OGJ NEWSLETTER

Short term oil and gas price weakness is not dissuading analysts from predicting strong demand growth and price hikes.

NatWest Washington Analysis pegs spot WTI at $20/bbl in 1995 and $22/bbl in 1996. The reasons: World economic recovery will boost demand more than expected, Russian exports are likely to remain steady, world inventories are at or just below normal levels, and Iraq will not he allowed to flood the market with its oil.

That outlook runs counter to a nearly $3 drop in Nymex crude in early August despite a continuing crisis in Nigeria that has cut a third of its 1.9 million b/d production. Reports of other OPEC producers making up the shortfall and the prospect of Iraqi crude trapped in a Turkish pipeline reaching market soon apparently kicked the props out from under prices. Nymex crude had reached a 17 month peak close of $20.55/bbl at end July (OGJ, Aug. 15, Newsletter) before dipping to a $17.73/bbl Aug. 16 close.

But that price decline proved short lived with the sudden escalation of the Nigerian crisis and the specter of civil war last week.

Military dictator Gen. Sani Abacha fired leaders of Nigeria's two national oil unions and the Nigerian Labor Congress. The union leaders vowed to organize armed resistance if they were outlawed. Strikers want Moshood Abiola, apparent winner of Nigeria's presidential elections more than a year ago, installed as president and the military junta ousted. The junta jailed Abiola on treason charges and last week started his trial. He was returned to jail when the judge in the case disqualified himself.

Nymex crude then closed Aug. 17 at $18.11/bbl, up 380 on the day.

Unexpectedly weak U.S. natural gas prices will bottom soon and then rebound as the heating season approaches.

So says Kidder Peabody, citing a nearly 50 cents/MMBTU fall in composite spot gas prices to $1.65/MMBTU for August from the same month a year ago. The slide came despite higher storage injection volumes and a decline in reserves replacement. Among the culprits: cooler weather, increased Canadian and Mexican imports, reduced Mexican exports, and big new wells going on line in the Gulf of Mexico. The analyst notes key producers shutting in big volumes--Seagull 65 MMcfd, Enron 100 MMcfd--with more shut-ins to come. It predicts spot prices will jump to $2.05 in September, climbing another 200 by December and averaging $2.15/MMBTU in 1995, up from averages of $1.98 in 1994 and $1.97 in 1993.

U.S. gas consumption will reach record levels the next 15 years if advances in natural gas supply technology help keep prices low, says Gas Research Institute. GRI predicts consumption will jump to about 28 tcf by 2010 from about 10.7 tcf in 1993. That will boost the gas share of the U.S. energy mix to 26. 1% from 23.8% in 1993.

U.S. imports of crude and products are at an all time high.

API pegs oil imports at a record 10,059,000 h/d in July.

The previous record was just less than 10 million b/d in early 1977, although U.S. oil consumption was about 1 million b/d less at that time.

July imports accounted for 58% of U.S. demand, also a record high.

U.S. Interior is considering merging management of the Arctic National Wildlife Refuge in Alaska with two adjoining Canadian national parks, Vunntut and Ivvavik. Alaska's congressmen immediately complained the idea is an "end run" intended to block any possibility of future drilling on the ANWR Coastal Plain. Plans of the merger were revealed in a leaked Interior memo. Although the Clinton administration opposes ANWR exploration, the memo appears to be a sop to environmentalists that complained about the administration's support for exporting Alaskan North Slope crude oil.

Ottawa is opening new land for exploration bids in Canada's Northwest Territories. Department of Indian and Northern Affairs, which administers petroleum land there, cites strong interest in the Fort Liard area in the southern Northwest Territories. Eight parcels involving 576 sq miles are open for bids until Nov. 30.

Ottawa is asking industry which acreage it would considering bidding on in a 100,000 sq mile area farther north in the Mackenzie Valley, where native land claims have been settled. Companies have until Nov. 15 to nominate land for inclusion in areas opened for competitive bids.

Nova Scotia is trying to drum up interest in a $2.3 billion development of Venture gas field 120 miles off its coast.

Discovered in 1978 near Sable Island, site of Cohasset oil field, Venture holds proved reserves of 5.4 tcf and probable reserves of 18 tcf. Studies of six development options with production of 135-800 MMcfd point to an after tax return of 20% without government incentives. Nova Scotia wants Mobil Canada, Esso Resources Canada, Petro-Canada, and Shell Canada to take another look at the project. Mobil is interested but offers no specifics.

Canadian Fracmaster has shipped equipment and has a number of joint ventures planned with China National Petroleum Co.

Fracmaster shipped 16 railcars of equipment from Calgary bound for oil fields in China's Shengli producing area and a JV with CNPC.

The equipment included frac pumpers, blenders, sand handling equipment, and a mobile computer control center. Four JVs are planned.

Fracmaster Chairman Alfred Balm contends potential is greater in China than in Russia, where his company has been successful in increasing production in Siberian fields. Fracmaster is involved in five Russian JVs producing 78,000 b/d and receives a 27,000 b/d share of production.

Russia plans to set up a group of oil and trading companies for a $2-2.5 billion joint venture in Iraq. Included are Lukoil, Zarubezhneft, Rosneftegazstroi, and Mashinoimport. Iraq will pay project costs under a recently signed protocol through exports of JV crude and refined products.

A Russo-Iraqi JV would develop West Kurna and further develop North Rumaila oil fields in northern Iraq, drill deep wells throughout Iraq, lay an Iraqi oil pipeline, upgrade Iraqi refineries, and supply equipment for Iraq's petroleum industry--once international sanctions against Iraq have ended.

Poland needs to restructure its petroleum industry and build more refineries as soon as possible. So says Marian Bardecki, head of the Polish Industrial Lobby, who contends time is running out with oil import duties due to be abolished in 1997 under European Union rules. That will result in stiffer competition for Polish refiners. Bardecki calls for setting up a holding company encompassing major Polish refineries, with shares sold to the public and expected to raise $1.5 billion. Polish demand for refined products is projected at 440,000 b/d in 2010 vs. current refining capacity of 280,000 b/d.

A leading Nigerian petroleum marketer is bidding to buy Sierra Leone's 10,000 b/d Freetown refinery in a joint venture under a proposed government privatization plan.

Unipetrol, formerly Esso Standard Nigeria before Nigeria's government acquired the stock of parent Esso Africa Inc., also has acquired downstream interests in Ghana and Togo. Nigeria currently exports 65,000 b/d of its crude for processing in other countries into products to be imported.

Taiwan has set a timetable for opening its petroleum industry to the private sector. Ministry of Economic Affairs says that starting in February 1996 private companies will be permitted to import and export petroleum products directly and refine oil without government intervention.

However, the ministry will limit the number of foreign companies permitted to engage in Taiwanese refining/marketing. Formosa Plastics Group and Tuntex Group have filed proposals to build refineries.

Taiwan's cabinet recommends privatization of state owned Taiwan Fertilizer Co. (TFC) be accelerated, calling for 240 million shares, or 60% of those outstanding, to he sold the next 12 months for a projected $216 million. TFC is a major producer of urea, sulfuric acid, and compound fertilizers.

Ecuador and Texaco will settle out of court their dispute over alleged environmental damage in Ecuador's eastern jungle during Texaco's lengthy E&P operations there. Texaco agreed to carry out environmental remediation work in its former concession areas in cooperation with Petroecuador. The agreement does not involve a formal recognition of charges or a specific amount of money to he committed to remediation.

And it is separate from a civil suit Ecuadorian Indians are pressing against Texaco in the U.S. (OGJ, Feb. 14, Newsletter).