OGJ NEWSLETTER

Are 1986 prices needed to jolt OPEC into action?

While the Gulf Cooperation Council's call last week for cooperative cuts by OPEC and non OPEC exporters briefly rallied markets, they're not likely to happen, says Middle East Economic Survey (MEES).

Proposals at the Riyadh meeting of GCC oil ministers focused on non OPEC production cuts of about 700,000 1 million b/d, a scenario that would almost certainly prove incapable of realization," MEES said.

Even Oman, joined last week by Yemen in calling for non OPEC cuts, concedes total non OPEC cuts of only about 100,000 200,000 b/d are feasible. Still, Oman's oil minister last week began whistlestopping in Egypt, Syria, Russia, Norway, and the U.K. for such cuts.

"Given the likelihood of anything remotely approaching an appropriate response from non OPEC, it is difficult to discern any practical change of direction on the OPEC front at present," MEES said.

But some analysts see that scenario as a light at the end of the low oil price tunnel. Merrill Lynch sees a meaningful oil price recovery in 1994 but only after further market distress. "In a somewhat paradoxical way, a sharp near term further decline in oil prices would be a favorable development for creating price recovery as it would.emphasize more dramatically than does the current situation that OPEC must get on with the task of confronting members that appear currently unlikely to agree to production cuts." The analyst pegs spot WTI at $19/bbl in 1994 vs. $18.59 in 1993.

California oil prices have plunged to the point that more than half the state's production is currently unprofitable, says Conservation Committee of California Oil & Gas Producers. Excluding the OCS and based on Dec. 9 postings, 64.1% of state output of 801,000 b/d is unprofitable.

The group is conducting a separate study of the state's 140,000 b/d of OCS crude output. Most California postings have fallen below $10/bbl.

More capital budgets fall victim to depressed oil prices. Amoco cited prices as well as fewer development projects in slicing 12% from its capital and exploration budget in 1994 from 1993 outlays.

Of Amoco's projected 1994 spending of $3 billion, $1.9 billion is earmarked for E&P, with two thirds of that targeted for non U.S. projects.

A California task force will conduct a more detailed study of the effects of low sulfur diesel on engine performance after an advisory panel appointed by Gov. Pete Wilson found little factual evidence the state's tough new diesel specs cause engine failures. Task force findings are due Feb. 14.

U.S. Coast Guard has issued rules requiring tankers to carry discharge removal equipment and install spill prevention coamings and emergency towing gear. Also under the rules, issued in the Dec. 22 Federal Register, tankers must have a prearranged capability of calculating damage stability in the event of an accident.

Ecuador's oil reforms have had an unexpected result: $297 million in legal claims pressed by Texaco, former operator of fields that for years provided most of the country's oil production. In three lawsuits, Texaco seeks additional payment for crude delivered during January 1984 June 1992 to Petroecuador predecessor CEPE for domestic refining, which Texaco claims should have been paid at international prices and not fixed domestic prices.

One of Ecuador's recent oil reforms calls for legal claims by foreign oil companies to be pressed in the courts and not before the Ministry of Energy, as had been the case.

Meantime, Ecuador has set. Jan. 24 for its seventh exploration bidding round, with about 57 companies registered (OGJ, Dec. 27, 1993, p. 33).

U.S. EPA's resolution imposing new specs on U.S. imports of Venezuelan gasoline has caused a major political flap in the Western Hemisphere's biggest oil exporter.

Venezuela claims U. S. competitors are trying to use EPA rules to snatch part or all of Pdvsa's 50,000 b/d U.S. gasoline market and the measure contradicts the U.S. commitment to free trade. The EPA resolution found olefins content of gasoline produced at the four major refineries in Venezuela exceeds Clean Air Act limits. Pdvsa concedes that issue but counters that its gasoline has much lower benzene and aromatics levels than the average U.S. refiner's. It also notes a multimillion dollar program aimed at improving environmental quality of product slates at Amuay and Cardon refineries to meet CAA standards. Venezuela contends the EPA resolution is discriminatory and intends to make it an issue at GATT negotiations.

The frantic push to add refining capacity in the Asia Pacific region shows no sign of slowing.

Caltex is expected to spend $6 billion the next 5 years to boost refining capacity in Asia, says Texaco, 50 50 co owner of Caltex with Chevron.

Overall, Caltex plans to upgrade refineries and boost capacity by 200,000 b/d from about 420,000 b/d, with an emphasis on East Asia excluding Japan. The Asia Pacific region's 6%/year economic growth has helped Caltex oil products sales there skyrocket to more than 1 million b/d in 1992 from about 630,000 b/d in 1985.

Papua New Guinea's cabinet has approved two proposals to build the island nation's first refineries, says Prime Minister Paias Wingti.

Locally owned PNG Oil Refinery Pty. Ltd. (Pngor) and U.S. firm Galveston Houston Co. (GHC) have had proposals before the government since start up of the Kutubu oil development project in 1992, which established P.N.G. as a crude exporter. Pngor plans a 30,000 b/d refinery (see Industry Briefs, pp. 28 29), and GHC plans a 20,000 h/d refinery on the Papuan Gulf coast near the Kutubu pipeline terminal. Trade and Industry Minister David Mai said the final planning approval process will take about 2 years and at least 60% of each project will belong to the P.N.G. government.

South Korea's Yukong Ltd. and China's Sinopec have agreed to form a joint venture to build a 100,000 b/d refinery in China.

No contract has been signed, and location isn't disclosed, but a preliminary agreement calls for construction to start in first half 1994.

West European petrochemical producers have failed to reach agreement on a restructuring program that would have let them trim capacity expeditiously. The Association of Petrochemical Producers in Europe (APPE) steering committee voted not to proceed with the restructuring proposal after a rancorous debate of APPE general assembly (OGJ, Dec. 27, 1993, Newsletter). The restructuring would have cut West European ethylene capacity by 1.5 million metric tons/year from 19.4 million tons/year. Now the region's ethylene producers face stiff competition from lower cost eastern European and Persian Gulf producers without recourse to orderly capacity closures.

South Korea has taken delivery of its first cargo of Northwest Shelf LNG, and Australian LNG promoters hope it won't be the last. The Northwest Seaeagle landed the 56,000 metric ton cargo at Pyongtaek for delivery to Korean Gas Corp. late last month (OGJ, Nov. 8, 1993, p. 30).

The Woodside led Northwest Shelf group also sold four cargoes to Spain's Enagas in 1993, with more slated for 1994 (see Industry Briefs, pp. 28-29). There is spare capacity outside current contracts with Japanese buyers, and spot cargoes for 1994 are expected to he a little less than 10% of Northwest Shelf output. Japan is expected to buy 7 million tons/year by 1995.

Prospects for foreign participation in Russian oil and gas took one step forward and one back late last month.

Exxon and a 50 50 combine of Mobil Texaco won rights to negotiate for exploration licenses in the Sea of Okhotsk off Sakhalin Island, with a Feb. 1 deadline for final agreements.

Exxon reportedly plans exploration outlays of $202 million on Block 1 and $121 million on Block 2 in the Ayashskiy and East Odoptu areas, respectively. Mobil Texaco plans to spend $151 million during 6 years to explore the 2,700 sq mile Block 4 in the Kirinskiy area. The three companies also will spend a combined $40 million in bonuses to beef up Sakhalin infrastructure and expect to spud first wildcats by yearend.

Gazprom Chairman Rem Vyakhirev told a Vienna conference foreign participation in Russian gas projects will be allowed only when Russian technical expertise is inadequate. Vyakhirev said there will he no question of any direct foreign investment or profit sharing in projects Gazprom can handle. Restrictions will apply to gas E&P, pipeline, and distribution projects. However, foreign finance might be used for such projects, he said.

But foreign expertise will be welcome in high risk developments, where geologic or climatic challenges require technology more advanced than Gazprom's. Vyakhirev also scud Gazprom plans to expand the export pipeline system to western Europe that passes through Ukraine and has been subject to tariff disputes between Moscow and Kiev.