January 2017 January 2017

HYDROCARBON ENGINEERING

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E-mail: [email protected] 24/7 hotline: 1-844-GTLS-911 (1-844-485-7911) www.ChartLifecycle.com CONTENTS January 2017 Volume 22 Number 01 ISSN 1468-9340 03 Comment 45 A safe indication Stefan Otto, WEKA AG, Switzerland, discusses the 05 World News implementation of visual level indicators at Essar Energy's 12 OPEC: ups and cuts Stanlow refinery, UK, and how this improved both As the dust settles after November's OPEC meeting operations and safety. and the decision to advance moderate production cuts, 48 Up to code Nancy Yamaguchi, Contributing Editor, reviews the oil and Tony Paulin, Paulin Research Group, USA, discusses how gas profiles of oil producing and exporting countries in the improved ASME calculations have enhanced safety and Middle East and North Africa. reduced risks within the downstream piping industry. 24 Riding the storm 53 Reaction engineering The downstream industry is currently operating in a Ravindra Aglave, Siemens PLM, USA, and Thomas Eppinger, difficult environment of shifting demand patterns caused Siemens PLM, Germany, assess reactor design aspects by volatile crude prices. Allison McNulty, AspenTech, using computational fluid dynamics in chemical reaction USA, explains how advanced planning, in combination engineering. with scheduling software, can help refiners to successfully navigate the fluctuating economic storm. 59 The refinery connection 29 Flare emissions: what's new? John Hopshire, Maverick Technologies, USA, discusses programmable logic controllers in process units and how Inaas Darrat, Daniel Smith and Courtny Edge, Trinity the advantages of uniformity can simplify day to day Consultants, USA, review the calculation updates for operations. emissions produced from flaring. 33 Under control 64 One of a kind Each and every refinery is unique, with distinctive David Fahle, Servomex, USA, and Zarina Stanley, Servomex, constraints and opportunities. Elena Mayor Vadillo, UK, describe how downstream operators can conduct flare Honeywell UOP, USA, explains why a comprehensive stack analysis and emissions control under the new MACT choice of hydroprocessing catalysts is essential for regulations. efficient hydrocracker operations. 37 Unlikely partners 69 An economic rollercoaster Riggs Eckelberry, OriginClear, Inc., USA, explains how Bart De Graaf, Johnson Matthey Process Technologies, outsourced wastewater treatment can help oil and gas USA, and Paul Diddams, Johnson Matthey Process companies to share water resources with the agricultural Technologies, Europe, review the journey and influence of sector. the fluid catalytic cracking unit in a refinery’s operations, 40 Eradicating wastewater woes: part two and how its functions will develop into the future. Stephan Mrusek, Johanna Ludwig, and Lucas León, akvola 73 Catalyst Review Technologies GmbH, Germany, continue their evaluation Hydrocarbon Engineering reviews some of the most of a refinery wastewater reuse project, and present the advanced catalyst technologies available within the results of the proposed ceramic membrane treatment field downstream industry today. trials. 88 15 facts... This month we give you 15 facts on catalysts!

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2017 Member of ABC Audit Bureau of Circulations © JOIN THE Copyright Palladian Publications Ltd 2017. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the follow connect like join prior permission of the copyright owner. All views expressed in this journal are those of the respective contributors and are not CONVERSATION @HydrocarbonEng Hydrocarbon Hydrocarbon Hydrocarbon necessarily the opinions of the publisher, neither do the publishers endorse any of the claims made in the articles or the Engineering Engineering Engineering advertisements. Printed in the UK. Uncaptioned images courtesy of www.shutterstock.com. SEE US AT: MIDDLE EAST SULPHUR EGYPS BOOTH 34 · ABU DHABI STAND 1E36, HALL1 · CAIRO 12-16 FEBRUARY 2017 14-16 FEBRUARY 2017 SULPHUR

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CONTACT INFO CALLUM O'REILLY EDITOR

MANAGING EDITOR James Little [email protected] t’s fair to say that 2016 was one for the history

EDITOR Callum O'Reilly books. In a year full of twists and turns, the [email protected] decision taken by members of the Organization

EDITORIAL ASSISTANT Francesca Brindle of the Petroleum Exporting Countries (OPEC) to [email protected] Icut oil production for the first time in eight years ADVERTISEMENT DIRECTOR Rod Hardy came as one last surprise. [email protected] Despite OPEC members voting for a production cut back in September 2016, ADVERTISEMENT MANAGER Chris Atkin the oil price slumped by almost 4% in the days preceding the formal OPEC meeting [email protected] in November 2016, as traders started to doubt whether a deal was really feasible. ADVERTISEMENT EXECUTIVE Will Powell Rumours of key divisions between OPEC members threatened to derail the [email protected] discussions. ADVERTISEMENT EXECUTIVE David Ramsden However, the so-called ‘Vienna Agreement’ was finally struck without a hitch. [email protected] Under the agreement, OPEC members have decided to implement a cut to crude DIGITAL EDITORIAL ASSISTANT Angharad Lock production of 1.2 million bpd, effective from 1 January 2017. In a statement, the OPEC [email protected] members said that the agreement “confirmed their commitment to a stable and PRODUCTION Ben Munro balanced oil market”. Shortly after the deal was reached, several non-OPEC producers [email protected] also agreed to cut their output by 558 000 bpd, marking the first global agreement WEB MANAGER Tom Fullerton since 2001. [email protected] Following the news, the price of Brent crude quickly climbed to US$56/bbl. The SUBSCRIPTIONS Laura White International Energy Agency (IEA) also suggested that the market is likely to move into [email protected] deficit in the first half of this year by approximately 0.6 million bpd, if OPEC producers ADMINISTRATION Nicola Fuller stick to their production target of approximately 32.7 million bpd and the non-OPEC [email protected] producers also deliver on their pledges.1 Before the agreement, the IEA forecast that CONTRIBUTING EDITORS the market would rebalance before the end of 2017. Nancy Yamaguchi Gordon Cope Although the agreements are certainly welcome news, some market experts remain doubtful that the production cuts will actually be implemented. And even if they are, the IEA warns that the proposed cuts are only for the first six months of 2017, with no guarantee of an extension. Furthermore, Shakil Begg, Head of Oil Research and SUBSCRIPTION RATES Annual subscription £110 UK including postage Forecasts at Thomson Reuters, suggests that OPEC’s crude oil export capacities remain /£125 overseas (postage airmail). a key issue: “[…] As physical supply to the market (exports) is the most critical factor for Two year discounted rate £176 UK including postage/£200 overseas (postage airmail). a true rebalancing in fundamentals, a production cut does not directly translate into lower physical supply or exports immediately”. SUBSCRIPTION CLAIMS Claims for non receipt of issues must be made within 3 months of However, there are promising signs that the OPEC members mean business. A publication of the issue or they will not be honoured without charge. committee has been set up (including two participating non-OPEC countries) to APPLICABLE ONLY TO USA & CANADA monitor producers’ output. What’s more, reports suggest that Saudi Arabia is willing Hydrocarbon Engineering (ISSN No: 1468-9340, USPS No: 020-998) is published monthly by Palladian Publications Ltd GBR and distributed to cut even more than its agreed level of 10.06 million bpd, if necessary. Analysts in the USA by Asendia USA, 17B S Middlesex Ave, Monroe NJ 08831. Periodicals postage paid New Brunswick, NJ and additional mailing at UK-based brokerage, PVM, said: “If anyone needed a proof of Saudi Arabia’s offices. POSTMASTER: send address changes to HYDROCARBON commitment in their effort to deplete global oil stocks, here it is”.2 ENGINEERING, 701C Ashland Ave, Folcroft PA 19032 A lot is at stake in the weeks and months ahead. In its finalOil Market Report (OMR) of 2016, the IEA concludes: “Success means the reinforcement of prices and revenue stability for producers after two difficult years; failure risks starting a fourth 15 South Street, Farnham, Surrey year of stock builds and a possible return to lower prices”. GU9 7QU, ENGLAND In this month’s issue of Hydrocarbon Engineering, Contributing Editor, Tel: +44 (0) 1252 718 999 Nancy Yamaguchi, takes a closer look at the implications of the production cuts, with Fax: +44 (0) 1252 718 992 an emphasis on the North African and Middle Eastern OPEC countries.

1. ‘OMR: What a difference a year makes’, The Oil Market Report, International Energy Agency (IEA), (13 December 2016). 2. SHEPPARD, D. ‘IEA predicts oil glut will end if producers deliver deal’, Financial Times, (13 December 2016). Together facing a brighter tomorrow

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Middle East | Alfa Laval wins order Kuwait | Natural gas processing project lfa Laval, a leader in heat SEK 150 million and delivery is Atransfer, centrifugal separation scheduled for 2017 and 2018. lack & Veatch has secured a contract and fluid handling, has received an The order comprises the Bfor the licensing technology and order to supply compact heat delivery of compact heat related services for sulfur recovery units exchangers to a natural gas plant exchangers, which will be used to (SRUs) and acid gas removal units in the Middle East. The order, recover energy in the gas cleaning (AGRUs) to support natural gas booked in the Energy & Process process, thereby bringing down processing on the Jurassic field, a project segment in late December, has a the plant's power consumption central to Kuwait Oil Company's (KOC) value of approximately and CO emissions. 2 strategy to increase gas production. Kuwait has a very aggressive gas production target for 2030. Developing the Jurassic field is key to attain this goal. Republic of Korea | GA-EMS awarded contract Black & Veatch’s contribution centres on acid gas removal and sulfur recovery at eneral Atomics and chemicals. Jurassic Gas Facility 1, which will produce GElectromagnetic Systems Gulftronic separators capture about half of the Jurassic field's potential. (GA-EMS) has announced that it and remove solids and catalyst The total technology solution has been awarded a contract for a fines from the process stream to encompasses two acid gas removal trains six-module GulftronicTM provide higher value oil products designed for feed gas flow, as well as Electrostatic Separator system for with a clarity below 100 ppm. three parallel identical sulfur recovery installation at the Hyundai Oilbank Gulftronic separators are also trains, with dedicated tail gas treatment Co. Ltd (HDO) Daesan refinery in impervious to fouling or blockage, units for each sulfur train. the Republic of Korea. Delivery of resulting in less downstream Black & Veatch is involved in every the new unit will expand HDO’s contamination and significantly step of the assets’ lifecycle, from front existing Gulftronic system from reduced maintenance requirements. end engineering design to operation and 12 to 18 modules to support its HDO refines, processes, and maintenance support. The company is residual fluidised catalytic cracker markets petroleum and responsible for the basic engineering (RFCC) expansion project intended petrochemical products and is a design package and is bringing together to help meet the Republic of leading oil refining and marketing various technologies to meet the Korea’s increased demand for fuels company in South Korea. performance requirements.

UAE | Tank farm actuator projects

lectric valve actuator 80 SAEx .2 multi-turn and SQEx .2 part-turn actuators with ACExC Emanufacturer AUMA has won part-turn actuators to automate a integrated controls as well as two several important contracts in wide variety of gate, butterfly and SIMA master stations. The system Fujairah, UAE. The largest is for the double block and bleed (DBB) valves. was commissioned in Black Pearl project, commissioned by Four SIMA master stations are also September 2016. tank farm operator Vopak Horizon part of the scope of delivery, offering In another recent project in this Fujairah Ltd. At the Port of Fujairah, enhanced security. Commissioning region, AUMA supplied 142 actuators Vopak Horizon Fujairah operates a was completed in May 2016 to the for the first phase of the BPGIC petroleum products terminal with six full satisfaction of the customer. Fujairah Terminal project for Brooge jetties and about 2.1 million m3 of A second project for Vopak Petroleum and Gas Investment storage in 68 tanks. Black Pearl, the Horizon Fujairah concerns the Company. AUMA also provided seventh expansion phase at the pipework and valves linking the 36 actuators to the Port of Fujairah terminal, will add five tanks with terminal to other storage facilities at for its VLCC Jetty 1 project. The first around 500 000 m3 of storage the port. The MM2 (Matrix Manifold berth opened in June 2016 for vessels capacity for crude oil. No. 2) project covers another of up to 330 000 t, and a second is AUMA supplied more than 48 SAEx .2 multi-turn and SQEx .2 under construction.

HYDROCARBON 5 January 2017 ENGINEERING WORLD NEWS IN BRIEF USA | Analysing refinery performance elek Refining Inc. will use a new Honeywell UOP process and fault germany Dindustrial internet of things models, fed by current plant data, to Wärtsilä has been awarded a contract to supply (IIoT)-based Connected Performance provide key performance information a biohybrid production plant to Erdgas Südwest Services (CPS) offering from Honeywell and process recommendations. GmbH. The new plant will produce both bioLNG to improve the performance of its By giving refineries, petrochemical (liquefied biogas) and LNG. The contract was refinery in Tyler, Texas. and gas processing plants greater signed in December 2016 and delivery will be CPS is part of Honeywell’s visibility into their operations, PRA can made on a fast track basis. The new biohybrid Connected Plant initiative, which identify and resolve problems that solution will be integrated into the customer's leverages IIoT technologies and reduce plant efficiency and existing biowaste to biogas production, whilst Honeywell UOP’s services and domain productivity. LNG production will be part of the customer's expertise to improve a broad range of The 75 000 bpd refinery in Tyler existing pipeline gas infrastructure. Everything will industrial operations from supply chain primarily processes locally sourced be located at a single site in southern Germany. efficiency to asset optimisation. Delek light, sweet crude oils into a full range will use a CPS solution called process of refined products, including gasoline, COMPLETE SOLUTIONS FOR reliability advisor (PRA) to continuously diesel, jet fuels, liquefied petroleum serbia analyse its process unit performance gas and natural gas liquids. More than YOUR REFINERY CHALLENGES CB&I has been awarded a contract by Naftna and detect anomalies, enabling refinery 93% of the Tyler refinery's production Industrija Srbije (NIS) for the engineering, operators to quickly resolve problems slate has been comprised of light, high procurement and construction management of and keep the unit operating at peak value products, such as gasoline and Today’s Refinery Challenges a delayed coker unit in Pancevo, Serbia. CB&I performance. CPS solutions use distillate fuels. previously announced an award of the technology Processing tight oil license and front end engineering and design for Managing stringent sulfur limits the delayed coker that will be integrated with the Canada | Tank farm development module refinery's existing CB&I fluid catalytic cracking unit Monetizing orphan streams and Chevron Lummus Global hydrocracker. luor Corp. has placed the final construction personnel were Upgrading residuals Fmodule for the Suncor Energy Oil integrated into the fabrication teams malaysia Sands Ltd Partnership’s East Tank Farm to support construction driven Petronas’ first floating LNG (FLNG) facility, development project near Fort execution through the phases and the CB&I’s Comprehensive Solutions PFLNG SATU, has achieved an industry McMurray, Alberta. 95 modules were fabricated and CB&I’s broad portfolio of both refining and petrochemical technologies, breakthrough with the successful production of As part of its engineering, shipped in 10 months, aligning to the combined with our execution expertise, will help you maximize processing procurement, fabrication and site setting schedule and on budget. its first drop of LNG from the Kanowit gas field, flexibility and achieve margin benefits in the widest range of scenarios. offshore Sarawak, in December 2016. With a construction (EPFC) scope, Fluor The East Tank Farm Development, processing capacity of 1.2 million tpy, operating at managed module fabrication and which will be a Suncor-operated asset, water depths between 70 - 200 m, PFLNG SATU shipment of the modules, all of which is currently under construction in the We are with you through every stage of the process plant life cycle, from is expected to lift its first cargo and achieve were fabricated by Fluor’s Supreme Wood Buffalo Region of Alberta. The commercial operations in 1Q17. Modular Fabrication Inc. (SMFI) joint facility will consist of bitumen storage, feasibility studies to identifying plant optimization and upgrade solutions, venture fabrication yard near blending and cooling facilities and through technology selection, full-scope EPFC, commissioning and start-up. algeria Edmonton, Alberta. Engineering and connectivity to third party pipelines. JGC Corp.'s wholly owned subsidiary, JGC Algeria PROCESS PLANNING AND DEVELOPMENT S.p.A., has been awarded a contract by Sonatrach USA | Terminal acquisition to feed the gas processing plant located in the LICENSED TECHNOLOGIES AND CATALYSTS Hassi R’Mel gas field. The project consists of allgrass Energy Partners LP (TEP) revolving credit facility. FULL-SCOPE EPFC SERVICES work to improve the capacity of the facilities Thas announced that it has Tallgrass Terminals also owns the PROJECT MANAGEMENT AND CONSULTING at Hassi R’Mel that Sonatrach is operating in acquired Tallgrass Terminals LLC and Sterling Terminal near Sterling, the region for the purpose of maintaining a Tallgrass NatGas Operator LLC from Colorado, that provides approximately AFTERMARKET SERVICES production plateau. JGC will be responsible for Tallgrass Development for a cash 1.3 million bbls of operational storage engineering, procurement and construction (EPC), consideration of US$140 million. The to the Tallgrass Pony Express crude oil together with test operation and performance acquisition represents TEP’s fifth pipeline, the Buckingham Terminal in testing of the complete booster unit set, which is dropdown acquisition from Tallgrass northeast Colorado and a 20% interest scheduled to be completed in 38 months. Development and was funded at in the Deeprock Development Terminal closing through borrowings on TEP’s in Cushing, Oklahoma. A World of Solutions Visit www.CBI.com January 2017 6 HYDROCARBON 26M102016H ENGINEERING

cbi_he_ad_dec_2016.indd 1 11/2/2016 10:44:37 AM COMPLETE SOLUTIONS FOR YOUR REFINERY CHALLENGES

Today’s Refinery Challenges Processing tight oil Managing stringent sulfur limits Monetizing orphan streams Upgrading residuals CB&I’s Comprehensive Solutions CB&I’s broad portfolio of both refining and petrochemical technologies, combined with our execution expertise, will help you maximize processing flexibility and achieve margin benefits in the widest range of scenarios.

We are with you through every stage of the process plant life cycle, from feasibility studies to identifying plant optimization and upgrade solutions, through technology selection, full-scope EPFC, commissioning and start-up.

PROCESS PLANNING AND DEVELOPMENT LICENSED TECHNOLOGIES AND CATALYSTS FULL-SCOPE EPFC SERVICES PROJECT MANAGEMENT AND CONSULTING AFTERMARKET SERVICES

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cbi_he_ad_dec_2016.indd 1 11/2/2016 10:44:37 AM TRUSTED WORLDWIDE WORLD NEWS AS THE INDUSTRY IN BRIEF Finland | Production maximisation este Jacobs has implemented Many biochemical processes offer malaysia NNAPCON Controller to opportunities for substantial LEADER IN FLARES. Fluenta has announced the sale of 24 Forchem Oy's tall oil distillation plant. improvement in terms of increased Forchem Oy owns and operates a production. In spring 2015, Forchem ultrasonic flare gas monitoring systems to Customers around the world trust John Zink Hamworthy Petronas. The systems will be installed at world scale tall oil distillation plant in Oy awarded Neste Jacobs a NAPCON the Petronas refinery and petrochemical the city of Rauma on the West Coast Performance Analysis project for Combustion flare technology for the same reason the integrated development (RAPID) complex in of Finland. The main products are tall quantifying the benefits of advanced Southeastern Johor. The sale makes Fluenta oil rosin (TOR) and tall oil fatty acid process control (APC). The NAPCON Texas Commission on Environmental Quality chose (TOFA) and the plant is flexible in the Performance Analysis lasted for two the single biggest supplier for the Petronas our test center for a Flare Efficiency Study – expertise. RAPID project. Fluenta’s flare gas meters were sense that different types of crude months and Neste Jacobs was able to tall oil can be used as feedstock. The demonstrate a production increase of sold directly through Krohne (representatives For more than 80 years, we’ve been investing heavily in of Fluenta) to Tecnicas Reunidas' engineering, process is mainly based on a vacuum 9%. After implementation of procurement and construction (EPC) group. distillation technology originally NAPCON Controller, a multivariable, experts and assets, continuously innovating through Construction of the RAPID complex is due to developed and designed by Neste model-predictive APC, Neste Jacobs be completed in 2019. Jacobs, presently known under the could increase production by a research and development, and knowledge gained trademark ArxPinus. further 8%. from our unrivaled experience. Let us put our canada Canada | Major growth project Quantum Energy Inc.'s wholly owned expertise to work for you. subsidiary, Dominion Energy Processing hell has successfully completed a production and enable Scotford, one Group Inc., has successfully contracted for Smajor growth project at its of North America’s most efficient and its proposed refinery site in the Stoughton, Scotford refinery near Edmonton, modern refineries, to deliver more high Saskatchewan area, in Canada. The site is Alberta, that will increase quality diesel, jet fuel, and gasoline to located in the Viewfield crude production hydrocracker production capacity by customers. area adjacent to the Crescent Point Energy 20%. The project was completed An integrated site with a bitumen gas plant and comprises 320 acres. Quantum through the debottlenecking of the upgrader, oil refinery, chemical plant continues its Bakken refinery development hydrocracker, a core refining unit for and carbon capture and storage unit, projects with ongoing permitting efforts making transportation fuels, such as Scotford produces a full range of in North Dakota and an increased diesel and jet fuel. The products for the Western Canadian emphasis with continued real progress debottlenecking process replaces market. on a 40 000 bpd proposed project in the vessels, compressors and feed pumps The project received a final Stoughton area of Saskatchewan, Canada. to allow a greater volume of heavy investment decision in January 2015. It crude oil to be processed. created 1000 construction positions in The project will equate to a the Edmonton area to install the new indonesia 14 000 bpd increase in the unit’s and modified equipment. Arup has been commissioned by PT Australasia LNG Indonesia (AALNG) USA | Polyethylene production to support the development of a new 2.4 million tpy LNG terminal, bringing itsubishi Heavy Industries Ltd this the third order following the greater energy security to East Java. Arup M(MHI) has received an order for completion of a polyethylene plant in will deliver pre-front end engineering design the supply of systems to support a Singapore in 2011. (FEED) for the marine infrastructure and large scale polyethylene production MHI will supply the reaction, vessel conversion for the Probolinggo LNG train for ExxonMobil’s Beaumont finishing, and shipping equipment for terminal. Providing geotechnical, civil, naval plant. The new production train is the plant, as well as utility facilities for architecture, and mechanical engineering slated to be completed in 2019, and water, air and steam. MHI has support, Arup will advise on the conversion will produce 650 000 tpy of participated in the project throughout of an LNG carrier into a floating storage unit polyethylene. the various stages of ExxonMobil’s (FSU). Arup is also advising on the 2.5 km MHI is currently building a planning. In addition, MHI has a proven jetty, unloading platform and associated polyethylene plant comprising of two track record of fulfilling orders for berthing infrastructure, required to bring the units, each with the same scale of large compressor turbines for ethylene LNG onshore to be regasified. production capacity, at ExxonMobil’s and LNG liquefaction plants for Mont Belvieu, Texas, facility, making ExxonMobil.

Customers around the world trust John Zink Hamworthy Combustion flare technology for the same reason the Texas Commission on Environmental Quality chose our test center for a Flare Efficiency Study – expertise. For more than 80 years, we’ve been investing heavily in experts and assets, continuously innovating through research and development, and knowledge gained from our unrivaled experience. Let us put our expertise to work for you.

You’re committed to progress and success. We’re committed to you. And we demonstrate our commitment through licensing world-class refining, gas, chemical technologies and specialty catalysts that drive exceptional performance. You can count on our proven WORLD NEWS technology and long-term collaboration to help you keep pace with the increasingly complex challenges of today’s evolving marketplace. From initial consultation through Lux Research | Investment in bio-based chemicals plant startup and beyond, our global team offers you practical guidance based on years DIARY DATES of real-world operating experience. Our goal is your success. enture capitalists (VCs) have pumped While from 2010 - 2015, the investment 26 - 30 March Learn more about how we can work together to grow your business. US$5.8 billion into bio-based focus was on drop-in replacements for SOGAT 2017 V www.catalysts-licensing.com Abu Dhabi, UAE materials and chemicals (BBMC) startups established chemicals, in 2016 VCs' focus Tel: +971 2 674 4040 since 2010, reflecting the drive for has shifted to disruptive synthetic biology Email: [email protected] sustainability, performance, and (synbio) and conversion technologies, alternatives to petroleum feedstocks. according to Lux Research. 28 - 30 March StocExpo Europe McKinsey | Rotterdam, the Netherlands Capacity growth to exceed demand Tel: +44 (0)20 8843 8835 Email: [email protected] cKinsey Energy Insights (MEI) has refining market. Mforecasted that, until 2020, global MEI modelled a high and low growth 29 - 30 March refining will move towards lower demand case, with the high case in line ARTC: Asian Refining Technology Conference utilisation and margins as capacity growth with the latest industry consensus. In the Jakarta, Indonesia exceeds demand. Post-2020 market high case, MEI sees light product demand Tel: +971 4 435 6101 conditions are expected to improve with growing at 1.2% annually through to 2020. Email: [email protected] higher demand for distillates due to Asia will also remain the leading marine pollution (MARPOL) regulations. consumer of light products and it is 4 - 7 April MEI’s latest Global Downstream predicted that diesel will provide the Gastech Conference & Exhibition Outlook notes the last two years have biggest demand growth post-2020. Chiba City, Tokyo, Japan seen major shifts as a result of falling However, this is dependent on vehicle Tel: +44 (0) 203 772 6038 crude price, a subsequent rise in global improvements, fuel substitutions and Email: [email protected] product demand and the fuel/oil diesel emission regulations. 9 - 12 April balance. This, combined with recent The outlook also highlights that 2017 GPA Midstream Convention events such as the diesel vehicle North American crude markets are likely Marriott Rivercenter, San Antonio, Texas, US emissions scandal and the International to remain tight until 2020, when a Tel: (918) 493-3872 Maritime Organisation’s cap on sulfur in resurgence of unconventional crude Email: [email protected] bunker fuel by 2020, has led to an supply could push the market back to uncertain outlook for the global export net-back pricing conditions. 18 - 20 April NISTM 19th Annual International Aboveground Storage Tank Conference & Trade Show IEA | A dramatic year for oil Rosen Shingle Creek Hotel, Florida, US Tel: 011.813.600.4024 he International Energy Agency's output fall in the same period by around Email: [email protected] T(IEA's) final report of 2016 900 000 bpd. Meanwhile, following highlighted the turbulent and dramatic, revisions to Chinese and Russian data, 24 - 26 April path of the oil industry. The focus in the IEA raised its 2016 global net demand Sulphur World Symposium 2017 January was on US$30/bbl oil and the growth number to 1.4 million bpd and Dublin, Ireland imminent increase in Iranian oil that for 2017 to 1.3 million bpd. Tel: +1 202 293 9305 production after sanctions were lifted. In Before the agreement among Email: [email protected] December, the industry saw the first producers, the IEA’s demand and supply 24 - 26 April proposed output cut by OPEC since numbers suggested that the market AFPM Reliability & Maintenance Conference and 2008 – and the first deal including would re-balance by the end of 2017. But Exhibition non-OPEC producers since 2001 – which OPEC, Russia and other producers are Convention Centre, New Orleans, Louisiana, US marks a major departure from the looking to speed up the process. If OPEC Tel: 202-457-0480 market share policy followed for the promptly and fully sticks to its Email: [email protected] past two years. OPEC’s cut to crude production target, assessed at production of 1.2 million bpd almost 32.7 million bpd, and non-OPEC 26 - 27 April matches its deliberate production producers deliver the agreed cuts of StocExpo Middle East Africa increase of 1.3 million bpd in the 558 000 bpd outlined on 10 December, Dubai World Trade Centre, UAE 12 months to October (the month on then the market is likely to move into Mobil Corporation. of Exxon trademarks are “X” names herein the interlocking and all product device logo, the ExxonMobil ExxonMobil, All rights reserved. Mobil Corporation. © 2016 Exxon Tel: 020 3196 4300 which the OPEC cuts are based), while deficit in the first half of 2017 by an Email: [email protected] the non-OPEC group has seen its crude estimated 600 000 bpd.

January 2017 10 HYDROCARBON ENGINEERING At the end of the day, you want a technology supplier who works with you.

Learn more about how we can work together to grow your business. www.catalysts-licensing.com © 2016 Exxon Mobil Corporation. All rights reserved. ExxonMobil, the ExxonMobil logo, the interlocking “X” device and all product names herein are trademarks of Exxon Mobil Corporation. of Exxon trademarks are “X” names herein the interlocking and all product device logo, the ExxonMobil ExxonMobil, All rights reserved. Mobil Corporation. © 2016 Exxon As the dust settles after November's OPEC meeting and the decision to advance moderate production cuts, Nancy Yamaguchi, Contributing Editor, reviews the oil and gas profiles of oil producing and exporting countries in the Middle East and North Africa.

View of Abu Dhabi skyline at sunset, UAE.

January 2017 12 HYDROCARBON ENGINEERING OPEC:

he Middle East and North Africa (MENA) region is at an interesting time in its history. Eight important oil producing and exporting country (OPEC) members are situated in this region, and OPEC as a cartel has been struggling to retain unity and credibility. Oil exporters have been Tenduring low oil prices ever since Saudi Arabia stepped away from its role as swing producer and began to increase its crude production to recapture lost market share. Spot prices for European Brent crude were approximately US$110/bbl in December 2014, but one year later, Brent spot prices had fallen to US$62/bbl. The price war continued, and in December 2015, Brent prices had fallen to US$38/bbl. In 2016, OPEC and other producer countries began to face budgetary problems, and started to try to work together to stabilise oil prices. In September 2016, the group held a historic meeting in Algiers, after the closing session of the International Energy Forum meeting. OPEC agreed in principle to cut production to 32.5 - 33 million bpd, and the members agreed to finalise the agreement at the 30 November meeting in Vienna. The next two months saw crude prices rise and fall as the group repeatedly tried and failed to pin down agreement details. On the eve of the 30 November meeting, investment house Goldman Sachs calculated the market implied odds of a successful deal at only 30%. Oil prices slumped. But, ultimately, OPEC came together, and the group announced that it would cut production to 32.5 million bpd in January 2017. Crude prices immediately soared by over 8%. This article will discuss the North African and Middle Eastern OPEC countries: Algeria, Libya, Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates (UAE). These countries vary in their levels of oil and gas production, and in their overall economic and political situations. Achieving unity has been a challenge. Many market experts remain unconvinced that OPEC will be able to institute and police the planned cuts. But these countries are responsible for approximately 80% of OPEC’s crude oil production, and if they cannot work together to reduce oversupply, then it will take much longer for the global oil market to achieve a balance between supply and demand. During that time, prices are likely to remain low, reducing revenues to the governments. There is major incentive now to build upon the success of the meeting and to fully implement the cuts. The following sections provide brief country profiles for the North African and Middle Eastern OPEC countries. Unless otherwise noted, British Petroleum (BP) is the source of oil and gas production data and the LNG export data, and the US Energy Information Administration (EIA) is the source of the data on OPEC net oil export revenues. The OPEC Secretariat and company websites are the source of historical country information. OPEC is the source of the final section on the crude production cut allocations agreed upon at the 30 November 2016 meeting. North African OPEC countries Algeria Algeria has provided a great deal of leadership in the current OPEC efforts. The Algerian Energy Minister, Noureddine Bouterfa, was instrumental in arranging the Algiers meeting, and has provided hospitality and diplomacy since.

HYDROCARBON 13 January 2017 ENGINEERING Figure 1. Algeria Oil and Gas Produc>on, MMT 100 Algeria joined OPEC in 1969. The country made its first 90 commercial oil discovery in 1956 with two key fields: Edjelleh and

80 Hassi Messaoud. Production began in 1958. Algeria has also emerged

70 as Africa’s top producer of natural gas. Figure 1 presents the BP data

60 series on Algerian oil and natural gas production from 1970 to 2015,

50 with oil in million tonnes and natural gas converted into

40 million tonnes of oil equivalent. Over the past decade, oil output has

30 peaked and fallen. This past decade alone included the global

Algeria Oil Produc>on, MMT Algeria Gas Produc>on, MMTOE

20 economic recession and the drop in oil prices. However, the Algerian

10 government has also been criticised for delays in the approval of oil development projects. The terms offered by the government have 0 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014 failed to attract investors, and very few of the oil and gas blocks Source: BP offered were taken. At least one auction was cancelled for lack of Figure 1. Algerian oil and gas production. interest. Natural gas production has been more stable than oil production. Figure 2. Algeria LNG Exports, BCM 30 In oil equivalent terms, natural gas production surpassed oil production in 2011. This has allowed Algeria to keep exporting LNG at 25.8 25.7 24.7 24.7 25 fairly stable rates over the past five years, as shown in Figure 2. In 2015, 21.9 3 20.9 LNG exports totalled 16.2 billion m. However, in the 2004 - 2007 20 19.3 period, LNG exports were approximately 25 billion m3, so 2015 exports 17.1 17.3 16.2 15.3 14.9 were only 63% of their level 10 years prior. 15 The recent drop in oil production, coupled with lower global crude prices, has severely cut into Algeria’s revenues. Figure 3 presents 10 the US EIA calculation of Algeria’s net oil export revenues. Net

5 revenues totalled US$59.6 billion in 2008 before the global economic recession, which caused a drop to US$35.8 billion in 2009. Revenues

0 rose to US$62.4 billion in 2011, but fell sharply to US$23.8 billion in 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: BP 2015. Figure 2. Algerian LNG exports (billion m3). Libya Figure 3. Algeria Net Oil Export Revenues (US$B) Libya joined OPEC in 1962, one year after it started exporting oil. Libya 70 has the largest oil reserve base in Africa, and the fifth largest natural 62.4 61.2 60 59.6 gas reserves. However, turbulence and violence is smothering the 54.8 industry. Oil production has plummeted, as shown in Figure 4. In 1970, 50 48.1 46.4 44.7 Libyan crude output was approximately 160 million t. It dropped 41.4 40 below 50 million t by the mid-1980s. It was gradually recovering until 35.8 34

30 the global economic recession and the Libyan civil war, which caused

23.8 production to drop to just 22.5 million t in 2011. Production then went 20 into another period of recovery, and oil output reached 71.1 million t in

10 2012, but it did not return to pre-war levels because of labour unrest and power supply interruptions at oil installations. By the middle of

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2013, there were even more widespread protests and strikes, and oil Source: EIA production fell sharply again. Production averaged 20.2 million t in 2015. There have been multiple attacks on oil-related infrastructure, Figure 3. Algerian net oil export revenues (US$ billion). from oilfields to pipelines, to loading terminals and ports. Natural gas production has been somewhat more stable, and the Figure 4. Libya Oil and Gas Produc@on, MMT 180 country had been an exporter of LNG, plus an exporter of pipeline

160 natural gas to Italy. Output has also suffered because of civil unrest. As Figure 5 illustrates, Libyan exports of LNG have vanished since the year 140

Libya Oil Produc@on, MMT Libya Gas Produc@on, MMTOE 2011. The country hopes to develop additional natural gas resources to 120 restart LNG exports. 100 The International Monetary Fund (IMF) reports that Libya’s

80 government budget is overwhelmingly reliant on oil and gas revenues

60 – approximately 96% of total government revenue came from oil and

40 gas in the year 2012. The US EIA calculates that Libyan net oil export revenues fell from US$56.9 billion in 2008 to US$33.7 billion in 2009, 20 then fell sharply to just US$11.9 billion in 2011 during the civil war. The 0 country was restoring output and exports after the war, and revenues 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014 Source: BP reached US$50.9 billion in 2012. But persistent domestic turmoil and Figure 4. Libyan oil and gas production. low oil prices have eroded earnings steadily since then, leading net revenues to fall to a mere US$3.7 billion in 2015.

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©2016 Intergraph Corporation. All rights reserved. Intergraph is part of Hexagon. Intergraph and the Intergraph logo are For further information go to: registered trademarks of Intergraph Corporation or its subsidiaries in the United States and in other countries. AutoCAD is a registered www.hydrocarbonengineering.com trademark of Autodesk, Inc. Figure 5. Libya LNG Exports, BCM 1 Middle Eastern OPEC countries 0.9 0.87

0.8 0.76 Iran 0.72 0.72 0.7 Iran is one of the original five founding members of OPEC in 1960, along 0.6 with Iraq, Kuwait, Saudi Arabia and Venezuela. As Figure 7 indicates, its 0.53 0.5 oil production has been subject to huge swings up and down.

0.4 Production was climbing in the 1970s, but it plummeted during the 0.34

0.3 Iranian Revolution, and it has never regained its peak production levels.

0.2 During the 1980s, infrastructure was repeatedly damaged during the

0.1 0.08 Iran-Iraq War. Production began climbing gradually after the war ended

0.00 0.00 0.00 0.00 0.00 0 in 1988, until international sanctions cut exports once again. In 2015, the 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: BP United Nations (UN) set out a schedule for lifting sanctions, and production began to rise. Natural gas production has risen more Figure 5. Libyan LNG exports (billion m3). steadily, and Iran retains ambitions of becoming an exporter of LNG. Iran’s proven reserves of natural gas are the second largest in the world, Figure 6. Libya Net Oil Export Revenues (US$B) 60 following Russia. It has aggressively developed natural gas for domestic 56.9 use, freeing up oil for export. 50.9 50 Iran’s net oil export revenues have dropped sharply, as Figure 8

41.6 42.1 shows. In 2011, export revenues were US$85.8 billion. They fell to 40 US$27.1 billion in 2015, a 68% drop. International sanctions account for 35.7 33.7 most of the drop, but the lifting of the sanctions in early 2016 coincided 30 29.2 28.1 with, and directly contributed to, a period of low oil prices. Iran raised production as quickly as possible in a bid to restore output to 20 approximately 4 million bpd this year. Crude production rose from

11.9 10 2.84 million bpd in 2015 to 3.465 million bpd during the first 10 months 8.8 of 2016, according to OPEC. 3.7

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIA Iraq Figure 6. Libyan net oil export revenues (US$ billion). Iraq is one of the original five founding members of OPEC in 1960. Figure 9 presents the tumultuous course of oil and gas production in

Figure 7. Iran Oil and Gas Produc>on, MMT Iraq since 1970, as per BP. Much like neighbouring Iran, Iraq’s production 350 was surging in the 1970s, but the oil price shocks derailed output. Iranian

300 output, as noted above, dropped in the aftermath of the Iranian Revolution in 1979 - 1980, but conflict spilled into Iraq as well. Iraq 250 feared that Iranian insurrection would spread into Iraq, and Iraq invaded

200 Iran in 1980. The Iraqi invasion was repelled, and Iran then went on the offensive. The Iran-Iraq War lasted eight years, causing immense 150 casualties and damage to both sides.

100 After the close of the war in 1988, Iraqi oil output began to recover, though it never regained the peak levels achieved in the 1970s. The Iraq 50 Civil War from 2014 onwards has continued to cripple the country’s

0 energy industry, and attacks on oilfields, pipelines and export facilities 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014

Source: BP Iran Oil Produc>on, MMT Iran Gas Produc>on, MMTOE are impeding exports. According to the IMF, crude oil exports accounted for 93% of Figure 7. Iranian oil and gas production. Iraq’s total government revenue in 2014. Figure 10 presents the EIA’s assessment of Iraqi net oil export revenues. The formation of the new Figure 8. Iran Net Oil Export Revenues (US$B) 100 government after the execution of Saddam Hussein 10 years ago was seen as positive for exports. Prices were also rising. But lasting peace 90 85.8 and a stable central government have yet to be achieved. Oil export 80 revenues fell from US$89.2 billion in 2014 to US$57.2 billion in 2015. In 70 66.5 61.9 2015, Iraq’s oil export revenues were 24% lower than they were in 2011. 60.1 60 The drop in oil prices and the high cost of fighting against the 49.5 50 47.1 47.4 45.9 44.5 42.4 Islamic State of Iraq and the Levant (ISIL) have contributed to serious 40 growth in the country’s budget deficit.

30 27.1

20 Kuwait

10 Kuwait was one of the original five founding members of OPEC in

0 1960. The first commercial oil discovery was in 1938 at the Burgan field. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIA Commercial exports began in 1946. Figure 11 presents BP’s data series Figure 8. Iranian net oil export revenues (US$ billion). on oil and gas production from 1970 through 2015. Like many OPEC countries, Kuwait’s oil production dropped sharply during the oil price

January 2017 16 HYDROCARBON ENGINEERING

Figure 9. Iraq Oil and Gas Produc?on, MMT 350 shocks of the 1970s. The sharpest curtailment in output, however, came

300 in 1990 - 1991 when Iraq invaded Kuwait. Kuwait had aided Iraq in the Iran-Iraq War. The Iraq-Kuwait War included a seven month long 250 occupation of Kuwait, before the UN demanded an Iraqi withdrawal.

200 Direct military intervention was led by the US. As Iraq retreated in 1991, its military forces set fire to approximately 600 - 700 oil wells. The fires 150 blazed for months, causing immense damage and an environmental

100 disaster. Kuwaiti oil production was flat for around a decade. Output grew after 2000, but the recent weakness in oil prices has caused 50 production to flatten again, with a drop in investment. Production at 0 the Partitioned Neutral Zone (PNZ) has been stymied by disputes with 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014 Source: BP Iraq Oil Produc?on, MMT Iraq Gas Produc?on, MMTOE Saudi Arabia, which shares the PNZ with Kuwait. Kuwait is a modest producer of natural gas. During the Iraq-Kuwait War production was Figure 9. Iraqi oil and gas production. largely shut in.

Figure 10. Iraq Net Oil Export Revenues (US$B) According to the IMF, petroleum export revenues accounted for 100 over 70% of Kuwait’s government revenues in 2015. Figure 12 presents 89.2 90 87.3 83.6 the EIA’s assessment of Kuwait’s net oil export revenues. Revenues

80 75.1 peaked at US$93.1 billion in 2012. The oil price war caused prices to

70 collapse, and Kuwait’s revenues fell to US$39.7 billion in 2015, a 54% 61.1 60 57.2 reduction. Kuwait is attempting to diversify its energy industry by

49.6 50 developing non-associated natural gas, which is in short supply. The

39.3 electric power sector often fails to meet peak demand for electricity. 40 37.5

31.5

30 23.9 Qatar 20 Qatar is the smallest country in OPEC in terms of area and population. It 10 joined OPEC in 1961. Figure 13 presents the long term trend in Qatari oil

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 and gas production. Qatar was an early entrant into the oil field, Source: EIA discovering the Dukhan field in 1935 and starting commercial production Figure 10. Iraqi net oil export revenues (US$ billion). in 1939 - 1940. The Dukhan field is still in production. For much of the time period from 1970 through the mid-1990s, crude output stagnated, Figure 11. Kuwait Oil and Gas Produc@on, MMT 180 while natural gas production grew slowly and steadily.

160 As Figure 13 illustrates, natural gas production caught up with oil

140 production (in oil equivalent terms) by 2007. Gas production then quickly pulled away from oil, and natural gas production is now roughly twice as 120 large as oil production. Qatar’s natural gas reserves are the third largest in 100 the world, following Russia and Iran. Qatar is far and away the world’s 80 largest exporter of LNG. Figure 14 presents the trend in Qatari LNG 60 exports, as reported by BP. In 2015, Qatar exported 106.3 billion m3 of 40 LNG, accounting for 31% of total global LNG exports of 338.3 billion m3. 20 The second largest exporter was Australia, at 39.8 billion m3.

0 Figure 15 displays the rise and fall of net oil export revenue in Qatar. 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014

Kuwait Oil Produc@on, MMT Kuwait Gas Produc@on, MMTOE Revenues were approximately US$43 billion from 2011 through 2013, but Source: BP the collapse of oil prices caused revenues to fall by more than half. Figure 11. Kuwaiti oil and gas production. Revenues of US$19.7 billion in 2015 were 46% of their level in 2011.

Figure 12. Kuwait Net Oil Export Revenues (US$B) Saudi Arabia 100 93.1 89.6 Saudi Arabia was one of the original OPEC members, and it continues to 90 86.9

80.3 78.8 be a leader within OPEC and within the global oil market in general. It is 80 the world’s largest oil producer, though the US briefly held this 70 distinction during the height of light tight oil production from shale 60 57.2 55 plays. Oil prospecting has a long history in Saudi Arabia, with the 50.4 50 46.8 Damman oilfield discovery in 1938. 41.3 39.7 40 Figure 16 presents the trend in oil and natural gas production. Natural 30 gas production has grown slowly and steadily, while oil production has

20 varied tremendously. It was trending up strongly during the 1970s, with a

10 visible downturn during the Arab Oil Embargo, followed by a resumption

0 of growth, then a steep collapse after the second oil price shock. Output 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIA remained low until oil prices collapsed in 1986. Much of the growth after Figure 12. Kuwaiti net oil export revenues this was prompted by the Asian economic boom. In 2015, Saudi Arabian (US$ billion). crude production was reported at 10.123 million bpd. Production grew to an average of 10.351 million bpd during the January - October 2016 period.

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140 Saudi Arabia’s export earnings. Protecting market share was a chief

120 motivation for the current oil price war. Figure 17 illustrates the rise and fall of Saudi Arabia’s net oil export revenues, as calculated by the 100 EIA. Revenues rose to US$297.2 billion in 2012, but began to slide 80 thereafter. In 2015, oil export revenues had fallen to US$130.1 billion, 60 approximately 44% of the level achieved in 2012. Saudi Arabia is also 40 now launching an initiative geared toward ‘Life After Oil’, working to

20 diversify the economy so that the vagaries of the global oil market

0 cannot have such large impacts on the economy. 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014

Qatar Oil Produc?on, MMT Qatar Gas Produc?on, MMTOE Source: BP United Arab Emirates Figure 13. Qatari oil and gas production. The United Arab Emirates (UAE) is made up of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah and Umm Figure 14. Qatar LNG Exports, BCM 120 Al-Quwain. The first commercial oil discoveries were made in 1958,

105 106 106 with the onshore Bab-2 well and the Umm Shaif offshore field. 103 103 100 Figure 18 presents a look at the UAE’s oil and natural gas production since 1970, according to BP. Oil production rose quickly until the oil

80 76 price shocks of the 1970s. Production then dropped until the collapse of oil prices in 1986 unleashed global oil demand, and production 60 began to rise once again. 49 The UAE is a significant exporter of LNG, as shown in Figure 19. 38 40 40 3 31 LNG exports are typically 7 - 8 billion m/y. The oil and gas sector 27 24 accounts for approximately 40% of the UAE’s GDP. Although LNG 20 exports have helped during the last two years of low oil prices, the UAE has seen its net oil export revenues fall by half between 2012 and 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: BP 2015, as shown in Figure 20. In 2012, oil export revenues totalled US$58.7 billion. This fell to US$28.5 billion in 2015. The UAE has worked Figure 14. Qatari LNG exports (billion m3). to diversify its economy, so that it has been better equipped to

Figure 15. Qatar Net Oil Export Revenues (US$B) weather the current period of low oil prices. However, even the UAE is 50 now facing a budget deficit.

45 43.2 43.7 42.5

40 38.4 OPEC production cut agreement

35 OPEC surprised the majority of the world’s oil market watchers when

30 30 29 it succeeded in making a production cut agreement at its

25 30 November 2016 meeting in Vienna. The Algiers meeting in

20.5 20.6 19.7 September yielded a proposal that was to cut production to 32.5 to 20 17.9 33 million bpd. After two months of difficult negotiations following 14.3 15 the Algiers meeting, there was widespread skepticism about OPEC’s 10 ability to reach consensus at the Vienna meeting. In the end, however, 5 the agreement was not merely a face-saving measure. OPEC chose the 0 more aggressive target of 32.5 million bpd in January 2017. According to 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIA the group’s internal calculations, this will be a cut of around Figure 15. Qatari net oil export revenues (US$ billion). 1.2 million bpd from current levels. The agreement also calls for 600 000 bpd of cuts from non-OPEC countries, to be led by Russia, Figure 16. Saudi Arabia Oil and Gas Produc@on, MMT 600 which pledged to cut 300 000 bpd. On paper, Saudi Arabia will institute the largest cut at 486 000 bpd. Iraq will follow with a cut of

500 210 000 bpd. Iraq, for a time, indicated that it would not accept a cut, using the rationale that it needed funds for its war on terrorists. But 400 the country relented and joined the agreement. Table 1 presents a summary of OPEC’s production agreement. 300 OPEC publishes two sets of crude production data: one that is

200 based on official submissions from the member countries, and one that is compiled from secondary sources. For some countries, and in

100 some months, there are gaps in the data. Moreover, the data is subject to political pressure. There has been an incentive to boost production 0 and/or production data in order to secure a larger baseline from 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014 Source: BP Saudi Arabia Oil Produc@on, MMT Saudi Arabia Gas Produc@on, MMTOE which the production cuts would be made. Therefore, adopting an Figure 16. Saudi Arabian oil and gas production. acceptable baseline of current crude production was not a simple matter. Table 1 provides the agreed‑upon production level for

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Sabin ExpTheDif-QR.indd 1 12/7/16 9:42 AM Figure 17. Saudi Arabia Net Oil Export Revenues (US$B)

350 Table 1. OPEC planned production cut (000 bpd) 297.2 300 281.3 278.9 January 2017 Adjustment* 261.5 246.5 planned 250 Algeria 1039 -50 194.6 200 178.3 165.2

144.4 150 141 Angola 1673 -80 130.1

100 Ecuador 522 -26

50 Gabon 193 -9

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIA Iran 3797 +90 Figure 17. Saudi Arabian net oil export revenues (US$ billion). Iraq 4351 -210

Figure 18. UAE Oil and Gas Produc@on, MMT 200 Kuwait 2707 -131

180

160 Qatar 618 -30

140 Saudi Arabia 10 508 -486 120

100 UAE 2874 -139 80

60 Venezuela 1972 -95

40 Participating OPEC = 11 30 254 -1256 20

0 *adjustment is based on OPEC's adopted baseline of current 1971 1973 1975 1976 1977 1978 1979 1981 1983 1985 1986 1987 1988 1989 1991 1993 1995 1996 1997 1998 1999 2001 2003 2005 2006 2007 2008 2009 2011 2013 2015 1970 1972 1974 1980 1982 1984 1990 1992 1994 2000 2002 2004 2010 2012 2014 production UAE Oil Produc@on, MMT UAE Gas Produc@on, MMTOE Source: BP Note: Indonesia (a net oil importer) withdrew from OPEC Figure 18. UAE oil and gas production. Libya and Nigeria received exemptions because of internal unrest

Figure 19. UAE LNG Exports, BCM Iran negotiated an increase because of prior sanctions

8.2

8.0 8 8.0 chronic civil unrest. The data used in this chart was taken from 7.9 secondary OPEC sources, and the year on year figure for 2015 - 2016 7.8

7.6 is based on the January - October 2016 production average. 7.6 7.6 7.6 7.5 Saudi Arabia increased its crude production by 435 000 bpd in

7.4 7.4 7.4 2015 and by another 228 000 bpd during the first 10 months of 2016. By agreeing to cut production by 486 000 bpd in January 2017, it 7.2 7.1 7.1 essentially reverses three quarters of the new output. Production 7.0 7 will be at a higher level than it was before the price war.

6.8 The lifting of sanctions on Iran freed the country to boost

6.6 production by 625 000 bpd during the first 10 months of 2016 relative to production in 2015. Gaining Iranian participation in the 6.4 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 current production deal was impossible without a concession that Source: BP allows its January 2017 production level to be 90 000 bpd above its 3 Figure 19. UAE LNG exports (billion m ). current baseline. Iraq also made huge production gains, with 2015 production January 2017, along with the derived adjustment from current 666 000 bpd above 2014 levels, and another 404 000 bpd of production levels. production added during the first 10 months of 2016. Iraq has agreed The relative situation of various OPEC members has to cut production by 210 000 bpd in January 2017. changed significantly since the price war began. Saudi Arabia The UAE increased crude production by 97 000 bpd in 2015 kicked off the price war by ramping up production in an effort and another 28 000 bpd during the January - October 2016 period, to regain lost market share. High cost production around the for a total addition of 125 000 bpd. By agreeing to cut production world began to be shut in, including a large amount of by 139 000 bpd, it will reverse these gains, plus cut a small amount production from shale plays in the US. Figure 21 presents the more. year on year change in crude production by the 11 participating Algerian crude production has been in a period of decline, OPEC countries. Indonesia, a net importer of oil, which largely caused by a lack of investment. Production fell by 17 000 bpd withdrew from OPEC, has been excluded. Also excluded are in 2015 and 20 000 bpd during the first 10 months of 2016. Algeria Libya and Nigeria, which were exempt from the cuts due to has agreed to reduce production by 50 000 bpd in January.

January 2017 22 HYDROCARBON ENGINEERING Figure 20. UAE Net Oil Export Revenues (US$B) Angolan production rose by 100 000 bpd in 2015 but declined 70 slightly in 2016. Angola has agreed to a production cut of 58.7 60 57.2 54.2 80 000 bpd. 53.1

Ecuadorean output has been stable at around 550 000 bpd. The 50 46.7 country has agreed to cut production by 26 000 bpd. Gabon’s output also has been stable at approximately 40 33.4 33.8 220 000 bpd. Gabon has agreed to a cut of 9000 bpd. 30.6 30 28.5 27 Kuwait has more flexibility than many in terms of output, though it 24.4

has lagged in terms of pursuing investment recently. Its production fell 20 by 51 000 bpd in 2015 and rose by 45 000 bpd in the January - October 2016 period. Kuwait will cut production by 131 000 bpd. A certain 10 amount of production has been shut in because of disputes with 0 Saudi Arabia over the jointly held Partitioned Neutral Zone (PNZ). 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: EIA Qatar’s oil production declined by 47 000 bpd in 2015 and 10 000 bpd in 2016. Qatar will reduce output by 30 000 bpd in January. Figure 20. UAE net oil export revenues (US$ billion). Qatar is the world’s largest exporter of LNG, which reduces its reliance on oil as a source of export earnings. Figure 21. The OPEC 11: Approximate YOY Change in Crude ProducFon, '000 bpd Venezuela’s oil sector has been in turmoil. Production fell slightly, 700 666 624.8 by 4000 bpd, in 2015, but it has fallen sharply in 2016, by 171 000 bpd to 600 2015-2014 2016-2015* date. Venezuela has agreed to reduce output by 95 000 bpd in January. 500 435 404 400

Conclusion 300 228.2 Overall, the 11 OPEC countries now participating in the production 200

100 97 100 cut added 1.24 million bpd of new crude to the market in 2015. They 62 45.4 27.6 2 0.5 0.857142857 added another 1.128 million bpd to the market during the 0 -2.6 -3 -4 -17 -19.7 -10.1 -51 -47 January - October 2016 period, for a total addition of 2.368 million -100

bpd. The proposed cut will remove 1.256 million bpd, slightly over -200 -171.2 Algeria Angola Ecuador Gabon Iran Iraq Kuwait Qatar Saudi Arabia UAE Venezuela half of the volume that has been added over the past two years. If Based on OPEC secondary sources data, with 2016 data January-October average. prices continue to strengthen and the market moves more quickly Figure 21. OPEC 11: approximate year on year change FLO-16109_Anzinto Hydrocarbon balance, OPEC Engineering.qxp_210 oil revenues will rise, x 147 and 03.06.16 the group 09:12 will be Seite able 1 in crude production (000 bpd). to view the price war as a success.

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