Work on NEOM’s green hydrogen plant likely to start in H1 2022

Paddy Padmanathan, ACWA Power CEO
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Updated 17 October 2021

Work on NEOM’s green hydrogen plant likely to start in H1 2022

  • What we have already said is that we will be dispatching liquid ammonia into the market in the first quarter of 2026, so that’s already there: ACWA Power CEO

RIYADH: Saudi Arabia’s energy company, ACWA Power, expects construction work on its green hydrogen plant in NEOM to start in the first half of 2022, according to the company’s CEO.

“This is the first project of that scale and quite a lot of work had to be done for the first time. So, we are very much in it, and we are already in even doing some work in advance purchases of long lead items for construction. So, there is quite a lot of activity that is going on,” Paddy Padmanathan told Arab News in an interview.

The CEO of ACWA expected to also see the financial closing of the project, a joint venture with NEOM Co. and American industrial gas company Air Products, taking place in the first half of the next year. The joint venture had hired financial firm Lazard to advise on the project, he told Arab News last month.   

“We are going to full construction as soon as we have achieved the financial closure. What we have already said is that we will be dispatching liquid ammonia into the market in the first quarter of 2026, so that’s already there,” he added.

ACWA Power, which debuted on Saudi Arabia’s stock market on Oct. 4, expects to finalize in the first quarter of next year billions of dollars in financing for a green hydrogen joint venture at the planned futuristic city NEOM, ACWA’s CEO told Reuters last week, adding that roughly 20 percent of the $6.5 billion project will be funded with equity and the rest will be limited-recourse project finance.

Padmanathan believes that NEOM’s project will be a game changer for the Kingdom and the company as it will help ACWA expand into that industry once it’s completed. The plant will need around 4.3 GW of clean energy to power it and ACWA plans to use solar in the day and wind in the night to eliminate the need for batteries and expensive storage solutions, he told Arab News.

In July 2020, Air Products, in conjunction with ACWA Power and NEOM, announced the signing of an agreement for a $5 billion world-scale green hydrogen-based ammonia production facility powered by renewable energy. The planning and design phases are currently underway to start construction in NEOM’s new industrial city.

This joint venture is the first step for the NEOM region to become a key player in the global hydrogen market. The business is expected to build an environmentally friendly hydrogen production facility to provide sustainable solutions for the global transport sector and to meet the challenges of climate change.

The project, which will be equally owned by the three partners, will export hydrogen in the form of liquid ammonia to the world market for use as a biofuel that feeds transportation systems.

It will produce 650 tons of carbon-free hydrogen per day and 1.2 million tons of green ammonia per year, reducing carbon dioxide emissions by the equivalent of 3 million tons per year.

ACWA Power, which operates in 13 countries, is bidding for renewable energy projects in Uzbekistan, Egypt, South Africa and Indonesia, as well as a large pipeline of projects in Saudi Arabia, the CEO said.

The company, which the Public Investment Fund is a key shareholder in, uses project finance to fund all of its projects but it will continue investing around SR2.8 billion a year of its own money into these projects to keep growing, Padamanthan told Arab News last month.

ACWA Power is planning projects this year with a total investment cost of around $16 billion, ACWA’s CFO told Arab News in July.


Turkey appoints a new finance minister amid plunge in currency

Updated 03 December 2021

Turkey appoints a new finance minister amid plunge in currency

  • Plummeting to record lows against foreign exchanges, Turkey’s beleaguered lira has lost about 45% of its value so far this year, toppling household savings

ANKARA: In an overnight decision on Dec. 2, Turkish President Recep Tayyip Erdogan appointed Nureddin Nebati as the country’s new minister of treasury and finance in place of Lutfi Elvan, adopting orthodox policy rather than monetary easing.

Elvan, having disagreed with Erdogan over the decrease of interest rates, reportedly stepped down from the post voluntarily. He was a figure acclaimed by market players despite fluctuations in the country’s economic management.

How the new minister, known as a loyalist, will be received by investors remains to be seen.

Plummeting to record lows against foreign exchanges, Turkey’s beleaguered lira has lost about 45 percent of its value so far this year, toppling household savings.

On Nov. 30, the lira plunged as low as 14 to the US dollar, and hit 15 to the euro, rendering it the worst performing currency of all emerging markets. The Central Bank of Turkey quickly intervened by selling substantial amounts of foreign exchange reserves to prop up the lira, Bloomberg reported.

Nebati, who served three years as a deputy finance minister before taking on this role, became the country’s third finance minister in just over a year.

He is known as a bureaucrat and a former businessman close to Erdogan, and he ardently supports keeping rates low in the face of soaring inflation, as they both believe that high interest rates result in high inflation.

However, according to Wolfango Piccoli, co-president of Teneo Intelligence in London, the appointment is expected to pave the way toward considerable spending in the months ahead to boost the government’s ratings ahead of the 2023 elections.

“Fiscal discipline, which has traditionally differentiated Turkey from most emerging markets, is soon likely to become history,” he told Arab News.

Experts anticipate that the economy could be accelerated through cheap credits.

Piccoli believes that the government will announce two support programs to prop up exports and the job market, along with additional initiatives to be disclosed in the months ahead in order to consolidate the government’s position.

“It is likely that the government can use its funds to provide loans to businesses as well,” he added.

The new minister, coming from a political science background in academia, took part in the youth organizations affiliated with Erdogan’s Justice and Development Party, or AKP.

“My God, make it easy, do not make it difficult. My God, make its outcome useful. Give us truth in our work, make us successful,” Nebati tweeted upon his appointment.

Before becoming a AKP lawmaker between 2011-2018, he was also an active figure on the board of the pro-government Islamist business association, MUSIAD. He is also known as a figure very close to Erdogan’s son-in-law, Berat Albayrak.

“In the recent past, former minister Lutfi Elvan had hinted that improvements in the current account balance should be handled with structural changes in the production structure rather than with rate cuts,” said Selva Demiralp, a professor of economics at Koc University in Istanbul, and a former economist at the Federal Reserve.

“Meanwhile, the government insists on the argument that rate cuts will be used as a way to stimulate exports and reduce imports. With the appointment of the new minister, it looks like there will be better coordination between monetary and fiscal policy in keeping interest rates low,” she told Arab News.

In a recent interview wtih state-run broadcaster TRT, Erdogan said that more interest rate changes should be expected in the coming period and Turkey would turn a surplus in 2022, while he warned that there is no “turning back” from the new policy path.

“In this way, there will be an improvement in exchange rates ahead of the elections,” he said.

According to the latest official data on Tuesday, the Turkish economy grew by 7.4 percent year-on-year in the third quarter, thanks to exports, manufacturing and retail demand.

In another speech to Parliament last month, Erdogan hinted at a forthcoming change of finance minister, saying “I’m sorry to our friends who defend (high) interests but I cannot and will not walk the same path as them.”

Elvan was the only one who did not join the crowd in applauding these remarks.

According to economist Demiralp, more rate cuts will push deposit rates further into negative territory, which may bring another wave of dollarization and increase the pressures on the lira.

“Thus, it would limit the banks’ ability to transmit further rate cuts into their borrowing and lending rates. When the monetary transmission mechanism comes to a halt, the government may reconsider its easing cycle,” she said.

On Thursday, the central bank governor met with domestic and international investors and economists via videoconference.

Since September, the central bank has cut rates by 400 basis points to 15 percent against inflation that reached about 20 percent.

The recent steps taken by Ankara to mend ties with its previous regional competitors are also seen as part of a larger attempt to reap economic gains and attract investments from such overtures.

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Russia gas no quick fix for European spot market: Analysts

Updated 02 December 2021

Russia gas no quick fix for European spot market: Analysts

MOSCOW: The longer the prices for natural gas remain at record high levels in Europe this year, the stronger the markets feel that Russian gas should not be seen as a quick fix to the problem, at least not before this winter ends.
“Overall gas production in Russia over the three quarters of 2021 was 12 percent and 2.6 percent higher than a year ago and in 2019. But it was not adequate to raise the supply to the EU immediately,” analysts at Bloomberg NEF said in a note dated Oct. 12.
The fundamentals have changed now. Ronald Smith, executive director and senior oil and gas analyst at Moscow-based BCS Global Markets, explained to Arab News in an emailed message: “In 2021, domestic demand in Russia has gone up substantially on a year-on-year basis. This is at least partially due to the weather, as 2020 was perhaps the warmest year on record, and 2021 has been pretty close to the 10-year norm.”
“There was a strong request to refill domestic storage in Russia before the heating season starts on Nov.1,” Smith added.
Given the pandemic circumstances, Putin’s administration didn’t want to take any chances. As a result, Russia turned up among “bottom 5" gas exporters whose shipments abroad in the third quarter of 2021 fell the most in absolute terms from the same quarter of 2019, according to a presentation by US-based Cheniere Energy, Inc. at an EIA event on Nov. 16.
Gazprom is also facing capacity constraints. “The company is currently producing 1.5 billion cubic meters per day. That is effectively 100 percent of the capacity. They might be able to manage 1.55 bcm/d, but not for very long, and that needs to be reserved for when the weather actually gets cold, say, -20C in Moscow and -5C in Frankfurt,” Smith told Arab News.
Responding to Arab News question how big the size of the increase in Gazprom shipments to Europe could have been over the next 3 months, had Nord Stream 2 regulatory issues been resolved, the analyst said: “Not much at this point unless Gazprom is willing to take gas out of Russian storage, which is full at this time.”
There seems to be a consensus view among industry experts that high gas prices in Europe this year is a result of a confluence of multiple things such as abnormal weather, a drop in European production, competition with Asia over the limited supply of LNG and the “green push.”
Spot prices for natural gas in Europe rose 41 percent during November. On Nov. 30, the front-month Dutch TTF Gas Futures, a European price benchmark, with delivery during January 2022, closed down 1 percent from the previous day at €92.5 after it jumped by more than 5 percent in early morning trading, according to data on Intercontinental Exchange, Inc. website.


US oil pares gains after weekly fuel stockpiles jump

Updated 01 December 2021

US oil pares gains after weekly fuel stockpiles jump

  • A new coronavirus variant triggered fresh travel restrictions that could dampen oil demand
  • White House was still studying proposals from Democratic lawmakers to ban crude oil exports to keep US prices down

DUBAI: West Texas Intermediate (WTI) crude oil futures slipped on Wednesday, reversing course from early gains after a US official said the country was still considering tools to lower energy prices, and as government data pointed to weaker gasoline demand.
Also pressuring oil prices, a new coronavirus variant triggered fresh travel restrictions that could dampen oil demand. Also, an OPEC+ document showed the group lifting its forecast for an oil surplus in the new year.
WTI US crude futures were down 51 cents, or 0.76 percent, at $65.77 a barrel at 1:49 p.m. ET (1849 GMT). During the session, they were up as much as 4 percent.
Global benchmark Brent crude was down 24 cents, or 0.36 percent, at $68.99 a barrel.
US Deputy Energy Secretary David Turk said the Biden administration could adjust the timing of its planned release of strategic crude oil stockpiles if global energy prices drop substantially.
He added that the White House was still studying proposals from Democratic lawmakers to ban crude oil exports to keep US prices down.
US gasoline stocks rose 4 million barrels last week to 215.4 million barrels, government data showed, far surpassing analysts’ expectations in a Reuters poll for 29,000-barrel rise. Distillate stockpiles increased 2.2 million barrels to 123.9 million barrels, versus expectations for a 462,000-barrel build.
Crude inventories fell 910,000 barrels in the week, data showed, compared with forecasts for a 1.2 million-barrel drop.
The Organization of the Petroleum Exporting Countries concluded its meeting without a decision on whether to release more oil into the market.
The OPEC+ alliance, which includes Russia and other producers, will likely take a policy decision on Thursday. Reports and analysts suggested that expectations were growing that the group will take a pause due to the threat from a new virus variant.
“There is much to suggest that OPEC+ will not initially step up its oil production any further in an effort to maintain current prices at around $70/bbl,” PVM analyst Stephen Brennock said.
OPEC+ sees the oil surplus growing to 2 million barrels per day (bpd) in January, 3.4 million bpd in February and 3.8 million bpd in March next year, an internal report seen by Reuters showed.
Several OPEC+ ministers, though, have said there is no need to change course. But even if OPEC+ agrees to go ahead with its planned supply increase in January, producers may struggle to add that much.
Both Brent and WTI front-month contracts in November posted their steepest monthly falls in percentage terms since March 2020, down 16 percent and 21 percent respectively.
Analysts at Goldman Sachs called the decline in oil prices “excessive,” saying “the market has far overshot the likely impact of the latest variant on oil demand with the structural repricing higher due to the dramatic change in the oil supply reaction function still ahead of us.”

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Saudi Arabia’s $100bn plan to become largest shale gas producer outside of the US

Updated 01 December 2021

Saudi Arabia’s $100bn plan to become largest shale gas producer outside of the US

  • Saudi Arabia’s $100bn plan to become largest shale gas producer outside of the US

LONDON: Saudi Aramco’s award of $10 billion worth of contracts on its giant Jafurah project has finally fired the starting gun to develop what is thought to be the world’s biggest shale gas field outside of the US.
Having battled with America’s shale oil producers for market share over the last decade, the Kingdom is now adopting the advanced low-cost techniques of its fracking rivals and is set to spend up to $100 billion on Jafurah to rapidly increase its domestic gas production.
The Kingdom is estimated to be sitting on the fifth largest shale gas reserves in the world.
Saudi Energy Minister Prince Abdulaziz bin Salman earlier said the Jafurah gas field will place the Kingdom third in the world in natural gas production by 2030.
But does Saudi Arabia really have the potential to replicate the soaring success of US shale gas development?


Saudi Aramco Chief Executive Amin Nasser certainly thinks so. Announcing the contracts this week, he said: “It is a breakthrough that few outside the Kingdom thought was possible and which has positive implications for energy security, economic development and climate protection.”
Production is scheduled to begin within the next three years. The field will supply cleaner natural gas for domestic use in the Kingdom, along with feedstock for both petrochemical production, and crucially, low carbon hydrogen power.
Jafurah is expected to contribute to Saudi Arabia’s goal of producing half of its electricity from gas and half from renewables as it pursues its 2060 net-zero target. Indeed, Jafurah alone is forecast to replace up to 500,000 barrels of oil a day that would otherwise be used for domestic consumption.
All this serves the goals of the Kingdom’s Vision 2030 program to diversify the economy from crude oil and sharply reduce its carbon footprint, even if the scheme will enable the Kingdom to increase its crude exports.

The Kingdom, however, has no plans to export the gas from Jafurah as Prince Abdulaziz told reporter on Nov. 29 in Dhahran following the announcement of the new contracts to develop the basin.

We will keep our gas to ourselves

Saudi Energy Minister Prince Abdulaziz bin Salman


But it was thought that fracking in Saudi Arabia will be more expensive than it is in the US, not least because the Kingdom is not renowned with an abundance of natural water, a critical component in the fracking process.
The fracking process requires pumping water, sand and chemicals into the fields at high pressure which fractures the shale rock and allows the hydrocarbons to escape.
“We managed to reduce drilling cost by 70 percent and stimulation cost by 90 percent since the 2014 cost benchmark, while increasing well productivity six-fold compared with the start of the program,” Nasser said on Monday.
Aramco plans to use seawater for fracking at Jafurah. Earlier this year, the company also invited bids for a water desalination plant at the field. Desalinated water is used in gas processing plants. An earlier bidding process was abruptly canceled last year and the current tender process has reduced the capacity of the desalination plant by around 20 percent.

Sadad Al Husseini, former EVP of Aramco


However, former Aramco Executive VP Sadad Husseini insists the “water issue” is a red herring.
He told Arab News: “The water issue was resolved years ago. We have aquifers that hold saline water and the Saudi oil industry has a long history of using this water for drilling.”
Husseini also dismissed cost comparisons with the US shale industry.
He said: “The cost of fracking depends on the depth of the reservoir. In the US, they work with shallower reservoirs, around 3,000 to 4,000 feet deep, which makes fracking less costly. In Saudi Arabia, the reservoirs will be 9,000 to 10,000 feet deep. It’s technically more challenging, but unlike the US, those deep wells are not just producing gas, they’re also producing a lot of condensates, most notably ethane, along with gas, and that is profitable and makes the economics of this field work. Ethane feeds the petrochemical industry.”
He added: “It’s a challenging development but it wouldn’t have advanced if the issues hadn’t been resolved.
Developing shale gas reserves outside the US has not been particularly successful, partly due to environmental concerns - particularly in large population centers in Europe, a lack of infrastructure, and difficulties accessing and disposing of water used in the process.
However, Jafurah is close to the Gulf coast with relatively easy access to seawater, and is also adjacent to the world’s largest oilfield, Ghawar, and its substantial energy infrastructure.
Production at Jafurah is expected to commence in 2024 and is forecast to reach up to 2 billion cubic feet per day of sales gas, 418 million cubic feet per day of ethane and about 630,000 barrels per day of gas liquids and condensates by 2030. Investment over that period will amount to $68 billion, but is expected to total more than $100 billion overall.
Domestic employment, another key plank of the Kingdom’s Vision 2030, is also central to the scheme. It is understood that along with fields under development in North Arabia and South Ghawar, the Jufarah project will create more than 200,000 direct and indirect jobs in the Kingdom.
The scheme will also incorporate new technology, most notably using industrial internet of things and video analytics.
The Jafurah project will not only aid the Kingdom’s environmental ambitions but will also support its petrochemicals industry. “Its ethane and liquified natural gas are highly valuable feedstocks for the Kingdom’s petrochemical’s industry,” the Aramco chief said.

 

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Oil rebounds above $76 on speculation virus fear overrated

Updated 30 November 2021

Oil rebounds above $76 on speculation virus fear overrated

LONDON: Oil rebounded by more than 5 percent on Monday to above $76 a barrel as some investors viewed Friday’s slump in oil and financial markets as overdone while the world awaits more data on the omicron coronavirus variant.

Brent crude was up $3.66, or 5 percent, at $76.38 a barrel by 1444 GMT, having slid by $9.50 on Friday. US West Texas Intermediate crude was up $4.36, or 6.4%, at $72.51, having tumbled by $10.24 in the previous session.

“We saw some correction as Friday’s plunge in oil prices has been overdone,” said Tatsufumi Okoshi, a senior economist at Nomura Securities.

Friday’s slide, the biggest one-day drop since April 2020, reflected fears that travel bans would hammer demand. The plunge was exacerbated by low liquidity owing to a US holiday and the expected demand hit does not justify such a fall, analysts said.

“The fear factor had its grip on financial markets on Friday,” said Norbert Ruecker of Swiss bank Julius Baer. “Fundamentally, the announced and enacted international air travel constraints cannot explain such a sharp slump.”

A semblance of calm also returned to wider markets on Monday as investors awaited more information about the new variant. European and Wall Street shares rose while safe haven bonds lost ground.

“I can’t help but feel that Friday’s lows were probably the bargain of the year if you were an oil buyer, speculative or physical,” said Jeffrey Halley of brokerage OANDA.

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