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Afghanistan Oil Conference Review by Masood Ayoub, Sarwarzad Energy Ltd

In an era of increasingly difficult, turbulent markets and frontiers for oil and gas industry, Afghanistan presents a new potential market; perfectly situated within its oil and gas resource rich neighbours.

As a result, the inaugural Afghanistan Oil Conference was held in Dubai by International Business House (IBH) on 24-25 September 2014. The event provided a unique and timely reminder of the future potential of the upstream and downstream possibilities within Afghanistan's energy sector.

The event proved to be unique, as it was the first time such an event has been held. Furthermore, the event was timely, as it was earlier in the same week that the power sharing agreement was signed and the first democratic power transfer occurred in Afghan history. This type of conference plays an important role in bringing together government representatives, the private sector and oil and gas and non-oil and gas businesses to facilitate discussion.

Amongst the conference highlights were the ambitious plans laid out by Watan Group, under its wholly owned subsidiary, the Amu Darya Oil and Gas Refining Company (ADOR). Their proposal is to construct a 60,000 barrels per day complex refinery in North Afghanistan. Capital expenditure is slated at $1.3 billion. This will be the largest ever private investment in the domestic oil and gas industry.

The project has the backing from Afghanistan's central government. This support is by way of natural gas supply, water supply, import tax exemptions and income tax exemptions for seven years - amongst other incentives. Three possible sites for the refinery has been identified. A timeline for the design phase (FEED) and engineering, procurement and construction (EPC) has been outlined by ADOR, the operator of the project.

Further, there has been some early progress for the refinery project. ADOR has contracted Deloitte as the financial consultant. Moreover, Mott MacDonald is the technical consultant, with technology (licensors) coming from Germany's Siemens and the US head-quartered UOP Honeywell.

The crude oil (feedstock) will come from Watan Group and its partners CNPC International's Amu Darya basin which is currently producing oil in restricted volume. The refining end products include Diesel (54.3%), Gasoline (21.2%), Jet Fuel (15.7%), Asphalt (4.8%) and LPG (4%).

Afghanistan's net population will grow over the next 50 years. Population growth spurs demand for homes, schools, hospitals, hotels, roads, infrastructure projects, vehicles and aviation travel. Therefore, an increase in oil and gas demand is a certainty facing planners.

A complete refinery in Afghanistan would meet domestic demands and can even enable exports. It can also serve as a strategic asset, meet regional and global product specifications by independent inspection and provide employment post completion in operational and technical roles.

Perhaps we can draw a sense of comparison with the history of the former Soviet states oil and gas industry post the Soviet breakup. It showcases that Afghanistan at present, is where those countries were over two decades ago. It is young. It is early. It has a lot to learn.

Historically, the most important natural resource has been natural gas, first tapped in 1967. At their peak during the 1980s, natural gas sales accounted for $300 million a year in export revenues (56% of the total).

A successful development is that the legal framework for the oil and gas industry has been largely crafted by advise from experience legal professionals from the Western legal traditions, with the rule of law at heart and implemented within the Ministry of Mines. It was interesting to note that this provides foreign investors with the confidence to proceed with bidding in tenders for oil and gas exploration and product sharing contracts. The transparency imparts all parties the knowledge that their legal rights are protected.   

The event encouraged participants to learn and understand a new market's dynamics. Interesting themes such as key supply routes, transport infrastructure, refining capacity, oil and oil by-products trading, supply and demand fundamentals were examined by expert speakers.   

Further, it was constructive to have a range of speakers and delegates from the legal background, finance professionals, politics and political advisors and oil and gas consultants. An opportunity to network throughout the event in a relaxed atmosphere was beneficial to all delegates. The executive debates at the round table discussion granted all participants the chance to raise issues, share their company's business experience in Afghanistan and open the debate to wider topics.
Perhaps it will be the next generation of executive that will transform the energy sector in Afghanistan and entice real foreign direct investment. Nonetheless, the first

Afghanistan Oil Conference may well be seen as the catalyst and breakthrough for this. Such events are important to the future of Afghanistan's oil and gas development and growth.

No one denies the harsh realities and challenges that encounter entering a new fragmented and largely inexperienced market. Nonetheless, the salient point is, geopolitics aside, Afghanistan has a bright future ahead and such events as hosted by IBH can only benefit and place a positive spotlight on the country.

by Masood Ayoub, Sarwarzad Energy Ltd

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