Network Operation Center (NOC) and the entire network and services are fully manned and monitored within country, 24/7. We guarantee the switching time to be less than 50ms in case of a cable cut as per the ITU-T standards. Omantel has also recently installed the latest Optix transmission equipment, further supporting network resilience, to ensure our service and business continuity is always one step ahead of the current global network SLA standards. Moreover, as mentioned in the previous question, Omantel has five maintenance centers on-the-ground regionally to serve remote locations which are mainly oil field locations. Accordingly, 22
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PDO management awarded “Omantel/ PDO Backbone Project” as one of the most successful projects in terms of reliability and network stability. As an example of this resilience, in the recent two cyclones here in Oman, “Omantel/PDO Backbone” switched to protection without interrupting the service at all. As for the security, we have been awarded ISO/IEC 27001:2005 for information security management system MPLS. DO YOU ALSO PROVIDE DATA SECURITY MANAGEMENT SERVICE TO YOUR CLIENTS? Yes, we do as the MPLS service offers a reliable and secure data transfer over the national network. Omantel also offers full Tier 3, the highest global rated and state-of-the-art co-location services and data centres where companies can conveniently co-locate their servers in a secure and safe environment. The co-location service at Omantel data center located in KOM and our recently introduced Tier 3 data centre located in Qurum offers physical secured space on leased basis to customers for housing their servers and other computing devices. In keeping with global standards, Omantel’s data centres provide full 24x7 power back-up systems for all equipment to ensure zero downtime or minimal disruption in operations due to power failure. State-of-the-art fire detection and suppression systems to guard against potential losses due to fire and other disasters. Sophisticated onsite security through surveillance
cameras and advanced systems to prevent unauthorized entry. Networking equipment including state-of-the-art, fully redundant high-end switches and routers, BGP4 routing for optimal path selection and full redundancy, etc. And, of course, VPN access which provides the security and accessibility convenience to the servers by the client, remotely. OMAN HAS BEEN LOOKING AT OFFSHORE EXPLORATION AND PRODUCTION IN A SERIOUS WAY. WHAT DOES IT MEAN TO YOU IN TERMS OF GEARING UP FOR DEMAND FOR A NEW SET OF SERVICES AND BUSINESS OPPORTUNITIES? As briefly touched upon earlier, Omantel has been providing mobile, fixed and internet services to the oil and gas sector in Oman for the past four decades. This includes supporting services for offshore exploration. Providing connectivity and communications to offshore exploration is slightly more challenging since in the exploration phase, the operation moves from one place to another. However, once a discovery is made and the production phase starts, connectivity and communications become more reliable due to the location becoming more fixed in nature. We see an opportunity here as there is an expectation of an increase in bandwidth requirements meaning extra-terrestrial links such as IPVSAT will be needed. Currently, we are offering IPVSAT in the Sultanate and we continue to strengthen our global satellite partnerships to ensure our offshore coverage and footprint overlay are keeping pace with the potential offshore exploration developments. This, with our already solid redundant core network means our O&G companies can be sure of their business connectivity and up-time wherever their operations are in Oman, both on and off shore.
NATURAL GAS
IMPETUS ON GAS EXPLORATION Cheap natural gas is the most important attraction for multinational giants to locate their manufacturing base in Oman.
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T
he government had signed a major exploration and production sharing agreement with British giant BP in 2007 for developing Kazzan and Makarem tight gas fields. The agreement covers an area of some 2,800 square kilometres, which contains a number of ‘tight gas’ reservoirs, which were first discovered in the 1990s. BP, which recently announced the successful completion of an extended well testing project in its gas fields in north-central Oman, is expected to play an important role in boosting natural gas production.
commercial terms. Majority of Oman’s gas reserves are deep and tight, making them costly to produce. If everything goes well, the first production of gas on commercial basis from the field is expected sometime in 2016 or early 2017. The British firm’s investment by next year since 2007 is expected to be $1 billion, mainly for drilling test wells and for creating other
facilities. In fact, the company officials recently said that it started producing 60 million cubic feet of natural gas a day from the test wells. So far, seven wells have been successfully tested, which are experimental ones to see whether the oil firm can demonstrate the long-term viability here. The Sultanate anticipates associate and non-associate gas production to touch
The company is envisaging a whopping $15 billion investment - probably the biggest investment in Oman by any foreign firm- over a 10-year period for the full-field development. The anticipated commercial production of natural gas from its gas fields is estimated at 1.2 billion cubic feet. However, a final investment decision depends on Oman government agreeing for the development scheme. If everything goes well, BP’s gas exploration will help Oman – which is facing shortage to feed its power plants and industrial projects - to achieve selfsufficiency in clean energy. The commercial viability of the gas fields, which requires 330 wells and about 600 kilometers of gathering system to connect all wells, will be known towards the end of next year. Just to start commercial production, BP needs 60 wells and thereafter, the multinational oil firm plans to drill 20 wells every year for 10 years. Of the total envisaged investment, $10 billion is for drilling wells and rest for surface facilities like gathering infrastructure. BP is planning to submit a detailed field development plan to the government by early 2013. On the basis of field development plan, BP and the government will negotiate on
In 2010, PDO drilled what is believed to be the deepest well in the Middle East. Using state-of-the-art technologies, a PDO well engineering team drilled more than 7,000 metres in the search for deep gas in the Fahud Salt Basin. The complex well is typical of the new wells being increasingly drilled by PDO in the search for new gas. Raoul Restucci, Managing Director, Petroleum Development Oman (PDO)
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OMAN TO FLOAT TENDERS FOR OFFSHORE EXPLORATION Oman will be floating international tenders to invite the known offshore explorers to search for oil and gas in the Omani terrestrial waters, says Nasser Al Jashmi, Undersecretary, Ministry of Oil and Gas. The Government, few years after the succession of His Majesty the Sultan, had decided to shift to gas as a mean for electricity generation, being a more efficient and more cleaner fuel than, say, diesel. The discovery of gas in Saih Rawl, Barik and other fields has indeed changed the way we look at gas, from being nuisance to being an important element of Oman gross domestic product (GDP). As part of vision 2020, the Government has embraced the gas as one of the main sources of revenue, gas-based industries has started to surface out. The investment environment in Oman has also allowed for sharp increase in gas demands for gas-based industries. We now have more requests for gas than what we could supply. This in itself is a challenge, which has prompted the Ministry of Oil & Gas to look for alternatives to supply the required gas for future industries. 26
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The Ministry had succeeded to attract international oil and gas operators and invest their money and know-how in Oman. As we speak, and besides PDO, we now have other gas producers such as BP, Occidental, Petronas, Harvest, Oman Oil Company Exploration and Production, Daleel PTTEP and RAK Petroleum, and others who are exploring for more gas to be supplied for future industries. We are certain that Oman has a bright future and striding towards a path for an industry-based economy. LNG is one of the main contributors to Oman’s revenue. LNG business is the single largest contributor to the economy after oil in terms of dividends and gas payments. LNG consumes over 20 per cent of the total produced non-
associated natural gas. Therefore, the overall contribution of gas to the State Exchequer is significant. If one counts condensate as part of the gas business then the contribution of gas is actually much higher than what is reflected in the books. Gas (in Oman) normally comes in different grades and qualities. We have fields producing almost dry natural gas such as Yibal, at the same time we have fields producing gas with significant condensate such as Kauther/Fakhr fields. Most of the gas being produced from fields located in-land, except from small quantities produced from offshore of Oman Sea at Mussandam Governarate. It is worth mentioning here that majority of gas produced come from depth greater that 4000m. It is also anticipated that future gas will come from depth much
greater than 5000m. This logically translates into much tighter rock and could possibly means leaner gas in future, making the development of future gas accumulations be more expensive and harder to extract. Lots of efforts have also been exerted to explore the treasures of the offshore. We will be floating international tenders to invite the known offshore explorers to search for oil and gas in the Omani terrestrial waters. The demand for gas has surpassed the supply. Therefore it is of para-importance that we avail more of it to grow the industry and be one of the cornerstone for Oman’s economy. Although Oman’s geology is complex, by world standards, we are very optimistic that there is a lot of gas in the ground. We need to find ways and means to unlock it economically. We have embarked on two-prong strategy; whereby we are trying to maximizing the recovery of existing fields by installing well-head compression. We are also pursuing an aggressive exploration for tight and unconventional gas. The two prongs are going hand-in-hand. We have done well in attract international companies to come and explore for gas in Oman. As a result of this, the companies have invested hundreds of millions of dollars in the gas sector. With reports indicating positive outcomes, the cost of producing that gas, however, might be a little more expensive. That is the reality of life and we have to accept that. Gas is the second biggest contributor to the economy and it will continue to play its role in a much bigger way. It will also play a big role in the industry and in the creation of jobs and in the developing of certain regions like Duqm. (as told to Visvas Paul D Karra)
108 million cubic meters per day and plans are afoot to import natural gas from Iran. A series of discussions with Qatar for additional gas through Dolphin Energy’s pipeline could not succeed. As a last resort, even the government is contemplating to build an LNG terminal to facilitate import of natural gas to tackle the shortage. However, it is a remote possibility. Although the Gulf region is rich in natural gas, GCC states are short of about 46 billion cubic metres of gas a year. Of late, several Sohar-based mega industries have expressed their intention to go for massive expansion, if they get additional gas from the government. In fact, cheap natural gas is the most important attraction for multinational giants to locate their manufacturing base in Oman. For instance, Sohar Aluminium Company, Vale and Jindal Shadeed recently said they will proceed with massive expansion programmes, if government can commit additional natural gas. Sohar Aluminium plans to double aluminium smelter capacity to 720,000 tonnes per annum with an estimated capital expenditure of $3 billion. Likewise, Brazil-based global mining giant Vale and India’s Jindal also announced their plans to expand capacity. Oman government’s investment arm Oman Oil Company is also investing heavily to bring tight gas (from block 60) above the ground. The growth in international oil prices has generated huge surplus, which in turn is enabling the country to reinvest funds in oil exploration programmes. A major investment decision was announced by Oman Oil Company’s upstream subsidiary Oman Oil Company Exploration and Production (OOCEP), which will invest $1 billion in the first phase to produce 90 million cubic feet of natural gas per day from block 60 in
Central Oman. According to the plan, the potentially prolific block 60 will be developed in two different phases – first phase for the southern region or Abu Butabul gas field and the second phase for the northern side of the concession area. Block 60 covers 1,485 square kilometers and contains the Abu Butabul gas and condensate field. For the next two years, the company is committed to develop the southern part, where the tight gas was first discovered in 1998. The first phase is aimed at producing 90 million cubic feet of natural gas by the first quarter of 2013. The second phase, which is an exploratory phase, is for the northern part of the concession. The proposed $1 billion investment is for drilling 60 wells, a new gas processing plant for removing water from natural gas and for building two 85–km-long parallel pipelines for exporting gas and condensates from the plant to the government gas network. Hopefully, by the first quarter of 2013, all infrastructure and 60 wells will be ready, which will give the operator a good understanding of the technical complexities of the tight gas field. Britain’s oil giant BG group last October ceded its interest in the onshore gas block of Abu Butabul. Now OOCEP will pick up from where BG group left off. Apart from BP and OOCEP, the majority state-owned Petroleum Development Oman (PDO), the single largest natural gas producer in the country, is also investing heavily for gas exploration, treatment plants and pipeline networks. PDO has made a significant gas discovery at Khulud West in the north of its concession area, five km west of the Khulud South discovery. The exploration well encountered more than 150 metres of gas column in the Amin reservoir at a depth close to 5,000 metres. Nov-Dec, 2011
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‘UNCONVENTIONAL IS THE KEY’ ‘In Oman, the last 40 years have belonged to the oil production and the next 40 years will belong to the gas production,’ says Dr. Jonathan Evans, General Manager, BP Oman in a conversation with Akshay Bhatnagar. Excerpts of the chat: BRIEFLY TELL US ABOUT THE PROGRESS MADE BY BP IN BLOCK-61 SO FAR. In 2007, BP got the right to explore and appraise the gas discoveries in Block-61 including the Khazzan and Makarem fields. The fields were discovered by Petroleum Development Oman (PDO) in the late 1990s but were not considered to be technically and commercially viable at that time as they hold tight gas in deep reservoirs at depths of upto 4500-5000 metres. BP has an extensive expertise in managing tight gas fields mainly in North America and North Africa where we have pioneered some hydraulic fracturing (fracing) techniques. We are applying those techniques to Oman. We had committed towards an appraisal programme with an investment of $650 million. In the last four-and-a-half years, we have drilled eight wells; we are drilling the ninth well currently. We have built Extended Well Testing (EWT) facility. It is a test plant that channels gas from wells. These are deep, difficult reservoirs holding tight gas. One of the key questions is what will be the gas flow that we are going to achieve; how it will decline over a period of time? So the EWT will help us to understand the long term decline behavior. Through exploration and seismic work, we have established that the block has very large 28
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gas reserves. It could have probably 100 trillion cubic feet (tcf) of gas in place, by any scale it is a huge gas reserve. The question is how much we can recover economically. We are working with the government to come to an agreement on a full field development plan and the commercial terms. Khazzan project is the first phase of the plan. There we have drilled two reservoirs in the south part of the block. The full plan development envisages drilling of about 350 wells and construction of a new gas processing plant. This will lead to a peak level production of 1 billion cubic feet (bcf) per day. Currently, Oman’s gas production is 3 bcf a day. But this isn’t going to be a cheap gas. Though we had committed for investing $650 million in the current programme but by next year, we would end up spending $1 billion. By February 2013, we are expected to present our full field development plan to the government. This will lead to an agreement on the commercial terms. The government will pay their share of the historic cost and take a 20 per cent stake in the project at the time of commerciality. But as I said before all the commercial terms and conditions will be part of the negotiations after the presentation in early 2013.
WHAT MAKES THE TIGHT GAS FIELDS IN OMAN DIFFERENT FROM THE SIMILAR ONES DRILLED BY BP IN OTHER MARKETS SAY NORTH AMERICA? The reservoirs are shallower in North America than we have experienced here. So we have to further develop the existing technologies to apply here successfully at deeper depths and higher temperatures. In North America, the reservoirs are at a depth of 1000-2000 metres. In Oman, it is almost twice or more than twice in depth. We find temperatures of 150 centigrades whereas in North America it is less than 100 centigrades. Some of the chemicals that we use become unstable at higher temperatures so we need to work towards developing new techniques to apply them at these high temperatures. Another issue is that it takes longer to drill the wells in Oman. Hence, they are more expensive to drill. In North America, we sometimes drill wells in a week. Here, it takes 100 days to drill a well. So the cost of drilling a well here is ten times of drilling a well in North America. We have some experience at such deeper depths in parts of North Sea where we have reservoirs which are similarly challenging. But Oman is the deepest we
Picture Courtesy: BP
The Khazzan project is among the five biggest projects in BP now. If we get into commerciality, Khazzan project will require investment of $15 billion over the next 10 years. have gone for in the case of tight gas. We are deploying different techniques of fracturing the rocks. DO YOU THINK BP’S EXPERIENCE IN OMAN SO FAR HAS BEEN IN LINE WITH THE COMPANY’S EXPECTATIONS IN THE INITIAL PERIOD? It has been a mixed bag. On the positive front, we have fully established that there is more gas than the original estimates; there is 50 per cent more gas. The Omani government has been quite supportive and understanding. On the negative side, we have seen slightly lower production rates than we had originally anticipated. The well development cost has been far higher than we had expected. This is mainly due to the high inflation that has been seen in the oil and gas sector in the last five years. For example, the drilling cost has doubled. WHAT ARE THE PROSPECTS OF GAS INDUSTRY IN OMAN? Oman has a lot of unconventional gas potential, deep tight and sour gas. In Oman, the last 40 years have belonged to the oil production and next 40 years will belong to the gas production! Atleast half-a-dozen operators are working on different unconventional gas
projects in Oman. The North and Central Oman will see more gas deliveries and development in the coming years. Most of the conventional gas deposits have already been found and developed. So the opportunity lies in the unconventional gas deposits. Though many of them were discovered earlier but the technology to harness them has been developed and become commercially viable in the recent years. In fact, gas has been the focus area in most parts of the GCC region. But the regional market needs to shift more towards the global pricing of the gas as
it moves forward. HOW DO YOU COMPARE BLOCK-61 WITH OTHER BP CONCESSIONS GLOBALLY? The Khazzan project is among the five biggest projects in BP now. If we get into commerciality, Khazzan project will require investment of $15 billion over the next 10 years. If we arrive at an agreement with the government in February 2013, we could start producing gas from the second half of 2016. The peak level of supply could be sustained for atleast 10 years. This could support the growth of numbers of new industries and creation of thousands of jobs in the Sultanate. Nov-Dec, 2011
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GAS PRICING IS THE KEY
‘We will see some exploration for shale gas in the future in Oman,’ says BJ Crouse, General Manager Middle East and Asia, Knowledge Reservoir, in a conversation with Akshay Bhatnagar
TELL US ABOUT KNOWLEDGE RESERVOIR. Knowledge Reservoir is an oil and gas consulting firm that was founded in 1999. We are headquartered in Houston with offices in London, Muscat, and Kuala Lumpur. Muscat is our Middle East/Asia headquarters. We have been in Muscat since 2007 and have provided consulting services to virtually every operator in Oman. These services have included everything from detailed subsurface studies to providing technical resources on a short to long term basis. We have done several evaluations of gas assets. Our technical staff have years of experience in many of the fields in Oman. We are proud to call Oman our home and are excited about the future of the industry here. WHAT IS YOUR ASSESSMENT OF THE NATURAL GAS SECTOR IN OMAN? We believe the gas sector has a bright future. Right now most operators are concerned with the price of gas in Oman. Assuming the price paid by the end users is enough to make the exploration and production of gas commercial, we expect to see more activity in the gas sector. WHAT ARE THE CHALLENGES AND OPPORTUNITIES FOR THE GAS SECTOR IN THE SULTANATE? I don't think many people doubt the existence of significant quantities of gas in the Sultanate. The question that needs to be answered will be; is the exploration and production of these assets commercially viable? This will 30
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depend upon two factors. Firstly, the price that will be paid for the gas. Future negotiations between the government and operators will answer this question. The second is the expense of producing the gas. The gas reservoirs that have been discovered thus far are primarily in deep and in tight formations. These types of reservoirs can be expensive to produce and require special operational techniques such as "fracing" the formations to release the gas. The technology to perform these services will need to be provided by the service companies. The cost of these services will be a key factor in the commercial viability of the reservoirs. We also believe there may be unconventional gas deposits in
Oman. These are gas trapped in shale rocks. The gas industry worldwide has gone through tremendous economic and technical changes due to this new resource play. I think we will see some exploration for shale gas in the future in Oman. IN YOUR OPINION, WHAT STEPS SHOULD BE TAKEN BY THE COUNTRY TO DEVELOP ITS GAS SECTOR IN THE COMING YEARS? Oman will need to encourage the use of gas in the Sultanate for both industry and home. The increased demand for gas should impact the pricing. We believe once the demand and therefore pricing increase, you will see a significant increase in the number of operators willing to invest in the gas sector.
Structural Steel Fabricators & Engineering Components
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NATURAL GAS
GAS SHORTAGE IN THE GCC
Picture Courtesy: Saudi Aramco
Bahrain, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates are facing a reversal of a decades-old status quo; an increasing gas shortage in the region amid a significant supply overhang in the rest of the world, says a Booz & Co. report.
I
n April 1977, the GCC began exporting gas as the United Arab Emirates (UAE) built the region’s first LNG liquefaction terminal and began sending LNG to Japan. A little more than 30 years later, in August 2009, the GCC began importing gas, as Kuwait received its first LNG cargo from Russia at its fast-track LNG receiving terminal at Mina Al-Ahmadi GasPort (MAAGP). These examples illustrate the sea change that GCC countries have undergone in that time frame. Importing gas into the resource-rich countries of the GCC seems counterintuitive—the six member countries of the GCC collectively hold roughly 23 percent of global gas reserves. However, the extent of the gas supply32
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demand imbalance in the region has mandated that the countries of the GCC, with the exception of Qatar, at the very least consider importing gas to meet rapidly rising demand. Five factors have combined to shift the gas supply-demand balance in the GCC to the point where the region now faces a growing gas shortage: INCREASING POWER CONSUMPTION AND THE SHARE OF GAS IN POWER GENERATION: From 1998 through 2008, GCC economies grew at a rate of about 7.6 percent per year. Demand for both gas and electricity has kept pace with regional GDP growth and economic diversification, posting annual gains of 5.5 percent and 6.1 percent, respectively. Going forward, according to U.S. Energy
Information Administration (EIA) forecasts, the region’s power generation needs will grow by about 50 percent— from approximately 710 terawatt hours (TWh) in 2010 to around 1100 TWh in 2030. The EIA also predicts that more than 90 percent of this incremental power generation growth will be fulfilled by gas, significantly increasing the GCC power sector’s reliance on gas. Other power-sector alternatives, like liquid fuels, renewable fuels, coal, and nuclear energy will contribute, but only modestly compared with natural gas, according to the EIA’s 2009 outlook. DEPLETING OIL FIELDS AND THE NEED FOR GAS IN ENHANCED OIL RECOVERY: Depleting oil fields, where natural gas is
used for re-injection to maintain reservoir pressure and oil production capacity, are another major source of gas consumption in the GCC. For example, in the UAE, gas demand for re-injection is expected to grow significantly—from around 18 billion cubic meters (bcm) in 2008 to approximately 45 bcm by 2020. To a lesser extent, Oman and Qatar also face an increase in gas demand for re-injection. GCC countries currently manage their gas shortage by reducing gas re-injection and directing gas to end consumers. That strategy, however, is not sustainable over the long term, as prolonged reduction in gas re-injection will have an adverse impact on the oil reservoirs. Although groundbreaking alternative technologies such as nitrogen and CO2 injection are currently being developed and deployed on a pilot basis, it is unlikely that they will significantly reduce the demand for gas, at least in the near future. INCREASING ECONOMIC EMPHASIS ON THE STEEL, ALUMINUM, AND PETROCHEMICALS SECTORS: The emergence of the gas-based petrochemical sector, especially in Saudi Arabia, has been one of the great GCC success stories over the last three decades. These industries likely will continue to grow and even accelerate over the next decade as other GCC countries continue their diversification efforts and invest in gas-intensive industries. Low gas prices provide a competitive edge for GCC businesses to increase investment and add significant new capacity within the next few years. As a result, production of polyethylene and polypropylene in the Middle East will more than double between 2008 and 2012, and steel and aluminum production may increase as much as six fold in the same period. GAS EXPLORATION AND PRODUCTION CHALLENGES: The region faces extraordinary challenges
in maintaining and increasing gas production at a level that would allow it to meet demand. Most of the region’s gas production is in the form of associated gas that is closely tied to OPEC oil production quotas. As OPEC oil production has waned in line with the global economic recession, so has the region’s gas production. This presents new challenges for managing the gas supply–demand balance. In addition, new sources of non-associated gas—gas produced on its own and not as part of oil production—are proving difficult to locate despite the optimism of regional gas producers. For example, Saudi Arabia has had limited success in exploring for and developing non-associated gas. In 2004, the Kingdom set up a consortium of Saudi Aramco, Shell, and Total to explore in the Rub Al Khali area in the “Empty Quarter.” Despite high hopes and significant investment and drilling since 2006, no material amount of commercial natural gas has been discovered there. In 2008, Total pulled out of the consortium due to lack of commercial success. Similar challenges have plagued development activity in Kuwait. Even when gas has been discovered in significant quantities, production has been technically challenging as the gas is either sour (with sometimes about 25 percent sulfur content) or it is tight gas (gas trapped in unusually impermeable hard rock or in a sandstone or limestone formation). These technical challenges are stalling plans, increasing production
costs, and adding to the risks of the projects. Moreover, as the GCC gas markets are highly subsidized, some countries are finding it difficult to attract and retain IOCs for gas exploration and development activities. LONG-TERM GAS EXPORT COMMITMENTS LIMIT LOCAL SUPPLY: Key gas-producing countries such as the UAE, Oman, and Qatar have committed significant portions of their current production to LNG exports through longterm contracts, mostly to Asia and Europe. Those commitments will exacerbate gas supply shortages while demand continues to increase. Export commitments extend at least through the end of the next decade and sometimes even longer. The combination of these five factors is draining the gas supply in the GCC. What’s more, there’s no respite in sight. THE GOOD NEWS: ALL IS NOT LOST Despite the gloomy outlook, the GCC’s gas shortage can be resolved. GCC countries now have a unique opportunity to address their gas shortage by taking advantage of the significant global supply overhang in the gas markets. Considering this significant global oversupply, GCC countries have a unique opportunity. Some of them could renegotiate few of their LNG export contracts, which typically include minimum off-take or take-orpay conditions. That could help those
The region faces extraordinary challenges in maintaining and increasing gas production at a level that would allow it to meet demand. Most of the region’s gas production is in the form of associated gas that is closely tied to OPEC oil production quotas.
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NATURAL GAS
countries free up export gas for domestic use. Because a large portion of the LNG exports are slated to go to the Asian markets of Japan and South Korea—both of which are severely affected by the recession—the timing could be mutually advantageous to propose flexible contract arrangements and create a win-win scenario for both parties. Once NOCs are successful at minimizing their LNG exposure to markets that currently are oversupplied, they can explore short-to mid-term gas import contracts because of the disparity between oil and gas prices, and employ fast-track LNG import terminals similar to those in Kuwait and Dubai to solve their gas shortage situation. Fast-track LNG import terminals can be set up within a year to 18 months—a short enough period to tackle short- to midterm gas problems. Importing gas or LNG is the most economically and environmentally sound solution to the GCC’s problem, especially for the power sector. Furthermore, importing gas or LNG will enable GCC countries to continue their economic diversification efforts using local gas and allow them to continue to export crude oil, sending value-added refined products to foreign markets instead of burning them as fuel for their own power needs. Beyond addressing the short-term gas shortage, GCC countries will need to address their gas challenges by reducing demand in the long term and increasing supply. The following are six areas in which NOCs, utilities, and regulators can focus their efforts. RAISE LOCAL GAS PRICES GRADUALLY: GCC governments heavily subsidize gas prices and, as a result, related power prices. As the regions’ economies have grown and per capita wealth has increased in tandem, regional 34
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governments are likely to see an increased willingness to pay higher tariffs for power. Increasing power prices in a gradual manner over several years would lead to lower power (and consequently gas) demand. IMPROVE ENERGY EFFICIENCY THROUGH REGULATORY CHANGES: Establishing energy-efficiency standards and building codes in the construction industry would reduce power consumption, especially for the air-conditioning units in the peak summer months when the demand for gas is greatest. BOOST PENETRATION OF ALTERNATIVE POWER SOURCES IN THE ENERGY MIX: In the long term, the use of nuclear energy or renewable energy sources like solar will help reduce gas demand. The UAE has set an ambitious target of generating one-quarter of its power from nuclear sources over the next 15 to 20 years. To reach this target, Abu Dhabi plans to construct at least six nuclear plants at a cost of more than US$5 billion each. Given the challenges and hurdles to be overcome in constructing nuclear plants, it is unlikely that the first plant in the UAE will be operational before 2017. INVEST IN ALTERNATIVE METHODS FOR ENHANCED OIL RECOVERY: Some of the regions’ NOCs are pilottesting groundbreaking new technology to produce and inject nitrogen or CO2 instead of natural gas for enhanced oil recovery. The rapid deployment and large-scale application of these types of state-of-the-art industry technologies across the GCC nations can help free up gas for end consumers. PROVIDE INCENTIVES FOR IOCS TO PARTICIPATE IN THE UPSTREAM GAS SECTOR:
Although GCC countries slowly have opened up the upstream gas sector to IOC participation, the subsidized price environment renders the terms and conditions for IOC investment unattractive. Moreover, future nonassociated gas resources in the region are likely to be rife with significant technical challenges like sour gas and tight gas. Bringing technically challenging gas on stream not only takes more time, it also carries additional risk and requires greater investment. As a result, IOCs will require a higher financial incentive to justify their investments. Balancing the risk and reward for IOCs in joint venture contracts would increase their interest and commitment to the region to explore for non-associated gas. EVALUATE THE EXPORT VERSUS THE DOMESTIC OPTION FOR GAS RESERVES: Qatar, UAE and Oman are locked into LNG exports until at least the end of the next decade. However, questions remain about the longer-term export possibilities for the UAE and Oman. These countries can benefit now by undertaking a critical analysis of their domestic requirements and contingencies before they consider extending their export possibilities. If GCC countries do not act now to address the gas shortage issue they will be forced to implement solutions such as switching gas-fired power plants to alternative liquid fuels like crude oil or diesel. Saudi Arabia took this approach through a royal decree in 2006, when it didn’t have enough gas to fire up its plants. Essentially, Saudi Arabia was forced into placing a gas cap on the power sector and requiring all new power plants to use liquid fuels such as crude oil, which is much more expensive to use than gas. Kuwait has done exactly the reverse—importing LNG to free up valuable crude oil fired in the power plants for export.
ENVIRONMENT
RUSSIA, KAZAKHSTAN LEAD WAY TO REDUCE GAS FLARING Overall, the flaring of gas adds about 360 million tons of carbon dioxide in annual emissions, roughly equivalent to the annual emissions from 70 million cars.
K
azakhstan, one of Central Asia’s major oil-producing countries, has cut gas flaring associated with oil production by a third in just five years, according to satellite estimates, thereby reducing CO2 emissions by almost six million tons. That’s about the volume of greenhouse gases emitted by one million cars. The country’s remarkable achievement is closely matched by its neighbor, Russia, which has also seen significant reductions in gas flaring. Together, the two countries lead the list of countries which in 2010 worked to reduce greenhouse gas emissions by cutting gas flaring. This Kazakhstan result has been achieved by projects like the one undertaken by Tengizchevroil (TCO). In 2010, the company completed a four-year $258 million Gas Utilization Project which has eliminated routine gas flaring in the giant Tengiz oil field. TCO, a joint venture that includes Chevron, ExxonMobil, Kazmunaigaz, and LukArco, has reduced flaring emissions by over 94 percent since 2000, while simultaneously increasing crude oil production by 147 percent. The fact that Kazakhstan, Chevron, and ExxonMobil have achieved this flaring
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reduction is no accident. All three are members of the Global Gas Flaring Reduction public-private partnership (GGFR). This partnership, launched by the World Bank in 2002, has just marked another milestone with satellite data estimating a nine-percent drop in gas flaring worldwide in 2010. WHY GAS FLARING MATTERS Although total emissions from gas flaring represent about 1.2 per cent of global CO2 emissions, these are emissions that can be effectively reduced through targeted interventions, including the right mix of policies and incentives. To put this in perspective: Global emissions from gas flaring alone
are more than half the annual Certified Emissions Reductions (624 million tons) currently issued under the Kyoto’s Clean Development Mechanisms.(data as of June 2011) Gas flaring emissions in some oil-producing countries (i.e. Nigeria) represent about one third of their total CO2 emissions, according to Nigeria’s National Communication to the UNFCCC. DOWNWARD TREND For the fifth consecutive year flaring of gas associated with oil production has registered a drop worldwide: between 2005 and 2010, gas flaring decreased by 22 per cent from 172 billion cubic meters (bcm) to 134 bcm, according to
satellite estimates commissioned by the World Bank-led GGFR partnership. Last year’s reductions, from 147 bcm in 2009 to 134 bcm in 2010, occurred despite a two-million barrel-a-day increase in crude oil production over the same period. This also confirms a 15-percent drop in gas flaring intensity (ratio of gas flared to oil production volumes) since 2002. The 13-bcm decline in 2010 is roughly equivalent to 30 million tons of CO2 emissions, or to taking almost six million cars off the road. Most of last year’s estimated reductions were achieved in Russia and Kazakhstan, where public and private stakeholders have increased investments in associated gas utilization projects. Overall, Russia and Nigeria have seen the largest reductions but still top the list of flaring countries in 2010, which also includes Iran, Iraq, Algeria, Angola, Kazakhstan, Libya, Saudi Arabia, and Venezuela. The 134 bcm of gas flared worldwide in 2010 is equivalent to almost 30 per cent of the European Union’s yearly natural gas consumption. Overall, the flaring of gas adds about 360 million tons of carbon dioxide in annual emissions, roughly equivalent to the annual emissions from 70 million cars. Some flaring also emits black carbon, or soot. PUBLIC-PRIVATE COLLABORATION The GGFR partners have established a collaborative Global Standard for gas flaring reduction. This Standard provides a framework for governments, companies, and other stakeholders to consult each other, take collaborative action, work on projects across two or more countries, and reduce barriers to associated gas utilization. GGFR partners commit to avoid flaring from new projects, and to eliminate continuous production flaring, except where no feasible alternatives exist.
In sum, GGFR facilitates viable solutions to gas flaring reduction and helps partners unlock the value of currently wasted natural gas to improve energy efficiency, expand access to energy, and contribute to climate change mitigation and sustainable development. Specifically, the partnership helps developing countries overcome barriers to reducing flaring, including: • High costs of capturing and utilizing the associated gas currently flared • Undeveloped domestic gas markets and limited access to international markets • Lack of financing to put the necessary gas infrastructure in place • Undeveloped regulatory frameworks • Inefficient gas pricing systems (mostly due to subsidies) To help governments and companies overcome these barriers, GGFR’s work focuses on: • Commercialization of associated gas by identifying potential uses • Regulations for flaring and venting, and the use of associated gas Implementation of the Global • Standard for flaring and venting reduction • Capacity building to obtain carbon credits for flaring and venting reduction projects. “By reducing flaring some oil-
WHAT IS GAS FLARING? When crude oil is brought to the surface, gas associated with the oil comes to the surface as well. The gas may be used at the installation as fuel for generators, may be transported via pipelines and sold elsewhere, or may be injected into the ground. But in areas of the world lacking gas infrastructure and markets, this associated gas is usually released into the atmosphere, ignited (flared or burned) or un-ignited (vented).
GAS FLARING - RECENT TRENDS • New data show global reductions • •
in gas flaring continued for the 5th straight year. In 2010, the emissions equivalent of six million cars was taken out of the air. Top gas flaring countries span Middle East, Africa, Central Asia.
producing countries and companies are making an important contribution to energy efficiency and climate change mitigation,” says Paulo de Sa, manager of the World Bank’s Oil, Gas and Mining unit. “Other emerging oil producers also need to join these global efforts.” Nov-Dec, 2011
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Many roles. Many aspirations. One spirit.
An Award to honour women achievers who have sought excellence within.
C A T E G O R I E S Al Mar'a Excellence Awards for: L Entrepreneurship and Innovation L Petroleum Services L Corporate Excellence L Social Responsibility L Fine Arts L Performing Arts L Technology L Science & Industry L Health Services L Education Services i Sports L Fashion Design
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Under the auspices of
Her Highness Sayyida Dr Muna bint Fahd al Said Assistant Vice-Chancellor for External Co-operation, Sultan Qaboos University
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Setting standards for Excellence: On 5 December 2011 the Al Mar’a Excellence Awards forum will recognise and honour exemplary women achievers, who have set benchmarks for excellence through their business achievements and entrepreneurial zeal. The award ceremony will be the highlight of a glittering red carpet event, dazzling entertainment choreographed by Emmanuel Castis and a dinner organised for the Who’s who of Oman’s social high life. Date: 5 December 2011 \ Time: 7:00 pm - 10:00 pm Venue: The Amphitheatre, Shangri-La Barr al Jissah Resort & Spa, Muscat, Sultanate of Oman To nominate log in to:
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REGIONAL ROUND-UP
New Master’s Programme in Oil and Gas Surface Facilities
Collaboration between academia and industry benefits both. One such partnership was launched October 15 with Saudi Aramco, the French Institute for Petroleum and New Energies (IFPEN) and King Fahd University of Petroleum and Minerals (KFUPM): the two-year Master’s Programme in Oil and Gas Surface Facilities. On hand were president and CEO Khalid A. Al-Falih, KFUPM rector Dr. Khalid AlSultan, senior vice president of Engineering and Project Management Abdullatif A. AlOthman and IFPEN president Olivier Appert. The speakers emphasized the importance of the strategic, trilateral partnership in teaching Saudi Aramco engineers the appropriate and creative application of knowledge to impact business goals through assessing challenges and proposing original solutions. “This is the first multidisciplinary master’s degree programme designed to help our engineers achieve the maximum value of asset ownership,” said Al-Othman. “The graduates of this programme will reap the benefits of their studies and put it to good use right after their completion.” The programme is designed to accelerate the development of engineering professionals in engineering areas including surface production, refining and petrochemicals, in line with Saudi Aramco business needs. “The programme is designed to equip engineers to handle real-life field problems,” Al-Othman said. “In this strategic alliance, we are truly creating the kind of connections that will enable us to solve the many challenges that we as an industry face.” “The 22 students who have been selected will go down in history as being the first class of a program that will set a new trend of bringing centers of excellence here to KFUPM,” Al-Falih said.
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ADMA-OPCO to increase crude production by 14.2pc
Abu Dhabi Marine Operating Company (ADMA-OPCO), a unit of Abu Dhabi National Oil Company (ADNOC) plans to increase its crude production capacity by 14.2 per cent to 700,000 barrels per day by the end of 2014. “The expansion at the Lower Zakum field will take its capacity to 425,000 barrels per day from the current 325,000 barrels per day,” ADMA-OPCO’s chief executive Ali Rashid Al Jarwan stated on the sidelines of the first KPMG GCC Energy conference. “The capacity at the field will be ramped up by the end of 2012. The field will attain its full capacity by the end of 2014,” he added. Al Jarwan said the current cumulative production capacity at ADMA-OPCO’s oilfields was 600,000 barrels per day. ADMA-OPCO said earlier this year that the offshore construction for the Zakum water injection upgrade project, which is aimed at increasing oil output by 100,000 barrels per day from the Lower Zakum field, is set for completion by June 2012. The construction of the Zakum water injection project began last June. The project will upgrade the water injection facilities and install a new water injection platform meant to enhance the water injection volumes. Adma-Opco, majority-owned by Abu Dhabi’s state oil firm, plans to spend at least $10 billion (Dh36.7 billion) developing two offshore fields to boost the firm’s crude output 60 per cent by 2017, Al Jarwan said last year.
Iraq to join OPEC Quota System in 2014 Iraq is looking at rejoining OPEC’s quota system for crude output in 2014 as the holder of the world’s fifth-largest oil reserves boosts production from an average of 2.9 million barrels a day. The country aims to increase output to 3.4 million barrels a day next year and 4.5 million barrels a day in 2013, Falah al- Amri, director of the State Oil Marketing Organization said. Iraq is exporting an average of 2.2 million barrels a day and earning an average price of $104 a barrel, he said. Iraq, the only member of the Organization of Petroleum Exporting Countries exempt from output quotas, relies on revenue from crude sales to rebuild its economy after years of war and economic sanctions. The government wants to boost production to 12 million barrels a day by 2017, Hussain al-Shahristani, the deputy prime minister for energy affairs and former oil minister said.
Saudi Aramco, Dow sign Sadara JV Agreement
Marine Atlas on the Western Arabian Gulf
Picture Courtesy: Saudi Aramco
Saudi Aramco has passed another environmental milestone with the publication of the Marine Atlas of the Western Arabian Gulf. The atlas is the first of its kind in the Kingdom and offers a unique window into the diverse, rich marine and coastal environments of the Arabian Gulf. Weighing in at more than 13 pounds, the atlas consists of 11 richly illustrated chapters, natural resource maps and an interactive DVD.
Saudi Aramco President and Chief Executive Officer Khalid A. Al-Falih and Dow Chairman and Chief Executive Officer Andrew N. Liveris signed on October 8 the Joint Venture (JV) Shareholders’ Agreement for Sadara Chemical Company. It is a major step forward for Sadara, which will comprise 26 manufacturing units, several of which constitute “mega projects” in themselves. Once complete, the JV complex will be one of the world’s largest integrated chemical facilities, and the largest ever built in one single phase. Saudi Aramco and Dow had announced their respective Board authorizations to form the JV on July 25 this year. The bulldozers, graders and rollers are already proceeding with site preparations on the world-scale, mixed feed cracker, which will be integrated with Saudi Aramco’s extensive hydrocarbon infrastructure.Al-Falih said: “Sadara is a milestone for Saudi Aramco and a cornerstone of our transformational downstream growth strategy, which will add further value to our significant petroleum value chain. As the world’s largest integrated and most reliable supplier of energy and petroleum-based derivative products, our strengths complement those of Dow, the world’s foremost chemicals company with a global track record and unique suite of chemicals technology. “I am confident that Sadara will be a game-changer in the Kingdom’s petrochemical industry as it has all the needed ingredients for success. It is a unique partnership that will be a success story for generations to come. We are looking forward to Sadara being an enabler of further economic development, entrepreneurial and employment opportunities in Saudi Arabia.” Sadara is expected to deliver annual revenues of approximately $10 billion within a few years of operation while contributing significantly to Saudi Arabia’s industrial diversification. The planned product portfolio will add value chains to the Kingdom’s vast natural resources and complement the existing chemical landscape. Ultimately, the JV will be instrumental in Saudi Arabia’s strategy to become not only a strategic chemicals and plastics producer, but also a hub for future downstream manufacturing.
The Marine Atlas was produced by the Environment Protection Department (EPD) in partnership with the Center for Environment and Water at the Research Institute of King Fahd University of Petroleum and Minerals (KFUPM). Four years in the making, the work is the result of almost 40 years of Saudi Aramco research and monitoring of the Arabian Gulf’s marine environment. The publication’s 383 pages are filled with photos that are complemented by detailed information and data, helping showcase one of the most diverse ecosystems in the region.The atlas team included 18 local and international scientists and numerous technical experts from the region and around the world, each contributing to the development of the publication. It provides an overview of Saudi Aramco’s sustained efforts in studying the marine environment and complements an earlier Saudi Aramco publication, Biotopes of the Western Arabian Gulf. It contains unique information which summarizes most of what we know about the Gulf. The Atlas brings to life the diversity of the different ecosystems in the Gulf. It covers shallow water, deep water, coastal zones, coral reefs and islands. An Arabic version is being edited and will be published shortly, and both versions will eventually be made available to the public.
Nov-Dec, 2011
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REGIONAL ROUND-UP
Petrofac and China Petroleum Engineering & Construction Corporation (CPECC), the engineering and construction subsidiary of China National Petroleum Company, have established a new strategic joint venture, China Petroleum Petrofac Engineering Services (CPPES). Based in Sharjah, UAE, the joint venture will provide project management and engineering services for selected oil & gas projects, focusing on projects for Chinese oil & gas companies. Petrofac and CPECC have a longstanding relationship and track record of cooperation, most recently being jointly awarded an inspection, maintenance and repair contract for the Rumaila oil field in Southern Iraq. The joint venture which is 51 per cent owned by CPECC and 49 per cent owned by Petrofac, following formal signing and exchanging of contracts, will be established under the leadership of personnel from both companies. Maroun Semaan, group chief operating officer, Petrofac, commented: “Cementing our association with CPECC represents a significant milestone for Petrofac. Our relationship with CPECC extends over the last seven years and I am delighted it has been strengthened with the creation of this joint venture. Together, we have considerable resources and world-class engineering and construction expertise and our collaboration should enable us to capitalise on the significant opportunities in China and internationally.” Hou Haojie, President, CPECC, commented: “It is a delight that CPECC and Petrofac have come together to combine and harness their respective talents in order to deepen the portfolio in our local and international markets.”
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Qatar to host 20th World Petroleum Congress
Picture Courtesy: WPC
Petrofac and CPECC establish new Joint Venture
The 20th World Petroleum Congress is being hosted by Qatar Petroleum on behalf of the State of Qatar and will take place at the brand new Qatar National Convention Centre (QNCC) in Doha, Qatar, from 4-8 December 2011. The QNCC, which boasts an iconic design and cutting-edge facilities in a green technology venue, is the first facility of its kind in the Middle East being built to the gold certification of the U.S. Green Building Council’s Leadership in Energy and Environment Design (LEED). The theme of the Congress is “Energy Solutions for All - Promoting Cooperation, Innovation and Investment” and this is the first time since its establishment in 1933 that the World Petroleum Congress will be hosted in the Middle East. This is the forum for the region’s top energy stakeholders to showcase advancements across the range of their operations, as well as for representatives of the Middle East to prove their growing credentials in a highly competitive market. Issa Bin Shahin Al-Ghanim - Chairman, Organizing Committee of the 20th WPC, said that 5000 delegates are expected to participate in the event. Over five days in December, attendance will include 500 speakers and panel constituents, more than 50 ministers of various member countries, around 500 top executives representing energy companies and allied businesses, and hundreds of international journalists. The World Petroleum Congress in 2011 has also confirmed the support of over 50 companies including some of the world’s biggest brands, as partners and sponsors of the event. This includes international oil companies (IOCs) and the national oil companies of several countries, as well as multinational leaders in analytics, law, marketing and communication.
Kuwait sets biggest renewable-energy goal to free crude for export Kuwait with no solar-power plants and electricity demand that’s growing about 8 per cent a year, has set the most ambitious target for using renewable energy in the Gulf region. The state aims to generate 10 per cent of its electricity from sustainable sources by 2020, said Eyad Ali alFalah , assistant undersecretary for technical services at the Ministry of Electricity and Water. Kuwait is trying to free up oil for export and expand its generation capacity to support increased tourism, manufacturing and home building in a $112-billion development programme. Kuwait consumed 413,000 barrels a day of oil in 2010, about 16 per cent of production, according to the BP Statistical Review of World Energy for 2011. That’s 66 per cent more than in 2000, while production increased about 14 per cent. The domestic consumption has more than doubled in the last 10 years.
Neste Oil, Bapco, and nogaholding start production at the base oil plant in Bahrain Neste Oil, The Bahrain Petroleum Company (Bapco), and nogaholding have successfully started commercial production at the new base oil plant in Bahrain. The joint venture plant produces premium quality VHVI (Very High Viscosity Index) Group III base oils for use in blending top-tier lubricants and has a production capacity of 400,000 metric t/a. The Base Oil business is one of the Neste Oil’s key growth areas, and the start-up of the Bahrain plant represents a major step forward in implementing its cleaner traffic strategy. “This increased capacity underlines Neste Oil’s position as one of the world’s leading producers and suppliers of Group III base oils, which we market under the NEXBASE brand. It also means that we will be able to support the growth of our customers and further consolidate our global presence,� said Matti Lehmus, Neste Oil’s Executive Vice President, Oil Products and Renewables. “Demand for premium-quality base oils is increasing globally as the new emission legislation and catalytic converter technologies demand better performing base oils. NEXBASE base oils meet both current and future performance requirements, as well as very stringent environmental standards,� continues Lehmus.Neste Oil has a 45 per cent stake in the joint venture plant and the company’s share of the investment cost was EUR 130 million. Neste Oil is responsible for the sales and marketing of the plant’s output, which increases Neste Oil’s total Group III base oils capacity from 250,000 metric t/a to 650,000 metric t/a. The plant’s output consists of Group III base oil varying in viscosity from 4cSt to 8cSt. The plant is located at Bapco’s refinery in Sitrah on the east coast of Bahrain. Bapco is responsible for the operation of the plant.
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COUNTRY REPORT
WHAT NEXT FOR LIBYA? While Libya’s National Transitional Council has made vague indications that it will honor current oil and natural gas contracts at present, this does not preclude the National Transitional Council from future renegotiations of the oil and gas contracts’ terms, much less signing new ones, writes John C.K. Daly
L
ibyan Colonel Gaddafi’s 42 year brutal reign is over, but the future looks murky ahead for a country primarily known for exporting oil and terrorism. One thing is for certain international oil companies will be packing out flights to Tripoli to cut deals for a piece of the action. Libya remains the wild card, with only 25 percent of the country’s oil potential territory explored. Whatever the demerits of the Gaddafi regime, it kept tight rein over its oil industry, and that, combined with international sanctions for its terrorist proclivities, largely stymied development of the country’s resources, much in the way that the development of Iran’s petrochemical sector has been largely devoid of foreign capital. After all, they
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did not call the 1996 U.S. legislation “the Iran-Libya Sanctions Act” (ILSA) for nothing. In September 2006, ILSA was renamed the Iran Sanctions Act (ISA), as Gaddafi was behaving himself more, but the damage to the country’s energy infrastructure was by then deep and systemic.
a mere 280,000 barrels per day were indigenously consumed. But current production is the proverbial mere drop in the bucket. Libya has the largest proven oil reserves in Africa with 42 billion barrels of oil and over 1.3 trillion cubic meters of natural gas, according to conservative estimates.
The Libyan economy depends primarily upon revenues from the oil sector, which contribute about 95 percent of export earnings, 25 percent of GDP, and 80 percent of government revenue. All of this is up for grabs now.
Now that the fighting is apparently over, the issue of Libya’s oil production will swiftly move front and center in international interests.
Prior to the outbreak of conflict in February, Libya was exporting about 1.3-1.4 million barrels per day from production estimated at roughly 1.79 million barrels per day of high-quality, light crude, of which approximately
On 19 October, International Energy Agency official David Fyfe said in Paris that despite IEA official estimates that Libya could be pumping around 1 million barrels a day by the end of 2012, a fraction of its 1.79 million barrels per day output pre-military action, all estimates of Libya’s future
output are a “shot in the dark” before adding that there are “many logistical, operational and security related challenges” to overcome before full production is restored. After military intervention began, by September Libyan oil output shrank to a measly 100,000 barrels per day. While Libya’s National Transitional Council has made vague indications that it will honor current oil and natural gas contracts at present, this does not preclude the National Transitional Council from future renegotiations of the oil and gas contracts’ terms, much less signing new ones. Furthermore, until he learned how to speak diplomatese, National Transitional Council head Mustafa Abdel Jalil alluded to the fact that the National Transitional Council would assign a higher priority for reconstruction and the allocation of oil contracts to countries that supported their uprising, remarking that nations would be rewarded “according to the support” given to the insurgents - which means NATO European coalition members will have the inside track, particularly as before the fighting erupted Europe got over 85 percent of Libya’s crude exports. Under such considerations, one of the clear winners will be Italy’s Ente Nazionale Idrocarburi S.p.A., better known by the acronym ENI, which saw pre-conflict Libya accounting for 15 per cent of ENI’s output. The major losers in such a scenario will be those nations that held out against military intervention, most notably the Russian Federation and China. Since 2005 Russian state-run natural gas monopoly Gazprom invested $200 million in energy exploration in Libya even as state arms exporter
As Sharia is Islamic law and Libya’s future government will doubtless contain many Islamic elements, it is hardly likely that the country’s future administration will be willing to sign “sweetheart” deals with foreign energy firms on terms more favourable or even as favourable as those Gadaffi signed with foreign energy firms. Rosobornekhsport sold Gaddafi over billions in armaments before an arms embargo was imposed on Libya by the UN Security Council in March, many of which were subsequently deployed against NATO forces and Libyan rebels, a fact doubtless not lost on National Transitional Council members. Russia’s state news agency ITAR-TASS estimates that Russia could lose as much as $10 billion in business if the National Transitional Council challenges the legality of the existing contracts. China, which has a massive oily African footprint elsewhere in Sudan and Angola, received a paltry 150,000 barrels per day of Libyan oil, a mere three percent of its crude imports. On 23 August, when asked about the possibility of the National Transitional Council renegotiating contracts deputy head of the Chinese Ministry of Commerce’s trade department, Wen Zhongliang blustered, “I can say in four words: They would not dare; they would not dare change any contracts.” Aside from the oil issue, another murky situation is the future composition of Libya’s post-Gadaffi government. Last month Libya’s interim leader, chairman of the National Transitional Council Mustafa Abdel Jalil, in his first public appearance in Tripoli told his audience, “We seek a state of law, prosperity and one where Sharia is the main source
for legislation, and this requires many things and conditions.” As Sharia is Islamic law and Libya’s future government will doubtless contain many Islamic elements, it is hardly likely that the country’s future administration will be willing to sign “sweetheart” deals with foreign energy firms on terms more favourable or even as favourable as those Gadaffi signed with foreign energy firms, as populist Islamic government elements will undoubtedly demand greater financial transparency than that provided by the Gadaffi administration. But Gadaffi is dead, and so Libya and the National Transitional Council enter a brave new world with few signposts. As regards Western intervention in the turbulent oil politics of the Middle East, one is reminded of what according to Washington Post journalist Bob Woodward, U.S. Secretary of State Colin Powell told President George W. Bush in the summer of 2002 about the possible consequences of military action in Iraq in what has subsequently become known as the “Pottery Barn” Rule - “You break it, you own it.” Brussels and Washington have an increasing amount of Middle Eastern ceramic shards to sweep up. Source: www.oilprice.com Nov-Dec, 2011
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COUNTRY REPORT
LIBYA CAN PRODUCE 3MN BARRELS
Libya oil production could take 36 months to recover to pre-conflict levels, gas supply from Greenstream could resume in 3 months, say a Wood Mackenzie report
F
ollowing recent events in Libya, Wood Mackenzie has reviewed its analysis of how long it could take for a recovery of oil and gas production. One of the key issues in this respect is how quickly the National Transitional Council (NTC) can stabilise the security situation across the country. It is too early to expect a material recovery in Libya’s oil and gas production. “Once a resolution is reached, we believe it will take around 36 months for oil production to recover to the pre-conflict level of 1.6 million barrels a day (b/d). It may be possible, however, for up to 600,000 b/d to be restored within three months assuming a swift end to hostilities, and an early focus by the NTC and international community on stability and infrastructure repair,” says Ross Cassidy, North Africa Upstream Research Analyst for Wood Mackenzie. Wood Mackenzie’s global gas research shows that gas production could take less time to recover. Eight billion cubic meters of gas per year is contracted from Libya to Italy, with Eni as primary off-taker selling to customers in Italy. The Greenstream gas pipeline routes gas from Eni-operated fields in Libya to Italy. Massimo Di-Odoardo, European Gas & Power Research Analyst for
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Wood Mackenzie says, “The Italian market is presently oversupplied with gas and Eni has had to delay off-take obligations from other suppliers because insufficient market is available. During the Greenstream outage, Eni increased off-take of Russian pipe gas supplies therefore, resumption of Greenstream will add gas to an already oversupplied Italian market with implications for downside price risk and reduced flows of pipe gas from other suppliers, notably Russia. It could take as little as three months to restart Greenstream supply and reach precrises production levels, however the time to resume supply will depend on local security and the state of infrastructure.” Wood Mackenzie estimates that it will take around 36 months for the country to recover its full production capacity, from whenever the current crisis reaches a resolution. This depends on the scale of damage to oil infrastructure being limited, swift removal of international sanctions and the timely return of international oil
companies and foreign workers. The Libya state-owned National Oil Company (NOC) and the international industry will have to work in partnership to repair facilities, re-start production and ramp-up to pre-crisis rates. Production recovery is likely to vary by basin. It will take longer in the mature and complex Sirte basin, in eastern Libya, which is the foundation of Libyan production, than in the more modern and less complex fields of the Murzuk and Pelagian Shelf basins, of western Libya. Substantial oil volumes could be back in the market by late 2012, if a resolution is achieved by the end of 2011. But the recovery period will extend if production remains shut-in for longer, as infrastructure continues to deteriorate. There is unlikely to be any increase in production or re-start of exports, whilst Libya’s oil infrastructure is open to sabotage by either side. In the longer-term, the production outlook will be largely dependent on the nature of the outcome to the conflict and its political fallout. Libya has the potential to produce up to 3 million b/d of oil and become a major gas exporter through partnering with the international industry, who will bring finance, skills and technology to existing fields. But, for now, this brighter future remains on hold until military operations are concluded.
0&3 T $PNQBOZ 4QFDJBM PO 0NBO 0JM .BSLFUJOH $P
4DBMJOH /FX )FJHIUT 1
MARKET REPORT
DECLINING MODE On a quarterly basis, the OPEC Reference Basket fell $3.74/b or 3.3 per cent to average $108.44/b. That was the first decline since the $2.77/b of the third quarter 2010.
T
he OPEC Reference Basket was volatile in September, moving within a wider range of around $102-$112/b as market sentiment was dominated by economic uncertainties around the globe, particularly in Europe, due to Greece’s debt problems and the fears of contagion to other countries. On a monthly basis, the OPEC Reference Basket rose $1.29 or 1.2 per cent in September to average $107.61/b. All Basket components 48
Nov-Dec, 2011
recovered in September, except Venezuelan crude Merey, which dropped a further 69¢ to average $92.78/b, the lowest since the $87.51/b of last February. The recovery in the OPEC Reference Basket was driven essentially by Ecuador’s Oriente, which jumped $5.91 or 6.0 per cent, as well as by light African crudes. Algeria’s Saharan Blend and Nigeria’s Bonny Light continued to benefit from the combination of stronger
demand from Asian buyers and the lack of light grades as Libyan crude remained absent from the market. African light crudes were also supported by strong refining margins in Europe. Nigeria’s Qua Iboe benchmark was assessed up to Dated Brent plus $3.90-4.10/b in late August. However, the recovery in the OPEC Reference Basket slowed down in the second half of September where respective gains of the third and the fourth weeks of the month fell to 96¢ and 10¢.
Middle Eastern crudes increased, but at a slower pace. Market sentiment firmed in the first two weeks of the month, lifted by higher exports to Europe following some disruptions in North Sea production, which made imports from the Middle East attractive to the region. Some spot Oman cargoes for loading in November were valued at a premium of $1/b to Dubai quotes, the highest since early June. Middle Eastern grades were also supported by higher Saudi and Abu Dhabi official selling price formulae for October loadings amid expectations of rising Asian demand following refinery maintenance. In the second week, Oman jumped to its highest level in six months, reaching a notional premium of $1.50/b to Dubai quotes, up $1.00/b from the previous week. Al-Shaheen was also sold at strong premiums on strong demand from Asia. At least two cargoes were sold at premiums between $1.80-2.00/b to Dubai quotes at the end of the second week. However, market sentiment eased over the following days amid weaker refining margins in Europe, narrower gasoil cracks and expectation of slowing demand following a fire at a Shell refinery in Singapore. On a quarterly basis, the OPEC Reference Basket fell $3.74/b or 3.3 per cent to average $108.44/b. That was the first decline since the $2.77/b of the third quarter 2010. It is worth mentioning that the Basket increased over the previous three quarters. It recovered in the fourth quarter 2010 by $10.12/b and $17.39/b in the first quarter 2011, followed by another again of almost $11/b in the second quarter of this year. Increasing concerns about global economic growth added more bearishness to the oil market in early October, when the OPEC Reference Basket fell $99.65/b on the first trading day of the month. That was the lowest level since the third week
of February. On 10 October, the OPEC Reference Basket stood at $104.67/b. THE OIL FUTURES MARKET Crude oil futures witnessed two distinct trends in September. Prices in the first half of the month showed some recovery before they weakened significantly within the second half of the month amid bearish sentiment in September on the back of gloomy economic outlook and slowing demand. A similar trend was observed in equity markets and other commodities, highlighting the impact of the macroeconomic outlook on investors. As market sentiment turned gloomy
Within a few days, crude oil futures showed some recovery to stand around $90/b in mid-September but this was short lived as prices started to decline again. On 22 September, Nymex WTI dropped $5.41 or 6.3 per cent to close at $80.51/b. That was the biggest one-day percentage decline since 8 August, when the loss was 6.4 per cent. The strong decline in crude oil futures on that day was in line with equity markets as uncertainties about global economic growth increased, following weaker manufacturing indicators from the Euro-zone and China, which would imply lower oil demand in future. Prices were also dampened by Federal measures
As market sentiment turned gloomy with eventual slowing oil demand, many investors halted investing in crude oil futures while others engaged in strong sell-offs.
with eventual slowing oil demand, many investors halted investing in crude oil futures while others engaged in strong sell-offs. The weakness in crude oil futures was also attributed to the strength of the US dollar against the euro as the latter continued to suffer from the European debt crisis. The expectations of the return of Libyan crude oil added more bearishness to the market. US crude oil futures experienced a general upward trend in the first half of September. The Nymex WTI front-month started the month at $88.93/b to weaken in the following days amid a series of poor macroeconomic indicators, including disappointing US jobs data as well as worries that the Euro-zone debt crisis might dampen global economic growth.
which were seen as insufficient to boost the faltering US economy. The Nymex WTI fell further in the following days to close below $80/b for the first time in almost a year and represented the largest weekly loss since the first week of May. The weakness during that week was not limited to crude oil but touched other commodities and stock markets with the Dow Jones Industrial average falling 6.4 per cent, the S&P 500 losing up to 6.6 per cent and the Nasdaq down 5.3 per cent. The Dow posted the largest weekly percentage loss since October 2008. After a fragile recovery, the Nymex WTI weakened again to settle at $79.2/b on the last trading day of September, the lowest in a year and represented a monthly average of $85.61/b, the lowest since the $84.31/b of November 2010 and a loss of Nov-Dec, 2011
49
MARKET REPORT
73¢ from the previous month. Growing worries that Greece will default on its debt and a global economic slowdown will reduce demand for oil significantly weakened crude oil market sentiment in early October when Nymex WTI fell to $75.67/b on 4 September. That was the lowest close since the $75.18/b of 23 September 2010. In London, ICE Brent followed the same trend. The front-month contract closed at $115.80/b on 7 September, the highest level of the month, before it weakened slightly to settle at $115.34/b a week later. As with US crude, ICE Brent weakened significantly in the third week of September to close at $105.49/b on 22 September, implying a loss of almost $10 in one week. ICE Brent dropped further over the following days to stand at $102.76/b on the last day of the month, resulting in a monthly average of $109.91/b, down 2¢ from August. Similar to US crude oil, ICE Brent continued its downward trend in the first week of October, falling below $100/b for the first time since the end of January 2011. The Brent-WTI spread widened for the sixth month in a row to average $24.30/b, up from $23.59/b in August. On a daily basis, the Brent-WTI spread hit a record high of $26.87/b on 6 September. The wide spread is attributed to the strength of Brent crude, which continued to benefit from strong demand for light crude and the absence of Libyan grades. Trading activity on the exchanges also weakened in September. Around 316,000 contracts per day of the WTI front-month were traded on the Nymex, compared with nearly 373,500 contracts per day in the previous month. That represents a decline of more than 15 per cent. This level was even lower than a year earlier by more than 7 per cent. Following the same trend, trading activity of the Brent front-month fell to around 204,000 50
Nov-Dec, 2011
contracts per day on ICE, down 11.4 per cent from August. Open interest for US crude oil on the Nymex also declined to stand at 1.39 million contracts on 30 September compared with 1.50 million contracts on 31 August. As the market turned bearish, speculators sharply cut their net long crude oil positions from nearly 169,000 contracts in the week through 16 September to just 141,500 contracts through the week to 27 September. Speculator activity was in line with Nymex WTI price movements, which fell from $90.21/b to $84.45/b within the same two weeks. THE FUTURES MARKET STRUCTURE The Nymex WTI curve remained in contango, but the curve flattened slightly in September. The intra-month spread over the first sixteen consecutive months fell to around 20¢. The spread between the seventeenth and the sixteenth month stood at just 10¢. In contrast, ICE Brent’s curve remained in backwardation but the intra-month spreads weakened significantly. The spread between the second and the first month shrunk from around minus $6.80/b in August to just minus 2¢. The same trend was observed through forward months but at a slower pace with the
spread between the third and the first month falling from minus $6.75/b in August to minus $1.23/b. The almost vanished backwardation at the front of the curve of ICE Brent was essentially attributed to the weakness of the front month amid expectations for a less tight market for light crude in the future, following the return of Libyan crude. THE SWEET/SOUR CRUDE SPREAD The Dated Brent-Dubai spread increased $1.32 to average $6.82/b in September, offsetting the drop of the previous month. The increase was attributed to tight North Sea supplies, particularly lower production from the Buzzard field. This came with an easing of market sentiment in the Middle East in the second half of the month. The spread moved beyond $10/b on 15 September, the highest since the first week of May. The decline in the Dated Brent-Urals spread, which has been taking place since last May, came to an end in September. However, the Dated Brent-Urals spread more than doubled to average $2.74/b compared with $1.21/b in the previous month. Again, the jump in the Brent premium came as a result of a strong North Sea market and weaker Urals because of growing supplies from the Baltic.
TENDER WATCH
Tender Watch WORK
COMPANY
DETAILS
Concept Engineering Services Contract
PDO
www.pdo.co.om
Building Capabilities & Repair Optimisation Programme
PDO
www.pdo.co.om
Zauliha Gas Plant Project
PDO
www.pdo.co.om
Supply and install of air quality monitoring systems at MIC
Qatar Petroleum
www.qp.com.qa
Qatar Petroleum
www.qp.com.qa
basis
Qatar Petroleum
www.qp.com.qa
Trailer Mounted Expandable Mobile Office Units
Qatar Petroleum
www.qp.com.qa
Qatar Petroleum
www.qp.com.qa
BAPCO
www.tenderboard.gov.bh
North Gas Company
www.oil.gov.iq
ONGC Hazira Plant
ONGC
www.ongc.co.in
Procurement of Digital Well Analyser complete unit
ONGC
www.ongc.co.in
ONGC
www.ongc.co.in
Supply & Installation of Formation Response Tester or Core Flow Study Apparatus Stocking & Supply of Monosodium Phosphate (Msp) on Call-Off
EPIC for Modification Works at various offices and clubs in Dukhantownship Minor building and civil works in the company’s operating areas (5 year Pa for 2 contractors) Qutation of supplying Mobile Hydraulic Crane 20 Ton (brand new) Supply, installation & Commissioning of Air-Handling Units at
Inspection and Capacity Certification of Mast/Derrick & Substructure of ONGC Owned Rigs Source: From different corporate and tender websites
Nov-Dec, 2011
51
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GLOBAL ROUND-UP
Eastern African energy riches attract interest
Both Tanzania and Mozambique are currently plagued by indigenous energy shortages, which lead to electrical blackouts. Tanzania, East Africa’s second- biggest economy, before its natural gas fields begin production, is seeking to relieve its electricity shortages in the interim by promoting geothermal energy. Tanzanian Energy and Minerals Deputy Minister Adam Malima said, “We are moving toward more environmentally friendly sources of energy as our demand increases. We are looking to the private sector to see if there is interest in geothermal development.”
Picture Courtesy: Repsol
Energy deposits located in east African nations and their offshore coastlines are increasingly drawing foreign investor interest. Recent surveys have led analysts to estimate that Mozambique has over six trillion cubic feet of recoverable natural gas reserves while neighboring Tanzania’s natural gas reserves could exceed 7.5 trillion cubic feet. Petroleum Development Consultants’ managing director David Aron noted, “The interesting question is whether there will be a (natural gas) liquefaction plant in both Tanzania and Mozambique or whether a single shared location could be developed,” adding that Mozambique’s natural gas from its Pande and Temane onshore fields could be exported to neighboring South Africa while Tanzanian natural gas, produced from its offshore fields, would be used primarily for power generation, allowing it to reduce its imported energy costs, Nairobi’s The East African reported.
Spain may lose control of its largest oil company
Spain’s government is concerned that Repsol-YPF, Spain’s largest oil company could revert to foreign ownership. Madrid’s concerns have been heightened by recent international market trades that have resulted in 30 percent of Repsol’s voting bloc being acquired by Mexico’s Petroleos Mexicanos state oil monopoly Pemex and construction company Sacyr Vallehermoso.
ExxonMobil and Russian oil major Rosneft to cooperate According to Russian oil major Rosneft head Eduard Khudainatov, his company and U.S. energy giant ExxonMobil will develop a detailed plan of joint projects by the end of the year. Khudainatov told reporters, “A working group of Rosneft and ExxonMobil is drawing up a detailed plan of joint projects and will complete the specifics by the end of the year,” Russkoe Informatsionoe Agentsvo Novosti reported. Rosneft and ExxonMobil recently signed a $3.2 billion agreement to explore jointly the Kara Sea’s offshore East Prinovozemelsky Blocks 1, 2 and 3 in the Russian Arctic and the Tuapse License Block in Russia’s Exclusive Economic Zone (EEZ) in the Black Sea, with Rosneft retaining a 66.7 percent share in both joint ventures. The proposed cooperation benefits both companies. ExxonMobil, which is already involved with Rosneft on its Far Eastern Sakhalin-1 offshore project, will gain access to substantial Russian reserves while Rosneft, searching for a partner to provide it with the advanced offshore shelf drilling technology that it lacks, will be now able to operate in ExxonMobil’s United States concession, including the Gulf of Mexico and Texas, as well as in other countries where ExxonMobil currently operates.
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Spanish Industry Minister Miguel Sebastian said in an interview with Cadena Ser radio that the way to ensure Repsol’s “Spanishness” is for the majority of shareholders to be Spanish, as the case now with Sacyr holding 20 percent and savings bank La Caixa 12.8 percent. Sebastian added that Pemex officials told him in a meeting to discuss the voting deal with Sacyr that Mexico reputedly had no interest in taking control of RepsolYPF, stating, “They gave me assurances that this operation would in no way put the company’s at risk,” adding that Repsol-YPF had arrangements with other companies, including Brazil’s Petrobras – “also staterun and foreign” – and that is fine “as long as the company’s Spanishness is not at risk.” Pemex reported that a key element of its agreement with Sacyr is to expand its operations globally.
Pemex to drill in deep waters of Gulf of Mexico
Mexico’s state owned Petroleos Mexicanos, also known as Pemex, intends to explore deep waters exploration in the Gulf of Mexico. In February 2012, Petroleos Mexicanos will begin drilling three exploratory wells on its maritime borders with the United States, in the Perdido Fold Belt in the deepwater Gulf of Mexico offshore sites. Petroleos Mexicanos Pemex Exploracion y Produccion director Carlos Morales Gil said that any crude oil found on the Mexican side of the 12 square mile site "will be negotiated with under treaty terms on transboundary reservoirs with the U.S. to regulate the exploitation of the resources,” Mexico City’s el Universal newspaper reported. Petroleos Mexicanos estimates that the Bicentennial and Pegasus West sites could contain up to a potential 3 billion barrels of oil, equivalent to 21 percent of Petroleos Mexicanos’ current proven oil reserves. Morales Gil said that beyond the drilling of the exploratory wells, the work on the delimitation of the deposits will require an initial investment of $1 billion dollars and should the existence of reserves be confirmed, to exploit the site over the next five years will require up to $10 billion.
‘Half of North Sea oil remaining’
About half of North Sea oil and gas reserves have yet to be extracted, Scotland’s Energy Minister Fergus Ewing has claimed. Ewing said the amount left was beyond doubt, as he argued oil and gas would be a key element in the Scottish government’s bid to “re-establish Scottish independence”. His remarks contrasted with a recent report by industry body Oil & Gas UK. It suggested there could be as little as 14 billion barrels left. This would mean Scotland has already exhausted almost three-quarters of its total reserves.
Uruguay could have significant Recoverable Natural Gas Reserves According to recent reports published by the U.S. Energy Information Agency, Uruguay could have recoverable natural gas reserves as high as 588 billion cubic meters, which would give it the region’s sixth largest potential natural gas assets. Another report from the U.S. government two months ago stated that Uruguay’s north basin alone, next to adjacent Brazilian fields, has a potential capacity of 368 billion cubic meters of “technically recoverable” natural gas, MercoPress news agency reported. Besides its north basin, the U.S. government report adds that Uruguay’s Denovian Cordobes formation could contain possible oil reserves of up to 500 million barrels. U.S. company Schuepbach has a two year contract to survey Uruguay’s north basin with Uruguay’s government owned oil corporation Administracion Nacional de Combustibles, Alcohol y Portland, or ANCAP. ANCAP intends to begin exploratory drilling in the area before the first quarter of 2012. Speculation mounted about Uruguay’s potential natural gas reserves after former President Tabare Vazquez announced a major gas find on his official website in June 2008 located about 90 miles off Uruguay's southern Atlantic coast near the city of Punta del Este.
China's Sinohydro Corp. soars in stock market IPO debut China’s Sinohydro Corp. is a Chinese state-owned hydropower engineering and construction company and the world's largest hydroelectric company. On 18 October Sinohydro Corp. shares surged as much as 38 percent in their Shanghai IPO debut, triggering a temporary suspension because of "abnormal" trading. Huatai Securities strategist Chen Huiqin said, “The high turnover rate means the buying was largely arranged to support the share performance. Probably Sinohydro would tumble by the 10 percent daily limit tomorrow. This could send a message to the stock regulators that the market is capable of digesting large IPOs, and then more big IPOs would come,” The Shanghai Daily reported. During the first day of its IPO Sinohydro Corp. stock rose 17.11 percent, with 93.96 percent of shares being traded, in sharp contrast to the Shanghai Composite Index that fell 2.33 percent during the first day’s trading period of Sinohydro Corp. stock. Sinohydro Corp. built China’s Three Gorges Dam, the world’s largest hydroelectric project to date, with an installed capacity of 20,300 megawatts. The Sinohydro Corp. IPO raised $2.1 billion in the share sale, the largest IPO this year in China. China has budgeted $313 billion for hydropower and water infrastructure projects by 2016. Source: Oilprice.com
Nov-Dec, 2011
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GLOBAL ROUND-UP
Gazprom enters into a deal with Venezuela
Russia has agreed to lend Venezuela $4 billion through 2013 for defense spending while gaining deals to develop heavy crude and offshore gas fields in the South American country. Rosneft and Gazprom signed agreements with Venezuelan state oil company Petroleos de Venezuela recently at a ceremony in Caracas led by President Hugo Chavez and Russian Deputy Prime Minister Igor Sechin. “Russia and Venezuela, each country with its own dimension, are walking today on our own feet,” Chavez said on state television. “We’re working on large-dimension projects from oil, gas and petrochemicals to finance, banking and trade.” Rosneft will develop the Carabobo 2 heavy-crude block in the Orinoco Belt as a minority partner along with PDVSA. Carabobo 2 was the last block yet to be assigned from a 2010 bid round. Venezuela assigned the other two blocks to groups led by Chevron and Repsol YPF last year. Officials from Gazprom signed an agreement to explore for natural gas in the Gulf of Venezuela, close to the Perla field where Eni and Repsol have certified 15 trillion cubic feet of gas reserves.
The Petroleum and Natural Gas Ministry of India is gearing up to award oil and gas exploration blocks under the ninth round of the New Exploration Licensing Policy (NELP) by November end this year. According to Petroleum Secretary G. C. Chaturvedi, the Ministry will be able to award blocks over which there are no issues by November end. The Indian government had offered 34 oil and gas exploration blocks under the ninth round of NELP. Of these, bids were received for 33 blocks by the last date on March 28. The Ministry of Defence has till date not issued clearance for at least four offshore areas as they came in the way of the flight path of missiles tested from the Chandipur testing facility. Petroleum and Natural Gas Minister S. Jaipal Reddy was confident that India’s crude oil production would rise marginally by 1.3 per cent to 38.19 millions tonnes in 2011-12 as higher output from Cairn India’s Rajasthan fields offsets decline in old and maturing fields. The production of natural gas for 2011-12 is projected at 51.68 billion cubic metres. Under eight rounds of NELP, production sharing contracts have been signed for 235 blocks and an investment of $15.88 billion has been made by Indian and foreign companies.
Picture Courtesy: Schlumberger
Picture Courtesy: Gazprom
India to award new oil and gas blocks
Schlumberger 3Q net down 25pc Schlumberger Ltd’s (SLB) third-quarter earnings fell 25 per cent though the oil-field services company posted a sharp jump in revenues due to increased activity demand from North American oil and gas producers. Schlumberger, the world’s largest oil-field services company, had seen its earnings surge in recent quarters as exploration and production companies increase activity in North America shale formations and the Gulf of Mexico. The company’s international performance also has been improving despite political tensions in key areas and increased global economic uncertainty. Schlumberger reported net income of $1.3 billion, or 96 cents a share, down from $1.73 billion, or $1.34 a share, last year, when Schlumberger recorded a gain of 98 cents a share related to its merger with Smith International Inc. Analysts polled by Thomson Reuters had forecast earnings of $1.01 a share. The latest period included a 2 cent per-share charge related to merger and integration costs. Revenue climbed 49 per cent to $10.23 billion, meeting analyst expectations.
China to extend oil, gas resource tax China will extend a value-based tax on sales of oil and natural gas nationwide starting from November to help save energy in the world's fastest-growing major economy and boost local government revenues to develop inland provinces. The oil and gas tax, ranging from 5 to 10 percent of sales, will be levied on both domestic producers and joint ventures with overseas companies, the Chinese Ministry of Finance said in a statement. China, which currently levies the tax based on volume, rolled out a 5 percent tax on oil and gas sales in Xinjiang on a trial basis in June last year to help fund development of the western province. The new regulation may crimp the earnings of companies including PetroChina Co. and China Petroleum & Chemical Corp., known as Sinopec.
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Nov-Dec, 2011
Oil, gas sector ripe for picking as mergers surge
Chevron Technology Ventures, a division of Chevron U.S.A. Inc. that identifies, evaluates and demonstrates emerging technologies, has launched a unique demonstration project to test the viability of using solar energy to produce oil. The project uses over 7,600 mirrors to focus the sun's energy onto a solar boiler. The steam produced is injected into oil reservoirs to increase oil production. The project is the largest of its kind in the world. "Through this demonstration, we want to determine the feasibility of using solar power for enhanced oil recovery," said Desmond King, president of Chevron Technology Ventures. "This technology has the potential to augment gas-powered steam generation and may provide an additional resource in areas of the world where natural gas is expensive or not readily available." One of America's oldest oil fields, the Coalinga Field began operations in the 1890s. Because the heavy crude oil produced at the field does not flow readily, it is more difficult to extract than lighter grades of crude.
Mergers and acquisitions in the energy sector have reached a fever pitch this year, as booming interest in shale gas exploration, attractive valuations and the growing need for energy infrastructure lures buyers — and the frenzy is not likely to end anytime soon. Market conditions have become attractive for mergers and acquisitions, said Charles Perry, chief executive officer of energy-consulting firm Perry Management. “Capital is available, either as equity, cash reserves or some borrowed funds,” he said. Plus, the assets are going for reasonable prices and “investors are looking for growth investments after two years of a stagnant market for equities,” he said. In 2010, there were a total of 1,717 M&A deals in the global oil and gas sector — the largest number ever, according to Dealogic, which valued those deals at about $322 billion.
Chevron enhances oil production from the Coalinga Field by injecting steam to heat the crude, thereby reducing its viscosity and making it easier to produce. This steam is currently generated by burning natural gas. The solar-to-steam project will supplement the gas-fired steam generators and help determine the commercial viability of using heat from the sun instead of natural gas to generate steam. Throughout the course of the day, more than 7,600 mirrors track the sun and reflect its rays to a receiver positioned on a solar tower. Using heat from the concentrated sunlight, the solar tower system produces steam that is distributed throughout the oil field and then injected underground for enhanced oil recovery. The solar demonstration generates about the same amount of steam as one gas-fired steam generator. Chevron contracted BrightSource Energy, Inc., as the technology provider and for engineering, procurement and construction.
This year, as on mid October, the sector has seen 1,508 mergers valued at around $211 billion. “Many public companies can now be purchased at prices that are far less than even just a few months ago — and at prices that are, arguably, substantially less than the value of their underlying assets given current and forward commodity prices,” said Dan Gundersen, vice president of energy finance at Sandstorm Metals & Energy Ltd.
Chevron launches world’s largest solar enhanced-oil-recovery project
ConocoPhillips Announces Future Leadership ConocoPhillips has announced that its board of directors has chosen the leaders for the two independent energy companies that will result from the previously announced strategic repositioning of ConocoPhillips. Ryan M. Lance will become the chairman and chief executive officer of ConocoPhillips, the upstream company, and Greg C. Garland will become the chairman and chief executive officer of the downstream company. Jim Mulva, the current chairman and chief executive officer of ConocoPhillips will retire subsequent to completion of the separation. The repositioning is expected to be completed in the second quarter of 2012. Lance is currently senior vice president, Exploration and Production, International for ConocoPhillips. Garland is currently senior vice president, Exploration and Production, Americas for ConocoPhillips. ConocoPhillips is an integrated energy company with interests around the world. Headquartered in Houston, the company had approximately 29,900 employees, $160 billion of assets, and $244 billion of annualized revenues as of June 30, 2011.
Nov-Dec, 2011
57
CEO SPEAK
BEYOND THE SPILL
T
his is an important year for BP – a year of transition and a year of rebuilding. We are laying the foundations for creating value in a safe and sustainable way, for many years to come. We are making some major changes, very thoughtfully, with the intention that they will be good for a long time. I want to update you on our progress and explain what we plan to achieve over the months and years to come.
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Nov-Dec, 2011
Picture Courtesy: BP
‘Many people believed then that BP was finished. But we have faced up to the challenges,’ says Bob Dudley, Group Chief Executive, BP
Only just over a year ago, oil was still flowing into the Gulf of Mexico from the Macondo well. And it’s been less than one year since the US government declared the relief well complete. Many people believed then that BP was finished. But we have faced up to the challenges, that would test any company of any size, and we have made real and measurable progress. Look at the situation purely in financial terms. We have strengthened our balance
sheet. We have continued to divest assets as appropriate, realizing sums in excess of external valuations. We’ve reduced our target gearing band. We’ve improved our credit ratings. And we’ve restored a dividend which yields 4.5 per cent. This comes from systematically building clarity about what we need to do. We now have three clear priorities -- putting Safety & Operational Risk Management at the heart of the company; rebuilding trust with regulators and our customers;
and taking steps to lay a stronger foundation to deliver value growth for our shareholders. This is a year of consolidation. It always had to be. We are embedding these priorities along with the new structures and processes that they involve. There are of course impacts on our volumes and costs. We have increased the number of turnarounds where we inspect and check our operations. Much of the impact is in our highest-margin areas. But the benefit will come through in safe and reliable operations. That is good business. Output in the Gulf of Mexico has fallen following the suspension of drilling. And BP is affected more than others as we are the largest producer there in the Gulf. But we are taking steps towards getting back to work in the Gulf. In other areas we’ve seen solid progress. In fact, we have had our best year for a decade in terms of access to new upstream opportunities. We have taken positions this year in more than 50 exploration blocks in Trinidad, Azerbaijan, Australia, Brazil, India, the North Sea, Indonesia, Namibia and the South China Sea. We have begun full upstream operations in Brazil and we recently completed our agreement with Reliance Industries in India. Refining and Marketing is continuing to make strong progress in delivering its goals for earnings growth. And in Alternative Energy we have expanded our interests in biofuels in Brazil and in the US. We have been making progress across the globe - but we are certainly not satisfied. We have been listening to investors’ views carefully and we will be doing so today. We are committed and determined to seeing the true value of this business reflected in our market valuation. We are actively working our plan to move BP forward and we are evaluating a wide
range of possibilities. We recognize the pressure, but we will always emphasize the long-term when balancing the short-term urgencies. As we have said before, it remains our intention to grow the dividend over time in line with the improving circumstances of the firm. Let me give you a bit more detail on how we’re implementing these priorities. We have created a new global Safety and Operational Risk organization – or ‘S&OR’ whose leader reports directly to me. S&OR has a highly experienced central team which maintains our global standards. It also has several hundred representatives deployed in the businesses to drive the disciplined application of those standards. Working alongside our operating teams, they have the authority to support, challenge, and intervene if needed. Beyond S&OR itself, much has also changed within the businesses. For example we now have a single Global Wells Organization which drills our wells and takes a consistent global approach to managing risk. Our second priority for restoring value is to rebuild trust in BP. This starts in the Gulf of Mexico where the focus has shifted from response to recovery. Tourists have returned to the beaches. Fishing crews are having a good year. The clean-up is practically complete. But we are still at work and we are absolutely committed to meeting our responsibilities. As of the end of June, we had paid around $6.8 billion to meet claims and government payments. We have also committed $1 billion to the early restoration of natural habitats. By mid year, $8.6 billion had been paid into the Trust Fund. In fact that total is now close to $10 billion. We have also announced that we will be implementing a new set of voluntary drilling standards in the Gulf of Mexico. For example, we will not drill any well
We have had our best year for a decade in terms of access to new upstream opportunities.
from a dynamically positioned rig, anywhere in the world, unless the blow out preventer has two sets of blind shear rams and a casing shear ram. These standards go beyond existing regulatory obligations but we believe they are needed and they have been welcomed by the US regulator. We’re also committed to sharing the lessons we’ve learned with the industry, regulators and governments worldwide. Our teams have travelled to 20 countries to explain what we have learned. We have shared technology developed during the response, for example with the US Marine Well Containment Company. Among many new developments in BP, some of the engineers who sealed the Macondo well have built a new containment cap to isolate any well blowout. It is stored in Houston and maintained in a state of readiness, ready to be flown anywhere in the world if it is required. We continue to co-operate with all of the investigations and hearings related to the accident. There have been several in-depth inquiries, including those of the Presidential Commission and US Coast Guard, as well as our own. All of these found that the accident resulted from multiple causes and was due to the actions of multiple parties. That seems common sense. We expect the final reports from the Marine Board of Inquiry and National Academy of Engineers’ in the near future. Less clear Nov-Dec, 2011
59
CEO SPEAK
is the timing of the ongoing Department of Justice investigations. There are also civil lawsuits against BP and many other parties. These have been largely consolidated into two MultiDistrict Litigation proceedings. One of these consolidated proceedings is pending in front of Judge Barbier in the Eastern District of Louisiana. The first phase of this Limitation and Liability trial is currently scheduled for February 2012. We are continuing to litigate vigorously the claims in the Multi District Litigation. We believe the evidence will indeed show that this accident was multi-party and multi-causal. BP expects all parties responsible for the Deepwater Horizon accident to pay their share of the costs, and we are working hard to ensure that they do so. In the past several months, both MOEX or Mitsui, a co-owner of the well, and Weatherford, a contractor, have stepped forward to contribute. It is hard to imagine a future when other responsible parties make no contribution. Inevitably this all means uncertainty for everyone, including our shareholders. There are no quick fixes of these complex issues. But the situation should become clearer as we move into 2012. Let me now turn to our upstream businesses and our plans to grow its value. The focus for growing value has five main elements -- risk reduction; active portfolio management; the growth of operating cash from the portfolio; investing to grow the core of our upstream business, particularly through more investment in exploration; and focusing on those specific growth engines where BP has distinctive capabilities and can add significant value. These are the deepwater, natural gas and giant field developments. And across all these activities, we are 60
Nov-Dec, 2011
deepening our relationships and building new partnerships with governments and National Oil Companies. So these are the five drivers of upstream growth. What do we mean by ‘active portfolio management’? For us, this means constantly looking out for possibilities to create value, either through divestment, acquisition or other portfolio changes. More than $25 billion of divestments have been announced to date, mostly upstream –exceeding external valuations. We’ve done a lot already and there is more to come. We will continue to look at the overall shape and scope of our global footprint, being prepared to make divestments or acquisitions of properties as appropriate. And where we are the operator in promising areas, we will look to increase our working interest. In Brazil, our acquisition of the Devon assets gives us a material position in one of the great deepwater provinces of the world. Here we can create value by deploying the experience developed in the Gulf of Mexico and Angola. Meanwhile, in India, we have completed the transaction which brings us into a unique relationship with Reliance Industries and access to over 20 blocks there. Together we will drive development of the most prolific gas basin in India. And together we will form a 50:50 gas marketing joint venture to source and market gas. Gas is a rapidly growing source of energy in India and this gives us a great position in that market. The third driver of upstream value growth is to grow operating cash faster than production. Over the next five years, we expect to see our average unit operating cash margin improve as we bring new projects online. There are nine projects scheduled to start-up during 2012 to 2013, focused largely in Angola, the Gulf of Mexico, the North Sea, and
Russia. Four will be operated by BP, two by TNK-BP and three by others. Most of these projects will enhance unit cash flows as they are in higher margin areas. We also expect that the growth in absolute volume from our assets will contribute significantly to operating cash flow in the next five years, assuming a constant price environment and adjusting for any divestments. After a shutdown of around 40 days, the Greater Plutonio field in Angola was brought back online at the end of June and it has now run at 170 thousand barrels per day for over 44 days. In Iraq we reached our Improved Production Target late last year, and we continue to make strong operational progress. Today, the Rumaila field produces roughly 1.3 million barrels of oil per day. We have had two new major projects come on stream recently - the BP operated Serrette platform in Trinidad and Total’s Pazflor field in Angola. And we are also working to prepare for restarting our drilling operations in the Gulf of Mexico, once we receive approvals from the US regulator, as well as continuing to produce from existing wells. We’re doing this by exercising great care in preparing our rigs and by following the voluntary standards that we have submitted to the regulator. We’re now implementing those standards and this has naturally delayed our rig fleet’s readiness. So far one permit has been approved – and that is for the permanent abandonment of a well in the Atlantis field. It’s the same pattern as elsewhere in BP – we’re investing the time it takes to apply new standards and take risk management to a new level. You should expect this from us. Around half of our capital spend will go to a set of new projects which will add production of up to one million
Picture Courtesy: BP
barrels of oil equivalent per day by the end of 2016. We will also be investing with more efficiency. We not only have a single global wells organization but a single global projects organisation. This centralized process enables us to match the best people to the best projects and provides a smarter, global procurement model. We are on track to double exploration spending in the next few years – investing in one of BP’s core strengths and capitalizing on the new access we gained this year. In some places, we’re exploring new acreage in familiar areas such as Egypt and the UK. In others, we are exploring in new areas such as the deepwater regions of Trinidad and Brazil. As with any business, not everything goes as planned. Our plans to explore three blocks in the South Kara Sea with Rosneft and later to bring together the interests of BP, Rosneft and AAR in a new ownership structure for TNK-BP, did not reach fruition. We have moved on. I recognize the uncertainties it created. I believe it was worth pursuing, but it was not worth
implementing at any cost. It has to be seen against the background of an outstanding year for global access by BP elsewhere around the globe. And of course, we remain committed to Russia and the ongoing success of TNK-BP, a venture which has been successful every year since its inception in 2003. So this brings me to the fifth and final driver of upstream value growth. These are what we call our ‘future growth engines’. These are categories of projects from which we can create value at scale over many years using our distinctive experience and capability. There are three such categories - first, the deepwater, second, natural gas value chains and third, giant oil and gas fields. In the deepwater, we have learned the lessons of the Gulf of Mexico incident and we are grafting this learning onto the decades of experience that we built up prior to the accident. We are confident in our ability to safely design, engineer and operate large deepwater installations. And indeed, access to new deepwater opportunities has continued this year.
And we intend to increase investment in the Gulf of Mexico, as well as in Trinidad, Brazil and Angola. In natural gas, we will apply our expertise in working across countries to create integrated gas delivery value chains. Our work on the Shah Deniz gas field in Azerbaijan is a great example. There, the starting point for the gas chain is 6,000 meters below the Caspian Sea floor and the destination is the market of Western Europe, 3,000 kilometres away. Our relationship with Reliance in India will bring another major gas value chain into the portfolio. We also have substantial plans to expand in Indonesia. In giant resource plays, we will use our expertise in modelling the sub-surface to optimize reservoir management and maximise resource recovery. These opportunities are matched to our strategy. They are material and they are technology led. We understand the imperative for urgency as we consolidate our recovery and define our forward path. Based on the presentation made by Bob Dudley at Barclays Capital Conference Nov-Dec, 2011
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Mathematician, theoretical physicist and leader of the nation’s largest public-private venture. He is Dr Brian Denis Paul Buckley, Chief Executive Officer, Oman LNG.
He is also an OER CEO Golfer. Golf meets business once again at the 8th Edition of OER CEO Golf in January 2012. The top echelons of Corporate Oman will descend on one of the country's most exciting golf courses - Muscat Hills Golf & Country Club. Out on the greens, the itinerary will include a game of golf and high-powered business networking. And in the evening, the highlights will include thrilling world-class entertainment, socialising and more.
2012
See you on the greens!
JAN 12 I MUSCAT HILLS
OFFICIAL TIMEKEEPER
PUBLICITY PARTNERS
CATEGORY PARTNERS
INSURANCE
PRINTING
BEVERAGE
MEDIA SPONSORS
Contact Ahmed 99356490
Participation by invitation only
CEO SPEAK
NEW LEVEL OF COLLABORATION
Peter Voser, Chief Executive Officer, Royal Dutch Shell plc discusses the world’s energy challenge and argues that we need to take a far more integrated approach to the challenge of creating a more sustainable energy future.
B
y 2050, the world’s population is expected to hit 9 billion people, up from nearly 7 billion today. As the world’s population grows, as wealth increases and more people escape poverty, and as more and more people move into rapidly expanding cities, there will be increased stress on our energy, water and food resources.
The world’s energy system is in the early stages of a fundamental transformation. It is shifting to a future of cleaner fossil fuels and expanded use of renewable energy. I’m confident that human ingenuity and new technology will overcome the challenges. We just need to be clear that it will take decades of focused effort, sustained investment and collaboration to ensure a smooth transition to a more stable energy future. There are three key drivers behind our 64
Nov-Dec, 2011
Picture Courtesy: Shell
At Shell, we pride ourselves on taking the long view. We devote considerable resources to looking into the future, at the long-term strategic trends reshaping our world. We feel we have a responsibility to use our considerable expertise to understand what the world’s energy needs will be, and how we can help meet them. As you know, society faces unprecedented challenges when it comes to energy, against a broader backdrop of constant volatility and change.
energy challenges. It’s not surprising that the same drivers are behind our environmental and economic challenges as well: The world’s growing population. Increasing wealth as more people escape poverty. Rapid urbanisation.
• • •
In 1960, when I was a toddler, the world’s population hit 3 billion. In the coming months, we will reach 7 billion. By 2050, our planet could hold more than 9 billion people. That’s a tripling of the world’s population in less than a century. This growth, combined with an improving standard of living for millions of people
in places like China and India, means demand for energy will rise at a rapid rate, putting added stress on our energy resources. At the same time, we need to safeguard the environment for future generations. That means finding ways to reduce CO2 and being smart about how we extract and use our resources. At Shell, our energy strategy is built upon three pillars -- cleaner energy; more energy; and smarter energy. In terms of cleaner energy, it’s critical that we broaden the global energy mix by expanding the contribution of renewable energy resources, while also working towards cleaner fossil fuels. We’re optimistic that up to 30 per cent of the world’s energy could come from renewables by 2050, although it will require a large amount of effort and sustained investment to reach that goal. One of Shell’s major efforts in this area is biofuels. We have spent many years researching and investing in renewables, including solar and wind power. In the end, we recognised that others were better equipped than we were to develop these businesses. On the other hand, it makes tremendous sense for Shell to focus on biofuels, because of our traditional expertise in fuels and our large, global retail network. Among all the low-carbon transport fuels, biofuels can make the biggest contribution to reduce CO2 emissions from vehicles over the next two decades. We recognise there are substantial social and environmental issues with biofuels, but we also believe they can be overcome. We are addressing these by working with NGOs to push for international standards for the sustainable sourcing of biofuels. We also have set sustainability standards for our own biofuel suppliers. Shell is producing more natural gas, the cleanest fossil fuel. In fact, next year we expect more than half of our production will be
natural gas. When you look at generating electricity, the fastest, cheapest and smartest way to reduce CO2 emissions is to replace coal-fired power with natural gas. Natural gas plants emit up to 70 per cent less CO2 than an old coal-fired plant, with much lower levels of pollutants like carbon monoxide. And over the long term, carbon capture and storage technology could reduce natural gas plants’ CO2 output to near zero. Next, we must continue heavy investment to develop and deliver new energy supplies. This is not optional. We estimate the world will need to produce 40 million barrels of oil a day by 2020 from fields we haven’t even developed yet, due to the combination of increasing demand and falling production rates. For perspective -- That’s four times what Saudi Arabia produces today; 10 times the current production in the UK and Norwegian sections of the North Sea. Shell currently is in the midst of one of the most ambitious investment plans in industry history. We’re investing more than 100 billion dollars between this year and 2014. At the same time, we are developing technologies to get more oil and gas from existing sites, and to go into deeper and more challenging locations to deliver more energy in the future. Our other priority is smarter energy. Shell is working to create products and services that help consumers “get the most out of every drop” of energy. These include fuels, lubricants, detergents, and road surfacing
products that help save money and lower CO2 emissions. One good example is Shell FuelSave, the most advanced fueleconomy product on the market. So that is a snapshot of Shell’s energy strategy. But meeting these challenges will be neither easy nor painless. Consider that population figure I gave you -- 9 billion people by midcentury. 9 billion! That’s like adding another China and another India to the world -- or the equivalent of adding a new city of 1 million people every week for the next 30 years. Most of that growth will be absorbed into fast-growing cities in Asia. For our industry, keeping pace with this surging demand will be tough. By 2050, we could be facing tremendous tension between supply and demand. Innovation and competition will moderate demand and accelerate supply somewhat. But we estimate the world will still have a gap between “business-as-usual” demand growth and supply growth, a gap roughly equal to the size of the entire energy system in 2000. It’s what we call the “zone of uncertainty”. Of course, supply and demand always balance. In this case, it will be through some combination of extraordinary demand moderation and extraordinary supply moderation. On the demand side, we will need policies to improve energy efficiency -- not just of cars and buildings, but of entire cities and their infrastructures. And with massive investments in new infrastructure to Nov-Dec, 2011
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CEO SPEAK
When you think about it, the basic interconnections are obvious. Moving and treating water uses energy. Water is needed for almost all forms of energy production. Producing food takes energy and water. There’s a growing awareness that the path to a more sustainable energy future will require society to take a more integrated approach that considers all three of these systems and how they relate to one another. We know that in the coming decades, population growth and urban sprawl could create a food and water crisis. The World Economic Forum estimates the world could face a 40 per cent shortfall between fresh water demand and supply by 2030 if current consumption trends continue. At the same time, there could be 40 to 50 per cent growth in food needs. Oxfam estimates these stresses could lead to a doubling of food prices by 2030. At Shell, we are particularly interested in the connection between water and energy. Energy is required to supply, purify, distribute and treat water and wastewater. In the United States, for example, 75 per cent of the cost of water comes from energy. Energy producers are amongst the largest industrial consumers of freshwater. And water is needed for drilling, flooding wells, refining crude and producing biofuels, for power generation and transportation. To help us prepare for the future energy water challenge, Shell is leading a project 66
Nov-Dec, 2011
Picture Courtesy: Shell
accommodate growth in Asia, and to replace aging systems in the developed world, we have a great opportunity to reduce this gap. As we have developed our thinking around this “zone of uncertainty,” we recognized something quite significant. This concept applies not just to the energy system, but to various other social-ecological systems as well. As a result, we are looking closely at how these systems are interconnected... particularly water, energy and food.
in partnership with the World Business Council for Sustainable Development. We’re exploring the water use associated with different energy types, on a lifecycle basis. That includes looking at water used for electricity, transport and heating. What we can say from our early findings is that technology is the key differentiator, whether you’re talking about tight-gas production, power generation or biofuels production. The good news is the energy industry already is employing effective water technologies, and they continue to improve. For example, we are getting better at recovering and recycling water, including waste water from communities near our operations. At our Groundbirch tight gas development in British Columbia, Canada, we are operating water storage and recycling facilities to store fracturing and gas processing water for reuse. Pipelines transport the water to where it is needed in the field, limiting the use of trucks. We are also funding a water recycling plant for the nearby city of Dawson Creek to treat its water so it can be reused in our operations and for other industrial and municipal uses ... such as water for sports fields. And at our Pearl gas-to-liquids plant in Qatar, we have a system that uses water and heat generated from the plant’s chemical
reaction to create steam, which is in turn used to drive the plant’s equipment. So there’s some good news on the water front. But our work on the water-energyfood connection has reinforced the fact that many of today’s solutions also come with trade-offs. The complexity of these interconnections requires additional understanding of these trade-offs and their implications. So we have brought together experts from the fields of energy, water and food to begin to map the links -- a huge undertaking. We want to understand if there is a subset of critical issues, issues that merit more attention and investment for potential creative solutions. As I said earlier, our energy challenges are unprecedented. We need to produce more energy for a world with more people, millions of whom are breaking out of poverty and climbing up the energy ladder. At the same time, we need to develop a more stable, sustainable energy system that generates less CO2. To succeed, we will need a new level of collaboration and leadership – collaboration that brings together scientists, urban planners, businesses, governments and society to develop workable policies and solutions. Based on the speech delivered by Peter
JOB POSTINGS
POSITIONS
COMPANY
LOCATION
DETAILS
Inspection Supervisor
Petroleum Development Oman
Oman
www.pdo.co.om
Inspection Co-ordinator
Petroleum Development Oman
Oman
www.pdo.co.om
On-Plot Piping Integrity & RBI Engineer
Petroleum Development Oman
Oman
www.pdo.co.om
Corrosion Inspection Management System (CIMS)
Petroleum Development Oman
Oman
www.pdo.co.om
Integrity Support
Petroleum Development Oman
Oman
www.pdo.co.om
Integrity projects
Petroleum Development Oman
Oman
www.pdo.co.om
Static Supervisors
Petroleum Development Oman
Oman
www.pdo.co.om
Instrument & Control Engineer - Pipeline Maintenance
Undisclosed
Abu Dhabi
www.soshr.net
Senior Design Engineer - Offshore Pipelines
Petrofac International
Sharjah
www.petrofac.com
Service Engineer
Undisclosed
Qatar
balbir@crysol.com
Co-ordinator
HSE Advisor
McDermott Middle East Inc
Dubai
www.mcdermott.com
Process Engineering Advisor
Arabian Construction Engineering
Qatar
www. acecgroup.com
Planning engineer – ADH
Topaz Energy and Marine
Abu Dhabi
www.topazworld.com
Voser at The Hague recently. Rig Maintenance Personnel (Oilfield Services)
MB Petroleum Services
Oman
www.mbholdingco.com
Rig Chief Mechanic
MB Petroleum Services
Oman
www.mbholdingco.com
Business Development Manager - Upstream Chemicals
Baker Hughes
UK
www.bakerhughes.com
Drilling Specialist
Verdande Technology
Oman
www.verdandetechnology.com
Directional Drilling Engineers / Supervisors
Greka Drilling Limited
China
www.grekadrilling.com
Reservoir Engineer
Shell
US
www.shell.com
Senior Reservoir Engineer Troll
Shell
Norway
www.shell.com
Geologist
Newfield Exploration
US
www.newfld.com
Reservoir Engineer
Newfield Exploration
US
www.newfld.com
Completions Engineer
Anadarko Petroleum Corporation
US
www.anadarko.com
Source: From different corporate, recruitment and social networking websites
Nov-Dec, 2011
67
ALTERNATIVE ENERGY
AMERICA GOING GREEN: USA TO PROVIDE 71% OF WORLD’S BIOFUELS BY 2021?
Congress has struggled unsuccessfully to pass a comprehensive energy bill and many states have put renewable energy on hold because of the recession, says John C.K. Daly
A
recent study, released on 11 October, “Biofuel Markets and Technologies” by Pike Research states that the global biofuel market will double within the next decade to $183.3 billion from its current level of $82.7 billion, with ethanol production accounting for $78 billion of future worldwide biofuel production, while predicting that biodiesel production will reach $25.5 billion. Perhaps not surprisingly, Pike Research predicts that the US will become the world’s leading biofuel producer, accounting for 71 percent of alternative fuel by 2021.
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Nov-Dec, 2011
Colorado-based Pike Research on its website defines itself as “a market research and consulting firm that provides in-depth analysis of global clean technology markets.” How realistic a prediction is this? Many in the media are utilizing the company’s press release on the gist of the report, as one has to be a user to login even to find out the price of the report, which the website helpfully notes, contains 144 “Tables, Charts, Figures.” So, is America about to go ever more green to raise ethanol? Recent history would not seem to indicate so.
Biofuel production is now receiving substantial attention from the executive branch of the federal government. Shortly before his inauguration in January 2008 President-elect Obama promised to invest $150 billion over the next decade to develop biofuels, plugin hybrid vehicles, renewable energy production and a skilled work force for clean technologies. Obama has now made clean energy a centerpiece of his administration’s policy - during his State of the Union address on 25 January he said, “This is our generation’s Sputnik moment.
Agro-fuels first rose to national prominence in the U.S. in the aftermath of the second oil crisis in 1980. Seen as a renewable energy source, many policy makers in Washington supported increased production of biofuels as a substitute for imported oil. In the last few years, with increasing political instability in the Middle East, and rising oil prices, biofuels are once again being promoted aggressively, but the majority of U.S. biofuel production remains largely ethanol. Another factor promoting ethanol production - perhaps more important than rising oil prices - was the farm crisis. In the wake of the decline of the Midwestern agricultural sector, the ethanol industry was seen a way of revitalizing Midwestern economies. As a result, given the important political interests involved, the ethanol industry received strong bipartisan political support in the U.S. Senate. But the ongoing recession is impacting all aspects of federal spending, including such previously sacrosanct programs as defense and agricultural subsidies, and the future is murky indeed.
Two years ago, I said that we needed to reach a level of research and development we haven’t seen since the height of the Space Race. And in a few weeks, I will be sending a budget to Congress that helps us meet that goal. We’ll invest in biomedical research, information technology, and especially clean energy technology - (applause) an investment that will strengthen our security, protect our planet, and create countless new jobs for our people. Already, we’re seeing the promise of renewable energy.”
Aside from ethanol production, the U.S. federal government has been involved in promoting alternative fuels for slightly more than a decade. In 1998 biodiesel fuel use credits were included in the alternative fueled vehicle requirements for government and state motor fleets established in 1992. In 2000, USDA’s Commodity Credit Corporation Bioenergy Program was implemented. The 2002 Farm Bill included an Energy Title for the first time encompassing several biofuel provisions, including expanding CCC Bioenergy Program and Biodiesel Education Program. The same year Minnesota enacted U.S.’s first biodiesel mandate requiring at least 2 percent biodiesel in diesel fuel sold in the state by 2005.
The American Jobs Creation Act of 2004 established the first national tax credit for biodiesel at $1 a gallon for oil crops and animal fats and 50¢ a gallon for recycled fats and oils. The Energy Policy Act of 2005 mandated the renewable fuels standard (RFS) and included several biofuel provisions, including a 10¢ per gallon income tax credit for small agribiodiesel producers, lasting to December 2008; a 30 percent tax credit for installing fueling facilities for “Alternative Fuel Vehicles,” including vehicles that run on at least 20 percent biodiesel and an extension of the national tax credit for biodiesel to December 2008. The “Energy Independence and Security Act of 2007” set a “mandatory Renewable Fuel Standard,” requiring fuel producers to use at least 36 billion gallons of biofuel in 2022. In October 2008, the federal interagency Biomass Research and Development Board issued its National Biofuels Action Plan while in June 2009 the House of Representatives passed the American Clean Energy and Security Act of 2009 by a margin of 219 to 212. The 1,200plus-page H.R.2454 bill mandated an economy-wide carbon dioxide emissions cap 17 percent below 2005 levels by 2020, 42 percent below by 2030 and 83 percent below by 2050. In May 2009 the Department of Energy announced plans to invest $786.5 Million in Recovery Act Funds in biofuels. Two months later the DOE announced $85 million funding for development of algae-based biofuels and advanced, infrastructure-compatible biofuels while at the end of 2009, the U.S. Departments of Energy and Agriculture awarded approximately $600 million in biorefinery funding, the bulk of it earmarked for pilot and demonstration-scale projects to help accelerate the commercialization process. While the Energy Policy Act of 2005 and Nov-Dec, 2011
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Dr. David Pimentel, professor of ecology and agriculture at Cornell and Tad W. Patzek, professor of civil and environmental engineering at Berkeley, conducted a detailed analysis of the energy input-yield ratios of producing ethanol from corn. Pimentel added up all the energy used in growing corn - the fertilizer, the tractor fuel and tractor manufacturing, etc., plus the energy used by ethanol plants and found that making one gallon of ethanol uses the equivalent of about 1-1/3 gallons of oil. Given the rise in oil prices since 2005, the cost would be higher now. Pimentel concluded, “Ethanol production in the United States does not benefit the nation’s energy security, its agriculture, economy or the environment. Ethanol production requires large fossil energy input, and therefore, it is contributing to oil and natural gas imports and U.S. deficits.”
the Energy Independence and Security Act of 2007 aggressively mandated biofuels to replace 20 percent of the U.S. petroleum gasoline consumption, or 36 billion gallons, Congress has struggled unsuccessfully to pass a comprehensive energy bill and many states have put renewable energy on hold because of the recession. The well-established corn ethanol industry agricultural lobby remains at present in the driver’s seat of U.S. renewable policy and is heavily 70
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subsidized. For years, the livestock industry was the main buyer of cheap and plentiful U.S. corn. With the 2005 ethanol mandate the government required that Americans use about 13 billion gallons of ethanol in 2010 and now, nearly one-third of U.S. grown corn is used in ethanol production, which in turn has had a significant impact on raising food prices. So, is ethanol a good deal? Currently, its production consumes more energy than it generates.
Nor is corn-derived ethanol cost effective. According to the Congressional Budget Office, producing enough corn ethanol to match the energy contained in a single gallon of conventional gasoline costs taxpayers $1.78. Even with those subsidies, which total about $7 billion per year, corn ethanol still only provides about 3 percent of America’s oil needs, hardly enough to wean America from its depen dence on imported oil. U.S. biofuels production has also become hostage to a massive anti climate change campaign, underwritten by America’s oil and coal, whose political influence has precluded Congress from passing any clean energy/climate bill. So, is U.S. biofuel production about to double in the next decade? The evidence seems against it at present. Source: www.oilprice.com
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OGR CLASSROOM
KEY STAGES OF THE VALUE CHAIN This write-up provides a brief technical introduction to some of key stages of the value chain in the oil & gas industry for the benefit of non oil & gas professionals.
EXPLORATION AND PRODUCTION The principal hydrocarbon resources are crude oil and gas. Crude oil is not a homogeneous material; its physical appearance varies from a light, almost colorless liquid to a heavy viscous black sludge. Oil can therefore be classified along several dimensions, of which density and sulfur content are two of the most important. Density is measured according to guidelines set by the American 72
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Petroleum Institute (API): light crudes generally exceed 38∞ API, while heavy crudes have an API gravity of 22∞ or less. If the sulfur content is less than 1 percent, crudes are usually described as sweet; if it exceeds that level, sour. The quality of a crude oil is reflected by its price, relative to other crude oils. Gas can be found either in separate accumulations from oil (non associated
gas), or in combination with or in solution in crude oil (associated gas). The composition of gas produced at the wellhead varies widely, but in most cases it contains pure natural gas (also known as methane, which is colorless and odorless); natural gas liquids (NGLs) such as ethane, butane, propane, iso-butane, and natural gasoline; and a number of impurities, including carbon dioxide and water. Dependent on the NGL content, gas is
described as either wet or dry. Within the reservoir, gas is also often associated with condensate, a light oil that is gaseous under reservoir conditions. Over the past decade, efforts to find gas have been stepped up considerably; previously, much gas had been found by chance when the real exploration target was oil. Since gas has to be moved by pipeline or by dedicated liquefied natural gas (LNG) vessels, developing new markets for it is much more expensive than for oil. This has led to a large amount of “stranded gas”— that is, gas that has little or no commercial value because it has no identifiable market. Suitable sedimentary basins for oil and/or gas exploration are usually identified using relatively simple means such as aerial and satellite photography, as well as magnetic surveys. More detailed information about specific locations is then obtained through seismic surveys, which are considerably more expensive. Through complex computer analysis, the data are interpreted to create images of geological formations and possible deposits of hydrocarbons. Exploratory drilling using rigs suitable for the specific environment (that is, land, shallow water, or deep water) is the next step. Much ancillary equipment, products, and services are associated with drilling,
and many petroleum companies typically contract an outside services company for these purposes. The market for drill rigs and drilling services is considered a reliable lead indicator of the industry’s overall activity and investment levels. Figure A1.1 shows the evolution of the active drill rig count index over the past 20 years.
order to boost flow rates and overall recovery factors (the percentage of hydrocarbons recovered for commercial purposes) in the face of inevitable natural decline rates, various methods can be used. Secondary recovery methods include the injection of water or gas into the reservoir, and the installation of surface-mounted or submersible pumps.
If hydrocarbons have been found in sufficient quantity, the development process begins with the drilling of appraisal wells in order to better assess the size and commercial viability of the discovery. This is followed by drilling for full-scale production, and the building of infrastructure to connect the wells to local processing facilities or evacuation routes. Onshore infrastructure tends to be less complex and much cheaper than offshore infrastructure.
Tertiary recovery methods (or enhanced oil recovery, EOR) involves the use of sophisticated techniques that alter the original properties of the oil. The decision as to whether—and which—secondary or tertiary recovery methods are appropriate for a certain reservoir often involve tradeoffs between commercial considerations (significantly increased production costs can accelerate and possibly increase overall output) and geological considerations (aggressive production can damage a reservoir and lead to lower overall recovery factors). Even on a standard upstream project it is not unusual for five years to pass between the initial exploration stages and fullscale commercial operations. For projects with challenging access, geological, or infrastructure requirements, the lead times can be longer still. These time horizons, coupled with the fact that sudden changes in well-flow management can damage underlying reservoirs, result in structural rigidities in petroleum supply, which often exacerbate price swings.
The speed at which the pressure in the reservoir forces the petroleum upward is known as the flow rate; it depends, for example, on the properties of the reservoir rock and, in the case of crude oil, on the viscosity—in short, on the reservoir’s characteristics. Natural (primary) pressure typically recovers much less than 50 percent of oil and 75 percent of gas. In
Source: Authors, from data published by Baker Hughes Incorporated – downloadable from http:// investor.shareholder.com/bhi/rig_counts/rc_index.cfm
Most observers agree that the oil and gas industry is a maturing one. Although there appears to be no danger of hydrocarbons running out in the foreseeable future, the most traditional onshore and shallowwater offshore fields are rapidly depleting, leaving projects that are more technically complex (for example, deep-water offshore reservoirs or those in remote areas with challenging climates and no existing infrastructure links) and thus more costly (Goldman Sachs 2003; UBS 2004; Douglas-Westwood 2008). Nov-Dec, 2011
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Saudi Arabia’s Ras Tanura facility in the Persian Gulf is the world’s largest offshore oil-loading facility, with a capacity of approximately 6 million barrels per day.
transported by pipeline, and even then not across the seabed of deep oceans. The prohibitive cost of the necessary pipelines severely limits the trade of natural gas around the world. An option for longdistance gas exports is LNG. Piped gas has to be transported all the way from the production site to the final destination (a power station, industry, or domestic consumer, for example) using multiple types of pipelines and pipeline networks along the way. By adjusting the degree of pipeline compression, such networks can also be used as additional storage facilities.
TRANSPORTATION AND STORAGE From a production site, crude oil and gas need to be transported to the appropriate processing facility; from there they are distributed or marketed. Petroleum can also be stored at various points along the value chain for reasons that include securing supply and price hedging/speculation. Crude oil is stored in large-diameter holding tanks and is transported by pipeline, truck, railroad, and/or tanker to refineries for processing. Well-known long-distance pipelines include the Druzhba pipeline from Russia to Europe, the TransAlaskan pipeline, and the recently opened Baku-Tbilisi-Ceyhan pipeline (which connects the Caspian with the Mediterranean Sea). But ocean tankers are the most common medium of intercontinental transport. Many key export ports are in or close to the important petroleum producing regions of the world: for example, Saudi Arabia’s Ras Tanura facility in the Persian Gulf is 74
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the world’s largest offshore oil-loading facility, with a capacity of approximately 6 million barrels per day. Major import and trading hubs, each with extensive storage and loading facilities, include the Houston Ship Channel, the Louisiana Offshore Oil Port, Rotterdam, and Singapore. Refineries, which usually are located near major import hubs to limit additional transport charges, purchase crude on the open market or directly from producers. Having completed the refining process, oil products can be distributed by the same means as crude oil. Road transport is most common, but extensive networks of product pipelines can be found around the world. Natural gas may be stored underground in a variety of methods, most commonly in depleted reservoirs, aquifers, or salt caverns. The transport options for gas depend on its physical state. NGLs can be transported either by pipeline or by tanker truck, but dry gas (methane) can only be
The physical balancing of an integrated gas network to enable scheduled transits (and, possibly, short-term trading as well) is a highly complex task. In non exporting countries, the gas producers do not usually own major parts of the gas pipeline infrastructure (transmission grid) and instead sell the gas at the entrance point to the main gas grid. But in major gas-exporting countries, such as Russia and Norway, the statebacked producers frequently hold longterm supply agreements as well as an equity stake in the gas pipelines serving international target markets. Major pipeline projects require substantial up-front investment, and are not viable without clearly identifiable (and ideally long-term and committed) users, a sound revenue/tariff model, and tailored financing. When more than one country is involved, such projects are also subject to geopolitical considerations. As with any supply or evacuation infrastructure, sunk costs are a substantial risk, but once they have been made they can dramatically improve the economic viability of many actual and potential petroleum projects in the vicinity. Source: The World Bank
EVENTS CALENDAR
TITLE
DATES
LOCATION
SPE Workshop - Waterflood Optimization for Mature Fields
15-16 November 2011
Tyumen, Russia
Canadian Unconventional Resources Conference
15-17 November 2011
Calgary, Canada
International Petroleum Technology Conference
15-17 November 2011
Bangkok, Thailand
SPE Workshop – Well Integrity Management
17-18 November 2011
Buenos Aires, Argentina
20-22 November 2011
Kuwait
21-15 November 2011
The Netherlands
28-30 November 2011
Abu Dhabi
SPE Workshop – Artificial Lift Intelligence for Production Optimization
28-30 November 2011
Dhahran, Saudi Arabia
20th World Petroleum Congress
4-8 December 2011
Qatar
SPE Heavy Oil Conference & Exhibition
12-14 December 2011
Kuwait
Subsea Survey IRM
13-15 December 2011
Houston, USA
Middle East Unconventional Gas Conference
23-25 January 2012
Abu Dhabi
Hydraulic Fracturing Technology Conference
6-8 February 2012
Texas, USA
SPE Workshop – Coiled Tubing: Expanding the Operating Envelop
6-8 February 2012
Dubai
Hydrocarbon Technology Congress
7-9 February 2012
Macau
Carbon Management Technology Conference
7-9 February 2012
Florida, USA
7-10 February 2012
Phuket, Thailand
12-17 February 2012
North Carolina, USA
14-15 February 2012
Texas, USA
North Africa Technical Conference & Exhibition
20-22 February 2012
Cairo, Egypt
SPE Workshop – Horizontal Well Completions in North America Shales
6-8 March 2012
Scottsdale, AZ, USA
IADC/SPE Drilling Conference & Exhibition
6-8 March 2012
California, USA
Post Drilling & Completions – Deepwater Operations
11-14 March 2012
Kota Kinabalu, Malaysia
3rd Annual Marcellus Midstream Conference & Exhibition
13-15 March 2012
Pittsburgh, USA
SPE Workshop – Tight Gas Fracturing: Closing the Gap between Expectations and Results Underground Gas Storage Course SPE Workshop – Integrated Characterizations & Development of Fractured Reservoirs
SPE Workshop – Integrated Project Management: Innovative Approaches for a New Era The Future of Shale Oil Exploration Forum SPE Workshop – Bridging the Gap between Reservoir Engineering and Facilities Design
Source: Industry Websites
Nov-Dec, Nooovv-D N -De Deec, 2011 D 201 220 00111
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BP TAKING ON THE CHALLENGE
Hilal Al-Jadidi, HR Lead, BP Oman, talks about the company’s ‘Graduate Challenge Programme’ under which currently 21 young Omani graduates are learning the best industry practices, in a chat with Akshay Bhatnagar TELL US ABOUT BP’S GRADUATE CHALLENGE PROGRAMME? BP Graduate Challenge was launched in early 1990s in the UK office. With an aging work force, the company felt that there is a definite need to hire fresh 76
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graduates and groom them as top-class engineering or business professionals. After UK, it was implemented with a high degree of success in US and many other countries where BP is operating. The programme was initiated in 2010
in Oman on a pilot basis. This year, we have undertaken it in a very serious way and at a much higher scale. It is an early development programme. Last year, we had considered fresh graduates as well as those candidates with 2-3 years of
Pictures Courtesy: BP
experience also. Four candidates were selected as the challengers. We call the selected candidates as challengers. This year we considered only fresh graduates and selected 17 candidates as challengers. They are undergoing the training and development programme to become a thorough professional. The challenge period is typically three years but it could be more or less depending upon the candidate and the discipline of which he or she is a part. The disciplines are broadly divided into two parts – engineering & science and business. In the engineering side, we have different disciplines such as drilling engineers, well engineers, etc. This category also includes subsurface professionals say geoscientists, geologists, petroleum engineers, reservoir engineers, etc. Then there are mechanical and process engineers. In the other discipline, we have business professionals such as supply chain and procurement management professionals. WHAT WAS YOUR STRATEGY IN ATTRACTING THE RIGHT TALENT FOR THE PROGRAMME? We begin early this year to engage the prominent universities and colleges which were our targets. Sultan Qaboos University (SQU) which hosts 15,000
students was our main focus area. We channelized our energies on SQU’s College of Engineering and the College of Commerce and Economics. We undertook in-campus activities such as participation in career fairs and sponsored some of their other events. Simultaneously we released ads in the newspapers and posted information on our website to seek applications from Omani graduates for the Graduate Challenge Programme. The response was good as we received over 300 applications from the prospective candidates through our website.
about the company through information dissemination in a more aggressive manner. Consciously, we have been maintaining a low profile as we are not sure whether we are going to invest in Block-61 for the commercial stage. But as we are moving along, we are becoming more confident that we are going to take up this project and deliver it during the commercial stage. In another related note, while interacting with the Omani youth we found that many of them aspire to work for companies that can provide opportunities to work abroad.
BP HAS BEEN A LATE ENTRANT (RE-ENTRANT TO BE MORE PRECISE) IN THE EXPLORATION AND PRODUCTION INDUSTRY IN OMAN. DO YOU THINK THE LEVEL OF AWARENESS AND INTEREST AMONG THE STUDENT COMMUNITY ABOUT BP IS COMPARATIVELY LOWER? It is a strange situation for BP in Oman. Many young Omanis are not aware of the company’s towering stature in the global oil and gas market. However, we have not been surprised by this and did anticipate this problem when the company entered Oman in 2007. We need to work on changing the perception
KINDLY SHARE DETAILS OF THE FINAL SELECTION PROCESS OF THE CANDIDATES? From 300 applicants, we shortlisted around 80 candidates. The candidates who had an excellent academic record say a score of 3.0 GPA or above made the cut. We also factored in their extracurricular activities. They were called in to our assessment centre to undergo a rigorous day-long selection process. The exercise was done sometime in May. In the first stage, each candidate had to undergo a personal interview lasting for 45 minutes. This was more of a competency interview and assessment Nov-Dec, 2011
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For BP, this is an investment towards the development of human talent. We don’t make them sign any bond with us. We don’t believe in forcing anyone to stay with us. It is our job to groom them and create right opportunities for them to stay with us for a long time.
Thereafter, a candidate had to undergo two more exercises. The first one involved a group exercise where they were needed to interact with people they didn’t know. We gave them a scenario say a company is considering an investment in a country; what are the factors it should consider while making the decision. The group was required to arrive at the answers.
DID YOU APPLY THE SAME METHODOLOGY AND STANDARDS AS APPLIED BY BP IN OTHER COUNTRIES FOR THIS PROGRAMME? Yes. The full day assessment was based on the process applied internationally by BP. As the Lead for the programme, in the beginning, I was quite worried as we were doing it for the first time in Oman. As we were training the line managers and assessors in the preparation for the assessment, they gave us the feedback that the test is going to be very difficult for the candidates. But I was surprised with the good performance and the overall quality of the candidates. At the end, it was very difficult for us to make the final selection. Ultimately we had to exclude some good candidates also as we had a limited number of vacancies. Most of the candidates had a good experience and though many of them didn’t get selected but it added to their exposure and experience.
We wanted to see how they interact with each other and their quality of thinking; how they will lead the people based on their knowledge. The last exercise was an individual assignment where we gave the candidate a scenario; say a refinery in Europe having an issue. We gave the candidate three solutions and the candidate had to defend one solution. He/she was required to give a full analysis of the solution and make a presentation at the end to the examiners.
DID OMANI GRADUATES FROM FOREIGN UNIVERSITIES ALSO SHOWED INTEREST IN THE PROGRAMME? Yes. That was also one of the channels we had approached in widening our talent pool. We had approached the Ministry of Higher Education to obtain a list of Omani students studying abroad in markets such as UK, Australia, etc. We approached them and engaged them through emails and making telephone
of their professional aspirations in the short and long term. After that they had to undergo a technical interview for about 75 minutes. This was a test of their technical abilities in their respective discipline say a process and chemical engineering. They were given two problem scenarios from BP’s day to day operations and they were asked to provide a solution for the problem. We looked at their thinking process in solving the problem rather than judging the solution alone. This helped us to gauge how they applied their knowledge in a situation.
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conversations with many of them. Many of them were encouraged to apply for the programme. At the end, some of them were even finally selected by us. HOW DID THEY PERFORM COMPARED TO THE GRADUATES FROM OMANI UNIVERSITIES AND COLLEGES? Some of the Omani graduates from foreign universities who underwent our assessment test couldn’t make the grade. Majority of the challengers we currently have are from SQU. I would like to share an interesting feedback on the quality of graduates from Oman. For the first three days of the assessment, my colleagues from UK were playing the role of assessors. Their feedback was that the quality of graduates from engineering in Oman is similar to what they have in the UK. I think this is very positive feedback. They were even interested to consider some of them for opportunities in the UK. There was one major difference between our selection criteria compared to the one practiced in the UK. We considered BSc and MSc graduates apart from PhD holders. Whereas in the UK, they currently consider MSc and PhD holders only. The process as I said before remains the same. It says a lot about the high quality of our graduates. OK. AFTER THE SELECTION, HOW DO YOU PLAN TO TRAIN THE CHALLENGERS? They are provided with the worldclass on the job training as well as classroom training. In some cases, they will be provided with the opportunity to acquire chartered qualifications from globally acceptable professional organizations. Besides that the best performers will also get an opportunity to work outside the country to gain the international exposure. The challengers are expected to take up
atleast two different roles during their challenge period. For example, a drilling engineer may work for 12-18 months in his/her discipline but the challenger is also required to spend say next 18 months or so as a completions engineer which is a totally different stream of business. We want to ensure that they are getting the right exposure within their core discipline(s) and gets equipped with the overall knowledge to perform the basic day-to-day operations. They need to graduate after successfully performing these two roles. It might take three years, may be more or little less, for them to graduate from the challenge programme. The graduation criterion is that they have to meet minimum level of competencies in each discipline. For example, a well engineer has to obtain certain numbers of competencies. Some of the competencies a challenger have to master; in some of
the competencies, the challenger must have a fair knowledge; and we expect the challenger to have a fair knowledge of another set of competencies. WHAT IS THE ROAD MAP FOR CHALLENGERS AFTER THE GRADUATION? Once they graduate, we will place them in professional roles. They are our employees from day one and we are investing in their development. During the development programme, on the job training accounts for 70 per cent of their time. They will work on special assignments. They will be assigned to a mentor or a coach. On a yearly basis, they will be assessed twice through a process called Development Assessment Plan (DAP) where the line manager, the challenger, and other neutral assessor(s) coming from a different location will assess the challenger’s performance and progress.
DO YOU INSIST ON TAKING AN UNDERTAKING FROM THE CANDIDATES THAT THEY WILL BE REQUIRED TO SERVE THE COMPANY FOR A PARTICULAR PERIOD OF TIME AFTER GRADUATING FROM THE PROGRAMME? No. For BP, this is an investment towards the development of human talent. We don’t make them sign any bond with us. We don’t believe in forcing anyone to stay with us. It is our job to groom them and create right opportunities for them to stay with us for a long time. ARE YOU GOING TO MAKE THE CHALLENGER PROGRAMME AN ANNUAL AFFAIR? Yes. Next year we intend to take a higher number of challengers. Nov-Dec, 2011
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BOOK CORNER
FLAMMABLE SOCIETIES -
STUDIES ON THE SOCIOECONOMICS OF OIL AND GAS The impact of the oil and gas industry – paradoxically seen both as a blessing and a curse on socio-economic development – is a question at the heart of the comparative studies in this volume stretching from Northern Europe to the Caucasus, the Gulf of Guinea to Latin America. Britain’s transformation under Margaret Thatcher into a supposedly post-industrial society orientated towards consumer sovereignty was paid for with revenues from the North Sea oil industry, an industry conveniently out of sight and out of mind for many. Drawing on bottom-up research and theoretical reflection the authors question the political and scientific basis of current international policy that aims to address the problem of resource management through standard Western models of economic governance, institution building and national sovereignty. This book offers valuable material for students and researchers concerned with politics, inequality and poverty in resource-rich countries. Among the key critical issues the book highlights is the need to understand the politics of social territorialism as a response to exclusionary geopolitics.
LIFE WITHOUT MONEY BUILDING FAIR AND SUSTAINABLE ECONOMIES The money-based global economy is failing. The credit crunch undermined capitalism’s ability to ensure rising incomes and prosperity while market-led attempts to combat climate change are fought tooth and nail by business as environmental crises continue. We urgently need to combat those who say ‘there is no alternative’ to the current system, but what would an alternative look like? The contributors to ‘Life Without Money’ argue that it is time radical, nonmarket models were taken seriously. The book brings together diverse voices presenting strong arguments against our money-based system’s ability to improve lives and prevent environmental disaster. Crucially, it provides a direct strategy for undercutting capitalism by refusing to deal in money, and offers money-free models of governance and collective sufficiency. Life Without Money is written by high-profile activist scholars, including Harry Cleaver, Ariel Salleh and John O’Neill, making it an excellent text for political economy and environmental courses, as well as an inspiring manifesto for those who want to take action. 80
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OIL CRUSADES -
AMERICA THROUGH ARAB EYES Oil is the lifeblood of modern economics. It is the precious resource at the heart of empirebuilding -- from the British empire to the American empire today. It underpins the world’s financial markets. But seventy per cent of the world’s oil supplies lie under the sands of the Middle East. Did the US invade Iraq to grab Iraq’s oil? Many people think so. This book shows how this is part of a wider US attempt to dominate international oil and maintain America’s global dominance. Written by Abdulhay Yahya Zalloum, an influential oil consultant, with experience of working in both the US and Arab oil industries, this book provides a rare insight into the real motivations behind US intervention in the Arab world, and the relationship between the US and the Arab states. Zalloum provides a historical account of the roots of today’s involvement, analysing US intervention in the Arab World since the 19th century. Zalloum provides an account of America’s changing role in OPEC. He examines the fate of Iraq’s oil and the involvement of US contractors. He also analyses the role of oil in America’s relationship with Israel, providing an important insight into how this dynamic is viewed in the Arab world. The book offers a unique perspective on how the US is viewed in the Arab region and how progress should be made if real peace and stability are to be brokered.