OPEC to make up shortfall from Persian Gulf production shutdowns

Judy Clark
Associate Editor

HOUSTON, Mar. 24 -- Because Iraq has shut down production of more than 2 million b/d of oil, OPEC announced Mar. 20 that it was temporarily suspending members' production quotas to maintain world oil supplies and prices in the wake of shortfalls due to the hostilities in Iraq.

OPEC President and Qatar Energy Minister Abdullah al-Attiyah said OPEC had called on its members "to take full advantage of crude-extracting capacities beyond each nation's established quotas."

Saudi Arabia's Minister of Petroleum and Mineral Resources Ali Al-Naimi said Saudi Arabia is committed to keeping oil prices and the market as stable as possible despite the current disruptions in the area.

"All precautions have been taken to ensure the flow of oil supplies," Al-Naimi emphasized. Saudi Arabia "will continue to implement the resolutions of the 124th conference of the Organization of Petroleum Exporting Countries" that stressed OPEC's readiness to make supplies available "under any circumstances," the ministry said.

Other curtailments
Although a small number of southern Iraqi oil well fires have been confirmed, overall damage to Iraq's southern fields appear to have been minimal, reported the US Department of Energy's Energy Information Administration Monday. The US military stepped up security in the vicinity of Rumaila oil field on Monday after reports of armed Iraqis in the vicinity, but a US military spokesman stressed that "they won't be able to destroy the (Rumaila) wells." Oil operations in Kuwait were normal Monday, and no damage there has been reported, EIA said.

Various companies operating in the Persian Gulf area, however, have shut down active operations and removed personnel from the war theater:

-- Shell Iran Nowrooz-Soroosh Development, a Royal Dutch/Shell Group unit, suspended operations at its 60,000 b/d Soroosh oil field in the northern Persian Gulf 90 km west of Kharg Island, Iran, citing concern for the safety of its employees. Soroosh, which has been in production since December 2001 and was producing about 60,000 b/d, and nearby Nowrooz oil field, which is scheduled to start producing by third quarter of this year, lie close to Iraqi territorial waters.

A Shell spokesman in Tehran said 260 foreign and Iranian staff had been pulled out of the area, but that activities at the offshore fields would resume "as soon as possible." National Iranian Oil Co. will provide security for the sites during the shutdown.

Shell said that when hostilities cease, it would try to compensate for the lost production. Iran's oil ministry earlier this year had said that Soroosh oil production would reach peak capacity of 190,000 b/d by September. A Japanese consortium including Japan National Oil Corp. owns a 20% interest in the Soroosh-Nowrooz venture.

A Shell spokesperson in London said these fields were the only closures Shell plans due to war fears, although some staff members have been evacuated from Syria as well.

-- GlobalSantaFe Corp. reported earlier this month that it would suspend drilling operations at all six of its land rigs drilling in Kuwait by Mar. 17 (OGJ Online, Mar. 14, 2003). The company evacuated 386 nonresident employees.

-- The Kuwait Oil Co.-Saudi-Texaco Co. joint venture shut in a Wafra field well in midmonth, following a blowout at the Kuwait-Saudi Neutral Zone. Emergency crews contained the blowout and have capped the well. The blowout apparently was unrelated to the Iraqi situation.

-- Kuwait Petroleum Co. shut in Al Abdali and Al Ratqa oil fields near the Iraqi border that together produced 35,000 b/d, but said it would make up the production with increased output at Al Ahmadi, Burqan, and Al Muqawa'a fields to compensate for the curtailment.

Meanwhile France's TotalFinaElf SA said it would maintain output at Balal oil field off Iran, which started producing 20,000 b/d of oil in February. The oil is exported from National Iranian Oil Co.'s processing facilities on Lavan Island (OGJ Online, Mar. 6, 2003).

No other problems in the Persian Gulf have been reported at the moment, and EIA said tankers are reported to be loading normally, although insurers are evaluating premiums for ships and cargoes on a case-by-case basis.

User impacts uncertain
With OPEC making up much of the shortage, the production curtailments are unlikely to affect markets in the short term.

Europe and the US accounted for nearly 70% of Iraqi crude sales in 2000, with Asia netting 19%.

Although Germany's Economics Minister Wolfgang Clement told the Bundestag lower house of parliament Mar. 21 that Germany's oil supply is secure, he also said the war, along with high oil prices, could further weaken Germany's struggling economy. He also said, however, that it was too early to determine precisely what the war's impact would be. Germany is a strong opponent of the war with Iraq.

Meanwhile, US commercial crude oil inventories (which do not include the Strategic Petroleum Reserve) increased by 0.4 million bbl, but nonetheless are barely above the lower operational inventory level, said EIA.

Venezuela's production is increasing and is estimated by striking oil workers to be 2.4 million b/d. The Venezuelan government claims production of 3 million b/d, about what the country was producing before personnel strikes began Dec. 2.

Nongulf curtailments
Meanwhile, ethnic violence in Nigeria continued to escalate last week, causing a total of 600,000-800,000 b/d of production to be shut down.

On Mar. 20, widespread unrest forced Chevron Nigeria Ltd. to declare force majeure, shutting in 140,000 b/d of its 450,000 b/d total production on all its onshore and swamp production in the western Niger Delta. The company said the action impacted its ability to deliver on the rest of its March and April lifting programs. One contractor at the company's Escraovos tank farm was killed Mar. 17 and another wounded. Chevron on Sunday closed most of its other facilities in Nigeria, as well.

And on Mar. 21 a unit of Royal Dutch/Shell also declared force majeure affecting its Bonny and Forcados export terminals. The company earlier in the week had shut in 126,000 b/d of its 800,000 b/d production and evacuated personnel, saying it would likely make up the difference elsewhere in Nigeria. A helicopter carrying personnel to safety came under fire from Nigerian militants, but no one was injured, Shell said.

TotalFinaElf SA also has had to shut down some of its Nigerian facilities.

In addition, local militants in the Niger Delta region reportedly have taken control of a number of pipeline flow stations and threaten to destroy them.

Nigerian authorities are expected to deploy military force in the area in an attempt to bring the civil unrest under control.

Contact Judy Clark at Judyrc@ogjonline.com.

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