Is another oil crisis involving a major oil exporter simmering in the Middle East just as Iraq inches toward normalized relations?
Oil prices shot up last week after a car bomb killed 19 U.S. personnel and injured hundreds more at a U.S. military housing complex near Dhahran on Saudi Arabia's eastern coast June 25.
Brent for August delivery shot up 62¢ to close at $18.71/bbl June 26 in London and was up another 35¢-after climbing 15¢ June 26-in early trading June 27 in Singapore. Nymex August crude rose 69¢ to settle at $20.65/bbl June 26, propelled by rumors of an Iranian link to the Dhahran attack, which Tehran denied.
Mitigating the price spike somewhat was API's report on U.S. petroleum inventories showing increases of 1.3 million bbl in crude stocks and 1.46 million bbl in gasoline stocks. The latter rise was surprising, coming with the summer driving season in full swing.
Saudi oil production and export facilities were not affected by the bomb attack, but security was stepped up at many oil facilities. The terrorist attack follows a year of rising tensions in the kingdom. Last summer, a car bomb killed seven near a U.S. military facility. Markets were jostled last fall during the temporary transition of power from King Fahd to Prince Abdullah following Fahd's stroke and again in May after rumors circulated about Fahd fully relinquishing power. Analysts have speculated for years about the succession of power in Saudi Arabia as fundamentalist Muslim factions there grow increasingly restive.
Iraq moves closer to resuming oil exports to world markets, albeit fitfully.
Iraqi officials were to deliver at presstime last week Baghdad's food distribution plan under the U.N. sponsored oil-for-food agreement. Iraqi oil officials claim Iraq's Persian Gulf marine terminal at Mina al-Bakr, the Iraq-Turkey pipeline, and the Mediterranean terminal at Ceyhan, Turkey, are ready to begin exports. The agreement is expected to be implemented this month. Still to come are Security Council rules on how Iraq will sell the oil and buy humanitarian aid, plus the U.N.'s dispatch of monitors to Iraq to ensure its procedures are carried out.
Meantime, Iraq Deputy Primie Minister Tariq Aziz complains the U.S. is hindering implementation of the accord by insisting on "complicated" measures involving the sale of oil and purchase of goods.
Shell U.K. E&P will disclose July 3 a list of about 20 contractors to be invited to develop outline disposal plans for the derelict Brent spar oil loading buoy.
Shell intends to shortlist this group to a few invited to submit detailed disposal plans and hopes to have a new disposal plan ready by yearend. Onshore disposal appears to be the favored option within Shell, but the company must persuade the U.K. government a new method is better than the deepsea dumping plan it sanctioned last year. U.K. Department of Trade & Industry has hinted it will give Shell a rough ride before a new plan is approved. The government was embarrassed by Shell's decision to abort the Brent spar dumping program, following massive public protests (OGJ, Nov. 27, 1995, p. 23).
At the July 3 press briefing, Shell will tell how state of the art structural analysis shows the major engineering challenges facing contractors. It also will detail some of the 400-plus ideas for Brent spar disposal submitted from around the world.
Norwegian offshore drilling programs must be reshuffled in the wake of a crippling strike by oil workers.
A strike by well service crews in Norway came to an end June 25 after a month of disruption that halted operations on drilling rigs at a time when rigs are fully booked and expected to be working flat out. Statoil notes work on seven rigs it chartered had ceased the week leading before the strike's end. Statoil lost time on drilling work in West Sleipner, Aasgard fields, and Statfjord satellites. The dispute was between Norwegian Union of Oil & Petrochemical Workers and Norwegian Oil Services Companies Association.
Statoil says the main effects of the strike will be felt as charterers and operators have to reschedule drilling programs for rigs that are already fully booked and when rig day rates are at their highest level in years.
An earlier strike by contract staff on mobile installations off Norway threatened to halve the country's oil production (OGJ, May 6, Newsletter). This too ended without government intervention and without a major effect on production.
Brazil will provide sovereign guarantees to help build the $1.7 billion Bolivia-Brazil gas pipeline.
Bolivian President Gonzalao Sanchez de Lozada said Brazil will begin contacts about the project with such institutions as the World Bank and the InterAmerican Development Bank. What sort of agreements might emerge from these contacts is uncertain. Sanchez de Lozada added that Bolivia's talks with Enron to renegotiate a contract with state owned Yacimientos Petrolferos Fiscales Bolivianos (YPFB) to build the line are to conclude soon.
One change being negotiated is an extension of 6 months to June 30, 1997, to allow more time to obtain financing and weather the fallout from plans to privatize YPFB. Sanchez de Lozada denies La Paz has offered Enron a guaranteed return of 18.5% on the project, claiming this figure is only a target.
As in Bolivia, gas major Enron continues to chase other deals around the world.
Enron Oil & Gas Co. (EOG) has signed a cooperative agreement with China's state owned Chinese National Petroleum Corporation (CNPC) covering further development and improved recovery projects in China's Sichuan basin.
The agreement calls for a 13 month evaluation of the 19,000 sq km Chuanzhong block, which lies at the center of one of China's oldest producing areas and contains several producing oil and gas fields. After studies, plans call for pilot tests to gauge the properties' economic viability prior to further development.
The U.S. Overseas Private Investment Corp. will provide $400 million of financing and insurance for a project in which EOG will help Uzbekistan's state owned gas company Uzbekneftegaz develop gas reserves.
Meanwhile, Uzbekistan signed a joint venture agreement with ExproFuels, San Antonio, and American Engineering Inc. (AEI), Memphis, for conversion of 200,000 Uzbek cars, trucks, and buses from imported gasoline to domestic natural gas. AEI says the conversion will cut Uzbek polluting air emissions 400,000 lb/year and back out 1.2 billion gal of imported gasoline in 5 years. It will require a network of 360 natural gas refueling stations.
Trade issues are cropping up for U.S. petroleum sectors.
The U.S. plans to revise a 1993 EPA rule that set tougher standards for conventional and reformulated gasoline (RFG) imported from Venezuela and Brazil. The World Trade Organization early this year ruled the standards were discriminatory (OGJ, Jan. 22, Newsletter).
The U.S. Trade Representative's office said talks will be held with U.S. refiners, Venezuela, and Brazil on how to revise the rules. The process could take 2 years, but the part of the rule convering RFG is to expire in 1998.
The Natural Gas Council has urged the U.S. Trade Representative to press Mexico to eliminate its 7% import fee on natural gas.
It said, "This duty was negotiated when Mexico was still a closed market and natural gas could only be imported and transported by Pemex...Since the North American Free Trade Agreement was concluded, natural gas markets have been opened in Mexico. The 7% duty on imported gas is inconsistent with Mexico's efforts to open its markets and attract more investment.''
Shell Oil is moving to expand onshore and offshore activity along the U.S. Gulf Coast.
In addition to creating a financing alliance with Enron Capital & Trade Resources to pursure onshore E&D in South Louisiana (see Industry Briefs, p. 46), Shell has created a business unit that combines its midstream operations in the Gulf of Mexico. Services Shell Midstream Enterprises will provide other gulf operators include production handling on offshore platforms, oil and gas gathering and transportation, gas processing, NGL supply and transportation, crude oil trading, telecommunications, and property transaction services.
Shell assets contributed to the new Shell Offshore unit include oil pipelines with combined capacity of about 1 million b/d, gas gathering pipelines with total capacity of more than 2 bcfd, more than 120 platforms rated to as much as 500,000 b/d of oil and 4 bcfd of gas, 10 Shell operated gas processing plants with combined capacity of 5 bcfd and producing about 75,000 b/d of NGL, and the most extensive collection of deepwater assets in the gulf.
Improved oil and gas prices and lower costs are bolstering U.S. E&D.
Mitchell Energy & Development Corp. will drill 129 development and exploratory wells in its current fiscal year, up 42% from the 91 wells originally planned. This jacks up Mitchell's current $70 million drilling budget by $15-25 million. In the fiscal year ended Jan. 31, Mitchell completed 112 wells at a cost of $70 million. Chairman George P. Mitchell said, "Both improved well economics and higher cash flows support the increase in drilling, which will be focused on increasing gas production by early next year."
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