IN FOCUS: THE GCC ENERGY TRANSITION

1

TA

BLE

OF

CO

NTEN

TSGULF OIL AND GAS CONTEXT

GCC RESPONSE TO LOWER OIL PRICES

CONCLUSIONS

3

14

29

2

GULF OIL AND GAS CONTEXT

3

4

GCC OIL SECTOR CHALLENGES

Oil sector challenges:

The rise of shale production

GCC production response

Intra-OPEC competition

Shifting focus of demand (Asia)

Oil sector maturity

Rising domestic demand

Source: Rystad Energy

SU

PP

LY

FIRST CHALLENGE: THE RISE OF SHALE PRODUCTION

SUPPLY

5

Source: EIA; Qamar research

0,00

0,50

1,00

1,50

2,00

2,50

3,00

3,50

4,00

4,50

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Spar

e ca

pac

ity

(Mb

pd

)

Spare capacity increasingly concentrated in GCC

GCC OPEC Libya Iran

SECOND CHALLENGE: GCC PRODUCTION RESPONSE

SUPPLY

6

7Supply, demand

Pri

ce

OPEC cuts

High-cost producers enter

1

2

3

SUPPLYDEMAND

OPEC challenges:

1. Return of Iran

2. Growing Iraq output

3. Nobody willing to cut production

o Confirmed exempt countries on agreed production limit: Venezuela, Libya and Nigeria.

o Iraq and Iran also asking to be exempt.

o Pressure is on Saudi Arabia to cut and outside players such as Russia

4. Higher prices will encourage shale to rebound

THIRD CHALLENGE: INTRA-OPEC COMPETITION

SUPPLY

Source: Qamar research

Source: BP Energy Outlook 20358

1. North America will become largely self-sufficient in oil

o Russia/Central Asia supplies Europe, o Middle East/Africa supplies Asia, o Americas self-sufficient

2. OECD demand is in permanent declineo But some recent revival, particularly in

US

3. China is the key driver of demando Import growth driven by China and

other emerging economieso Saudi Arabia, Angola and Russia top

crude suppliers to China

4. India is the bright spot for demando But still small compared to China

FOURTH CHALLENGE: SHIFTING LOCUS OF DEMAND

DEMAND

-40

-30

-20

-10

0

10

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30

19

90

19

95

20

00

20

05

20

10

20

14

20

15

20

20

20

25

20

30

20

35

Net

oil

exp

ort

s (M

bp

d)

Middle East to remain largest net oil exporter

North America S & C America

Europe & Eurasia Middle East

Africa Asia Pacific

• Middle East and Africa are the two major exporting regions

• Asia is the major importing region

• Russia supplies Europe (within Eurasia)

• Big future change is the emergence of North American gas exports after 2015

• However, total Middle East gas exports not forecast to grow much to 2035

• Increasing amount of LNG from US, Australia and Russia leading to long-term uncertainty of Middle Eastern LNG exports

-400

-300

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-100

0

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19

90

19

95

20

00

20

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35

Net

gas

exp

ort

s (m

illio

n t

on

nes

)

Asia Key Gas Importer; North America Reverses

North America S & C America

Europe & Eurasia Middle East

Africa Asia Pacific

SHIFTING LOCUS OF GAS DEMAND TOO

Source: BP Energy Outlook 2016; Qamar Research 9

DEMAND

• Mature fields – particularly in Oman, Bahrain and now Qatar• Need for brown-field management, enhanced oil recovery, unconventional oil & gas• Higher costs, more technical complexity• Need to

o Rethink NOC business modelso Introduce & optimize IOC and service-company partnershipso Invest in people and technology

10

FIFTH CHALLENGE: OIL SECTOR MATURITY

DEMAND

o GCC energy intensity is high in general, particularly in Qatar, Bahrain and UAE

High income levels

Air-conditioning and desalination

Energy-intensive industry (aluminum, petrochemicals, LNG, etc.)

Maturing oil fields requiring EOR / gas reinjection / steam injection

Subsidised prices, hence waste and inefficiency

o Rising domestic demand cuts into exports and government revenues

o Subsidy reform is underway, but still has some way to go

11

SIXTH CHALLENGE: RISING DOMESTIC DEMAND

DEMAND

0

500

1000

1500

2000

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3000

Φεβ

-13

Μα

ρ-1

3

Απ

ρ-1

3

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ϊ-1

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ν-1

3

Ιου

λ-1

3

Αυ

γ-1

3

Σεπ

-13

Οκτ

-13

Νο

ε-1

3

Δεκ

-13

Ιαν-

14

Φεβ

-14

Μα

ρ-1

4

Απ

ρ-1

4

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ϊ-1

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Ιου

ν-1

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λ-1

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γ-1

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Σεπ

-14

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-14

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ε-1

4

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-14

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15

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-15

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ρ-1

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ρ-1

5

Μα

ϊ-1

5

Ιου

ν-1

5

Ιου

λ-1

5

Αυ

γ-1

5

Σεπ

-15

Οκτ

-15

Νο

ε-1

5

Δεκ

-15

Ιαν-

16

Φεβ

-16

Μα

ρ-1

6

Απ

ρ-1

6

Μα

ϊ-1

6

Ιου

ν-1

6

Ιου

λ-1

6

Αυ

γ-1

6

Oil

pro

du

ctio

n d

eman

d (

kbb

l/d

ay)

Saudi Arabia oil demand

Gasoline Kerosene Diesel Fuel oil Crude LPG Other

12

GCC GAS SECTOR CHALLENGES

Supply:• Growing E&P/operational challenges

o Significant associated gas reserves especially in the GCC except in Qatar and Oman

o Complex and expensive sour gas reserves in the UAE and Kuwait

• Limited development of intra-regional gas trade

o MENA cross-border gas trade had limited success (AGP, negotiations with Iran often stalled, cases with Egypt over lack of payment, Israel-Jordan deal opposed)

• Low domestic gas prices make gas-focused project economics challenging for private E&Ps• Specifically for unconventional gas

resources

Demand:• Explosive growth demand

o Increasing local demand challenges export levels

o Several Gulf countries turning to LNG imports

• Lower reliance on oil revenues for exports o GCC countries increasing refinery

capacity to rely less on imports of refined products

o Petrochemicals – move to specialityproducts from bulk petrochemicals

o Abu Dhabi planning to be largest exporter of sulphur from sour gas fields

GCC RESPONSE TO LOWER OIL PRICES

13

14

IMPLICATIONS OF THE OIL & GAS PRICE FALL

• Slower economic growth – lower demand?• Less capital for gas-consuming projects but diversification still key• Domestic demand remains priority for new production• Opportunities for new private & international investment• Subsidy reform easier – prices closer to international levels

Canceled/Delayed projects

Country Project

Saudi Arabia • Aramco delayed deep-water oil and gas exploration and drilling activities in the Red Sea

UAE • Qusahwira field expansion project delays continue• Shell exits Abu Dhabi’s $10 billion Bab sour gas project• 'Door is still open' for Adco concession

Qatar • Barzan gas development Phase 1 faced delays in 2015 and is expected to come online in 2016, but currently facing gas leak delays

• Bul Hanine field redevelopment project could be delayed or QP will seek to reduce the cost of its development

• Qatar Petroleum and Shell cancelled Al Karaana petrochemicals project• Qatar Petroleum cancelled Al Sejeel petrochemical project

Mostly upstream projects being delayed

R ISE OF ALTERNATIVE ENERGIES

15

16

RENEWABLE ENERGY GAINING GROUND IN THE REGION

Cost of solar and wind declining Now competitive in the right locations & with right market design

Changing and evolving business models

Distributed generation and advanced grid technologies

Nuclear power generation offers large-scale, dispatchable, low-C power

Growing regional interest – but challenges on delivery

Lenders bullish on renewables Renewable projects bankable for both regional and international banks

Utility (power and water) projects most likely to go ahead as demand grows

Need to meet demand in most cost-effective way given strained budgets

Search for alternatives to gas Captured CO2 for EOR; solar thermal steam

• Direct solar radiation (CSP) • Total solar radiation (PV)

• Wind speeds

17

GCC RICH IN RENEWABLE POTENTIAL (MOSTLY SOLAR)

• GCC focuses on Solar PV because it is cheaper, but DEWA announced that the fourth phase of the 5GW Mohammed bin Rashid Al Maktoum solar park would be CSP

• Advantage of CSP is its thermal storage• Possibility of PV power with storage

RENEWABLE ENERGY GAINING GROUND IN THE REGION

18

19

WHAT IS MOTIVATING THE GCC’S ALTERNATIVE ENERGY POLICIES?

• Motivationso Almost entirely economic – gas shortages, growing domestic oil consumptiono Some interest in economic spin-offs (jobs, diversification)o Environmental benefits welcome for PR but not a driver

• Policieso All sources of energy supply are being explored – renewables, nuclear, unconventional oil

& gas, CCSo Energy efficiency by information, exhortation and some mandates – very little price-

driven outside Dubai• Progress

o Little to date in GCC outside UAE (CCS, nuclear & solar)o Dubai’s solar progress acceleratingo Saudi Arabia the big disappointmento Oman taking initiative - plans to tender 200MW solar project in 2016o Non-GCC (Jordan, Egypt, Morocco) now moving faster - for oil-importing countries,

renewables are a way of reducing dependency on imports and improving energy security

20

0 20 40 60 80 100 120 140

Bahrain

Oman

Kuwait

Qatar

Saudi Arabia

UAE

GW

Solar Bioenergy Wind

Hydro Wind Solar Bioenergy Total

Bahrain 0 1 5 0 6

Oman 0 0 0.7 0 0

Kuwait 0 0 1 0 0

Qatar 0 0 3 25 28

Saudi Arabia 0 0 25 0 25

UAE 0 1 133 1 135

Total GCC 0 2 167.7 26 195.7

ASPIRATIONS FOR A MORE SUSTAINABLE ENERGY FUTURE

Source: MEES

21

DRAMATIC FALLS IN SOLAR PV POWER BIDS

Source: Qamar research

0

1

2

3

4

5

6

7

18/9/2014 27/12/2014 6/4/2015 15/7/2015 23/10/2015 31/1/2016 10/5/2016 18/8/2016 26/11/2016

Bid

pri

ce (

USc

/kW

h)

Dubai

DubaiAbu Dhabi

22

SOLAR PV ATTRACTIVE VS TRADITIONAL GENERATION

Source: Qamar research

0 2 4 6 8 10 12 14

Gas CCGT, $12/MMBtu

Diesel turbine, $50/bbl

Nuclear

Onshore wind

Gas CCGT, $6/MMBtu

Solar rooftop

Coal CCS

Gas CCS, $6/MMBtu

Conventional coal

Gas CCGT, $1/MMBtu

Solar PV

Electricity price (c/kWh)

Transmission & distribution Low case

• UAE helping drive down renewable costs o Abu Dhabi receives world

record solar bid on the Sweihan 350MW PV project (IPP) at $0.0242/kWh

o DEWA bid for the solar PV 800MW third phase Mohammed bin Rashid al-Maktoum project at $0.0299/kWh

o DEWA said there could be a CSP price of $0.08/kWh cents for the fourth phase of the MBR project

• Solar and wind now competitive against gas, and particularly against oil

• Alternative energy sources –solar, nuclear and coal CCS –are being pursued actively by several Gulf countries

23

APPROACHES STILL NEEDED TO MATCH SOLAR SUPPLY WITH ELECTRICITY DEMAND

Source: Qamar research

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• Based on typical UAE conditions for an example market

Solar

Solar

Other generation

Other generation

Solar helps meeting midday summer peak

Solar does not help with early evening summer peak

March

August

24

LCOE NOT ENOUGH – NEED TO EVALUATE SOLAR AS ONE COMPONENT OF SUPPLY

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Qamar Energy

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August

• No need for high-cost gas/imports

• Low-cost gas baseload, solar midday, high-cost gas/imports for evening

SolarLow-cost gas

High-cost gas / imports

CARBON CAPTURE SHOWING PROMISE

Qamar Energy

• Carbon capture & storage has triple benefit• Reducing emissions• Enhanced oil recovery• Freeing up gas

currently used for EOR• Needs low-cost capture

options (e.g. Emirates Steel)

SOLAR THERMAL A LARGE-SCALE, IF NICHE, TECHNOLOGY

Qamar Energy

• Glasspoint for Petroleum Development Oman

• $600 million, 1021 MW thermal

• Steam for recovery of heavy oil

• Potentially applicable in Saudi Arabia, Kuwait, Iraq, Iran

27

OTHER LEADING UPCOMING PROJECTS

• UAE• Abu Dhabi nuclear: 4 x 1400MW (Barakah, Western Region)• Mohammed bin Rashid Solar Park: 800MW third phase• DEWA invites interest for first CSP project (200MW) as part of the target of 1000MW CSP

capacity by 2030• Waste-to-energy IPP for Northern Emirates, capacity 365-547,500 tonnes/annum

• Kuwaito Modernisation of Kuwait’s refineries in the Clean Fuels Project (CFP) – showing real progresso Al-Kabd solid waste facilityo Al-Abdaliyah integrated solar combined-cycle (ISCC) power plant

• Saudi Arabia o Tender out for 2 photovoltaic 50MW solar IPP projects o Saudi reaffirmed its commitment to developing nuclear power and is currently studying

locations? • Oman

o Planning to issue tender for a 200MW IPP solar project

28

ENERGY EFFICIENCY: LARGE RESIDENTIAL POTENTIAL

• Aqaba, Jordan. Design byFlorentine Visser

• 420 m2, 6 bedrooms

• Built 2010

• Economic attractiveness would bebetter now:

o Fall in solar power costs

o Economies of scale in massdeployment

o Reduction in energy subsidies

Energy Saving

Cost Payback

Passive design 32% +18% 5 years

With solar cooling 72% +45% 10 years

Solar cooling + PV 93% +67% 14 years

Water 50%

CONCLUSIONS

29

30

CONCLUSIONS

• Gulf oil & gas sector facing new challenges• Shifting markets, shale competition and new prices, intra-OPEC competition,

technical maturity, rising domestic demand• NOCs adapting – but fast enough?

• Alternative energy technologies becoming increasingly attractive• Rising domestic gas prices and demand• Falling technology costs• Solar PV the real breakthrough• Nuclear in UAE on large scale – but doubts elsewhere• Solar CSP, wind, waste-to-energy have a role in places

• Efficiency and subsidy reform moving up the agenda• But progress remains very patchy

• Significant in UAE• Large in Oman in niches• Limited in Kuwait• Big plans in Saudi Arabia but little delivery

Robin Mills,

CEO, Qamar Energy

robin@qamarenergy.com

+971 50 293 4668

31

CONTACT DETAILS

APPENDIX

32

33Source: MEED

Country Current refinery capacity (b/d)(2015)

Bahrain 260,000

Kuwait 936,000

Oman 222,000

Qatar 283,000

Saudi Arabia 2,907,000

UAE 1,124,000

NEW REFINERIES

Country Refinery Capacity Additions (b/d) Operation date

UAE Fujairah 200,000 Likely to be canceled

Oman Duqum 230,000 Q3 2020

Saudi Arabia Jizan 400,000 2018

Kuwait Al-Zour 615,000 Q2 2019

EXPANSIONS / UPGRADES

Country Refinery Capacity Additions (b/d) Operation date

Qatar Laffan Refinery 2 146,000 Q4 2016

UAE Jebel Ali 70,000 Q4 2019

Oman Sohar 81,000 Q1 2017

Kuwait Mina Abdullah 186,000 2018

Kuwait Mina al-Ahmadi 120,000 2018

Bahrain Sitra 95,000 2020

PERMANENT CLOSURES

Country Refinery Capacity Reduction (b/d) Operation date

Saudi Arabia Jeddah -90,000 2016/2017

Kuwait Shuaiba -200,000 2017

REFINERY PROJECTS IN THE GCC