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SPM-UOP-138 Hydrocarbon Engineering Cover-final.indd 1 12/9/16 9:49 AM
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January 2017
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CONTENTS
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THIS MONTH'S FRONT COVER
January 2017 Volume 22 Number 01 ISSN 1468-9340
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03 Comment05 World News12 OPEC: ups and cuts
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.
24 Riding the stormThe downstream industry is currently operating in a difficult environment of shifting demand patterns caused by volatile crude prices. Allison McNulty, AspenTech, USA, explains how advanced planning, in combination with scheduling software, can help refiners to successfully navigate the fluctuating economic storm.
29 Flare emissions: what's new?Inaas Darrat, Daniel Smith and Courtny Edge, Trinity Consultants, USA, review the calculation updates for emissions produced from flaring.
33 Under controlDavid Fahle, Servomex, USA, and Zarina Stanley, Servomex, UK, describe how downstream operators can conduct flare stack analysis and emissions control under the new MACT regulations.
37 Unlikely partnersRiggs Eckelberry, OriginClear, Inc., USA, explains how outsourced wastewater treatment can help oil and gas companies to share water resources with the agricultural sector.
40 Eradicating wastewater woes: part twoStephan Mrusek, Johanna Ludwig, and Lucas León, akvola Technologies GmbH, Germany, continue their evaluation of a refinery wastewater reuse project, and present the results of the proposed ceramic membrane treatment field trials.
45 A safe indicationStefan Otto, WEKA AG, Switzerland, discusses the implementation of visual level indicators at Essar Energy's Stanlow refinery, UK, and how this improved both operations and safety.
48 Up to codeTony Paulin, Paulin Research Group, USA, discusses how improved ASME calculations have enhanced safety and reduced risks within the downstream piping industry.
53 Reaction engineeringRavindra Aglave, Siemens PLM, USA, and Thomas Eppinger, Siemens PLM, Germany, assess reactor design aspects using computational fluid dynamics in chemical reaction engineering.
59 TherefineryconnectionJohn Hopshire, Maverick Technologies, USA, discusses programmable logic controllers in process units and how the advantages of uniformity can simplify day to day operations.
64 One of a kindEach and every refinery is unique, with distinctive constraints and opportunities. Elena Mayor Vadillo, Honeywell UOP, USA, explains why a comprehensive choice of hydroprocessing catalysts is essential for efficient hydrocracker operations.
69 An economic rollercoasterBart De Graaf, Johnson Matthey Process Technologies, USA, and Paul Diddams, Johnson Matthey Process Technologies, Europe, review the journey and influence of the fluid catalytic cracking unit in a refinery’s operations, and how its functions will develop into the future.
73 Catalyst ReviewHydrocarbon Engineering reviews some of the most advanced catalyst technologies available within the downstream industry today.
88 15 facts...This month we give you 15 facts on catalysts!
For more than a century, Honeywell UOP has been recognised as the leading developer of advanced catalysts for the refining industry. Honeywell UOP’s vast lineup of UnityTM hydroprocessing catalysts brings a unified approach to delivering complete catalyst, equipment, licensing and technical support solutions for hydrotreating, pretreat and hydrocracking. For more information, visit www.uop.com.
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COMMENTCALLUM O'REILLYEDITOR
It’s fair to say that 2016 was one for the history books. In a year full of twists and turns, the decision taken by members of the Organization of the Petroleum Exporting Countries (OPEC) to
cut oil production for the first time in eight years came as one last surprise.
Despite OPEC members voting for a production cut back in September 2016, the oil price slumped by almost 4% in the days preceding the formal OPEC meeting in November 2016, as traders started to doubt whether a deal was really feasible. Rumours of key divisions between OPEC members threatened to derail the discussions.
However, the so-called ‘Vienna Agreement’ was finally struck without a hitch. Under the agreement, OPEC members have decided to implement a cut to crude production of 1.2 million bpd, effective from 1 January 2017. In a statement, the OPEC members said that the agreement “confirmed their commitment to a stable and balanced oil market”. Shortly after the deal was reached, several non-OPEC producers also agreed to cut their output by 558 000 bpd, marking the first global agreement since 2001.
Following the news, the price of Brent crude quickly climbed to US$56/bbl. The International Energy Agency (IEA) also suggested that the market is likely to move into deficit in the first half of this year by approximately 0.6 million bpd, if OPEC producers stick to their production target of approximately 32.7 million bpd and the non-OPEC producers also deliver on their pledges.1 Before the agreement, the IEA forecast that the market would rebalance before the end of 2017.
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 Forecasts at Thomson Reuters, suggests that OPEC’s crude oil export capacities remain a key issue: “[…] As physical supply to the market (exports) is the most critical factor for a true rebalancing in fundamentals, a production cut does not directly translate into lower physical supply or exports immediately”.
However, there are promising signs that the OPEC members mean business. A committee has been set up (including two participating non-OPEC countries) to monitor producers’ output. What’s more, reports suggest that Saudi Arabia is willing to cut even more than its agreed level of 10.06 million bpd, if necessary. Analysts at UK-based brokerage, PVM, said: “If anyone needed a proof of Saudi Arabia’s commitment in their effort to deplete global oil stocks, here it is”.2
A lot is at stake in the weeks and months ahead. In its final Oil 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 year of stock builds and a possible return to lower prices”.
In this month’s issue of Hydrocarbon Engineering, Contributing Editor, Nancy Yamaguchi, takes a closer look at the implications of the production cuts, with 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).
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WORLD NEWS
January 2017HYDROCARBON ENGINEERING
5
Middle East | Alfa Laval wins order
A lfa Laval, a leader in heat transfer, centrifugal separation
and fluid handling, has received an order to supply compact heat exchangers to a natural gas plant in the Middle East. The order, booked in the Energy & Process segment in late December, has a value of approximately
SEK 150 million and delivery is scheduled for 2017 and 2018.
The order comprises the delivery of compact heat exchangers, which will be used to recover energy in the gas cleaning process, thereby bringing down the plant's power consumption and CO2 emissions.
Kuwait | Natural gas processing project
Black & Veatch has secured a contract for the licensing technology and
related services for sulfur recovery units (SRUs) and acid gas removal units (AGRUs) to support natural gas processing on the Jurassic field, a project central to Kuwait Oil Company's (KOC) 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. Black & Veatch’s contribution centres on acid gas removal and sulfur recovery at Jurassic Gas Facility 1, which will produce about half of the Jurassic field's potential.
The total technology solution encompasses two acid gas removal trains designed for feed gas flow, as well as three parallel identical sulfur recovery trains, with dedicated tail gas treatment units for each sulfur train.
Black & Veatch is involved in every step of the assets’ lifecycle, from front end engineering design to operation and maintenance support. The company is responsible for the basic engineering design package and is bringing together various technologies to meet the performance requirements.
UAE | Tank farm actuator projects
E lectric valve actuator manufacturer AUMA has won
several important contracts in Fujairah, UAE. The largest is for the Black Pearl project, commissioned by tank farm operator Vopak Horizon Fujairah Ltd. At the Port of Fujairah, Vopak Horizon Fujairah operates a petroleum products terminal with six jetties and about 2.1 million m3 of storage in 68 tanks. Black Pearl, the seventh expansion phase at the terminal, will add five tanks with around 500 000 m3 of storage capacity for crude oil.
AUMA supplied more than
80 SAEx .2 multi-turn and SQEx .2 part-turn actuators to automate a wide variety of gate, butterfly and double block and bleed (DBB) valves. Four SIMA master stations are also part of the scope of delivery, offering enhanced security. Commissioning was completed in May 2016 to the full satisfaction of the customer.
A second project for Vopak Horizon Fujairah concerns the pipework and valves linking the terminal to other storage facilities at the port. The MM2 (Matrix Manifold No. 2) project covers another 48 SAEx .2 multi-turn and SQEx .2
part-turn actuators with ACExC integrated controls as well as two SIMA master stations. The system was commissioned in September 2016.
In another recent project in this region, AUMA supplied 142 actuators for the first phase of the BPGIC Fujairah Terminal project for Brooge Petroleum and Gas Investment Company. AUMA also provided 36 actuators to the Port of Fujairah for its VLCC Jetty 1 project. The first berth opened in June 2016 for vessels of up to 330 000 t, and a second is under construction.
Republic of Korea | GA-EMS awarded contract
General Atomics Electromagnetic Systems
(GA-EMS) has announced that it has been awarded a contract for a six-module GulftronicTM Electrostatic Separator system for installation at the Hyundai Oilbank Co. Ltd (HDO) Daesan refinery in the Republic of Korea. Delivery of the new unit will expand HDO’s existing Gulftronic system from 12 to 18 modules to support its residual fluidised catalytic cracker (RFCC) expansion project intended to help meet the Republic of Korea’s increased demand for fuels
and chemicals.Gulftronic separators capture
and remove solids and catalyst fines from the process stream to provide higher value oil products with a clarity below 100 ppm. Gulftronic separators are also impervious to fouling or blockage, resulting in less downstream contamination and significantly reduced maintenance requirements.
HDO refines, processes, and markets petroleum and petrochemical products and is a leading oil refining and marketing company in South Korea.
WORLD NEWSIN BRIEF
January 2017 HYDROCARBON ENGINEERING
6
Canada | Tank farm development module
Fluor Corp. has placed the final module for the Suncor Energy Oil
Sands Ltd Partnership’s East Tank Farm development project near Fort McMurray, Alberta.
As part of its engineering, procurement, fabrication and construction (EPFC) scope, Fluor managed module fabrication and shipment of the modules, all of which were fabricated by Fluor’s Supreme Modular Fabrication Inc. (SMFI) joint venture fabrication yard near Edmonton, Alberta. Engineering and
construction personnel were integrated into the fabrication teams to support construction driven execution through the phases and the 95 modules were fabricated and shipped in 10 months, aligning to the site setting schedule and on budget.
The East Tank Farm Development, which will be a Suncor-operated asset, is currently under construction in the Wood Buffalo Region of Alberta. The facility will consist of bitumen storage, blending and cooling facilities and connectivity to third party pipelines.
USA | Analysing refinery performance
Delek Refining Inc. will use a new industrial internet of things
(IIoT)-based Connected Performance Services (CPS) offering from Honeywell to improve the performance of its refinery in Tyler, Texas.
CPS is part of Honeywell’s Connected Plant initiative, which leverages IIoT technologies and Honeywell UOP’s services and domain expertise to improve a broad range of industrial operations from supply chain efficiency to asset optimisation. Delek will use a CPS solution called process reliability advisor (PRA) to continuously analyse its process unit performance and detect anomalies, enabling refinery operators to quickly resolve problems and keep the unit operating at peak performance. CPS solutions use
Honeywell UOP process and fault models, fed by current plant data, to provide key performance information and process recommendations.
By giving refineries, petrochemical and gas processing plants greater visibility into their operations, PRA can identify and resolve problems that reduce plant efficiency and productivity.
The 75 000 bpd refinery in Tyler primarily processes locally sourced light, sweet crude oils into a full range of refined products, including gasoline, diesel, jet fuels, liquefied petroleum gas and natural gas liquids. More than 93% of the Tyler refinery's production slate has been comprised of light, high value products, such as gasoline and distillate fuels.
germanyWärtsilä has been awarded a contract to supply a biohybrid production plant to Erdgas Südwest GmbH. The new plant will produce both bioLNG (liquefied biogas) and LNG. The contract was signed in December 2016 and delivery will be made on a fast track basis. The new biohybrid solution will be integrated into the customer's existing biowaste to biogas production, whilst LNG production will be part of the customer's existing pipeline gas infrastructure. Everything will be located at a single site in southern Germany.
serbiaCB&I has been awarded a contract by Naftna Industrija Srbije (NIS) for the engineering, procurement and construction management of a delayed coker unit in Pancevo, Serbia. CB&I previously announced an award of the technology license and front end engineering and design for the delayed coker that will be integrated with the refinery's existing CB&I fluid catalytic cracking unit and Chevron Lummus Global hydrocracker.
malaysiaPetronas’ first floating LNG (FLNG) facility, PFLNG SATU, has achieved an industry breakthrough with the successful production of its first drop of LNG from the Kanowit gas field, offshore Sarawak, in December 2016. With a processing capacity of 1.2 million tpy, operating at water depths between 70 - 200 m, PFLNG SATU is expected to lift its first cargo and achieve commercial operations in 1Q17.
algeriaJGC Corp.'s wholly owned subsidiary, JGC Algeria S.p.A., has been awarded a contract by Sonatrach to feed the gas processing plant located in the Hassi R’Mel gas field. The project consists of work to improve the capacity of the facilities at Hassi R’Mel that Sonatrach is operating in the region for the purpose of maintaining a production plateau. JGC will be responsible for engineering, procurement and construction (EPC), together with test operation and performance testing of the complete booster unit set, which is scheduled to be completed in 38 months.
USA | Terminal acquisition
Tallgrass Energy Partners LP (TEP) has announced that it has
acquired Tallgrass Terminals LLC and Tallgrass NatGas Operator LLC from Tallgrass Development for a cash consideration of US$140 million. The acquisition represents TEP’s fifth dropdown acquisition from Tallgrass Development and was funded at closing through borrowings on TEP’s
revolving credit facility.Tallgrass Terminals also owns the
Sterling Terminal near Sterling, Colorado, that provides approximately 1.3 million bbls of operational storage to the Tallgrass Pony Express crude oil pipeline, the Buckingham Terminal in northeast Colorado and a 20% interest in the Deeprock Development Terminal in Cushing, Oklahoma. A World of Solutions
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Today’s Refinery Challenges � Processing tight oil � Managing stringent sulfur limits � Monetizing orphan streams � Upgrading residuals
CB&I’s Comprehensive SolutionsCB&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.
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Today’s Refinery Challenges � Processing tight oil � Managing stringent sulfur limits � Monetizing orphan streams � Upgrading residuals
CB&I’s Comprehensive SolutionsCB&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.
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WORLD NEWSIN BRIEF
January 2017 HYDROCARBON ENGINEERING
8
USA | Polyethylene production
M itsubishi Heavy Industries Ltd (MHI) has received an order for
the supply of systems to support a large scale polyethylene production train for ExxonMobil’s Beaumont plant. The new production train is slated to be completed in 2019, and will produce 650 000 tpy of polyethylene.
MHI is currently building a polyethylene plant comprising of two units, each with the same scale of production capacity, at ExxonMobil’s Mont Belvieu, Texas, facility, making
this the third order following the completion of a polyethylene plant in Singapore in 2011.
MHI will supply the reaction, finishing, and shipping equipment for the plant, as well as utility facilities for water, air and steam. MHI has participated in the project throughout the various stages of ExxonMobil’s planning. In addition, MHI has a proven track record of fulfilling orders for large compressor turbines for ethylene and LNG liquefaction plants for ExxonMobil.
Finland | Production maximisation
Neste Jacobs has implemented NAPCON Controller to
Forchem Oy's tall oil distillation plant. Forchem Oy owns and operates a world scale tall oil distillation plant in the city of Rauma on the West Coast of Finland. The main products are tall oil rosin (TOR) and tall oil fatty acid (TOFA) and the plant is flexible in the sense that different types of crude tall oil can be used as feedstock. The process is mainly based on a vacuum distillation technology originally developed and designed by Neste Jacobs, presently known under the trademark ArxPinus.
Many biochemical processes offer opportunities for substantial improvement in terms of increased production. In spring 2015, Forchem Oy awarded Neste Jacobs a NAPCON Performance Analysis project for quantifying the benefits of advanced process control (APC). The NAPCON Performance Analysis lasted for two months and Neste Jacobs was able to demonstrate a production increase of 9%. After implementation of NAPCON Controller, a multivariable, model-predictive APC, Neste Jacobs could increase production by a further 8%.
Canada | Major growth project
Shell has successfully completed a major growth project at its
Scotford refinery near Edmonton, Alberta, that will increase hydrocracker production capacity by 20%. The project was completed through the debottlenecking of the hydrocracker, a core refining unit for making transportation fuels, such as diesel and jet fuel. The debottlenecking process replaces vessels, compressors and feed pumps to allow a greater volume of heavy crude oil to be processed.
The project will equate to a 14 000 bpd increase in the unit’s
production and enable Scotford, one of North America’s most efficient and modern refineries, to deliver more high quality diesel, jet fuel, and gasoline to customers.
An integrated site with a bitumen upgrader, oil refinery, chemical plant and carbon capture and storage unit, Scotford produces a full range of products for the Western Canadian market.
The project received a final investment decision in January 2015. It created 1000 construction positions in the Edmonton area to install the new and modified equipment.
malaysiaFluenta has announced the sale of 24 ultrasonic flare gas monitoring systems to Petronas. The systems will be installed at the Petronas refinery and petrochemical integrated development (RAPID) complex in Southeastern Johor. The sale makes Fluenta the single biggest supplier for the Petronas RAPID project. Fluenta’s flare gas meters were sold directly through Krohne (representatives of Fluenta) to Tecnicas Reunidas' engineering, procurement and construction (EPC) group. Construction of the RAPID complex is due to be completed in 2019.
canadaQuantum Energy Inc.'s wholly owned subsidiary, Dominion Energy Processing Group Inc., has successfully contracted for its proposed refinery site in the Stoughton, Saskatchewan area, in Canada. The site is located in the Viewfield crude production area adjacent to the Crescent Point Energy gas plant and comprises 320 acres. Quantum continues its Bakken refinery development projects with ongoing permitting efforts in North Dakota and an increased emphasis with continued real progress on a 40 000 bpd proposed project in the Stoughton area of Saskatchewan, Canada.
indonesiaArup has been commissioned by PT Australasia LNG Indonesia (AALNG) to support the development of a new 2.4 million tpy LNG terminal, bringing greater energy security to East Java. Arup will deliver pre-front end engineering design (FEED) for the marine infrastructure and vessel conversion for the Probolinggo LNG terminal. Providing geotechnical, civil, naval architecture, and mechanical engineering support, Arup will advise on the conversion of an LNG carrier into a floating storage unit (FSU). Arup is also advising on the 2.5 km jetty, unloading platform and associated berthing infrastructure, required to bring the LNG onshore to be regasified.
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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.
TRUSTED WORLDWIDE AS THE INDUSTRY LEADER IN FLARES.
johnzinkhamworthy.com | +1.918.234.1800 ©2017 John Zink Company LLC. johnzinkhamworthy.com/legal-notices
WORLD NEWS
January 2017 HYDROCARBON ENGINEERING
10
Lux Research | Investment in bio-based chemicals
Venture capitalists (VCs) have pumped US$5.8 billion into bio-based
materials and chemicals (BBMC) startups since 2010, reflecting the drive for sustainability, performance, and alternatives to petroleum feedstocks.
While from 2010 - 2015, the investment focus was on drop-in replacements for established chemicals, in 2016 VCs' focus has shifted to disruptive synthetic biology (synbio) and conversion technologies, according to Lux Research.
IEA | A dramatic year for oil
The International Energy Agency's (IEA's) final report of 2016
highlighted the turbulent and dramatic, path of the oil industry. The focus in January was on US$30/bbl oil and the imminent increase in Iranian oil production after sanctions were lifted. In December, the industry saw the first proposed output cut by OPEC since 2008 – and the first deal including non-OPEC producers since 2001 – which marks a major departure from the market share policy followed for the past two years. OPEC’s cut to crude production of 1.2 million bpd almost matches its deliberate production increase of 1.3 million bpd in the 12 months to October (the month on which the OPEC cuts are based), while the non-OPEC group has seen its crude
output fall in the same period by around 900 000 bpd. Meanwhile, following revisions to Chinese and Russian data, the IEA raised its 2016 global net demand growth number to 1.4 million bpd and that for 2017 to 1.3 million bpd.
Before the agreement among producers, the IEA’s demand and supply numbers suggested that the market would re-balance by the end of 2017. But OPEC, Russia and other producers are looking to speed up the process. If OPEC promptly and fully sticks to its production target, assessed at 32.7 million bpd, and non-OPEC producers deliver the agreed cuts of 558 000 bpd outlined on 10 December, then the market is likely to move into deficit in the first half of 2017 by an estimated 600 000 bpd.
McKinsey | Capacity growth to exceed demand
McKinsey Energy Insights (MEI) has forecasted that, until 2020, global
refining will move towards lower utilisation and margins as capacity growth exceeds demand. Post-2020 market conditions are expected to improve with higher demand for distillates due to marine pollution (MARPOL) regulations.
MEI’s latest Global Downstream Outlook notes the last two years have seen major shifts as a result of falling crude price, a subsequent rise in global product demand and the fuel/oil balance. This, combined with recent events such as the diesel vehicle emissions scandal and the International Maritime Organisation’s cap on sulfur in bunker fuel by 2020, has led to an uncertain outlook for the global
refining market.MEI modelled a high and low growth
demand case, with the high case in line with the latest industry consensus. In the high case, MEI sees light product demand growing at 1.2% annually through to 2020. Asia will also remain the leading consumer of light products and it is predicted that diesel will provide the biggest demand growth post-2020. However, this is dependent on vehicle improvements, fuel substitutions and diesel emission regulations.
The outlook also highlights that North American crude markets are likely to remain tight until 2020, when a resurgence of unconventional crude supply could push the market back to export net-back pricing conditions.
DIARY DATES26 - 30 MarchSOGAT 2017Abu Dhabi, UAETel: +971 2 674 4040Email: [email protected]
28 - 30 MarchStocExpo EuropeRotterdam, the NetherlandsTel: +44 (0)20 8843 8835Email: [email protected]
29 - 30 MarchARTC: Asian Refining Technology ConferenceJakarta, IndonesiaTel: +971 4 435 6101Email: [email protected]
4 - 7 AprilGastech Conference & ExhibitionChiba City, Tokyo, JapanTel: +44 (0) 203 772 6038Email: [email protected]
9 - 12 April2017 GPA Midstream ConventionMarriott Rivercenter, San Antonio, Texas, USTel: (918) 493-3872Email: [email protected]
18 - 20 AprilNISTM 19th Annual International Aboveground Storage Tank Conference & Trade ShowRosen Shingle Creek Hotel, Florida, USTel: 011.813.600.4024Email: [email protected]
24 - 26 AprilSulphur World Symposium 2017Dublin, IrelandTel: +1 202 293 9305Email: [email protected]
24 - 26 AprilAFPM Reliability & Maintenance Conference andExhibitionConvention Centre, New Orleans, Louisiana, USTel: 202-457-0480Email: [email protected]
26 - 27 AprilStocExpo Middle East AfricaDubai World Trade Centre, UAETel: 020 3196 4300Email: [email protected]
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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 technology and long-term collaboration to help you keep pace with the increasingly complex challenges of today’s evolving marketplace. From initial consultation through plant startup and beyond, our global team offers you practical guidance based on years of real-world operating experience. Our goal is your success. Learn more about how we can work together to grow your business. www.catalysts-licensing.com
January 2017 12 HYDROCARBON ENGINEERING
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 201713HYDROCARBON ENGINEERING
T 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
enduring 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
AlgeriaAlgeria 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.
OPEC:
January 2017 HYDROCARBON ENGINEERING
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Algeria joined OPEC in 1969. The country made its first commercial oil discovery in 1956 with two key fields: Edjelleh and Hassi Messaoud. Production began in 1958. Algeria has also emerged as Africa’s top producer of natural gas. Figure 1 presents the BP data series on Algerian oil and natural gas production from 1970 to 2015, with oil in million tonnes and natural gas converted into million tonnes of oil equivalent. Over the past decade, oil output has peaked and fallen. This past decade alone included the global economic recession and the drop in oil prices. However, the Algerian government has also been criticised for delays in the approval of oil development projects. The terms offered by the government have failed to attract investors, and very few of the oil and gas blocks offered were taken. At least one auction was cancelled for lack of interest.
Natural gas production has been more stable than oil production. In oil equivalent terms, natural gas production surpassed oil production in 2011. This has allowed Algeria to keep exporting LNG at fairly stable rates over the past five years, as shown in Figure 2. In 2015, LNG exports totalled 16.2 billion m3. However, in the 2004 - 2007 period, LNG exports were approximately 25 billion m3, so 2015 exports were only 63% of their level 10 years prior.
The recent drop in oil production, coupled with lower global crude prices, has severely cut into Algeria’s revenues. Figure 3 presents the US EIA calculation of Algeria’s net oil export revenues. Net 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 rose to US$62.4 billion in 2011, but fell sharply to US$23.8 billion in 2015.
LibyaLibya joined OPEC in 1962, one year after it started exporting oil. Libya has the largest oil reserve base in Africa, and the fifth largest natural gas reserves. However, turbulence and violence is smothering the industry. Oil production has plummeted, as shown in Figure 4. In 1970, Libyan crude output was approximately 160 million t. It dropped below 50 million t by the mid-1980s. It was gradually recovering until the global economic recession and the Libyan civil war, which caused production to drop to just 22.5 million t in 2011. Production then went into another period of recovery, and oil output reached 71.1 million t in 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 2013, there were even more widespread protests and strikes, and oil production fell sharply again. Production averaged 20.2 million t in 2015. There have been multiple attacks on oil-related infrastructure, from oilfields to pipelines, to loading terminals and ports.
Natural gas production has been somewhat more stable, and the country had been an exporter of LNG, plus an exporter of pipeline 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 2011. The country hopes to develop additional natural gas resources to restart LNG exports.
The International Monetary Fund (IMF) reports that Libya’s government budget is overwhelmingly reliant on oil and gas revenues – approximately 96% of total government revenue came from oil and 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, then fell sharply to just US$11.9 billion in 2011 during the civil war. The country was restoring output and exports after the war, and revenues reached US$50.9 billion in 2012. But persistent domestic turmoil and low oil prices have eroded earnings steadily since then, leading net revenues to fall to a mere US$3.7 billion in 2015.
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Figure1.AlgeriaOilandGasProduc>on,MMT
AlgeriaOilProduc>on,MMT AlgeriaGasProduc>on,MMTOE
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Figure 1. Algerian oil and gas production.
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Figure 2. Algerian LNG exports (billion m3).
Figure 3. Algerian net oil export revenues (US$ billion).
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Figure4.LibyaOilandGasProduc@on,MMT
LibyaOilProduc@on,MMT LibyaGasProduc@on,MMTOE
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Figure 4. Libyan oil and gas production.
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16
Middle Eastern OPEC countries
IranIran is one of the original five founding members of OPEC in 1960, along with Iraq, Kuwait, Saudi Arabia and Venezuela. As Figure 7 indicates, its oil production has been subject to huge swings up and down. Production was climbing in the 1970s, but it plummeted during the Iranian Revolution, and it has never regained its peak production levels. During the 1980s, infrastructure was repeatedly damaged during the Iran-Iraq War. Production began climbing gradually after the war ended in 1988, until international sanctions cut exports once again. In 2015, the United Nations (UN) set out a schedule for lifting sanctions, and production began to rise. Natural gas production has risen more 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, following Russia. It has aggressively developed natural gas for domestic use, freeing up oil for export.
Iran’s net oil export revenues have dropped sharply, as Figure 8 shows. In 2011, export revenues were US$85.8 billion. They fell to US$27.1 billion in 2015, a 68% drop. International sanctions account for most of the drop, but the lifting of the sanctions in early 2016 coincided 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 approximately 4 million bpd this year. Crude production rose from 2.84 million bpd in 2015 to 3.465 million bpd during the first 10 months of 2016, according to OPEC.
IraqIraq is one of the original five founding members of OPEC in 1960. Figure 9 presents the tumultuous course of oil and gas production in Iraq since 1970, as per BP. Much like neighbouring Iran, Iraq’s production was surging in the 1970s, but the oil price shocks derailed output. Iranian output, as noted above, dropped in the aftermath of the Iranian Revolution in 1979 - 1980, but conflict spilled into Iraq as well. Iraq feared that Iranian insurrection would spread into Iraq, and Iraq invaded Iran in 1980. The Iraqi invasion was repelled, and Iran then went on the offensive. The Iran-Iraq War lasted eight years, causing immense casualties and damage to both sides.
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 Civil War from 2014 onwards has continued to cripple the country’s energy industry, and attacks on oilfields, pipelines and export facilities are impeding exports.
According to the IMF, crude oil exports accounted for 93% of 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 government after the execution of Saddam Hussein 10 years ago was seen as positive for exports. Prices were also rising. But lasting peace and a stable central government have yet to be achieved. Oil export revenues fell from US$89.2 billion in 2014 to US$57.2 billion in 2015. In 2015, Iraq’s oil export revenues were 24% lower than they were in 2011. The drop in oil prices and the high cost of fighting against the Islamic State of Iraq and the Levant (ISIL) have contributed to serious growth in the country’s budget deficit.
KuwaitKuwait was one of the original five founding members of OPEC in 1960. The first commercial oil discovery was in 1938 at the Burgan field. Commercial exports began in 1946. Figure 11 presents BP’s data series on oil and gas production from 1970 through 2015. Like many OPEC countries, Kuwait’s oil production dropped sharply during the oil price
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Figure5.LibyaLNGExports,BCM
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Figure 5. Libyan LNG exports (billion m3).
Figure 6. Libyan net oil export revenues (US$ billion).
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Figure7.IranOilandGasProduc>on,MMT
IranOilProduc>on,MMT IranGasProduc>on,MMTOESource:BP
Figure 7. Iranian oil and gas production.
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Figure8.IranNetOilExportRevenues(US$B)
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Figure 8. Iranian net oil export revenues (US$ billion).
January 2017 HYDROCARBON ENGINEERING
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shocks of the 1970s. The sharpest curtailment in output, however, came 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 occupation of Kuwait, before the UN demanded an Iraqi withdrawal. 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 blazed for months, causing immense damage and an environmental disaster. Kuwaiti oil production was flat for around a decade. Output grew after 2000, but the recent weakness in oil prices has caused production to flatten again, with a drop in investment. Production at the Partitioned Neutral Zone (PNZ) has been stymied by disputes with Saudi Arabia, which shares the PNZ with Kuwait. Kuwait is a modest producer of natural gas. During the Iraq-Kuwait War production was largely shut in.
According to the IMF, petroleum export revenues accounted for over 70% of Kuwait’s government revenues in 2015. Figure 12 presents the EIA’s assessment of Kuwait’s net oil export revenues. Revenues peaked at US$93.1 billion in 2012. The oil price war caused prices to collapse, and Kuwait’s revenues fell to US$39.7 billion in 2015, a 54% reduction. Kuwait is attempting to diversify its energy industry by developing non-associated natural gas, which is in short supply. The electric power sector often fails to meet peak demand for electricity.
QatarQatar is the smallest country in OPEC in terms of area and population. It joined OPEC in 1961. Figure 13 presents the long term trend in Qatari oil and gas production. Qatar was an early entrant into the oil field, discovering the Dukhan field in 1935 and starting commercial production 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, while natural gas production grew slowly and steadily.
As Figure 13 illustrates, natural gas production caught up with oil production (in oil equivalent terms) by 2007. Gas production then quickly pulled away from oil, and natural gas production is now roughly twice as large as oil production. Qatar’s natural gas reserves are the third largest in the world, following Russia and Iran. Qatar is far and away the world’s largest exporter of LNG. Figure 14 presents the trend in Qatari LNG exports, as reported by BP. In 2015, Qatar exported 106.3 billion m3 of LNG, accounting for 31% of total global LNG exports of 338.3 billion m3. The second largest exporter was Australia, at 39.8 billion m3.
Figure 15 displays the rise and fall of net oil export revenue in Qatar. Revenues were approximately US$43 billion from 2011 through 2013, but the collapse of oil prices caused revenues to fall by more than half. Revenues of US$19.7 billion in 2015 were 46% of their level in 2011.
Saudi ArabiaSaudi Arabia was one of the original OPEC members, and it continues to be a leader within OPEC and within the global oil market in general. It is the world’s largest oil producer, though the US briefly held this distinction during the height of light tight oil production from shale plays. Oil prospecting has a long history in Saudi Arabia, with the Damman oilfield discovery in 1938.
Figure 16 presents the trend in oil and natural gas production. Natural gas production has grown slowly and steadily, while oil production has varied tremendously. It was trending up strongly during the 1970s, with a visible downturn during the Arab Oil Embargo, followed by a resumption of growth, then a steep collapse after the second oil price shock. Output remained low until oil prices collapsed in 1986. Much of the growth after this was prompted by the Asian economic boom. In 2015, Saudi Arabian crude production was reported at 10.123 million bpd. Production grew to an average of 10.351 million bpd during the January - October 2016 period.
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Figure9.IraqOilandGasProduc?on,MMT
IraqOilProduc?on,MMT IraqGasProduc?on,MMTOESource:BP
Figure 9. Iraqi oil and gas production.
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Figure10.IraqNetOilExportRevenues(US$B)
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Figure 10. Iraqi net oil export revenues (US$ billion).
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Figure11.KuwaitOilandGasProduc@on,MMT
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Figure 11. Kuwaiti oil and gas production.
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Figure12.KuwaitNetOilExportRevenues(US$B)
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Figure 12. Kuwaiti net oil export revenues (US$ billion).
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Saudi Arabia is the world’s largest exporter of oil. OPEC reports that the oil and gas sector is responsible for 50% of GDP and 85% of Saudi Arabia’s export earnings. Protecting market share was a chief 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 EIA. Revenues rose to US$297.2 billion in 2012, but began to slide thereafter. In 2015, oil export revenues had fallen to US$130.1 billion, approximately 44% of the level achieved in 2012. Saudi Arabia is also now launching an initiative geared toward ‘Life After Oil’, working to diversify the economy so that the vagaries of the global oil market cannot have such large impacts on the economy.
United Arab EmiratesThe United Arab Emirates (UAE) is made up of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah and Umm Al-Quwain. The first commercial oil discoveries were made in 1958, with the onshore Bab-2 well and the Umm Shaif offshore field. 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 price shocks of the 1970s. Production then dropped until the collapse of oil prices in 1986 unleashed global oil demand, and production began to rise once again.
The UAE is a significant exporter of LNG, as shown in Figure 19. LNG exports are typically 7 - 8 billion m3/y. The oil and gas sector accounts for approximately 40% of the UAE’s GDP. Although LNG 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 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 to diversify its economy, so that it has been better equipped to weather the current period of low oil prices. However, even the UAE is now facing a budget deficit.
OPEC production cut agreementOPEC surprised the majority of the world’s oil market watchers when it succeeded in making a production cut agreement at its 30 November 2016 meeting in Vienna. The Algiers meeting in September yielded a proposal that was to cut production to 32.5 to 33 million bpd. After two months of difficult negotiations following the Algiers meeting, there was widespread skepticism about OPEC’s ability to reach consensus at the Vienna meeting. In the end, however, the agreement was not merely a face-saving measure. OPEC chose the more aggressive target of 32.5 million bpd in January 2017. According to the group’s internal calculations, this will be a cut of around 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, 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 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 the country relented and joined the agreement. Table 1 presents a summary of OPEC’s production agreement.
OPEC publishes two sets of crude production data: one that is based on official submissions from the member countries, and one that is compiled from secondary sources. For some countries, and in some months, there are gaps in the data. Moreover, the data is subject to political pressure. There has been an incentive to boost production and/or production data in order to secure a larger baseline from which the production cuts would be made. Therefore, adopting an acceptable baseline of current crude production was not a simple matter. Table 1 provides the agreed-upon production level for
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Figure13.QatarOilandGasProduc?on,MMT
QatarOilProduc?on,MMT QatarGasProduc?on,MMTOESource:BP
Figure 13. Qatari oil and gas production.
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Figure14.QatarLNGExports,BCM
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Figure 14. Qatari LNG exports (billion m3).
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Figure15.QatarNetOilExportRevenues(US$B)
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Figure 15. Qatari net oil export revenues (US$ billion).
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Figure16.SaudiArabiaOilandGasProduc@on,MMT
SaudiArabiaOilProduc@on,MMT SaudiArabiaGasProduc@on,MMTOESource:BP
Figure 16. Saudi Arabian oil and gas production.
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Sabin ExpTheDif-QR.indd 1 12/7/16 9:42 AM
January 2017 HYDROCARBON ENGINEERING
22
January 2017, along with the derived adjustment from current production levels.
The relative situation of various OPEC members has changed significantly since the price war began. Saudi Arabia kicked off the price war by ramping up production in an effort to regain lost market share. High cost production around the world began to be shut in, including a large amount of production from shale plays in the US. Figure 21 presents the year on year change in crude production by the 11 participating OPEC countries. Indonesia, a net importer of oil, which withdrew from OPEC, has been excluded. Also excluded are Libya and Nigeria, which were exempt from the cuts due to
chronic civil unrest. The data used in this chart was taken from secondary OPEC sources, and the year on year figure for 2015 - 2016 is based on the January - October 2016 production average.
Saudi Arabia increased its crude production by 435 000 bpd in 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 essentially reverses three quarters of the new output. Production will be at a higher level than it was before the price war.
The lifting of sanctions on Iran freed the country to boost production by 625 000 bpd during the first 10 months of 2016 relative to production in 2015. Gaining Iranian participation in the current production deal was impossible without a concession that allows its January 2017 production level to be 90 000 bpd above its current baseline.
Iraq also made huge production gains, with 2015 production 666 000 bpd above 2014 levels, and another 404 000 bpd of production added during the first 10 months of 2016. Iraq has agreed to cut production by 210 000 bpd in January 2017.
The UAE increased crude production by 97 000 bpd in 2015 and another 28 000 bpd during the January - October 2016 period, for a total addition of 125 000 bpd. By agreeing to cut production by 139 000 bpd, it will reverse these gains, plus cut a small amount more.
Algerian crude production has been in a period of decline, largely caused by a lack of investment. Production fell by 17 000 bpd in 2015 and 20 000 bpd during the first 10 months of 2016. Algeria has agreed to reduce production by 50 000 bpd in January.
141
165.2
178.3
261.5
144.4
194.6
281.3
297.2
278.9
246.5
130.1
0
50
100
150
200
250
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350
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure17.SaudiArabiaNetOilExportRevenues(US$B)
Source:EIA
Figure 17. Saudi Arabian net oil export revenues (US$ billion).
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Figure18.UAEOilandGasProduc@on,MMT
UAEOilProduc@on,MMT UAEGasProduc@on,MMTOESource:BP
Figure 18. UAE oil and gas production.
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Figure19.UAELNGExports,BCM
Source:BP
Figure 19. UAE LNG exports (billion m3).
Table 1. OPEC planned production cut (000 bpd)
January 2017 planned
Adjustment*
Algeria 1039 -50
Angola 1673 -80
Ecuador 522 -26
Gabon 193 -9
Iran 3797 +90
Iraq 4351 -210
Kuwait 2707 -131
Qatar 618 -30
Saudi Arabia 10 508 -486
UAE 2874 -139
Venezuela 1972 -95
Participating OPEC = 11 30 254 -1256
*adjustment is based on OPEC's adopted baseline of current production
Note: Indonesia (a net oil importer) withdrew from OPEC
Libya and Nigeria received exemptions because of internal unrest
Iran negotiated an increase because of prior sanctions
Angolan production rose by 100 000 bpd in 2015 but declined slightly in 2016. Angola has agreed to a production cut of 80 000 bpd.
Ecuadorean output has been stable at around 550 000 bpd. The country has agreed to cut production by 26 000 bpd.
Gabon’s output also has been stable at approximately 220 000 bpd. Gabon has agreed to a cut of 9000 bpd.
Kuwait has more flexibility than many in terms of output, though it has lagged in terms of pursuing investment recently. Its production fell 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 amount of production has been shut in because of disputes with Saudi Arabia over the jointly held Partitioned Neutral Zone (PNZ).
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. Qatar is the world’s largest exporter of LNG, which reduces its reliance on oil as a source of export earnings.
Venezuela’s oil sector has been in turmoil. Production fell slightly, by 4000 bpd, in 2015, but it has fallen sharply in 2016, by 171 000 bpd to date. Venezuela has agreed to reduce output by 95 000 bpd in January.
ConclusionOverall, the 11 OPEC countries now participating in the production cut added 1.24 million bpd of new crude to the market in 2015. They added another 1.128 million bpd to the market during the January - October 2016 period, for a total addition of 2.368 million bpd. The proposed cut will remove 1.256 million bpd, slightly over half of the volume that has been added over the past two years. If prices continue to strengthen and the market moves more quickly into balance, OPEC oil revenues will rise, and the group will be able to view the price war as a success.
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Figure20.UAENetOilExportRevenues(US$B)
Source:EIA
Figure 20. UAE net oil export revenues (US$ billion).
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Figure21.TheOPEC11:ApproximateYOYChangeinCrudeProducFon,'000bpd
2015-2014 2016-2015*
BasedonOPECsecondarysourcesdata,with2016dataJanuary-Octoberaverage.
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Figure21.TheOPEC11:ApproximateYOYChangeinCrudeProducFon,'000bpd
2015-2014 2016-2015*
BasedonOPECsecondarysourcesdata,with2016dataJanuary-Octoberaverage.
Figure 21. OPEC 11: approximate year on year change in crude production (000 bpd).
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