OGJ NEWSLETTER

Uncertainty continues to mark the oil price watch.

Oil prices have reached their low for 1994, claims Salomon Bros.

The initial price drop in response to OPEC's rollover of quotas for the year was the result of misguided traders taking long positions in the futures market prior to the OPEC meeting on the false hope ministers would cut output in the second quarter, the analyst says. Since then, prices have strongly rebounded on the basis of stronger than expected demand. So Salomon Bros. is increasing its projection of WTI by about 35cnt/bbl to $15.50 in the second quarter, $16.50 the third, $17.50 the fourth, and $16.10 for the year's average. It thinks these projections could be too conservative, given IEA estimates of demand increasing from the second quarter by 700,000 b/d in the third quarter and 2.4 million b/d in the fourth, and contends oil prices will rise in the second half almost regardless of what OPEC does.

Kidder Peabody, though, insists Nymex crude will remain at $15/bbl for the year. It contends recent market strength stems from a feeding frenzy among speculators in recent weeks buoying futures prices, fears over loss of Nigerian production, and Saudi Arabia's wish to avoid a clamor to lift sanctions against Iraq in the event oil prices spike after an output cut.

Meantime, is the coalition supporting the embargo on Iraqi oil exports starting to fray? With Turkey cutting a deal to give Iraq food and medicine in exchange for the 12 million bbl of Iraqi crude remaining in the Kirkuk Yumurtalk pipeline, diplomats worry the deal might violate sanctions.

Turkey says it has no intention of violating the embargo and claims the arrangement is a limited one meant to flush out the line and close it while awaiting the embargo's end. Turkey plans to domestically refine the crude, valued at about $120 million.

Oapec's long term outlook for oil demand is bullish, especially for Arab oil supplies. It contends in a new study that world oil demand will increase to 75.3 million b/d in 2000 from 66.9 million b/d in 1992.

At the same time, OPEC supplies will jump to 31.4 million b/d by 2000 from 24.2 million b/d in 1992, and non OPEC supplies will inch up only 1 million b/d to 41.5 million b/d. Most demand growth will come from China and eastern Europe, and most supply capacity additions will come from Saudi Arabia, Kuwait, and U.A.E., Oapec predicts.

Nigeria hopes to have its old Port Harcourt refinery out of mothballs by June to help the country cope with its worsening fuels shortage crisis, which is sparking widespread rioting and disrupting oil production in the major OPEC exporter. The refinery, gutted by fire in 1989, was to have been rebuilt within about a year, but that was delayed. Built in 1963 65 with a design capacity of about 35,000 b/d, the refinery produced LPG, gas oil, fuel oil, gasoline, and kerosine for domestic consumption. After domestic demand tripled during 1970 75, Nigeria added other refineries at Port Harcourt, Warri, and Kaduna. Nigerian National Petroleum Co. won deferred payment of import duties and demurrage for equipment imported to repair the Warri refinery, shut down for a year because of technical problems, and the Kaduna refinery, damaged by fire last year. Only the new Port Harcourt refinery currently is supplying products to the domestic market.

Philippines has granted a package of tax breaks to a Filipino Japanese combine for a pioneering petrochemical project in the island nation.

Mabuhay Vinyl Corp./Bank of the Philippine Islands 60% and Mitsubishi/Tosoh 40% plans a 60,000 metric ton/year suspension type PVC resin plant in Bataan province 35 miles west of Manila. It will start up by July 1996.

Manila is offering a 6 year tax break, duty free imports of capital equipment, and tax credits for locally purchased equipment, the fourth such package of incentives offered to spur Philippines petrochemical development.

Russia has invited Azerbaijan to join Caspian Pipeline Consortium Ltd. (CPC), the joint venture with Oman and Kazakhstan intended to deliver Kazakh oil to market via new and expanded pipelines to the Black Sea.

Russian Fuel and Energy Minister Yuri Shafranik said Azerbaijan could use CPC pipelines to hike its crude exports to 30,000 40,000 b/d from the 24,000 b/d exported in 1993. Russia also would assist Azerbaijan in laying a pipeline to Turkey provided Baku delivers more oil to Russia's northern Caucasus and processes more Russian crude at Baku refineries. Oman says work on the main, 1.5 million b/d pipeline from Guryev to the Black Sea port of Novorossiisk is expected to start in 1995 and cost more than $1 billion.

Argentina and the U.K. this summer will resume talks over exploration of the disputed Offshore Falklands Islands, a U.K. Foreign Office official told OGJ. No date has been fixed, and there are no plans for talks at the ministerial level. If all goes well, a second round of seismic survey licensing may follow. An exploration licensing round is expected in the second half. Two seismic surveys of the Falklands shelf carried out last year are said to be a big improvement from previous data (OGJ, Jan. 17, p. 67).

Natural gas storage projects, booming in the U.S. for several years, are starting to proliferate elsewhere. Petroleum Authority of Thailand (PTT) let a consulting contract to British Gas to study optimum natural gas storage and supply methods for three gas fired power plants planned by Electricity Generating Authority of Thailand (EGAT). BG's work, to be complete in June, will include a study of an LNG storage site that's part of PTT's proposed LNG complex. EGAT plans two large combined cycle power plants at Bangkok suburbs Nong Chak and Sai Noi and to expand the power plant at Nam Phong, Khon Kaen, to meet surging power demand.

Meantime, Thailand's proposed LNG complex got another green light with the Thai cabinet endorsing PTT's preliminary study of the project.

The cabinet ordered EGAT to consider PTT's study in its power plant planning. Domestic natural gas generates about 35% of Thailand's peak electricity demand of about 9 million kw. PTT says the LNG plant could support another 4 million kw. Initially the LNG project would import 2.5 million tons/year and longer term as much as 10 million tons/year, with start up likely in 2000. Tractabel is helping PTT conduct a final, 1 year feasibility study.

Venezuela's new government has proposed using 10% of Pdvsa stock to pay severance benefits of nonoil state employees that quit or are fired in order to trim state payrolls. The proposal, disclosed by Energy Minister Erwin Arrieta, immediately sparked a political firestorm but was not dismissed out of hand by new Pdvsa Pres. Luis Giusti, who was not told of the plan before Arrieta unveiled it. Under Venezuelan law, private and state companies must set aside huge cash reserves as accumulated employee severance benefits, and no government yet has been able to muster enough cash to make much of a dent in state payrolls. Government employees account for about 14% of the work force. Giusti welcomed, however, Arrieta's hints of reducing the subsidy for domestic refined products, which costs Pdvsa more than $300 million/year in gasoline sales alone. Unwelcome is a proposal to restructure Pdvsa to boost the energy minister's power.

The Clinton administration is lobbying to win congressional approval of the treaty creating the World Trade Organization, which replaces the General Agreement on Tariffs and Trade.

The treaty would reduce tariffs worldwide by an average of more than 30%, but the administration is worried Congress concerned about replacing the $14 billion the U.S. will lose in tariffs in 5 years may vote the treaty down this summer. Meanwhile 55 House members, mostly Democrats, have urged the administration to postpone a vote until next year.

Natural Gas Supply Association's analysis of pipelines' Order 636 transition costs finds that 51% are due to gas supply contract expenses.

It says eight lines had nearly 89% of industry's total transition costs: Tennessee Gas $322 million (19% of overall costs), Texas Eastern $205 million (12%), Northern Natural $204 million (12%), CNG Transmission $187 million (11%), Southern Natural $184 million (11%), Columbia $153 million (9%), Pacific Gas $152 million (9%), and Midcon's Natural Gas Pipeline $99 million (6%).

MMS will sell small refiners 16,000 b/d of federal royalty oil from the Pacific offshore and 75,000 b/d from the Gulf of Mexico. It notes small refiners complain of having trouble getting long term contracts for crude at equitable prices and must either shut down capacity or buy crude at prices that make it difficult to remain competitive. MMS will accept applications from small refiners until May 27 for a Pacific sale June 30 and a gulf sale July 1. Preference may he given California, Texas, and Louisiana refiners.