OGJ Newsletter

"Saddam Hussein’s unilateral 30-day stoppage of exports has significantly tightened second quarter supplies while making it hard for other Arab leaders to boost output, even if the market demands it," said analysts at London-based Centre for Global Energy Studies in a midmonth report.

Iraq"s ban on oil exports in protest of US support of Israel will remove "at least" 45 million bbl from world markets this quarter-"enough to force a contraseasonal draw on stocks," CGES said (see table).

Venezuela’s crisis

Meanwhile, a strike by employees of Venezuelan state oil firm Petroleos de Venezuela SA helped to trigger a military coup that temporarily toppled President Hugo Chávez. After a tumultuous weekend, Chávez was back in power. But while the political firestorm appeared to be abating, the long-term implications of the failed coup for industry remain unclear according to Wall Street analysts, US government officials, and academics.

Whether the country can attract the foreign investment it needs to preserve its status as one of the world’s top oil exporters is not yet known. In a concession to the business elite that unsuccessfully tried to remove him from office, the restored Chávez accepted the resignation of PDVSA"s directors and named Alí Rodríguez Araque as the company’s new president (OGJ Online, Apr. 22, 2002). Rodríguez also is secretary general of OPEC.

Chávez’s replacement of long-time industry veterans in PDVSA with political loyalists last February helped precipitate the crisis by angering labor unions and many powerful military officials who had once been key supporters, analysts said.

Latin Americans from Mexico to Brazil hailed Chávez’s return to power as a victory for South American democracies after years of military overthrows. Petroleumworld .Com, a Caracas-based electronic newsletter, reported the apparently subdued Chávez won a precarious second honeymoon with Veneuzela’s business elite and upper classes that helped overthrow him. But despite his assurances, opposition leaders are not yet convinced that Chávez is willing to embrace reform.

More worries

Even more worrying is the growing possibility that OPEC ministers will decide not to increase production at their next meeting scheduled for June 26, said CGES analysts. "While the market may be balanced today, it is not true for the second half of the year, where OPEC ought to be focusing its attention," they said.

CGES officials see world demand for oil rising by 1.3 million b/d in the second half of this year. "OPEC needs to raise output by 1 million b/d at its meeting in June and by a similar amount at the beginning of the fourth quarter if it is to prevent prices from rising too high in the second half of 2002," CGES analysts said.

However, they perceive "a danger" that oil prices will not be high enough by June to persuade OPEC to increase production. "A $25/bbl oil price would not have OPEC ministers rushing to raise output, leaving production unchanged at 25 million b/d," said the analysts.

Unless OPEC recognizes the growing need for increased production and acts in time, they said, world markets will experience tight supplies and price spikes in the fourth quarter. A contraseasonal third-quarter stock draw would result, sparking a surge in oil prices with dated Brent averaging almost $28/bbl, they predicted.

Even a production increase of 2 million b/d at the start of the fourth quarter "would not be sufficient to prevent a repeat of the high prices seen in the second half of 2000, with prices rising well above OPEC"s target range of $22-28/bbl," they said.

Industry Scoreboard

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Industry Trends

Coiled tubing is living up to earlier predictions as one of the fastest-growing oil field technologies, with the global fleet of coiled tubing units having more than doubled over the last 10 years, officials at Raymond James & Associates Inc. reported.

Demand for coiled tubing units has ballooned at an annual growth rate of 8%, while the size of the US land drilling rig fleet has shrunk by 10% during the same 10-year period, said J. Marshall Adkins, a RJA analyst (see table).

The Canadian coiled tubing market has expanded even more rapidly, more than doubling since 1997 with an annual growth rate of 25%. That is because Canada historically is "the leading incubator of new oil field technologies," Adkins said in a report to investors.

"The combination of western Canadian entrepreneurial spirit with a wide range of reservoir types has created the perfect "proving ground" for new oil field technologies. Once "proven" in Canada, these emerging technologies often drift southward and overseas as they become more accepted mainstream technologies," he said.

"If we assume that Canadian success is a precursor to global success, then look for coiled tubing growth of the past 10 years to continue over the next 10 years," said Adkins.

The phenomenal growth of the coiled tubing business "is founded on sound engineering and economic principles," Adkins said.

"Coiled tubing is gaining market share because it allows operators to reduce costs and reduce formation damage for many types of completion, workover, and drilling applications," he noted.

Conventional applications such as well cleanouts and acidizing accounted for 77% of all coiled tubing revenues in 2001, according to industry figures. However, Adkins said, "Drilling and fracturing applications now make up nearly 15% of coiled tubing revenues. Ten years ago, these applications were negligible revenue contributors."

Like others, Adkins noted that coiled tubing services managed to avoid the cyclical downturns of other oil field service markets.

At a coiled tubing roundtable and exhibition in Houston more than a year ago, Willem van Adrichem, business development manager for coiled tubing with Schlumberger Ltd.’s well intervention services, said that, while drilling drops off during periods of low prices for oil and gas, demand increases for less-expensive well servicing operations via coiled tubing to help increase production and cash flow from existing wells (OGJ Online, Mar. 7, 2001).

Van Adrichem predicted at that time that use of coiled tubing in well servicing, workovers, and even drilling operations would increase 20-25% that year, "back to 1997-98 levels."

Coiled tubing services now amount to a $1 billion annual market, RJA said. The manufacture of coiled tubing units is a $300 million/year market, while the market for coiled tubing pipe suppliers runs about $90 million/year.

Government Developments

The US Environmental Protection Agency Apr. 22 said it wanted stakeholders to revisit low-sulfur diesel standards. A review panel-which will include refiners, environmental groups, fuel distributors, and state and local governments-will begin its work in May, with EPA seeking recommendations by mid-September.

Last June EPA signaled it would pursue an independent study to take a second look at the Clinton administration-era rule. The rule now on the books would force refiners to meet a 15 ppm standard before 2007 on 80% of diesel supply. The remaining 20% would be phased in by 2010 (OGJ Online, June 6, 2001).

The American Petroleum Institute and the National Petrochemical & Refiners Association have filed suit to block the EPA diesel sulfur rule, saying it could cost the oil industry too much money and lead to fuel shortages.

The Energy Information Administration said it could not predict whether refiners and importers would be able to supply enough low-sulfur diesel fuel to meet market demand in 5 years.

Environmental groups and state air administrators earlier objected to EPA’s convening the panel, saying the rule should stand as written, because it has already gone through an extensive public comment period.

The US Department of Transportation’s Research and Special Programs Administration Apr. 17 said it plans a new $2.5 million research initiative to improve the safety and security of the nation’s gas and hazardous liquids pipelines. Under a Mar. 29 agency announcement, RSPA said it plans to identify research projects that will enhance the long-term integrity of the national pipeline infrastructure.

"As overseers of the nation’s 2.1 million miles of pipelines, we hold the people’s trust to ensure that vital energy resources will be supplied safely," said RSPA Administrator Ellen G. Engleman.

Since the terrorist attacks on the US on Sept. 11, 2001, RSPA and DOT’s Office of Pipeline Safety have worked closely with industry, federal, state, and local agencies to enhance the security of the nation’s pipelines, DOT said. The agency has issued security advisories when needed and has worked closely with the oil and gas industry to assess readiness to prepare for and respond to an attack. It also has improved its ability to communicate directly and rapidly with pipeline operators in emergencies.

The current announcement, involving damage prevention and leak detection technologies, is the first of three topic areas for pipeline research projects. Over the coming months, RSPA-OPS will be soliciting project papers for the remaining research areas of enhanced operations, controls, and monitoring and improved material performance, officials said.

Quick Takes

STATOIL AS has made an oil discovery on the Staer structure close to the firm’s Norne field in the Norwegian Sea. The find could contribute to a unitized development of several reservoirs in the area (see map). Its commerciality will now be assessed. Staer lies about 3 km northeast of the Norne production ship, and its oil quality is similar to that of Norne.

"Staer is…very important for achieving a unitized development of finds in the Norne area" (OGJ Online, Sept. 17, 2001), said Roger Inge Johansen, exploration manager in Statoil’s Halten-Nordland business group.

Exploration well 6608/10-8 on production license 128 was drilled vertically from the Stena Don rig to 2,660 m TD and terminated in early Jurassic rocks. A sidetrack, 6608/10-8A, was drilled 600 m out from the vertical well to delineate the areal extent of the field. This had a total measured depth of 2,600 m below the seabed. Stena Don has also been chartered to drill a well in the Blåmeis structure east of Norne this summer.

In other exploration news, AGIP China BV has begun drilling its first exploration well on the natural gas-prone Sebei block in northwestern China’s Qaidam basin. Drilling is expected to conclude in July on the well, which is designed to reach TD at 4,650 m. AGIP is the only foreign company currently undertaking oil and gas exploratory drilling in onshore China, the company said. AGIP signed a $15 million contract with China National Petroleum Corp. in 2000 allowing it to explore the block (OGJ Online, Nov. 27, 2000). Last year, AGIP completed 400 line km of 2D seismic surveys on the block. Sebei field, the largest in Qinghai Province’s Qaidam basin, has proved and probable gas reserves of more than 90 billion cu m, according to CNPC estimates. Qinghai Oil & Gas Corp., a unit of CNPC subsidiary PetroChina Co. Ltd., is now producing gas from shallow structures on the Sebei block. PetroChina&q#8217;s Qinghai plans to raise gas production capacity at Sebei by 21% this year to 1.15 billion cu m/year from 950 million cu m/year in 2001. Sebei gas production is transported via a 953 km pipeline, completed last year, to Qinghai provincial capital Xining and to Gansu provincial capital Lanzhou.

India’s government will hold road shows in four cities during May and June to offer 27 blocks for oil and gas exploration under the third round of its New Exploration and Licensing Policy (NELP). Meetings will be held in Singapore May 27-28, London June 6-7, Houston June 10-11, and Calgary June 13-14. India has offered 9 deepwater blocks, 7 shallow-water blocks, and 11 onshore blocks in the licensing round, bidding for which is slated to close on Aug. 20. Of the blocks available, 5 had been offered in the first round, 16 were resubmitted with fresh data, while 6 have had areas modified. About 93 billion rupees ($1.9 billion) were invested in acreage covered by the first two NELP rounds, which began in 1999 and for which 47 contracts were signed. Marketing of the 27 new blocks kicked off in New Delhi Apr. 9 with a road show attended by several Indian and international oil companies, including British explorer Cairn Energy PLC, which said it would bid for one or more of the blocks.

Cairn Energy also leads this week’s development action, reporting strong flows of good quality crude oil in two development wells it drilled in Lakshmi gas field. The two wells flowed on test at a combined rate of 10,446 b/d. The first well was directionally drilled to 1,460 m TD and encountered two oil-bearing zones below the main gas-bearing horizons, which are the subject of an ongoing development project.

The first drill stem test (DST) of an interval of 1,411-20 m flowed at a stabilized rate of 5,196 b/d of 44¼ gravity oil through a 56/64-in. choke with flowing wellhead pressure of 575 psi and a GOR of 498:1. The second DST of an interval of 1,382-88 m, flowed at a stabilized rate of 5,250 b/d of 44.5° gravity oil through a 1-in. choke with flowing wellhead pressure of 511 psi and a GOR of 397:1. The flow rates of both wells were constrained by surface test equipment limitations. The Lakshmi development project is scheduled to produce first gas in August 2002 (OGJ Online, Sept. 21, 2001).

A Pacific Tiger Energy Inc. joint venture has entered into a $2 million financing agreement with Gemini Oil & Gas Ltd. oil and gas finance group to fund a multiwell exploitation program in Wichian Buri oil field, onshore Thailand. The joint venture partners will drill as many as four development wells on the PL I Wichian Buri production license early this summer and, when awarded, PL II. The WB-N1 well is shut in pending formal award of the latter license. Pacific Tiger and partner Carnarvon Petroleum NL, which has a 40% working interest in the field, expect to finalize drilling plans within the next 3-4 weeks. In the past 12 months the company has drilled three successful oil wells in the Wichian Buri North area. Two are on production, and the third is shut in pending government award of a production license. Pacific Tiger and Carnarvon are concluding engineering studies on enhancing production from the productive interval as well as testing new zones.

Ten bidders, including Royal Dutch/Shell Group, TotalFinaElf SA, and BG PLC, have submitted expressions of interest in supplying 5 million tonnes/year of LNG to India’s National Thermal Power Corp. (NTPC) for proposed power-generation capacities expansions in northwestern and southern India. NTPC requested the expressions of interest in late February for supply of gas for a proposed 650-Mw capacity expansion at each of four power plants: Anta in Rajasthan, Auraiya in Uttar Pradesh, and Kawas and Gandhar in Gujarat, a total of 2,600 Mw.

NTPC also has sought advice from SBI Capital Markets regarding the project’s financing. Services required are for receiving, unloading, handling storage, regasification, and transportation of as much as 3 million tonnes/year of LNG or regasified LNG for these power plants and about 2 million tonnes/year for a power plant in southern India. Service providers must be developing-or must have proposed developing-a greenfield LNG terminal or else be expanding an LNG terminal already under development.

NTPC wants gas supply to begin in 2006-07. Other potential bidders expressing interest were Reliance Industries Ltd., Indian Oil Corp., Abu Dhabi Gas Liquefaction Co. Ltd., Gas Authority of India Ltd., Yemen LNG, and Malaysia"s Petronas Carigali Sdn. Bhd. India"s Petronet LNG, a joint venture of state firms, is also expected to join the bidding.

Elsewhere on the gas processing scene, Sasol Technology Pty. Ltd., technology arm of South African-based Sasol Ltd., has formed a partnership with engineering firms Ishikawajima-Harima Heavy Industries Co. Ltd. and Nissho Iwai Corp., both of Tokyo, for the design, fabrication, and supply of slurry-phase Fischer-Tropsch reactors for two new Sasol gas-to-liquids (GTL) plants. One plant is being developed in the Escravos Delta region of southern Nigeria through Sasol Chevron, Sasol"s global joint venture with ChevronTexaco Corp. Sasol Chevron, working with Nigerian National Petroleum Corp. and Chevron Nigeria Ltd., is developing the Nigerian GTL plant at a cost of $1.2 billion.

Qatar Petroleum Co. and Sasol Synfuels International are jointly developing the other GTL plant, at Ras Laffan in northeastern Qatar at a cost of $850 million. The plants, which will be commissioned in 2005, will incorporate a slurry-phase distillate process developed during the 1980s and 1990s as part of Sasol’s Fischer-Tropsch technology development program. The low-temperature synthesis technology converts methane-rich natural gas into high-quality, low-emissions fuel suitable for use in diesel engines. Sasol Chevron intends to develop several other international GTL plants during the next decade, requiring 14-20 of the giant slurry-phase reactors. Orders for the Nigerian and Qatari GTL plants’ reactors should be finalized before the end of January 2003. Sasol Chevron will operate the new ventures and market the GTL plant products.

AgipPetroli awarded Paris-based Technip-Coflexip a contract for a new absorbing system to treat the fluid catalytic cracking unit"s flue gas at its refinery in Sannazzaro de" Burgondi near Pavia, in northern Italy. The contract covers detail engineering, procurement, construction, and system precommissioning. The Labsorb system to be installed is a technology by Belco (a LAB Group company) that consists of a quench section, an absorber, and a regeneration unit. The new unit will be the first FCCU flue gas treatment unit in Europe to incorporate a commercial-scale catalyst regeneration unit, Technip-Coflexip said. The project, scheduled for completion in April 2003, will be undertaken at Technip-Coflexip’s engineering center in Rome.

TRANSCANADA PipeLines Ltd. is repairing a section of its mainline near Brookdale, Man., that failed and caught fire Apr. 14. Meanwhile, company representatives are working with Canadian federal authorities to determine the cause of the incident.

About 100 residents in and near Brookdale were evacuated after the break and fire but were cleared to return to their homes the following day. The incident occurred in a relatively remote area, with the nearest residents about 2 km from the site. There were no reported injuries. Although customers with interruptible service had transportation service reduced by about 450 MMcfd, firm transportation service was not affected.

The line’s automatic shutoff valves isolated the damaged section of pipe and allowed the gas fire to burn out. TransCanada isolated sections of two adjacent pipelines to determine any tangential damage. After inspections, the lines have been returned to service.

In other pipeline action, Kazakhoil Aktobe LLP-a 50:50 joint venture of London-based Nelson Resources Ltd. and Kazakhoil National Oil & Gas Co.-has signed an agreement with KazTransOil (KTO) for the construction of an export pipeline from Alibekmola oil field in western Kazakhstan to a connection with the Zhanazhol-Kenkiyak pipeline. KTO is an affiliate of Kazakhstan’s new national oil and gas transportation company, Transportneftegas. The 16 km, 500-mm (19.5-in.) diameter pipeline is scheduled for completion by the third quarter. The pipeline’s initial capacity of 120,000 b/d will provide a way to export crude oil from Alibekmola and Kozhasai fields, both of which are in the Mugalzhar region of Aktiubinsk Oblast. Kazakhoil Aktobe holds the license for both fields, which have combined estimated reserves of 500 million bbl of crude oil and 690 bcf of natural gas. Pipeline capacity could be increased by the addition of new pumping stations as pipeline usage grows. Early completion of the first phase will allow the companies to export oil in 2002 and early 2003. In Phase II, Kazakhoil Aktobe plans to negotiate a tie-in to the proposed Kenkiyak-Atyrau pipeline to export locations; that line is scheduled for completion next December, with oil throughput to begin early in 2003.

TEPPCO Partners LP has announced a $45 million expansion of the Jonah natural gas gathering and transportation system in Wyoming. The Pinedale field lateral’s capacity will be increased to 250 MMcfd from 55 MMcfd. Mainline capacity of the Jonah system will be increased to 880 MMcfd from 730 MMcfd to handle growth from Pinedale field and to reduce operating pressures on gathering lines in Jonah field. The expansion include installation of 43 miles of 20-in. and 24-in. diameter pipe, 9,000 hp of compression, and enhanced liquids handling facilities at two compressor stations. The project is expected to be completed and in service in the fourth quarter. Texas Eastern Products Pipeline Co. LLC, an indirect wholly owned subsidiary of Duke Energy Field Services LLC, is the general partner of TEPPCO Partners LP. Duke Energy Field Services LLC operates the Jonah system.

OMAN-INDIA FERTILIZER CO. (Omifco) has awarded a lump-sum turnkey contract valued at $770 million to Technip-Coflexip and 50:50 joint venture partner Snamprogetti SPA for the design and construction of a giant ammonia-urea fertilizer complex in Oman.

This project, which Technip-Coflexip says will be the world’s largest grassroots fertilizer complex, will be erected at Sur, 150 km south of Muscat. It will consist of two 1,750-tonne/day ammonia plants using the technology of Snamprogetti affiliate Haldor Topsøe SA; two 2,350-tonne/day urea plants using Snamprogetti’s technology; and two granulation units. The complex also will include associated utilities, offsites, and marine works. Under terms of the contract, Technip-Coflexip and Snamprogetti will supply engineering design, equipment and materials, construction management, start-up supervision, and client personnel training.

Work is to be completed within 35 months from the effective date of the contract. Project financing is currently being finalized.

The complex will be fed by Omani gas, with all of the urea output exported to India. Omifco’s shareholders are Oman Oil Co. 50% and the Indian companies KRIBHCO and IFFCO, 25% each.