Oil market analysts are looking for continued tightening of the supply-demand balance and further improvements in fundamentals.
"With OPEC maintaining production discipline and demand increasing, we anticipate tighter world crude oil markets to prevail in the second half," said Hornsby & Co. in its mid-July short-term outlook. "Consequently, we are revising our crude oil price outlook upward for the third quarter to $22/bbl." Hornsby expects fourth quarter oil prices to decline slightly because of expected production increase by Iraq and the possibility that OPEC will relax production re- straints if prices rise above $22/bbl. PaineWebber, meanwhile, predicts OPEC will not increase production targets at its Sept. 22 meeting unless oil prices top $24/bbl (spot WTI). "Therefore, we recently raised our WTI spot crude oil forecast for the second half...to $20/bbl. Our projection for 2000 was increased to only $18.50/bbl, due to...expected increases in production by Iraq and Norway next year, factors on the demand side of the equation, and the outcome subsequent to the expiration of OPEC`s current production agreement next March."
Venezuela will make no unilateral changes to the production cuts agreed on by producing countries in Vienna last March, says Energy Minister Alí Rodríguez. Venezuelan officials had recently made comments implying that, because prices have risen, the country was considering boosting exports. During a visit to Mexico last week, Rodríguez told reporters that Venezuela would discuss any such changes with other producing countries before instituting them: "It will be on Sept. 22, when the organization meets, when a decision will be made whether to continue with the agreements we made in Vienna, or whether the organization collectively considers that some change be made."
The extended period of low oil prices that appears to be ending has caused a sharp cutback in exploration in Southeast Asia, and operators are likely to require a sustained recovery in prices before they commit to reviving activity levels. This is the view of Wood Mackenzie Consultants, which said that, so far, only 36 wildcats have been completed in the region this year, suggesting that a total of 60-80 will be drilled by yearend. "This compares with 133 wildcat completions in 1998," said the analyst, "and an average of 129 completions during 1994-98." Aside from the crash in oil prices in 1998, several additional factors have also played a role: the recent Asian economic crisis and an abundance of uncontracted gas finds in the region, made worse by the fact that recent discoveries have been mainly gas.
Peru`s government has again extended the deadline for the Camisea megaproject tender and, in the process, hinted at another downstream opportunity for Camisea gas. Peruvian Energy and Mines Minister Daniel Hokama last week said the new deadline would be decided in August by Copri, the national commission overseeing private investment in Peru`s energy sector. Companies to date have bought over 40 data packages for the project, which the government recently split into two separate projects-one for field development, the other for transmission-distribution. The previous deadline was July 22 for transportation and distribution bids and Aug. 6 for field development bids (OGJ, June 21, 1999, p. 30). Hokama, who hopes to have final selections made by yearend, says the government is interested in expanding Peru`s gas market beyond the initial plan to market Camisea gas to Lima, power plants, and the industrial sector-one possibility being use of gas as a petrochemical feedstock.
Iran is considering entering the LNG export business as a means of monetizing its massive gas reserves, according to the English daily Iran News. The plan involves building a liquefaction plant on Kish Island and a 200-km subsea pipeline to transport gas from South Pars field to the island. The Kish plant would cost an estimated $1.2 billion, not including the pipeline. Iran hopes to export 4.8 million tons/year of LNG to Southeast Asia, plus 600,000 tons/year of methanol that will be produced on Kish. It is negotiating with foreign firms interested in participating in the projects, possibly on a buy-back basis.
BG`s bull run off Egypt is continuing, with news of a sixth successful well on the West Delta Deep Marine concession in the Nile Delta. The Simian-1 new-pool wildcat was drilled in 590 m of water and flowed 44 MMcfd of gas on test. The first four wells found and appraised the Saffron/Scarab discovery. The latest find and the P12/13 discovery announced in May pave the way for further development in the area, says BG. The operator envisions supplying gas to Egypt from the block but is also bidding to supply gas to Turkey in the form of LNG. BG`s Egyptian E&P projects, with linked domestic supplies and exports, comprise a significant chunk of the £5 billion the company has earmarked for capital investment during the next 5 years (see story, p. 38).
Efforts to exploit and market gas from a sizzling new play in Canada`s remote Northwest are gathering steam.
Canada`s Northwest Territories and TransCanada PipeLines have agreed to work together to develop a natural gas transmission infrastructure in the southern Northwest Territories-and eventually in the Mackenzie Delta region-to exploit a burgeoning new gas play there. That follows a recent accord between Westcoast Energy and an aboriginal group to jointly develop a gas infrastructure in the Fort Liard, N.W.T., area, where Chevron and others have logged some huge flow rates (OGJ, June 7, 1999, Newsletter). TransCanada pegs southern Northwest Territories reserves at 1 tcf, with total potential for 3-5 tcf. TransCanada also is exploring a longer-term opportunity in the Mackenzie Delta, where reserves and potential are put at 10 tcf and 65 tcf, respectively.
In May, the territorial government requested that federal officials assert jurisdiction over TransCanada`s Alberta gas network. Under the new accord, the territorial government will withdraw its request.
Alberta is considering a multi-level royalty program for natural gas that would ensure adequate feedstock for its expanding petrochemical industry. Rob Lougheed, chairman of a government committee on ethane and NGL, says the feedstock problem is exacerbated by projects such as the Alliance Pipeline, which will initially ship 1.3 bcfd of Albertan gas, including NGL, to the U.S. Midwest, removing the raw materials from the hands of potential downstream producers in Alberta. Other program options include taking gas royalties in-kind rather than taking payment, says Lougheed, a member of the legislature. He has filed a report with the Alberta energy minister and says the recommendations could become policy within a year. Natural gas royalties are currently based on a flat rate, although the value can vary according to liquids content. Petrochemical companies say the possibility of substantial new plant investments in Alberta is based on the availability of cheap feedstock, particularly ethane.
Two proposed oil industry mergers have run into legal snags.
The TotalFina-Elf takeover battle was blown wide open when the European Commission decided to bring legal action against France through the European Court of Justice. The EC is convinced that Paris`s "golden share" interest in Elf, which it used as a means of preventing foreign buyers from moving into the former state concern, is in conflict with community law on the free movement of capital and the right of establishment. If the EC wins its case, Elf could find itself escaping one unwelcome predator only to be faced with a pack of others. However, the EC`s tendency to seek compromises and the French government`s belief that it can defend its actions in court mean that a wholly French merger cannot be written off yet.
Meanwhile, the Paris stock exchange authority approved Elf`s counterbid for TotalFina, paving the way for a direct fight for shareholders between the two companies if the EC action comes to nothing. Elf has temporarily shelved plans to restructure its E&P unit and shed about 1,300 jobs, thus ending a strike that has plagued the company for 3 months (OGJ, July 29, 1999, Newsletter). The move is being viewed as evidence that Elf is seeking the support of unions in its attempt to fight off the unwanted advances of TotalFina.
In the upstream service-supply sector, the recent formation of a drilling fluids joint venture by Smith International and Schlumberger has drawn fire from the U.S. Department of Justice. On July 14, Smith and Schlumberger modified an agreement made last year to exclude Schlumberger`s U.S. drilling fluids assets and operations from the JV (OGJ, Oct. 26, 1998, Newsletter, and Nov. 9, 1998, p. 86). According to the Houston Chronicle, the justice department filed a petition in U.S. District Court finding Smith in "criminal and civil contempt" for going against a 1994 consent decree allowing Smith International to buy the drilling fluids unit of Dresser Industries, which has since merged with Halliburton.
Justice has accused Smith and Schlumberger of a criminal violation of antitrust law. Smith International said it was "appalled and offended" by the accusation. Proclaiming the Department of Justice`s petition as "highly misleading," Smith Chairman and CEO Doug Rock said, "We worked closely with the Department of Justice for more than 10 long months on this issue. We ultimately restructured the transaction after Schlumberger had to close its U.S. drilling fluids operations."