Saudi Arabia - joining the dots

A series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy

AIM - Assets In Market

AIM - Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum

Iran negotiations - is the end nigh?

Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum

Yemen: The Islamic Chessboard?

Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum

Acquisition Criteria

Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum

Valuation Series

Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum Lorem Ipsum

Tuesday 24 February 2015

Saudi Arabia - joining the dots: Part 4 - The price wars, defending market share

Saudi Arabia - joining the dots is a series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy.

Part 4 - The price wars, defending market share



The sudden fall in the oil price in the middle of 2014 and the subsequent lack of response by OPEC is a stark reminder of its members' policy of defending market share, although the cartel may openly deny it .

Forgotten in recent years and beyond recollection for those who are still young, the 1980s was the last time Saudi Arabia demonstrated its significant power in the oil markets in its efforts to defend market share. In hindsight, one questions whether Saudi emerged victorious from that war and whether it was worth fighting.

In the early 1980s, oil prices fell to record lows after hitting highs in the 1970s. Consumers (namely the US) vowed to reduce reliance of on oil given the high prices and actively implemented policy to switch to substitute energy sources, such as coal for power generation. 

In an effort to shore up oil prices caused by falling demand, Saudi urged its fellow OPEC members to cut production. Saudi cut its own production by c.80% to 3.5mmbbl/d, but many of the other members refused to follow suit. Saudi was furious as by taking action, it had lost out on revenue and market share. In retaliation to the non-compliers, Saudi ramped up production to full capacity and flooded the market with crude. The excess production caused oil prices to slump to c.USD7/bbl and it was another 20 years, before oil price began to recover to pre 1980 levels.

That part of history continues to haunt Saudi today and one can see its remnants in Saudi's stern policy of maintaining production, communicated to the world in that all important OPEC meeting on 27 November 2014.

Luckily for Saudi, and other OPEC members, its low cost of production (<USD20/bbl) means that production remains profitable even at USD50/bbl oil price. The current price war will see much production around the world being choked with high cost North American unconventionals and mature North Sea production being hurt.

Whether Saudi still holds (or wishes to hold) its nominated role of swing producer is a key question to ask. For now, it still has the ability to retrench production, but its low cost production base will mean it can withstand lower oil prices for longer whereas its non-OPEC counterparts will fall over one-by-one unless prices rebound in the near future.


Sunday 22 February 2015

Saudi Arabia - joining the dots: Part 3 - The reshuffling has begun

Saudi Arabia - joining the dots is a series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy.

Part 3 - The reshuffling has begun


Ali al-Niami's job remains safe...for now




In a further move which signals King Salman's tightening grip over the Kingdom's affairs since coming to power,  Salman promoted his son Prince Abdulaziz bin Salman from the position of Assistant Minister for Petroleum Affairs to Deputy Oil Minister at the end of January 2015.

The move, although unexpected, should not be seen as a surprise given Salman's desire to place members of the Sadairi branch of the family into key positions.

Ali al-Niami's post as Oil Minister remains safe for now but his power in dictating Saudi oil policy, arguably the one of the most important roles in the Kingdom, is quickly diminishing. The re-shuffling is also symbolically important as it could be the first in a number of moves by Salman to sideline al-Niami and his policy of defending Saudi market share and letting oil prices fall to USD50/bbl - a policy which does not sit well with factions within the Saudi governing circle.

Thursday 12 February 2015

Natuna Sea Block A PSC ("NSBA")


  • KUFPEC (33.33%), PMO (28.67%*), Petronas (15%), Pertamina (11.5%), PTTEP (11.5%)
    • Pertamina and PTTEP acquired their stakes as part of Hess' Indonesian portfolio
  • NSBA supplies gas to SembGas in Singapore, together with South Natuna Sea Block B and Kakap, as part of a GSA signed in 1999 for a period of 22 years
    • In 2008, PMO signed two additional GSAs to supply NSBA gas for power generation in Batam, Indonesia
    • Due to delay in constructing the pipeline to Batam, a swap agreement has been signed for the Batam earmarked gas to be supplied to Singapore and another field to supply Batam instead
  • The largest field on the block is Anoa which contains about half of the PSC's gas reserves. Gas from Anoa, Pelikan, Bison and Gajah Puteri are dedicated to the SembGas 1 GSA
  • SembGas 2 is predominantly supplied by Gajah Baru which was developed as a second phase of NSBA
  • Crude is piped by an 8" pipeline to the Anoa Natuna FPSO for processing and storage
  • Gas is exported via the West Natuna Transportation System (operated by COP) and serves the three Natuna PSCs (NSBA, South Natuna Block B and Kakap)
    • The network consists of 656km of pipeline, with a 470km section transporting the gas to Singapore
    • A pipeline connecting the system to Batam is also planned but is the responsibility of the buyers of the gas
    • The pipeline costs are recoverable under the PSCs

Aasta Hansteen Area


  • Located in Norwegian Sea; Aasta Hansteen discovered in 1997 but remained undeveloped due to the remoteness
    • Area includes Snefrid Sør and Haklang, both discovered in 2008
    • Statoil (75%*), OMV (15%), COP (10%)
    • Area thought to contain >2.4 GIIP, estimated recoery c.66%
  • PDO submitted in January 2013 and received approval in April 2013
    • Development will utilise subsea wells tied back to SPAR platform
    • Power supply expected to be generated on platform due to high cost and difficulty of supplying electricity from shore (distance)
    • First production expected in Q3 2017
  • Aasta Hansteen will be first deepwater development in Voring Basin; facilities expected to be used by other fields and discoveries in area
  • Gas will be exported by new 480km pipeline (Polarled pipeline) from SPAR to Nyhamna gas terminal; condensate will be offloaded from the SPAR
  • Standalone economics are marginal, due to remoteness of area
    • Tie-backs will improve economics (tariff income)
    • Attractiveness of area surrounding Aasta Hansteen demonstrated by high take-up of licences in recent licensing rounds
    • Polarled pipeline will draw further investment and exploration
  • Government announced changes to fiscal regime in May 2013 - PDO submitted prior to announced change so should be eligible for transitional terms (7.5% capital uplift vs. 5.5%)

Sunday 1 February 2015

Saudi Arabia - joining the dots: Part 2 - Scandal

Saudi Arabia - joining the dots is a series of blog entries exploring Saudi Arabia's role in the oil markets with a brief look at the history of the royal family and politics that dictate and influence the Kingdom's oil policy.

Part 2 - Scandal



In 2006, the then King Abdullah created the Allegiance Council in 2006 to help select future rulers. In March 2014, Prince Muqrin was appointed by Abdullah to be the next in line after Salman, placing Muqrin to be the third in line to the throne at the time. Prince Muqrin has now been elevated to second in line following the death of Abdullah. 

However, the appointment of Muqrin was not an unanimous decision by the Allegiance Council. It was in fact, somewhat of a surprise given Muqrin's mother is of Yemeni origin and not of Saudi Arabia. It is believed that Muqrin was selected by Abdullah as he was the most likely to continue Abdullah's domestic reform policy, which he was unable to fully devote his time to when he became King.

Since King Salman's crowning, Salman has appointed his nephew Prince Mohammed Bin Nayef to the post of Second deputy Premier, the post also held by Muqrin. This essentially places Salman's nephew to be next in line to the throne, potentially undermining Muqrin's rise. Furthermore, it is now unknown whether Salman will demolish the Allegiance Council altogether.

Muqrin



vs

Bin Nayef