OGJ NEWSLETTER

June 24, 1991
World oil markets' dependence on OPEC Persian Gulf supplies will continue to grow. Oil production outside the Persian Gulf is expected to remain virtually unchanged during 1991-96, according to County NatWest, Washington. County NatWest contends the rise in non-Persian Gulf OPEC production--l.5 million b/d by Gabon, Libya, Nigeria, and Venezuela--won't cover the expected 1%,/year rise in world demand in the period, especially when factoring in an expected drop in non-OPEC output, to

World oil markets' dependence on OPEC Persian Gulf supplies will continue to grow.

Oil production outside the Persian Gulf is expected to remain virtually unchanged during 1991-96, according to County NatWest, Washington.

County NatWest contends the rise in non-Persian Gulf OPEC production--l.5 million b/d by Gabon, Libya, Nigeria, and Venezuela--won't cover the expected 1%,/year rise in world demand in the period, especially when factoring in an expected drop in non-OPEC output, to 39.3 million b/d in 1996 from 41.6 million b/d in 1988, 40.6 million b/d in 1990, and 40 million b/d in 1991.

The analyst sees no relief forthcoming within that time from the North Sea, U.S.S.R., ANWR, or deepwater Gulf of Mexico.

It estimates a 3.8 million b/d hike in OPEC gulf production will be needed by 1996, broken out possibly as 20% hikes in Iran to 3.7 million b/d, Qatar to 500,000 b/d, and the U.A.E. to 2.7 million b/d and restoration of Iraqi and Kuwaiti output to prewar levels, respectively, of 3 million b/d and 2 million b/d--thus leaving Saudi Arabia at 8 million b/d with a 26% share of total OPEC output of 30.25 million b/d.

County NatWest sees the big non-OPEC gainers in the period including Angola, Argentina, Brazil, Colombia, Congo, Egypt, Mexico, Norway, Oman, Syria, U.K., and Yemen, while Australia, Canada, and China remain about flat, and steep slides continue in India and especially in the U.S. and U.S.S.R.

One question about the outlook for OPEC is: Will it include the U.S.S.R.? That also begs the question: Why?

Iran's official news agency reports the Soviet oil ministry forwarded a proposal to OPEC's ministerial council to join the group earlier this month, following a feeler put forth at the Isfahan conference (OGJ, June 3, p. 40). The move has oil analysts puzzled, given the group's need to adhere to quotas to sustain oil prices and Moscow's need to sell every drop of oil it can.

Meantime, Moscow continues to campaign among OPEC members for its admission to the group. Tass reports business and political circles in Venezuela have voiced support for admission of the world's largest oil producer to the organization.

Venezuela continues to grapple with problems over financing its $46 billion 1991-96 investment program.

A major political controversy has erupted in Venezuela over whether Pdvsa should take on substantial direct debt with in-ternational banks to finance part of that program, Pdvsa Pres. Sosa says his company can easily handle loans of $8 billion of its planned $32 billion in capital outlays. Another $14 billion is planned through joint ventures with international companies. Minister of Energy Armas and other government officials oppose Pdvsa assuming any major debt. Debate continues, with likely upshot some projects in the program will be extended past 1996.

Meantime, Pdvsa faces cutting operating costs in 1991 because of lower than projected oil export prices.

It had projected average 1991 exports of 1.9 million b/d at $19/bbl. Although volumes have topped that level, its export prices have averaged only $16-17/bbl. Cuts won't affect Pdvsa's $5 billion capital program in 1991.

Iran has again cracked the U.S. market. Treasury Department has approved applications by Coastal to import 2.5 million bbl and Chevron to import 1-3 million bbl of Iranian crude into the U.S. Treasury earlier this year said it would allow imports of Iranian oil to resume if revenues from sales are used to settle U.S. claims against Iran stemming from the 1979 revolution. A ban on such imports had been in effect since 1980.

Privatization continues to sweep world oil sectors. Spolana Chemical Works, Neratovice, Czechoslovakia, let contract to Wright Killen & Co., Houston, to assist it in privatization. Under one of the first eastern European privatization contracts to a U.S. company, Wright Killen will assess Spolana's existing business in the context of western European markets and assist new management with privatization while trying to help secure western investment. Spolana's eight plant complex 20 miles north of Prague on the Elbe is Czechoslovakia's biggest and produces basic and intermediate chemicals, PVC, fibers, and pharmaceuticals. Wright Killen also works in Bulgaria and Romania.

Portugal has put a 51% stake in Petrogal up for sale and expects the sale to net $1.28 billion.

Foreign investors will be limited to a 40% interest in Petrogal, which operates refineries at Lisbon, Oporto, and Sines--each of which needs modernization. Once the first public tender is over, the government will offer another 20% in Petrogal, likely to employees and small investors. Longer term, the government expects to out its holding to 10%.

Norway and the U.S.S.R. have settled about three fourths of their differences over the disputed Barents Sea boundary, says Norwegian Prime Minister Brundtland after a recent visit by Soviet President Gorbachev. Among many Soviet strikes in the region is Severo-Kildinskoye gas/condensate field, which straddles the demarcation line favored by Norway (see map, OGJ, Aug. 6, 1990, p. 28). Norway's exploration in its undisputed sector of the Barents has yielded little success to date.

Gaz de France will have its first foothold in the U.S' gas market. Its GDF U.S. Inc. unit agreed to acquire Tejas Power Corp. convertible preferred stock for $25 million in association with Petrorep and Francarep, investment companies affiliated with the Rothschild Group. The investors would hold 20-30% of TPC, depending on values projected through 1993. GDF wants to market its underground gas storage and electronic flow measurement technology in the U.S., and TPC gets an infusion of capital.

Columbia Gas Transmission has made progress on take or pay problems that threaten to bankrupt it or parent Columbia Gas System (see story, p. 3 ). A federal judge in Columbus, Ohio, approved settlement and reformation of Appalachian basin gas supply contracts at a cost of $56 million to Columbia, with producers forgiving more than $100 million in TOP claims.

Are press reports of a U.S. horizontal drilling bust premature, or are operators simply becoming more selective in the once sizzling action? According to a tally by Smith International the average daily active count of rigs drilling horizontal wells in the U.S. fell to 93 in May from 158 in January, 132 in February, 114 in March, and 99 in April. But TRC permits for horizontal wells rebounded in May to 87 from 83 in March and 76 in April. TRC horizontal permits were 95 in January and 92 in February. That compares with 1,531 horizontal well permits in 1990.

Eighteen organizations, mostly environmental groups, have urged the Senate to reject the energy committee's national energy strategy legislation (OGJ, June 17, p. 15).

The groups say the bill lacks environmental protection measures and enough energy efficiency programs and object to provisions on nuclear power and ANWR Coastal Plain leasing.

Rep. Dick Gephardt (D-Mo.) has filed a bill to use a variable tariff to set a $20/bbl floor for imported oil.

Gephardt says that would give U.S. producers necessary price stability and could result in a 30%, increase in U.S. drilling. The President could exclude Canada, Mexico, and Venezuela from the tax. Although Gephardt is House majority leader, he does not serve on energy and commerce or ways and means committees, and his bill is unlikely to go far.

Although it has been unable to draft its own OCS revenue sharing proposal, the Bush administration opposes such a bill by Alaska Republican Sens. Ted Stevens and Frank Murkowski.

MMS says the bill violates congressional budget rules requiring spending be offset by revenues.

U.S. refined products demand fell sharply in May, says API. Deliveries averaged 15,844,000 b/d, down 5.9%, from a year ago and the ninth straight month of year to year declines. U.S. crude production recorded its biggest monthly increase in more than 5 years, climbing .97 to 7.41 million b/d. API says that was due to a 3.9% rise in Lower 48 output to a 19 month high.

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