Downstream Monitor - MEA Week 15

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For analysis and commentary on these and other stories, plus the latest downstream developments, see inside

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16 April 2014

Week 15

Issue 152

News Analysis

Intelligence

Published by

NewsBase

COMMENTARY 2

Iran ratchets up exports rhetoric 2

Oman: action on graft releases

contracting energy 4

Infrastructure works on

the way for Kenya 6

Russian roulette points the

barrel at TANAP 7

POLICY 8

Egypt strikes energy security

deal with Kuwait 8

Zambia seeks financiers

to fund oil imports 9

COMPANIES 9

ABB takes Zirku power contract 9

Sasol earnings rise by 26%, whiledoubts are raised about SA future 10

REFINING 11

Abadan to produce Euro IV fuel 11

Construction to begin on

Egyptian refinery 11

FUELS 12

Basra NGL advances as Technip gets

FEED contract 12

OGC plans LPG plant in Salalah 12

PIPELINES 13

Transnet suffers yet another setback 13

TERMINALS & SHIPPING 13

Libya crude oil exports set

to resume this week 13

TENDERS 14

KNPC floats new refinery tenders 14

NEWS IN BRIEF 15

CONFERENCES 19

SPECIAL REPORT 21

NEWS THIS WEEK

Iran: bullish sentimentIrans deputy petroleum minister this week toldNewsBasethat the country is keen to establisheffective and stable interaction on the globalmarket, and responded bullishly to questions aboutsanctions.

He said that Iran was exporting 1 million bpddespite IEA reports estimating it at 1.65 millionbpd. (Page 2)

Majedi outlined ambitious plans for Iran LNG tocome online during 2015. (Page 3)

Swift action reaps rewardsAs corruption arraignments swept through thesultanates leading state oil and gas companies inlate 2013, progress on major projects wasinevitably slowed. However, the dramaticculmination of the resulting criminal trials in thefirst three months of this year has precipitated asurge in contracting activity along the downstreamvalue chain, from refineries to speciality chemicals.

The conclusion of corruption trials has promptedkey petrochemicals project awards. (Page 4)

NewsBase

Downstream Monitor

MEA


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Downstream Monitor MEA 16 April 2014, Week 15 page 2





Iran is slowly ratcheting up rhetoric

designed to smooth its return as a fully-

fledged player to global oil and gas

export markets, although experts believethat it could be three-five years before

this actually happens,NewsBasehas

learnt from comments made at an oil and

gas conference taking place in Dubai this

week.

Iran is projecting an increase in oil

production to 5 million barrels per day in

2018. Global crude oil supplies will rise

to 113 million bpd in 2014, Irans

deputy petroleum minister in charge of

international affairs, Ali Majedi, told the

Middle East Petroleum and GasConference, organised by Singapores

Conference Connection Group, in Dubai

April 14.

Iran is currently exporting around 1

million bpd to global markets, he said, to

countries thought to include Far Eastern

players like Japan, Korea, Taiwan and

India, and is trying to make its first

tentative steps into LNG production.

However, the International Energy

Agency (IEA) recently reported Iranian

exports at around 1.65 million bpd in

February and predicted similar levels

during Marchexceeding significantly

the 1 million bpd limit set out in the

agreement with the P5+1 signed on

November 24, 2014.

Majedi also told the conference that

Iran now had the worlds largest gas

reserves.

BPs 2013 Statistical Review of World

Energy said Irans proved natural gas

reserves stood at 33.6 trillion cubic

metres at the end of 2012, while the total

reserves of Russia, until recently seen as

the worlds largest owner of gas reserves,

were 32.9 tcm.

Coming to the table

Iran seeks an effective and stable

interaction with the worlds key oil and

gas players, including NOCs and IOCs,

and a diversified market. This would be

a win-win interaction, Majedi said. He

also called for a fair multilateral co-

operative strategy and a non-political

trade and investment framework.

I strongly believe that security of

energy supply should be respected by all

countries of the world. Iran is the worldsbiggest cumulative oil and gas [reserves]

holder, based in a geopolitical and

strategic location. It has a 1,800 km

shoreline on the Persian Gulf and the

Oman Sea. Iran holds the worlds fourth-

largest oil reserves at 11% [of the total].

He said profitability of projects would

be a hallmark of investor experience

when the green light was finally received

for international participation in Irans

projects market. However, he added that

Iran has not accepted [EU and US]

sanctions, as progress in a number of

domestic fields demonstrated.

He said that consumer loss was

caused by a political approach to the

oil and gas industry.

Commenting on the current European

situation in light of the Ukraine crisis, hesaid 33% of Europes gas was onshore,

while of the rest, 23% was provided by

Russia, 22% by Norway and 11% by

Algeria.

Qatar, Nigeria and Libya also played a

role in supplying European gas markets,

a lucrative area on which Iran has long-

term designs, given prices as high at

US$14-15 per million British thermal

units (mBtus) on the continent.

Gas export plansIran plans to increase its gas exports

through a comprehensive and coherent

programme Irans domestic market is

saturated, he said. Majedi added that

Iran LNG would come online in 2015,

without giving further details. It would

be possible to assign 100% to foreign

investors through Build Own Operate

[BOO] or Build Operate Transfer [BOT]

[frameworks], he said.

According to Iran LNGs website, EPC

contractors have been assigned to

packages for LNG storage tanks and

harbour and jetties, but process, utilities

and offsite areas, including loading

facilities, and liquefaction unit work

appears not yet to be awarded.

Iran, which on paper once had the

potential to match Qatar as a global

player, has remained frozen out of the

gas market because sanctions have led to

a failure to attract international EPC

players to install the complex technology

required to develop its assets.

COMMENTARY

Iran ratchets up exports rhetoric

Irans deputy petroleum minister this week toldNewsBasethat the country is keen toestablish effective and stable interaction on the global market, and responded bullishly

to questions about sanctions

y Peter Shaw-Smith

He said that Iran was exporting 1 million bpd despite IEA reports pegging it at 1.65 million bpdMajedi outlined ambitious plans for Iran LNG to come online during 2015He set out details of US$255 billion of investment plans, most of it aimed at the up- and downstream sectors

Majedi set out detai ls of

US$255 bil li on worth of

investment in Irans oil

and gas sectors due to take

place in 2011-15


3/22






On the question of Iranian pipeline

exports to the UAE, Majedi said: We

are ready to renegotiate and co-operate,

he said. Asked if in addition Iran might

supply gas for domestic use in Oman or

LNG export, he said: Maybe both.

Of course we will try to compete with

Russia, he said. There is competition in

the world. If Iran wants to export more

gas, each economy in the world can[choose from whom it wants to buy]. We

are trying to find countries where we can

get market [share]. We are trying to find

another customer for export of gas after

2015, he said, referring to an existing

deal with Pakistan.

Investment expectations

Majedi set out details of US$255 billion

worth of investment in Irans oil and gas

sectors due to take place in 2011-15. The

bulk of this will be in the upstream,midstream and downstream oil sector.

Arabian Oil and Gas reported March 4

that Iran had allocated US$255 billion

for its oil and gas industries, of which

US$155 billion is for the upstream

sector. By September 2013, US$42

billion of this money had already been

invested, leaving US$113 billion to be

invested before 2016, the publication

said.

Wind of changeTehran has publically mooted its

consideration of a new contractual model

for upstream projects, to allow for

alignment of government and contractor

take. Majedi said this would mean an

integrated operation for exploration,

development and production. We are

looking to maximise incentives for

investors in low and high-risk areas.

In December 2013, Irans Petroleum

Minister Bijan Namdar Zangeneh said at

an OPEC conference in Vienna thatmember countries would welcome

Irans return to world crude oil markets.

He said Iran was planning to bring its oil

production back to 4 million bpd when

international sanctions were lifted.

I noted in a statement that we [will]

return to the market in the shortest

possible time, and naturally, we expect

OPEC [member countries] to co-operate

with us. OPEC welcomed our return at

its highest level, which was exactly what

I expected them to do, he was quoted as

saying by the Ministry of Petroleums

monthly publication.

He added that the cartels historic

background also shows that when a

member exits the market [because of]

problems and makes a second coming,

member states have always shown their

maximum co-operation for that memberto take back its share.

Great expectations

On the sidelines of the conference, an

industry executive toldNewsBasethat

the interim agreement between Iran and

the P5+1 would come up for

reassessment on July 20, after

implementation of the November accord,

due to be in force for six months, was

delayed. He said it would be five years

at least before Iran would start to seemajor investment in its oil and gas

industry and a return to a pre-sanctions

situation. The source also quoted an

Iranian national as saying that Iran would

try to move towards oil exports at around

1.5-1.6 million bpd, with perhaps slight

increases going forward, but that it was

unlikely that a major change would come

about in the next 12 months. Everybody

going to Iran, investment coming up,

thats not on the cards [in the next three-

five years], he said.

As if to underline what he saw as the

merely temporary nature of the Irans

current predicament, Majedi sought to

lay stress on the long-term dynamics in

hydrocarbons markets, and the role that

players like his country could enjoy. He

said global natural gas use, some of it

unconventional, was predicted to rise by

65% in the next 25 years, with China,

India and the US the worlds main oil

consumers in 2040. About US$19

trillion in investments are required, he

saidlofty aims indeed.

COMMENTARY


4/22






In late February, Ahmed al-Wahaibi,former CEO of government-owned

Oman Oil Co. (OOC) was jailed for a

shocking 23 years for accepting bribes in

relation to the signature of a

petrochemicals project agreement in

2012. Joining him behind bars a few days

later was Adel al-Kindi, previously CEO

of Oman Oil Refineries & Petroleum

Industries Co. (ORPIC), convicted of

involvement in graft surrounding

contract awards for work on the Sohar

refinerythe firms largest asset and acrucial one for broader downstream

development schemes in the country.

With the highest echelons of the

governments two flagship downstream

hydrocarbons companies and their

private sector partners forced to turn their

eyes to the past, it is little wonder that the

focus was diverted from major future

projects on their slates, thus holding up

investments worth billions of dollars.

However, as these and other trials in an

unprecedentedly wide-ranging

crackdown on high-level corruption inpublic institutions reached their

conclusions during the first quarter of

2014, an apparent release of pent-up

energy has ensuedwith a flurry of vital

contracts on refining and petrochemicals

schemes moving to the tendering,

bidding or award stage.

Petchems push

Petrochemicals have become central to

Muscats strategy of economic

diversification, both sectoral andgeographicalwith plans to develop the

industry not only at the established

industrial nerve centre of Sohar but also

at the southern port of Salalah and, from

a greenfield base at Duqm, on the central

Al-Wusta coast.

Should all the planned projects come

to fruition, Oman would become a world-

scale producer alongside fellow Gulf

giants Qatar and Saudi Arabia, driven by

similar aims of reducing dependence on

raw hydrocarbon exports and translating

hydrocarbon wealth into job creation forrapidly increasing local populations.

Compared to these Gulf Co-operation

Council (GCC) oil and gas

heavyweights, the sultanate is a relative

minnow.

Oil production stands at around

920,000 barrels per day according to the

latest BP energy statistics, compared

with 2 million bpd from Qatar and 11.5

million bpd from Saudi Arabia, while the

gas contrast is even starkerwith proven

reserves of around 33.5 trillion cubic feet(949 billion cubic metres), dwarfed by

Dohas 885.1 tcf (25 trillion cubic

metres) and Riyadhs 290.8 tcf (8.2 tcm).

Omans advantage

However, Omans crucial advantage lies

in its location, allowing the import and

export of products to key Asian markets

without passing through the Strait of

Hormuz and thus without the risk of

being affected by political uncertainty

involving Iranwhich has in the past

threatened to close the waterway inprotest at international sanctions on its

hydrocarbons industry.

Pure import-export refineries and

downstream facilities such as that

planned at Duqm are thus economically

viable.

An upstream investment programme is

also well under way to stem oil output

decline and to boost gas production, with

the biggest projectKhazzannow

entering the construction phase.

COMMENTARY

Oman: action on graft releases

contracting energyAs corruption arraignments swept through the sultanates leading state oil and gas

companies in late 2013, progress on major projects was inevitably slowed. However, with

the cases now over, there has been a recent surge in contracting activity

y Clare Dunkley

The conclusion of corruption trials has prompted key petrochemicals project awardsBoth major Sohar downstream complexes have appointed project managersThe award of the Duqm refinery FEED is a clear sign that the port zone development is back on track


5/22






This follows the signature of a final

gas sales agreement in December 2013.

The US$16 billion development of tight

gas reserves at the Khazzan field in

central Block 61 by BP, and due to

deliver 1 billion cubic feet (28 million

cubic metres) per day by 2018,

equivalent to around 33% of national

output.

Industrial hub

At the heart both of new developments

and of the criminal investigations

remains the well-established industrial

hub of Sohar, home to the sultanates

largest refinery and petrochemicals

facilities, the management of which were

combined in 2011 under the ORPICumbrella.

The refinery is being expanded under a

US$2.1 billion engineering, procurement

and construction (EPC) contract awarded

in November 2013 to a joint venture (JV)

of South Koreas Daelim Industrial and

the UKs Petrofac, which will raise

output to 187,000 bpd from 116,000 bpd

and thereby feed both ORPICs existing

340,000 bpd polypropylene (PP) plant

currently running at only around 60% of

capacityand supply additional facilitiesplanned by ORPIC and OOC.

The largest of theseand indeed the

largest ever in Omanis the estimated

US$3.6 billion Liwa Plastics scheme to

build a steam cracker and downstream

units, to be the first in the country to

manufacture polyethylene (PE) and its

derivatives and to have capacity of 1

million tonnes per year (tpy) on

completion in 2018.

Output will comprise high-density

polyethylene (HDPE), linear low-density

polyethylene (LLDPE), PP, methyl

tertiary butyl ether (MTBE) and butane-

1, with feedstock sourced partly from the

refinery and partly from the central

Fahud gas field. After formal launch in

mid-2013, little was heard of the project

above the noise of the corruption

crackdown. However, shortly after Al-

Kindi learned his fate, his successors

awarded the project management

consultancy (PMC) and front-end

engineering and design (FEED) contracts

to Engineers India Ltd (EIL) and CB&I

of the US respectively, with

prequalification for the EPC contracts

expected to be launched by the end of theyear in order to return the project to

schedule. A tender for the financial

advisory mandate was floated in late

March, with a May 6 deadline.

Even more mired in the graft morass

was the other major new petrochemicals

venture planned at Sohara polyester

chemicals complex to be developed

under an agreement between OOC and

South Koreas LG International signed in

2012corruption in the negotiation of

which led to the imprisonment of both

Al-Wahaibi and the vice-CEO of LG.

However, far from being abandoned in

light of such tainted beginnings, this

scheme too seems to have been

galvanised by the trials end, with

Australia Worley Parsons selected for

the PMC in March.

The estimated US$850 million plant

will produce 1.1 million tpy of purified

terephthalic acid (PTA) and 500,000 tpy

of polyethylene terephthalate (PET), used

primarily in packaging, and like Liwa

will be fed by ORPICs refinery indicative of the close and overlapping

ties between the various state

hydrocarbons companies.

OOCs subsidiary Takamul Investment

is planning a complementary 100,000 tpy

purified isophthalic acid (PIA) plant in

partnership with ORPICwhich will

provide metaxyelene feedstockwhile

the PIA will be combined with PTA from

OOCs facility to produce PET. Design

work is expected to be completed by the

end of 2014.

Diversification

As in Saudi Arabia, Oman is pursuing

geographical as well as general economic

diversification, spreading economic

activity and wealth beyond Muscat and

Sohar through developing new hubs such

as Duqm and Salalah, both designated

special economic zones (SEZs).

While Salalah is already home to

several petrochemicals plants, Duqms

development as a major port and

industrial area is being carried out from

scratch, with a refinery and

petrochemicals complex as the

centrepiece and OOCs priority project

among the many in the zone in which the

firm is investing. The state company is

implementing the estimated US$15billion scheme in 50:50 JV with Abu

Dhabis International Petroleum

Investment Co. (IPIC)the latter

providing the necessary crude from the

emirates Habshan oil processing hub.

The project itself has escaped censure

during the corruption debacle but

officials from the Transport &

Communications Ministry and Athens-

based Consolidated Contractors were

jailed in March for improper payments

during the award of contracts relating tothe portwhich will handle the

refinerys raw materials and exports

while the conclusion of Al-Wahaibis

case has again coincided with renewed

OOC-related activity. In late March,

Foster Wheeler of the US was awarded

the FEED contract for the estimated

US$6 billion, 230,000 bpd import-export

refinery, envisaged as a first phase to be

followed at an unspecified later date by a

US$9 billion second phase adding

petrochemicals production. Frances

Credit Agricole was selected as financial

adviser to the project company, Duqm

Refinery & Petrochemical Industries, in

2013. On a smaller scale, further

petrochemicals development at Salalah,

led by Takamul, is well under way, with

a US$500 million caustic soda and

ethylene dichloride plant under

construction and plans recently

announced for an ammonia facility,

valued at several hundred million dollars,

to add value to the output from the

operational Salalah Methanol plant.

COMMENTARY

The revolutions that tore

through the Arab wor ld in

2011 barely touched

poli tically quiescent Oman,

bar l imited protests in

major citi es demanding,

among other things, an

end to high-l evel

corruption


6/22






The revolutions that tore through the

Arab world in 2011 barely touched

politically quiescent Oman, bar limited

protests in major cities demanding,

among other things, an end to high-level

corruption.

Frightened into action by such unusual

demonstrations of dissent, Muscat acted

swiftly to strengthen anti-graft

mechanisms, re-constituting the State

Financial and Administrative Audit

Institution with a remit to present

evidence of illegalities to the Office of

the Prosecutor General.

As these moves have proven more than

mere window-dressing, the damage

wreaked by unrest elsewhere in the

region to the ability of many states to

attract foreign direct investment may

have precisely the opposite effect in the

sultanate by increasing transparency at

the same time as ensuring popular calm,

boding well for Muscats ambitious

downstream plans.

Kenya is preparing for a regional oil rush

that it hopes will transform its economy

and bring down high fuel prices.

The country is investing in new import

and export infrastructure and co-

operating with neighbours over possible

new refinery projects that will make the

region more self-sufficient in higher-

value oil products.

Meanwhile, Kenya continues to attract

interest from local and international

explorers and developers, keen to win a

slice of the countrys newly discovered

oil wealth. Kenyas government has

already starting relocating the Kipevu oil

terminal in Mombasa to allow more and

bigger tankers to berth, Kenya Ports

Authority (KPA) said last week. The new

terminal will cost US$120 million and,

once complete, will have the capacity for

two large vessels at the same time, each

carrying 100,000 tonnes (733,000

barrels) of crude oil.

Once complete, in 2018, it should helpreduce fuel prices in Kenya by solving

perennial capacity constraints in the

handling of petroleum products.

The sector has been experiencing

shortages of petroleum oils occasioned

by lack of adequate storage capacity in

the industry, according to KPAs

chairman, Danson Mungatana. The

situation has caused delays for vessels

and inadvertent ship congestion, which in

turn raises prices of oil in the country.

Refining

Kenya is also teaming up with Uganda

and Rwanda to help ease a crippling lack

of refining capacity in the region, with

plans to build a joint refinery in Uganda.

The proposed refinery is expected to be

built in the Hoima district, because of its

sparse population and the proximity to

Ugandas oilfields. It will be jointly

owned by the public, with a 40% stake,

and the private sector, with a 60% stake,

according to Reuters reports.

The proposed plant would have a

capacity of around 60,000 barrels per

day, dwarfing Kenya Petroleum

Refineries 35,000 bpd plant in Kipevu,

which is currently the only refinery in the

region and is on the verge of closing.

Kenya does plan to build another US$2.8

billion refinery on its northern coast but

has made little progress thus far.

Privately owned National Oil Ethiopia

is also keen to get in on the act, with its

CEO, Tadesse Tilahun, saying last weekthat it wants to part-finance a refinery

with other various partners.

Africas demand for refined products

is growing hugely because of its

economic growth. The crude findings are

also increasing. That is the opportunity,

he said. We want to [build] a refinery.

We have already discussed this in

principle with our shareholders, who are

very much committed.

Africa faces challenges, though, in

supplying more of its own refined

petroleum products. Funding for oil-

related infrastructure is still tough and

foreign refiners and traders continue to

flood the market with US$80 billion

worth of imports, said Tadesse. Existing

pipelines also tend to run to the coast

either for the export of crude or to import

transport fuel produced at coastal

refineries.

That has to change, he says.

Refineries are now needed inland so

that Africa can supply itself.

Pipelines

In another sign of increased co-operation

with neighbouring states, Kenya and

Uganda have reportedly agreed to build a

crude oil export pipeline that will

incorporate a special heating system to

keep the waxy crude found in Kenya

liquid and flowing.

The 1,380-km long pipeline would be

the longest such link in the world.

On the Kenyan side, the pipelinewould probably run mostly underground,

stretching 850 km from the Lokichar

Basin to the coast, according to a report

last month by Tullow Oil, which has

drilled seven wells in the area, finding

600 million barrels of oil.

Ugandas section is expected to run

from the Lake Albert rift basin to link up

with the Kenyan pipeline, with another

link from South Sudan to Lamu.

COMMENTARY

Infrastructure works onthe way for Kenyay Helen Castell


7/22






Uganda and Kenya are now at the

heart of an emerging power house in

future global oil supply markets and this

has created some high-potential

synergies for accelerated oil production

and inter-governmental [co-operation] in

the region, said Tullows CEO, Aidan

Heavey.

Farm Tower

Kenya is also attracting more interest

from energy companies. London-listed

minnow Tower Resources agreed last

week to farm in to the onshore Block 2B,

acquiring a 15% participating interest

from Taipan Resources Kenya-based

subsidiary, Lion Petroleum.

Taipan will remain operator of the

block with a 30% interest. Tower is

paying US$4.5 million in cash for the

stake plus 9 million of its own shares and

will make an additional payment of

US$1 million conditional upon the

spudding of a second well in the block.

Home-grown companies are also

getting into better shape, with Kenyan oil

marketer KenolKobil reporting last week

that it booked a profit in 2013 as its

exchange rate losses were reduced and

cost-cutting paid off.

The company made a 564 million

shilling (US$6.51 million) pre-tax profit

in 2013, compared with a 8.9 billion

shilling (US$102.6 million) loss the

previous year. It also forecasts stronger

sales this year.

Nearly 15 years on since it was first

mooted, a European Union (EU) energy

policy objective the Southern Gas

Corridor has never appeared more

necessary.

Two months on from Russias

annexation of Crimea and with Russian

troops massing on Ukraines eastern

borders, Russian President Vladimir

Putin last week gave his clearest message

yet that he is prepared to use the ultimate

weapon if he does not get what he

wantsnamely to cut supplies of

Russian gas flowing to Europe via transit

lines through Ukraine.

While Putins warning referred directly

only to the cutting of supplies to Ukraine

in the event of further violation of

payment for gas supplied it also noted the

risk that Ukraine may siphon off gas

being transited to Europe, warning of the

possible need then to cut those supplies

too.

Although not explicitly stated, the

message to Europe was clear: intervene

in our dispute with Ukraine and face gas

cuts. It comes as no surprise then that

those EU policy makers have suddenly

rekindled interest in the EUs long-

mooted plan to create the Southern Gas

Corridor allowing the export of gas from

the Caspian and Middle East through

Turkey.

Until last year, the EU was banking on

the development of the multinational

Nabucco pipeline running from Eastern

Turkey through Bulgaria, Romania and

Hungary to Austriaand in its later

incarnation, on to Germany and Poland.

Over a decade in the planning,

Nabucco never overcame the major

obstacle of how to ensure the viability of

a 31 billion cubic metre per year pipeline

being developed by a consortium none of

whose members own any upstream gas,

and which has only a conditional promise

of 16 bcm per year of supplies.

Lack of progress

Most observers concluded that

Azerbaijans announcement in late 2011

that it wanted to develop its own gas

pipeline in partnership with Turkeythe

Trans Anatolian Gas Pipeline (TANAP)

saved the EU the embarrassment of

having to admit that the project it had

been backing was unlikely ever to be

realised in the form it had envisioned.

So far however, plans for TANAP are

proving scarcely any smoother.

Over a year ago, it was announced that

TANAP would be developed by a

consortium in which the State Oil

Company of Azerbaijan Republic

(SOCAR) would take a 51% stake,

Turkey would 20%, with the remaining

29% being divided between the three

other members of the consortium

developing the Shah Deniz gas field

which will supply the 16 bcm of gas

committed to TANAP: BP (12%), Statoil

(12%) and Total (5%).

COMMENTARY

Russian roulette points

the barrel at TANAPContinuing Russian aggression in Ukraine has rekindled Europe interest in a Southern

Gas Corridor. But with TANAP now the only game in town, can Azerbaijan and Turkey

actually deliver, and at what price?

y David OByrne

TANAP last year beat off competition from Nabucco to pipe gas from the Caspian to EuropeHowever, little progress has been made, and due diligence is only now being carried out by Botas and BPStatoil and Total have made it clear they will play no part in TANAP and may withdraw from Shah Deniz


8/22






Now with both Statoil and Total

having confirmed they will play no part

in TANAP, Statoil having reduced its

stake in Shah Deniz from 25.5% to 10%

and Total apparently intent on selling allof its 10% take, the structure of the

TANAP consortium is no clearer.

Indeed if statements made at a

conference in Turkey last week by the

remaining three participants are anything

to go by, the process of finalising the

three party consortium is proving

problematic.

Speaking in Ankara, Saltuk Duzyol the

newly appointed CEO of the TANAP

project company announced that

construction would start in April 2015,however he subsequently conceded that

while it is now decided that SOCAR will

take a 58% stake it is still unclear when

the equity split will be concluded.

Uncertainty

Duzyol suggested that the cause of the

delay lies with Turkeys state gas

importer Botas conducting due diligence

prior to confirming its stake, now

expected to be 30%.

A senior Botas official was also unableto suggest when the consortium structure

may be concluded.

At the same time Bud Fackrell, head of

BP Turkey confirmed that BP too is

conducting due diligence on its planned

12% stake in TANAP and expressed his

hope that the process can be completed

this yearhardly an encouraging

suggestion given the planned start date.

Previously Fackrell and others associated

with the TANAP project have stated that

the final agreement on the consortiumneed not be taken before investment

starts.

Certainly, with the project planned to

be financed solely by the equity partners,

there is no need for the lengthy process

of securing and finalising lines of credit.

This has apparently allowed the TANAP

project company to open a tender for the

supply of pipe, with 18 companies pre-

qualifying, to prepare an engineering,

procurement and construction (EPC)

tender to be held this month and to

prepare documentation for a tender for

supply of compressors, also expected to

be issued soon.

However, the prospect of due diligence

by two members of a three party

consortium continuing until just a few

months before construction starts is far

from normal, the more so given that

project cost has yet to be finalised and is

expected to substantially exceed the

US$7 billion initial estimate.

While SOCAR does have substantial

financial muscle, it has yet to finalise theUS$3.5 billion financing required for its

10 million tonne per year STAR refinery

project following the sudden pull out

earlier this year of the European Bank for

Reconstruction and Development

(EBRD) and the International Finance

Corp. (IFC) which were to contribute

US$500 million between them.

If SOCAR is unable to secure finances

for STAR, it may have to use its own

resources, and look elsewhere for funds

for TANAPa project which in theoryshould have had no trouble in securing

funds from international development

lenders even before the Russian

occupation of Crimea and the sudden

urgent need to realise the long-mooted

Southern Gas Corridor.

Egypt will receive additional supplies of

crude oil from Kuwait, along with an

increase in petroleum products.

The two countries reached a deal last

week whereby Kuwait Petroleum Corp.

(KPC) will boost its crude deliveries to

Egypt by 20,000 barrels per day to

85,000 bpd, from the current rate of

65,000 bpd.

The Kuwaiti news agency, KUNA,

reported that the new contracts would run

for three years.

The deal also calls for an increase in

diesel and jet fuel deliveries to 1.5

million tonnes per year, up from 860,000

tonnes per year.

Egypt is facing a serious energy crunch

as demand for petroleum products and

natural gas moves beyond the

governments ability to keep the market

supplied.

COMMENTARY

POLICY

Egypt strikes energy securitydeal with Kuwait


9/22


10/22






Zirku handles output from ZADCOs

three fieldsUpper Zakum, thought to

be the worlds fourth largest, and the

smaller Umm al-Dalkh and Satah fields.

In early April 2013, a team of South

Koreas Daewoo Shipbuilding & Marine

Engineering and UK/UAE joint venture

Petrofac Emirates was awarded the

US$3.7 billion EPC contract for the

onshore portion of the full-field

expansion project at Upper Zakum,

covering an oil processing plant and

associated facilities, aimed at boosting

production from 550,000 bpd to 750,000

bpd by 2017: the US$800 million

offshore elements engineering


contract was awarded to a consortium ofthe local National Petroleum

Construction Co. (NPCC) and Frances

Technip in July 2012.

The Upper Zakum expansion forms an

important part of Abu Dhabis broader

drive to increase crude capacity to 3.8

million bpd by 2017/18, with the

increment mainly being delivered from

offshore.

ZADCO is considering undertaking a

further expansion to produce 1 million

bpd: no timeframe has yet been set, but

some certainty around the concession

agreement was reached in January with

the extension of the contract with Japans

Inpex, which holds a 12% stake, to 2041

in line with those of partners Abu

Dhabi National Oil Co. (ADNOC) with

60% and the US ExxonMobil with 28%.

Fellow ADNOC-owned offshore

operator Abu Dhabi Marine Operating

Co. (ADMA-OPCO) is also undertaking

expansion at its major fields to raise

output by 300,000 bpd to 1 million bpd:

in 2013, NPCC won the main EPC

contract for the development of the Umm

al-Lulu asset while South Koreas

Hyundai Engineering & Construction

was selected for the largest package on

the Satah al-Razboot field.Bids have been under evaluation since

January for the full-field development of

the companys Nasr field.

South Africas petrochemicals giant

Sasol has reported a 25% hike in its first

quarter headline earnings, helped by a

weaker rand currency and higher

chemical prices.

In a statement the company said: This

achievement was on the back of a strong

operational performance from our global

businesses, coupled with a 19% weaker

average rand/US dollar exchange and

improved chemical prices.

However, some analysts in South

Africa are beginning to question whether

with the successful commissioning of itsUS$29 billion gas-to-liquid (GTL)

project at Lake Charles, Louisiana, the

company is still committed to operations

in South Africa.

The US project uses unique technology

to convert ethylene into higher value

chemical products to be used in the

manufacture of consumer products such

as food packaging.

It is currently in start-up and the first

products have already been produced.

The plant is expected to be fully

operational by mid-2014.

However, critics say that Sasol, which

started in 1955 with taxpayers cash, has

gambled hugely on this single project in

Louisiana.

Sasol was the target of a possible

windfall tax in 2006.

However, it managed to negotiate

away that tax, partly by promising to

build a coal-to-liquid (CTL) plant

Mafuthawhich was to be aimed at the

local fuel market.

But Mafutha has failed to materialise

and in its stead Sasol built its GTL

facility at Lake Charles.

Local news agency Business Day

reported on April 6: The argument that

Sasol is quietly lightening its exposure to

South Africa is bolstered by its failure to

capitalise on Mozambican gas fields, as

well as its stated desire to become lessreliant on coalwith its dirty image

and impending carbon tax implications.

In response, Sasol said last week that it

is adamant that it has no plans to cut its

ties to South Africa. Spokesman Alex

Anderson said that 66% of Sasols total

assets will reside in sub-Saharan Africa

(SSA) and its primary listing will remain

on the Johannesburg Stock Exchange

(JSE).

COMPANIES

Sasol earnings rise by 26%, whiledoubts are raised about SA future


11/22






Irans 390,000 barrel per day Abadan

Refinery is set to produce Euro IV gradegasoline in the coming Iranian calendar

year.

In an interview with the Shana news

agency Saeed Mahjoubi, a senior official

with the National Iranian Oil Refining

and Distribution Co. (NIORDC), said

that a number of old units will now be

deactivated at the site, with new units to

come online in their place.

Abadan, which meets 25% of Irans

demand for gasoline and fuel oil, was

closed for maintenance between March10 and April 10, a move that is estimated

to have cut the countrys fuel exports by

around 50%.

Currently, Abadan produces Euro II

standard fuel, which is well below the

Euro V grade commonly used by

consumers in the European Union (EU).Increasingly, this has become a key

market for Middle Eastern refiners keen

to diversify their economies away from a

reliance on crude exports.

While the upgrade to Euro IV still falls

short of EU requirements, it does raise

the possibility of a future renovation in

order to supply European customers,

should Tehran have its exports sanctions

fully lifted later this year.The Abadan refinery was completed in

1912 and is the oldest refinery in the

Middle East, despite having to be rebuilt

after being destroyed during the 1980-

1988 Iran-Iraq war.

In May 2011, an explosion occurred

during a visit to Abadan by then

president Mahmoud Ahmadinejad for the

inauguration of a new gasoline

production unit. Reports said that four

people were killed and around 20 others

were injured.In September that year, a fire also

injured four people. On March 30, Shana

said that another fire had occurred at the

facility, although no injuries or

substantial damage were reported.

The Egyptian Refining Co. (ERC) is to

begin construction this month on its

long-delayed refinery project, which is

designed to alleviate some of Egypts

growing domestic demand for petroleum

products and thus reduce Egypts

mounting costs of importing fuels.

Fuel shortages in Egypt have served to

exacerbate the countrys social and

political problems.

The US$3.7 billion project will be built

at the existing Mostorod PetroleumComplex (MPC) site, which is operated

by the Cairo Oil Refinery Co. (CORC)

and located 20 km north of the capital.

The 145,000 barrel per day CORC

refinery, which came on-stream in 1973,

produces light and middle distillates and

LPG and it will supply the ERC plant

with 67% of its production for further

processing. ERC was formed in 2007

with a plan to upgrade the CORC

refinery and produce lighter products and

more diesel. The new facility includes an

80,000 bpd vacuum distillation unit and a

40,000 bpd hydrocracker, a 25,000 bpd

delayed coker, a 23,000 bpd naphtha

hydrotreater and a 32,000 bpd distillate

hydrotreater.

The project is expected to come into

operation in 2017. The plant will produce

Euro V grade diesel, International Air

Transport Association (IATA)

specification jet fuel, fuel oil, LPG,

kerosene, reformate, naphtha, sulphur

and coke, and its entire production will

be sold to key shareholder the Egyptian

General Petroleum Co. (EGPC) at

international prices under a 25-year

contract.

The sulphur and coke will be marketed

to industrial users and suppliers. EGPC

has provided US$1.1 billion in equity for

the project and US$2.6 billion in

financing has been arranged by a numberof international institutions. Project

consultants include Worley Parsons,

KBC and Societe Generale. Egypts

largest refinery is the 146,300 bpd El-

Nasr plant, originally built in 1913 and

upgraded during 1967-74. In 2000, the

Ministry of Petroleum signed an

agreement with China to build a new

US$2 billion at the El-Nasr site with a

capacity up to 150,000 bpd, but work has

yet to begin.

REFINING

Abadan to produce Euro IV fuel

Construction to begin

on Egyptian refinery


12/22






The Basra Gas Co. (BGC) Train 1

project at North Rumaila in southern Iraq

moved a step further forward with the

announcement that Technip, in

partnership with China HuanQiu

Contracting & Engineering Corp.

(HQCEC), has been awarded the front-

end engineering design (FEED) contract.

BGC is a joint venture between Iraqs

South Gas Co. (SOC) with a 51% share,

Shell with 44%, and Mitsubishi with 5%.

The project is the first of the new

greenfield associated gas processing

facilities that it is hoped will significantly

minimise gas flaring in Iraq and make

more energy resources available for

power and domestic use. The natural gas

liquid (NGL) train will have a nominal

feed gas capacity of 530 million cubic

feet (15 million cubic metres) per day.

The standalone facilities will produce

LPG as well as NGLs and condensate for

domestic markets. It is scheduled to be

completed by the end of 2014.

Vaseem Khan, President of Technip

Middle East said: This award reflects

Technips strengthened position in the

Middle East market We are proud to

bring our specific technological edge and

licensed innovative solutions to the

downstream industry.

The project began operations in May

2013, marking a milestone in the

countrys fragile post-war recovery.

BGC is one of the largest gas-

capturing projects in the world and once

complete, will gather and process

associated gas from three major oilfields

in southern Iraq. The gas captured by

BGC from Rumaila, the first stage of

West Qurna and Zubair will be used to

generate electricity in Iraq. But the

project will also have the option to build

a plant to produce LNG for export once

domestic energy needs are met.

Total planned investment is US$13

billion, with the possibility of an

additional US$4 billion for an LNG

export plant, according to the

International Energy Agency (IEA).

Shell said that BGC would rehabilitate

and upgrade existing facilities as well as

build new assets which would increase

production capacity from the current 400

million cubic feet (11 million cubic

metres) per day to 2 billion cubic feet (57

million cubic metres).

The Oman Gas Co. (OGC) has signed a

memorandum of understanding (MoU)

with the Salalah Free Zone (SFZ) and the

Port of Salalah for the construction of a

LPG processing plant that will be located

in the SFZ with export facilities at the

port.

The LPG will enable the high recovery

of propane, butane and condensates from

the natural gas that flows through OGCs

southern gas grid. The estimated cost of

the project was not disclosed.OGC, which is wholly owned by the

Oman Oil Co. (OOC), is Omans natural

gas transport utility and supplies gas to

domestic power generation stations and

water desalination plants, as well as

fertilizer and methanol to petrochemical,

steel and cement plants, and refineries.

The plan calls for an LPG extraction

plant to be located in the free zone. LPG

and condensate storage facilities and a

jetty will be constructed at Salalah port.

The scope of work includes construction

of new gas and liquids pipelines in the

Salalah region.

The plant, which will provide a supply

of domestic gas for the region, is due to

come into operation in 2018.

The plant is to be state-of-the-art and

will adhere strictly to health, safety and

environment standards, officials said

during the MoU signing ceremony. The

project also will create a number of jobs

for local residents.

The CEO of the Salalah Free Zone,

Awadh Salim Al Shanfari said the

agreement to construct this vital project

in the Salalah region comes from the

strategic goal of exploiting the naturalresources to create projects which will

add value and broaden the horizons for

other industries that are located

downstream of the LPG value chain, the

Oman Tribune reported.

He said the project would also create

opportunities for small and medium

enterprises (SMEs).

FUELS

Basra NGL advances as

Technip gets FEED contract

OGC plans LPG plant in Salalah


13/22






The construction of South Africas New

Multi-Product Pipeline (NMPP) is now

over four years behind schedule and is

not likely to be completed until April

2015.

The string of setbacks faced by the

project, operated by Transnet Pipelines,

has already led to cost escalations which

are currently being investigated by the

South African national energy regulator

(NERSA) and are sure to lead to future

fuel tariff increases. According to

NERSA, the investigation will only be

completed in 2015.

So far, the company has already

admitted to underestimating the

complexity of the project, justifying the

delays with the negotiation of the rights

of passage with about 900 landowners,

which it said was extremely time-

consuming. In an interview to the South

African Black Business Quarterly

(BBQ), CEO Sharla Pillay said: The

lessonwe understated the magnitude

and complexity of the NMPP project.

There was an over-reliance on external

service providers for expertise and skills

which were lacking in-house.

Transnets General Manager Lennie

Moodley has also acknowledged the

challenges ahead, but is confident that

the company has entered a new era and

has the opportunity to unblock supply

chain inefficiencies, broadening its focus

into Africa. There are opportunities for

securing maintenance and strategic

planning contracts while working with

others in the logistics industry to more

effectively delivery services to

customers, he told BBQ.

Meanwhile, NERSA is concerned

whether the pipeline will represent value

for money.

According to Rod Crompton,

responsible for petroleum pipelines at

NERSA, the regulator is concerned

whether the usual approachwhereby

regulators can exclude the portion of an

asset not prudently acquired from a tariff

application, so that users pay a tariff

consistent with the costshould be

applied to the pipeline project, as it

would severely impact Transnets

investment programme.

The 55-km pipeline from Durban to

Johannesburg will have a 70-year design

life and a capacity to transport 93-grade

and 95-grade unleaded petrol, low-

sulphur diesel, ultra-low sulphur diesel

and jet fuel.

Crude oil exports from one of the four

terminals that have been under the

control of a rebel militia group in eastern

Libya are expected to resume this week.

Media reports say Sarir crude will be

loaded at Libyas eastern-most terminal,

Marsa al-Harigah, near Tobruk.

The terminal, with a capacity to ship

110,000 barrels per day, and the terminal

at Zueitina were turned over to Libyan

army control late last week following an

agreement between the Libyan

government and the rebels. This should

lead to the four terminals being returned

to government control.

The rebels had formed themselves into

the Cyrenaica Political Bureau and

demanded that eastern Libya be given

more autonomy and more control over

oil revenues. Originally organised to

protect the countrys energy facilities, the

rebel group threatened to establish a new

state if the government in Tripoli did not

make efforts to put the country on a

better political course. Events came to a

head in March when the rebels attempted

to export crude using a rogue tanker that

managed to evade Libyan authorities.

However, this was later seized by the US

Navy and returned to one of the Libyan

ports under government control.

Libyas state-owned National Oil

Corp. (NOC) last week lifted the force

majeure declaration imposed at Marsa al-

Harigah after it was seized by rebels in

mid-2013.

It is not clear when exports might

resume from Zueitina, which has a

70,000 bpd capacity, or when the export

terminals of Es Sider and Ras Lanuf,

with a combined capacity of 560,000 bpd

will be turned over to government

control.

The blockade of the terminals, which

has lasted more than nine months, has

resulted in serious financial losses for

Tripoli, which has had to revert to

dipping into its financial reserves in

order to keep the government working.

Revenue losses are estimated to be

US$14 billion or more.

PIPELINES

Transnet suffers yet

another setback

TERMINALS & SHIPPING

Libya crude oil exports setto resume this week


14/22






Production and exports in recent

months is reported to have fallen to

around 200,000 bpd and less.

Prior to the blockade of terminals and

onshore oil fields and infrastructure,

Libya was producing 1.2 million bpd and

exporting most of it.

Premier resignation

While there are signs of progress from

Libyas east, trouble continues at the

heart of government. Libyan Prime

Minister Abdullah al-Thinni, who

replaced Ali Zeidan, announced plans to

resign last week after an attack on his

family.

A militia is believed to have attacked

al-Thinnis family, although they were

not harmed. The premier condemned the

cowardly attack, during which his car

was reportedly stolen.

Once the General National Congress

(GNC) has chosen a replacement, al-

Thinni will step down, he said.

More than a decade after the project was

first mooted, state-owned downstreamoperator Kuwait National Petroleum Co.

(KNPC) in mid-April finally tendered

two of the five main engineering,


contracts covering storage and marine

works on its US$14 billion new refinery

project (NRP), a 615,000 barrel per day

facility to be built at Al-Zour in the south

of the country.

The launch of the bidding process

follows the award in February of the

main EPC contracts on KNPCs other

flagship scheme, the Clean Fuels Project

(CFP) to expand and upgrade existing

refining capacity at Mina Abdullah and

Mina al-Ahmadi.

Bids for both NRP contracts are due on

September 14. Four prequalifiers are

looking at the tank farm packagethe

UKs Petrofac with South Koreas

Hyundai Heavy Industries (HHI), Italys

Saipem with Indias Essar and separately

Daelim Industrial and Daewoo

Engineering & Construction, both of

South Korea.A similarly Korean-dominated shortlist

of five prospective bidders are eligible to

bid for the marine works package

Petrofac with HHI, Hyundai Engineering

& Construction with Saipem and South

Koreas SK Engineering & Construction,

Daewoo and the US McDermott.

Several interested companies have

reached this stage and beyond before.

When the contracts were first awarded in

2008 before being cancelled in light oftrenchant criticisms of both the bidding

process and the projects economics by

the always-suspicious National Assembly

(parliament), Daewoo won the tank

farms job and HHI was selected for the

marine works.

The three remaining packages, on

which no details of prequalifiers has been

released more than a year after the

submission of applications, cover the

atmospheric residue desulphurisation

units, hydrogen compression and

recovery units and offsites and utilities

won in 2008 respectively by Japans JGC

Corp. with South Koreas GS

Engineering & Construction, SK and the

US Fluor.

According to the ambitious schedule

set out by KNPC late last year,so far,

to general surprise, adhered tothe

bidding and awards process for all five

contracts will be completed by the end of

the year.

Other aspects of the NRP have been

put in place recently, likewiseengendering hope of timely progress: in

early March, Van Oord of the

Netherlands won the 186.4 million dinar(US$663.3 million) site preparation

contract for dredging and reclamation of

the designated 16.2 million square metre

plot, unusually winning against

competition from a significantly lower

bid by fellow Dutch firm Boskalis

Westminster.

Meanwhile KNPCs upstream

counterpart Kuwait Oil Co. (KOC)

issued a tender the same month for

construction of a 350-km pipeline to

supply the new refinery with crude

feedstock from its Lower Fars heavy oil

project, with bids due on May 6.

The refinerys output will primarily

supply low-sulphur fuel oil to the

countrys existing and planned power

plants, as the government works to

eliminate highly controversialin light

of the countrys energy riches chronic

summer power shortages. Completion is

due in 2019.

Future integration with a

petrochemicals complex is also under

discussion between KNPC and sister firmPetrochemical Industries Co. (PIC),

which under initial proposals would see

the refinery supply naphtha and LPG to a

mixed-feedstock cracker with

commodities and derivatives units, with

PIC providing hydrogen and pygas in

return. Fluor and Foster Wheeler, also of

the US, are carrying out studies on the

estimated US$7-10 billion project.

TERMINALS & SHIPPING

TENDERS

KNPC floats new refinery tenders


15/22






The following news items are sourced

from local and international news

sources. NewsBase is not responsible for

the contents of the stories and gives no

warranty for their factual accuracy.

POLICY

Israeli gas holdspromise of betterties with neighboursIsraels drive to export its new-found

natural gas could help to rebuild strained

ties with old regional allies Egypt and

Turkey, but could deprive Europe of a

precious alternative to Russian gas.

Israel has in recent months alreadysigned energy deals with Jordan and the

Palestinian Authority, though relations

with the Palestinians are at a low ebb,

and now needs to expand its export

horizons to cash in on its huge energy

discoveries.

If all goes well, the latest developments

could see first pipelines being laid

between Israel and Turkey as soon as

2015, and gas cooperation between Israel

and Egypt is also emerging, which would

allow export access to Asias majormarkets.

A growing population and soaring

demand have left Egypts own liquefied

natural gas export (LNG) plants in need

of new supply, as domestic shortages eat

into seaborne exports through the Suez

Canal to the worlds most lucrative

market in Asia.

This has put Israels previous plans to

pump its gas reserves into a future export

plant in Cyprus on the back burner,

dealing a major blow to the indebted

Mediterranean islands ambitions to

become a global player in the gas market.

A Cypriot LNG export plant was due to

deliver at least 5 million tonnes a year to

Europe and Asia, allowing Europe to

reduce its growing dependency on

Russia, which has become of particular

concern since the crisis in Ukraine cast a

Cold War chill over East-West relations.

Israels new plans throw Cypriot

developments into doubt as investors

would require more gas than Cyprus has

on offer to make returns on multibillion-

dollar investments.

If Israel has really ditched Cyprus as a

partner to develop the regions gas

resources, then we (Cyprus) really do

have to find quite a lot more gas if we

want to become a viable exporter, and

that would inevitably throw our plans

back by several years, said one source

involved in developing Cypruss gas

reserves.

The possibility of sanctions on Russias

energy sector in response to Moscows

annexation of Crimea and troop build-up

along Ukraines eastern border have

underscored Europes acute need to

diversify its oil and gas sources.

Israel plans to export gas by pipeline and

through several floating LNG productionplants, which cool gas to liquid form, so

they can ship it to the worlds largest

markets.

At stake for Israel is a US$150 billion tax

take should export deals be agreed by a

consortium operating its gasfields. Its

strategic re-alignment effectively places

a tantalisingly close new gas province

out of Europes reach.

Ultimately Egypt and Turkey need

energy, and the fact that we have it is

creating a regional convergence ofinterests, an Israeli diplomatic source

told Reuters.

REUTERS, Apri l 14, 2014

REFINING

SK firms wincombined US$7.2bnin Kuwait ordersFive South Korean companies have won

a combined US$7.2 billion in orders

from Kuwait National Petroleum

Company to expand capacity and

improve environmental standards at two

oil refineries.

The contracts, which stem from US$12

billion in bids approved in February for

the state-run companys Clean Fuels

Project, highlight efforts by South

Korean builders to shore up margins via

joint bids with other local or foreign

firms for major overseas construction

projects. Korean companies are

increasingly forming consortiums with

established overseas companies and that

is helping them to win better value

contracts, said Yun Sok-mo, an analyst at

Samsung Securities.

Overseas plant orders won by South

Korean builders during the first quarter

rose by 42.1 percent from a year ago,

according to the Ministry of Trade,

Industry and Energy in a report earlier

this month.

The ministry said prospects for further

growth in overseas orders looked good

given expectations for continued global

economic recovery and growing demand

for energy-related work.

Daewoo Engineering & Construction Co

Ltd said in statement on Monday that it

won an order for the Mina Abdullahrefinery in Kuwait as part of a joint

venture with Hyundai Heavy Industries

Co Ltd and Fluor Corp.

The order is worth US$1.13 billion each

for the three companies, according to

Daewoo.

Samsung Engineering Co Ltd, in a

regulatory filing on Monday, said it got a

separate US$1.62 billion order for the

Mina Abdullah refinery as part of a joint

venture with Petrofac Ltd and Chicago

Bridge & Iron Company NVGS Engineering & Construction Corp

and unlisted SK Engineering &

Construction Co Ltd also said they got an

order for refinery work in Kuwait as part

of a joint venture with Japans JGC Corp.

The third order, for the Mina Al-Ahmadi

refinery, is worth around US$1.66 billion

for each of the three companies,

according to GS Engineering and SK

Engineering.


Imports, notrefineries, to meetAfricas fuel needsAfricas dependency on fuel imports is

likely to grow as its refining projects

struggle to get off the ground, a Vitol

director told a Reuters Africa Summit.

Dozens of new refining projects have

been announced in Africa, but they are

unlikely to be built unless they are either

gigantic or with guaranteed crude supply

in a landlocked location.

NEWS IN BRIEF


16/22






Micro refineries in waterborne locations

are not a viable way to get a return on

capital. You have to go big, and today

big means a 300,000 to 500,000 barrel

per day complex refinery and US$5-$15

billion of capital, Chris Bake, director

of origination and investments, told

Reuters in a telephone interview. To

deploy that is challenging, he added.

Bake added that he expected one large

refinery to be built in West Africa but

that it could take five to seven years,

while new plants in east Africa were less

certain given strong competition from the

Middle East.

Vitol, the worlds top oil trader with over

US$300 billion in annual revenues, seeks

to meet African demand in competitionwith other traders such as Glencore and

Trafigura and with large Asian refiners.

Vitol estimates that Africas fuel demand

amounts to 3.71 million barrels per day

in 2014, worth about US$440 million a

day, based on ICE gasoil futures prices.

That is close to a 3 percent increase from

the 2013 estimate.

Bake said the most exciting market in

Africa was gasoil, with growth expected

to be in the high single digits as power

demand booms. Demand for liquefiedpetroleum gas will also rise quickly

across North Africa and Nigeria as

consumers spend more and move to

cities, he added.

A small number of refining projects in

landlocked locations could succeed,

possibly in Uganda, Chad or South

Sudan, Bake added, as they are sheltered

from competing supplies of giant Asian

refineries. Vitol is leading a consortium

to bid for a US$2.5 billion refinery in

Uganda. The winner is expected to be

announced in July. Vitol will also seek to

supply African countries with gas for

power production and is already working

to develop gas fields offshore Ghana to

supply its local market. Africa is a

power-hungry continent, and we are

looking at domestic gas opportunities,

said Chris Joly, director of exploration

and production, in the same interview.

He added that the firm, which pumps

around 10,000 barrels per day, would

look for exploration and production

opportunities that complement its

existing assets and trading contracts.

Vitol has invested in an African chain of

petrol service stations, Vivo Energy, in

partnership with Shell and Helios

Investments Partners. Vitol also has an

oil product storage terminal in Mombasa,

Kenya.

Were not doing upstream for the sake

of doing upstream. Its more about

integration with the wider Vitol

business, Joly said.

Unlike traders Glencore and Mercuria,

Vitol has held off bidding for Shells

assets in Nigeria, Africas top oil

producer, citing high entry costs and stiff

competition from local players, who have

access to low borrowing rates.

But Joly said Vitol would keep looking atopportunities.

Nigerias too important to ignore, so we

are taking a cautious and long-term view.

There will be opportunities down the

road. We are talking and looking, he

said. Vitol, a regular buyer of South

Sudans Dar grade crude, is also in talks

with the government there on oil

infrastructure projects, Bake said,

without giving details.

Like others, weve talked to the

government about ways to help improvethe infrastructure to give them

incremental security of supply. Were

still working on options with them.


Ethiopian marketersays Africa needs torefine its oilEthiopias leading private oil marketer

plans to expand into neighbouring east

African economies and is interested in

part financing a refinery aftercommercial discoveries in the region.

Tadesse Tilahun, CEO of National Oil

Ethiopia, said untapped crude deposits in

Kenya and Uganda handed governments

and investors the opportunity to construct

a refinery able to compete with cheap

imports from India, the Gulf and beyond.

Doing so would help African countries

extract more value from their resources

and cut their import bills, Tadesse said.

Africas demand for refined products is

growing hugely because of its economic

growth. The crude findings are also

increasing. That is the opportunity,

Tadesse said in Addis Ababa as part of

the Reuters Africa Summit.

We want to (build) a refinery. We have

already discussed this in principle with

our shareholders, who are very much

committed.

National Oils (NOC) shareholders

include Saudi billionaire Mohammed

Hussein Al Amoudi, whose investment

portfolio in construction, gold, hotels and

energy has helped amass an estimated

fortune of over US$15 billion, according

to Forbes.

Tadesse said other private and public

investors would need to come on board.

Eastern Uganda has become the latestfrontier in the global hydrocarbon hunt

after gas finds off Tanzania and

Mozambique and oil discoveries in

Uganda and Kenya.

Even so, Sub-Saharan Africa faces

headwinds supplying more of its own

refined petroleum products. Regional

cooperation and funding for oil-related

infrastructure are proving slow, while

foreign oil refiners and traders are

flooding the US$80 billion market with

imports. Existing pipelines also tended torun to the coast, Tadesse said, either for

the export of crude or the import of

refined products from small-scale

refineries found near ports.

That has to change, Tadesse said.

Refineries are now needed inland so

that Africa can supply itself.

Tadesse acknowledged the price tag was

problematic for many African countries.

Oil production in Uganda has been

delayed in part due to a row between the

government and investors over the size -

and thus cost - of a refinery in the

country.

It would be in our own interest, for all

countries in this area, to have a common

refinery, a joint facility, where we can

take our own product, Tadesse said.

Kenya plans - but has made little

progress towards - a new US$2.8 billion

refinery on its northern coast. Industry

experts say Ugandan and Kenyan oil

exports could reach 500,000 barrels per

dayoil Tadesse would rather see stay

in the region.

NEWS IN BRIEF


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Around the world, oil & gas, refining and

petrochemical companies are becoming

increasingly concerned by how the

development of unconventional resources

is changing the energy landscape. Our

business is facing new and

unprecedented challenges globally and

from all directions, warned Al-Mady.

Cheap and abundant resources have

been our primary competitive advantage.

Within five years, what used to be a

phenomenon known only to specialists,

what is now called drilling technologies,

brought an avalanche of unforeseen

reserves.

With forecasts predicting that the GCC

will enter into a new growth phase

characterised by massive capacityexpansions combined with significant

product diversification, there is an

imminent need to invest in the means that

ensure such projects remain competitive,

even in the face of the shale revolution.

That is of course, not to say that the GCC

has failed to innovate. With a likely gas

shortage approaching as early as 2015,

the regions petrochemicals companies

have certainly seized the opportunity to

innovate, albeit because of challenging

circumstances.As much as 34 million tons of additional

petrochemical capacity may come online

by 2018, but constraints in the supply of

ethane throughout the GCC have

encouraged companies to shift to the

utilisation of heavier feed-stocks such as

propane, butane and naphtha.

By 2020, approximately 35% of the

incremental feedstock for petrochemical

production will be derived from refining

operations. Within refinery streams,

naphtha will account for the largest

feedstock demand. Such a move has

come at a higher cost, but has also

produced a more balanced base

petrochemicals products mix. In turn this

has allowed for the production of new

sets of secondary and tertiary products.

The successful diversification of the

regions petrochemical product slate has

been heralded as one of the major

triumphs of innovation in the region. But

other factors, such as coals-to-chemicals

technology in China, have also meant

that the comparative cost advantages

once enjoyed by the Middle East are

fading in Eastern markets as well.

ARAB IAN OIL AND GAS, Apri l15, 2014

PIPELINES

Iraq hopes tocomplete pipeline toraise exports in 2014Iraqi Oil Minister Abdul Kareem Luaibi

said on Wednesday his country hoped to

complete construction of a 200 km (124

miles)oil pipeline to raise exports toTurkey to more than 1 million barrels per

day (bpd) this year.

We are building a pipeline in Iraq,

Luaibi was speaking to Reuters on the

sidelines of an oil and gas conference in

the Turkish capital Ankara. I believe the

daily oil flow will exceed one million

barrels a day when that line is completed.

I hope it happens this year.


TERMINALS &SHIPPING

Mombasa oilterminal relocationKenyas government said Saturday it has

begun the process of relocating

Mombasa-based Kipevu oil terminal to

create additional capacity at a cost of

U.S. $120 million dollars. Kenya Ports

Authority chairman Danson Mungatana

said the new terminal, expected to be

completed in 2018 and will reduce fuel

pump prices in the East African nation.

Preliminary design of the new facility

has been undertaken and the relocationagreed upon by all stake holders. The

detailed design will cost 1.7 million

dollars while construction of the facility

will cost about 120 million dollars,said

Mungatana.

The KPA chairman who was speaking

during the official launch of the Kenya

Oil and Gas Association in Nairobi said

the new terminal will have capacity for

two large vessels each carrying 100,000

tons of crude oil. Kenyan oil firms have

previously cited the high cost of refinedpetroleum products to losses incurred as

a result of refining at the Kenya

Petroleum Refineries Limited (KPRL)

facility in Kipevu. Analysts say this will

enable the refinery to play a key role in

reducing the price of fuel in the East

African country to the benefit of

consumers affected by the high cost of

living.

CW, Ap ril 6, 2014

NEWS IN BRIEF


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CONFERENCES


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CONFERENCES


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SPECIAL REPORT


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Documents

Downstream Monitor - MEA Week 15