OGJ NEWSLETTER

U.S. Industry Scoreboard 7/17 (72728 bytes)

Market expectations about OPEC behavior underpin recent oil price weakness despite a fundamentally sound market.

Rumors that Saudi Aramco was aggressively moving oil into the market in excess of Saudi Arabia's quota pulled down oil prices again this month after stabilizing for a week after the June OPEC meeting, says Houston analyst Stone Bond Corp. (SBC). It contends the current market features strong underlying fun damentals as oil demand remains robust worldwide, U.S. crude runs are well above last year's level, and stocks are well below the minimum levels seen the past 3 years.

Nevertheless, SBC sees some technical signals as bearish, with investment funds continuing to shift from commodities into the stock market in addition to speculation over Iraq's return to the market - an unlikely prospect with the U.N. Security Council again voting to keep sanctions last week.

OPEC's June overproduction also is contributing to recent price weakness.

Total OPEC output in June was 25.11 million b/d, Middle East Economic Survey (MEES) estimates, compared with the group's 24.52 million b/d quota. June output was up slightly from May's average of 25.09 million b/d.

This was attributed to a boost in Iran's production being partly offset by a fall in Nigerian output. Although Iran's output topped quota at 3.645 million b/d in June vs. 3.575 million b/d in May, MEES reckons Iran's second quarter production was within its 3.6 million b/d quota.

Nigeria's production fell to 1.85 million b/d in June from 1.92 million b/d in May because of damage sustained in June to a 42 in. subsea pipeline at Mobil's Qua Iboe terminal (OGJ, July 3, p. 26). The terminal's output has remained at less than half its normal rate of 330,000 b/d of oil since the incident, although normal liftings were expected to resume in mid-July.

As expected, other countries have taken up the slack in lifting Iranian crude in the wake of the U.S. embargo on trade with that country.

MEES reports the end of Asia's refinery turnaround season has sparked a surge in demand for Iranian crude there. Far East buyers jumped purchases of Iranian crude in June enough to offset volumes backed out by the U.S. trade ban, which took effect June 6 (OGJ, June 19, Newsletter).

Japanese buyers lifted an average 640,000 b/d in June, up from 201,000 b/d in May and 366,000 b/d in April, MEES said. U.S. company liftings fell to 186,000 b/d in June from 740,000 b/d in May. Tehran claims the embargo is having no effect on it and notes its hard currency oil revenues are running above forecast levels.

Worldwide E&P budgets of 286 operators are expected to be up 8.4% from 1994 to $59 billion in 1995, says Salomon Bros. in a midyear update of its annual survey of oil and gas spending.

That compares with a projected increase of 5.7% in its yearend 1994 survey (OGJ, Jan. 16, p. 22). Outside the U.S. and Canada, E&P spending is expected to jump 14.3% to $35.1 billion in 1995 from 1994 vs. an earlier estimate of a 7.5% hike. U.S. E&P spending is slated to rise 3.6% to $17 billion, in line with the earlier estimate, and Canadian outlays are expected to fall by 5.7% compared with the earlier projection of a 1.9% increase, owing to gas price weakness.

Almost half the survey respondents report increased budgets outside the U.S., and more than half expect to boost overall E&P spending in 1996.

Exxon intends to resume tankering of Santa Ynez Unit (SYU) crude from the San Francisco Bay area this month. That's over the strenuous objections of Santa Barbara County supervisors who voted last week to ask the California Coastal Commission (CCC) and MMS to ban the practice. The county contends Exxon has broken a 1985 agreement-reviewed by a federal court in 1987-to use only onshore pipelines to move SYU crude produced off the county. Exxon in turn contends the county's jurisdiction ends at its borders. The company had been tankering from San Francisco Bay to the Los Angeles area SYU crude that was first transported via pipeline to the bay area. Exxon agreed to stop tankering May I pending resolution of the dispute, but MMS' Pacific region office concluded there is little risk to the environment and said it would allow three tanker trips/month. The county wants MMS in Washington, D.C., to reverse that decision, and CCC will take up the issue in its Aug. 8-11 meeting.

A U.S. House appropriations panel has proposed a $200 million cut in EPA's budget. Jerry Lewis (R-Calif.), subcommittee chairman, said, "There's a serious need for EPA to reflect on where it's been and where it's going."

Carol Browner, EPA administrator, said, "EPA cannot sustain current levels of public health protection with a 34% budget cut" and urged that funds be restored later in the budget process.

Departing Deputy Energy Sec. Bill White (see Watching Government, p. 25) says the Venezuelan congress' approval of Pdvsa's E&P profit sharing program with foreign companies will prove "a big date in the history of the oil industry in this hemisphere" (OGJ, July 10, Newsletter). He cites DOE estimates that the areas to be opened for E&P could contain 10-40 billion bbl of oil but notes the effective tax rate on foreign firms of 70% "is still pretty high."

As long expected, President Clinton has established full diplomatic relations with Viet Nam. The normalization of relations will make it easier for U.S. petroleum and service/supply companies to do business in Viet Nam and is needed before Hanoi can be granted most favored nation trade status.

Russian gas producer and shipper Gazprom has signed a memorandum of understanding with European Bank for Reconstruction & Development (EBRD) for loans to help fund improvements in Russia's natural gas sector.

The bank agreed to lend Gazprom as much as 35% of an estimated $500-760 million/year investment program in 1996-2000. The agreement follows an EBRD funded study in 1993 that identified projects totaling $3 billion for remedial work on Russia's ailing gas network. These include more efficient utilization of gas reserves, improved conditions and operations of pipelines and compressor stations, removal of transportation bottlenecks, and repair of corroded pipelines.

Gazprom's gas network consists of more than 140,000 km of large diameter pipelines - the largest of which are 56 in. diameter - and more than 250 compressor stations. Last year Gazprom produced more than 21 tcf of gas, of which one third was exported.

Russian giant Lukoil has won a 70% interest in a venture to develop Iraq's West Qurna oil field once U.N. sanctions on Iraq are lifted, says a partner in the venture (see map and related story, p. 22). Zarubezhneft said it and Mashinoimport each will receive 15% with Lukoil of the Russian side of the venture. A feasibility study is to be complete by yearend. Before U.N. sanctions were imposed on Iraq after its August 1990 invasion of Kuwait, Mashinoimport carried out 60% of the project's first phase at a cost of about $280 million.

Turkey says it is prepared to buy all early production from the $8 billion Azeri Caspian Sea oil fields development project (OGJ, June 5, p. 22) if the oil is exported through Georgia. Turkish Prime Minister Tansu Ciller, visiting Baku, says. the Georgian route is the best near term solution because it resolves the impasse over competing, controversial long term pipeline proposals.

They include Russia's proposed pipeline via Chechnya to the Black Sea port of Batumi for tankering to the Mediterranean via the Bosporus Straits and Turkey's option transiting its territory to the Mediterranean via the embattled Azeri enclave of Nagorno-Karabakh. Turkey opposes new tankering through the straits.

Germany continues to target petroleum fueled transportation to further its environmental agenda. Berlin plans to introduce a tax on cars that is indexed to the amount of pollutants in their exhaust emissions rather than to engine size as under current legislation. Transport Minister Matthias Wissmann said the planned tax, which would not come into force before 1997, "means that cleaner cars will pay less than dirtier ones." Esso AG said how the planned tax would affect refiners is a big puzzle. Its value is also questionable, it contends, because other legislation Berlin plans would restrict use of cars without catalytic converters.

Last month Germany's environment ministry disclosed plans to cut benzene content of gasoline, which could lead to a massive investment burden for Germany's refiners (OGJ, June 12, Newsletter).

Italian electric utility ENEL has committed to buy 122.5 bcf/year of LNG from Nigeria LNG Ltd., raising hopes that Nigeria's troubled LNG export project may yet be built. Rome approved a plan to build an LNG receiving terminal near Montalto di Castro on Italy's western coast, although another site is also under consideration. That means about 90% of the project capacity of 252 bcf/year now has been committed to buyers. The $4.5 billion Bonny Island project is scheduled to come on stream in 1999.