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As was widely predicted, OPEC oil ministers voted in Vienna last week to maintain their current production restraints until March 2000.
Although the meeting had not concluded as OGJ went to press, OPEC issued an interim statement late on Sept. 22 saying it is satisfied with members' adherence to production quotas but that there is room for further improvement: "Given the remaining high levels of stocks, OPEC member countries have reaffirmed their strong commitment to the agreement reached in March 1999 until at least the end of March 2000, at which time market conditions will be reviewed and a decision taken that will ensure continued market stability."
In his opening address at the meeting, OPEC Conference Pres. Youcef Yousfi said, "ellipseAn assessment of fundamentals reveals that an equilibrium between supply and demand is just starting to materialize. Thisellipseshows that there is no shortage of oil in the market and that stock levels are still high and could, at any time, have a negative impact on prices." With the continuation through March of the same high degree of compliance members have achieved to date, he added, "We shall attain a better and more sustainable equilibrium."
At presstime, oil markets were responding positively to the news, although not compellingly so, as the decision was such a foregone conclusion that it was thought largely to have been factored into trading before it became official. In London on Sept. 22, Brent for November delivery closed at $22.93, up 25¢ on the day. The same day in New York, Nymex crude for November delivery closed at $24.12/bbl, an 18¢ rise. By mid-morning trading Sept. 23, November-delivery Nymex crude had risen to $24.65.
While a continuation of the current OPEC output levels was seen as a certainty before the meeting (see story, p. 26), the ministers could not agree so easily on the selection of a new secretary general. Saudi Arabia, Iran, and Algeria put forward candidates for the post. The Saudi candidate was viewed by analysts as the most likely winner before the meeting, but the debate apparently reached a stalemate, and the ministers decided to defer the appointment of Sec. Gen. Rilwanu Lukman's successor until a later date. Lukman agreed to stay on until the situation is resolved, although he has taken a post as adviser on petroleum and energy to new Nigerian President Olusegun Obasanjo. Lukman will be based in Abuja but will supervise the secretariat's activities until a successor is appointed. "Hopefully, we will be able to resolve the situation quickly," he said. Until then, the director of the secretariat's research division, Shokri Ghanem, will be in charge of day-to-day operations, says Lukman.
Qatar's Minister of Energy and Industry, Abdullah Bin Hamad al Attiyah was unanimously elected to succeed Yousfi as conference president.
Venezuela state oil firm Pdvsa released a statement saying it will continue to be commercially and financially autonomous, honoring all of its contractual and financial obligations and continuing to provide "substantial" investments in both the upstream and downstream sectors (see related story, p. 24). The comment was a response to recent statements from various international credit agencies calling into question Pdvsa's stability.
"New investments would be made in accordance with company policies and guided by economic criteria and overall strategic objectives," Pdvsa said. It pledged to carry on seeking top international oil and gas firms with which to form strategic alliances and said it will maintain a strong presence in the international downstream sector. "Any possible changes in asset composition would be determined exclusively through strategic and economic bases," said Pdvsa.
Slower growth in Indonesia's oil and gas sector is likely, now that the country's House of Representatives has failed to pass a bill that would have restructured its energy industry, says Mines and Energy Minister Kuntoro Mangkusubroto. Kuntoro, who led the campaign to pass the bill, said the House's action made it clear that long-term investments in the country could not be expected to increase significantly. After 4 months of debate, Kuntoro has all but given up hope that the bill will ever receive the support needed to pass it.
Kuntoro's main goals were to clean up the stained image of state oil firm Pertamina and to liberalize the oil and gas market so as to attract private investors to Indonesia (OGJ, Sept. 6, 1999, Newsletter).
Meanwhile, Kuntoro says the vote for independence in East Timor has prompted Indonesia to cancel a 1989 agreement with Australia for joint oil and gas development in the Timor Gap Zone of Cooperation. The agreement involved sharing revenues from development of fields in an area of the Timor Sea between the territory and Australia's northern coast (see map, OGJ, June 7, 1999, pp. 46-47). Because the territory is no longer a part of Indonesia, naturally the agreement has become void, says Kuntoro. Contracts between private Indonesian and Australian firms for the exploration of oil and gas fields there would become a matter for negotiations between the parties, as Indonesia is no longer involved, he added. The Australian government had hoped that the treaty would be retained despite East Timor's vote for independence.
Speculation is rampant that U.S. majors Phillips and Chevron are discussing a possible joint venture. The rumors-although conflicting in terms of which of the firms' businesses would be involved-were reported in several U.S. newspapers last week. Early reports pegged talks as focusing on Chevron's possible acquisition of Phillips's $1.1 billion natural gas processing division, according to Bloomberg, while others said that oil and gas exploration would be the likely target for a JV. Later news centered on the possibility of Chevron taking an interest in Phillips's chemicals and gas processing businesses.
London's International Petroleum Exchange has regrouped after a period of turmoil by appointing a new chief executive. New supremo Richard Ward has been acting chief since early August, when previous incumbent Lynton Jones resigned after a failed attempt to restructure the exchange on a more commercial basis (OGJ, Aug. 9, 1999, p. 26). Ward was previously head of business development at IPE and is expected to pursue a similar goal to Jones's, although a wider range of potential options is being studied, including turning IPE into a commercial company with a smaller share of private ownership than suggested in the failed proposal.
After several months of decline, the U.S. Gulf of Mexico rig market is beginning to strengthen at last, says Global Marine. The firm's summary of current offshore rig economics (Score) for the gulf rose 6.2% in August.
"The U.S. Gulf of Mexico market enjoyed an 8% improvement in total rig demand during August 1999," said Global Marine CEO Bob Rose. "Demand for premium jack up rigs capable of working in 250 ft or more of water was particularly strong, with a utilization rate of about 90% at the end of August. Day rates in the Gulf of Mexico, while still soft, are responding to this higher demand with increases across the entire spectrum of the gulf fleet."
On the down side, said the company, "Declining day rates for semisubmersibles in the North Sea and Southeast Asia offset the improvement in the U.S. Gulf of Mexico" to produce a decline of 2.5% in the global August Score.
Petrochemical prices have received a lift from the recent recovery in the global oil market, according to an official of Saudi Arabian Basic Industries Corp. (Sabic). And they are expected to see continued improvement.
The start of the economic recovery in Asia and an improvement in the oil market has pushed up chemical prices, Sabic Deputy Chairman Mohamed al Madhi was quoted as saying by the Kuwaiti News Agency. Al Madhi said these factors have boosted petrochemical prices by 20-40% since April. Before that, declining oil prices had affected Sabic's net profits, which were down by 56% in 1998 and fell again by 36% during the first half of this year.
Colonial Pipeline Co. has taken the ultimate precaution for the Y2K bug, announcing that it would temporarily shut down its 5,300-mile U.S. refined products pipeline for about 8 hr as the new millennium begins.
Colonial will temporarily suspend shipments at 6:30 p.m Eastern Standard Time on Dec. 31, 1999; it anticipates resuming operations at about 2:30 a.m. on Jan. 1, 2000. The pipeline, from the Texas-Louisiana Gulf Coast area to the mid-Atlantic region, is the U.S.'s largest products line, in terms of volumes shipped.
Australia is to examine a carbon tax as part of its proposed business tax reforms. The Democratic Party, which holds the balance of power in the Senate, wants a systematic approach to Australia's commitment to reduce greenhouse emissions under Kyoto targets. They want "green" measures to be included in the proposed reform package-such as a change in the valuation of the fringe-benefits tax on corporate cars to ensure there is no incentive for higher mileage usage, as is the case under the present tax. A carbon tax was thought to have been "off the agenda" in Australia, and hints of its re-emergence have brought swift condemnation from industry groups. Australian industry points out that the country's most important international advantage is its low-cost supply of black and brown coal. A carbon tax would turn this into a comparative disadvantage.