OGJ Newsletter

U.S. industry scoreboard 9/23 [70590 bytes]

Uncertainty over exports of Iraqi oil creates an unexpected problem for OPEC, reports London's Center for Global Energy Studies (CGES).

"Instead of worrying about reducing production to accommodate Iraq as prices fall," CGES said, "OPEC could find itself under growing pressure to raise output as prices rise. OPEC production is already far above quota, as most members are producing up to the limits of their available capacity in order to take advantage of higher oil prices."

Saudi Arabia and Kuwait are the key OPEC members showing output restraint, preferring to wait and see how the Iraq/U.S. situation develops while reaping the financial rewards, CGES maintains.

"However," warns CGES, "should Iraqi oil be delayed well into 1997, which certainly looks possible, oil prices will rise to levels that might be construed as being against Saudi Arabia's long-term interests.

"To prevent this and avoid a further erosion in its market share, the kingdom may eventually reassess its present oil production policy."

CGES reckons that if it looks as if lraqi oil sales will resume early next year under the U.N.-brokered oil-for-aid deal, OPEC's basket of oil prices would average $20.70/bbl in third quarter 1996, $21.40/bbl in first quarter 1997, and $19.70 in the second quarter.

If limited Iraqi oil exports are definitely ruled out at some point in coming months, CGES predicts the OPEC average basket price could reach $21.90/bbl in first quarter 1997 and $22.30/bbl in the second quarter. "Whatever happens on the weather front," concludes CGES, "the postponement of the implementation of U.N. Resolution 986 has set the stage for higher oil prices over the coming winter."

Meanwhile, concern over market tightness has spurred oil prices to rebound after a reduction in hostilities between the U.S. and Iraq last week prompted oil prices to lose almost $2/bbl from their recent peak.

October Brent closed at $23.69/bbl in London Sept. 12, but with the changeover to November contracts and profit taking after 2 weeks of rises, November Brent crude closed at $21.71/bbl Sept. 17.

API's report that crude and products stocks were down again last week-notably a dramatic deficit in heating oil stocks-sparked the subsequent price rebound, with Nymex October crude jumping 58 on the day to close at $23.89/bbl Sept. 18 and Brent closing that day up 60 at $22.31.

One factor behind the earlier drop in prices was Baghdad's move to stave off further U.S. air strikes by announcing it will not rebuild air defenses damaged in recent missile and bomber strikes.

The Iraqi situation adds another element of uncertainty to the winter fuels outlook, particularly in the distillate markets, EIA says. But EIA and API differ in their views of what's ahead.

EIA says stocks of distillate are unusually low as winter approaches. Distillate stocks were 19.7 million bbl at the end of August, 16% below both the 5 year average level for the month of August and last year's level for the month.

Most of the shortfall exists on the East Coast, the primary heating fuel demand region in the U.S. EIA notes a strong distillate stockbuild the last week of August and the first week of September, but the outlook is that stocks will remain well below average through the winter.

EIA contends increased output and higher imports will be needed to meet normal winter distillate demand. The tight supply/demand balance, coupled with higher crude oil prices, indicate higher prices for distillate this winter.

But API says current low heating oil stocks do not necessarily mean a winter supply problem is developing. While stocks are lower than a year ago, refiners should be able to rebuild them in time to meet demand for residential and commercial heating this winter, API maintains.

It notes refinery runs account for 95% of heating oil deliveries and stock drawdowns only 5%, and refinery output is higher this year than last year.

API said inventories are adequate to meet draws of almost 300,000 b/d-and perhaps more-during the height of the heating season. It adds that imports could be increased too.

It said, "Last winter was severe and long, but if this winter is close to the historical norm, demand could be lower than last year.''

With limited opportunities available for downstream investment in Europe as consolidation continues in that sector, Abu Dhabi is pressing a bid to acquire 50% of Borealis, the Scandanavian petrochemical concern. International Petroleum Investment Co. (IPIC), a unit of state-owned Abu Dhabi National Oil Co. (Adnoc), seeks to buy the half share in Borealis currently held by Finland's Neste Oy; the other half is owned by Norway's Statoil.

Adnoc strengthened ties with Borealis in June when it awarded the European firm an $850 million contract to build a 450,000 metric ton/year polyethylene plant at Ruwais. Neste Oy insists the contract award had nothing to do with the planned sale and is negotiating with other prospective buyers.

Abu Dhabi also is proving aggressive on the gas front. Dubai agreed to buy as much as 800 MMcfd of gas from Abu Dhabi at around 80/MMBTU, undercutting an offer by Qatar of 85/MMBTU.

To meet terms of the deal, Abu Dhabi will spend about $1 billion developing its Khuff gas deposit. The gas will be transported through a 48 in. pipeline for treatment at Taweela 31 miles north of Abu Dhabi City and sent to the Dubai Gas Co. complex 31 miles south of Dubai City. Adnoc has put out a global tender for work related to Khuff gas development and marketing.

Pdvsa is stepping up efforts to acquire more U.S. refining capacity.

Transamerican Refining Corp. (TARC) has entered into talks with Pdvsa's Maraven unit about possible participation in its 200,000 b/d South Louisiana refinery. Maraven would supply crude to the refinery and obtain a processing agreement.

A significant new wrinkle also has emerged in the now-offical $2.3 billion heavy oil joint venture between Pdvsa's Lagoven and Mobil (OGJ, Sept. 2, Newsletter). Under the terms of the deal, the partners will share 50-50 costs of stepping up production of 8 gravity Orinoco crude from Venezuela's Cerro Negro area and shipping it to Jose for upgrading to 16 gravity feed for Mobil's Chalmette, La., refinery. The 180,000 b/d Chalmette refinery will be jointly owned by Mobil and Lagoven, which wasn't disclosed earlier.

Exploration interest in Central America is growing.

Japex Geoscience Institute will begin a comprehensive study in April 1997 to help Honduras develop a petroleum exploration strategy.

The 2 year project will review information from past wells, conduct seismic studies, and possibly drill exploratory wells.

Work will focus on Mosquitia basin and the offshore Mosquitia continental shelf, the most promising of Honduras' five main petroleum prospective areas. Currently, only U.S. independent Kelpetro holds an exploration contract in Honduras.

Interest continues to be high in getting U.S. gas supplies to Mexico's growing market. Coastal has filed with FERC to build a pipeline to bring gas from South Texas to Monterrey.

The project calls for an 18 mile pipeline on the U.S. side of the border to carry gas from Bob White field, which produces 200 MMcfd of gas.

Coastal also would build a 1/4 mile, 24 in. interconnect starting about 650 ft from the border at Roma, Tex., and extending about the same distance into Mexico to tie into a new pipeline proposed by Coastal's Mexican affiliate. This pipeline would interconnect with Pemex's grid. Coastal projects the gas market around Monterrey will grow to 600 MMcfd by 2000 from 400 MMcfd in 1995.

Opportunities are brightening in the former Soviet Union.

Royal Dutch/Shell has formed a joint venture with the Ukraine's Black Sea offshore producer Chernomorneftegaz. Under a protocol signed with the republic's government, Shell will finance a variety of Ukraine-based projects valued at nearly $4 billion, including rehabilitation of the existing gas pipeline system, building new gas pipelines, and reactivation of production in Donetsko-Deneprovskoye and Prikarpatskoye fields.

ARCO and Lukoil, Russia's largest oil producer, have signed their joint venture agreement to pursue oil and gas projects throughout the FSU (OGJ, May 13, p. 35). The level of investment is now $5 billion, up from $3 billion when the deal was first disclosed. Interests are Lukoil 54%, ARCO 46%. ARCO owns about 8% of Lukoil.

A Moscow court has ruled to let Russia's Rosneft oil company keep its promising production arm, AO Purneftegaz.

Rosneft-struggling amid privatization efforts that have already cost most of its assets-risked losing the production unit to the Siberian Far Eastern Oil Co. (Sidanko). The decision gives Rosneft a chance to stay afloat. Purneftegaz accounted for two thirds of Rosneft's 1995 production, and the company still has huge undeveloped reserves.