OGJ NEWSLETTER

Prospects grow for an oil price plunge in 1996 resulting from an expected rollover of quotas at OPEC's Vienna meeting last week.

At OGJ presstime all signs pointed to an OPEC rollover of quotas at its Nov. 21 meeting. That, says London's Centre for Global Energy Studies (CGES), sets the stage for a scenario in which OPEC is unlikely to cut oil production until prices fall sharply. Recent strong oil prices relieved immediate pressure on OPEC to deal decisively with the quota issue last week. Brent crude for January delivery traded at more than $16.50/bbl last week.

"Hurricane Roxanne has unexpectedly achieved what OPEC had avidly wished for," said CGES, "a 400,000 b/d reduction in non- OPEC supplies during fourth quarter 1995, creating in the process a sudden shortage of sour crude in the U.S. Gulf that sent prices bouncing back." Hence OPEC revenues are about the same as this time last year, CGES noted, and with a sudden collapse in oil prices deferred until mid-1996, OPEC ministers are under no pressure to tackle quota violations. CGES reckons non-OPEC production in 1996 will jump 1.8 million b/d. This compares with an expected 1.4 million b/d rise in global oil demand and suggests a 400,000 b/d cut in the call on OPEC crude.

CGES estimates that with foresight and curtailed OPEC overproduction, the price for OPEC's basket of crude oil could average $16.70/bbl next year, with the third quarter having the lowest average price at $16.20/bbl.

However, the most likely outcome, says CGES, is a 6 month rollover and no action against OPEC's quota violators. This will lead to average prices for OPEC's crude basket by 1996 quarters of $15.90, $15.60, $12.60 and $12, respectively.

"OPEC must curtail its overproduction right now to keep such a price crisis at bay," said CGES. "However, going by the historical record, OPEC is better at resolving price crises than preventing them."

Embattled Nigeria went on the defensive on the eve of OPEC's meeting against mounting world condemnation of its hanging of nine political dissidents found guilty of murder. Oil Minister Dan Etete handed out a statement to the press at the Vienna meeting defending the trial and execution of Ken Saro-Wiwa and eight fellow activists from Nigeria's Ogoni region and touting the Nigerian LNG export project as a boon to Nigeria's environment. The Ogoni dissidents had led an environmental/human rights campaign that targeted Royal Dutch/Shell's operations in the region, from which the company eventually withdrew after attacks on workers and sabotage to facilities. The LNG project would end gas flaring in Nigeria, a practice the dissidents had opposed.

South Africa's President Nelson Mandela and Shell are likely to spend time fending off criticism because they advocated quiet diplomacy to prevent the executions by the military junta. Since the Nov. 10 hangings, Mandela has called on President Clinton to impose oil sanctions against Nigeria.

Meanwhile, Greenpeace and the Ogoni Community Association have called for boycotts of Shell gasoline stations. Shell said Nov. 20 it is too early to judge the effect of any boycotts and suggested protesters might be using the issue to raise their public profile rather than debate the issue of Nigeria.

Shell also has been forced to defend its planned investment in the Nigeria LNG export project at Bonny Island (OGJ, Nov. 20, p. 37).

Shell said protesters had "failed to see the positive impact of Nigeria LNG and the fact that it won't put money into the pockets of the generals tomorrow."

Confirming the contract to build the Nigeria LNG complex would be signed by yearend, Shell International Director Dick van der Broek said cancellation of the project would not benefit the Nigerian people.

"You have to be clear who would be hurt," said van der Broek. "You don't necessarily affect the present government, because the revenues will not start flowing on this project until early next century. The people of the Niger Delta would certainly suffer-the thousands who will work on the project and thousands more who will benefit in the local economy. The project will also benefit the environment by reducing the need to flare gas. If the project is delayed, there is every possibility the scheme would collapse."

Mexico's petroleum privatization is in full swing.

As expected (OGJ, Nov. 6, p. 15), Pemex last week disclosed its tender for bids on the big petrochemical complex at Cosoleacaque, site of five ammonia plants, a paraxylene plant, and a hydrogen unit. It produces 2.1 million metric tons/year, or about 85%, of Mexico's ammonia. The winning bid will be deter- mined in April 1996 with the deal to close the following August. Bid deadline is March. A tender for the petrochemical complexes at Morelos and Cangrejera will be published in January, with the Parajitos complex to follow soon thereafter.

In addition, the Mexican government this month has unveiled the new legal framework for private investment in its natural gas sector and established the Comision Reguladora de Energia, its counterpart to FERC.

A group of 22 Canadian gas marketers and producers is considering a $3 billion (Canadian), 1,864 mile gas pipeline from British Columbia to the Chicago area. The companies, including Imperial and PanCanadian, plan to have a $2 million economic feasibility study on the project completed by yearend.

There is more than 6 tcf of gas reserves in the prolific plays of Northeast British Columbia. The proposed line would have a capacity of 0.8-1.2 bcfd and come on stream shortly after 2000, adding about 15% to Canada's gas export capacity. Canadian gas producers are experiencing weak prices because of a domestic gas surplus and insufficient export pipeline capacity. Group member Crestar Energy says a grassroots project that does not have to go through three or four intermediate pipelines would be more efficient and less costly. Northern Border is planning a 700 MMcfd pipeline from Alberta to the U.S. Midwest.

Alaska Gov. Tony Knowles has failed to persuade President Clinton to drop opposition to leasing the Arctic National Wildlife Refuge Coastal Plain.

A bill pending in Congress would allow leasing of the region, believed to contain vast oil resources. Clinton has vowed to veto it. In a meeting with Clinton, Knowles argued development would not harm the environment and would bring a needed boost to the Alaskan economy. But he said Clinton was unmoved.

Meantime, Clinton is expected to sign a bill, passed recently by the Senate, allowing the export of Alaskan North Slope (ANS) oil and royalty relief for deepwater fields. Energy Sec. Hazel O'Leary said lifting the ban on exporting ANS crude will spur production in California and Alaska and boost federal, state, and local royalty and other tax payments by as much as $2 billion. She said the deepwater royalty relief bill could help tap the potential 15 billion bbl oil resource in Gulf of Mexico deep waters, resulting in an additional $200 million in bonus and royalty payments to the U.S. Treasury.

API predicts U.S. distillate supplies will be adequate this winter to meet projected heating oil demand, barring unforeseen disruptions.

Although distillate stocks are somewhat lower than average, they are within the normal historical range, API says. It pegged U.S. demand for home heating oil at 305-315 million bbl/year since 1991. In the last 2 decades, demand has fallen from a peak of 544 million bbl in 1976 to 303 million bbl in 1991. In October, distillate deliveries were up 6% from a year ago at 3,249,000 b/d, although temperatures in the major heating oil regions were warmer than normal.

The Woodside group has started production from Wanaea/Cossack oil fields complex off Northwest Australia. Combined output is expected to reach to design capacity of 115,000 b/d by yearend. Production from five conventional Wanaea subsea wells and one horizontal Cossack subsea well moves via flexible flow lines to four subsea manifolds for collection and transfer to the Cossack Pioneer floating production, storage, and offloading facility for processing and tanker loading. Associated gas is separated aboard the Cossack Pioneer and transported via a 33 km subsea pipeline to the North Rankin A gas platform for delivery into the Northwest Shelf LNG complex's onshore treatment plant.

New facilities for extracting and sorting LPG are located at the plant and will be used to process Wanaea/Cossack gas as well as production from North Rankin and Goodwyn fields. The new LPG unit has capacity of 800,000 metric tons/year and will allow the Northwest Shelf project's first LPG exports.

In a further sign of petrochemical industry restructuring, Bayer AG has acquired the engineering plastics business of Monsanto Co. in a $580 million deal that will make it the world's No. 2 producer of acrylonitrile butadiene styrene (ABS). It will more than double Bayer's ABS productive capacity to 550,000 metric tons/year.

Chem Systems, London, notes petrochemical companies are pursuing two main strategies. "One is to become a top three player in terms of size and geographical position, the other is to hunker down and become a niche player," it said. "Companies are going back to their knitting and refocusing on core busi- nesses. Monsanto has been running its ABS business as a cash cow for many years but has sold it under a strategy of entering joint ventures with a leadership position or divesting."