OGJ Newsletter

Nov. 22, 1999
Crude oil prices have rocketed to 3-year highs as OPEC solidarity holds fast and global stocks dwindle apace.

Crude oil prices have rocketed to 3-year highs as OPEC solidarity holds fast and global stocks dwindle apace.

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The price of Brent crude surpassed $25/bbl on speculation that companies would soon hit minimum stock levels. At close of London trading Nov. 15, dated Brent stood at $25.94/bbl, while December Brent hit $24.96/bbl. The surge was attributed to OPEC calls to maintain cutback pledges beyond March. However, by closing Nov. 16, dated Brent had fallen to $24.86/bbl and January-delivery Brent opened at $24.50, as news spread of a hike in October total OPEC output.

Another price surge came Nov. 17, when NYMEX December crude shot up 90

London's Centre for Global Energy Studies notes that the recent inventory reductions continued into October, taking stocks in the US and Europe down by 800,000 bo/d. "Going into the fourth quarter with industry forward stock-cover on a par with the situation in 1996 sends out a clear message that the market will be tight, despite a 6% weakening in OPEC's compliance rate since early summer," said CGES. It cites supply-demand data suggesting that global oil inventories should have declined by 235 million bbl during Jan. 1-Sept. 30, 1999, but that only 20% of this total had actually been identified in OECD figures for the period.

"This is why some OPEC ministers feel compelled to talk about maintaining current output levels," said CGES. "They fear that any discussion of a production boost next year would trigger a price collapse."

But CGES reckons that OECD company stock-cover is falling rapidly and that refiners could hit their minimum operational stock-level requirement of 50 days' cover some time in first quarter 2000: "More OPEC oil is needed next year to halt the stock-draw." The analyst fears that, if OPEC maintains its current output pledge when it meets in March 2000, the market could enter a "dangerously unstable" situation, with dated Brent soaring to an average $35.40/bbl in fourth quarter 2000.

White House and congressional negotiators have agreed to changes in the Interior Department appropriations bill that would allow the US Minerals Management Service to issue its controversial royalty reform rule Mar. 15. Before the changes, the bill had blocked the rule for 6 months, or until the General Accounting Office could study the issue, whichever came first.

Industry groups are urging MMS to revise the rule and repropose it, rather than issue it as written (see Editorial, p. 23; OGJ, Oct. 18, 1999, p. 34).

Even as leaseholders struggle to develop suspended leases off California with extended-reach wells (see story, p. 33), another Offshore California operator has started up an oil field in the Santa Barbara Channel-and claims two extended-reach well records in the process.

Exxon last week announced that it had begun production from Sacate field, the third in its Santa Ynez Unit, with an initial development well that had a lateral reach of 18,688 ft-a record for US waters and a world record in more than 700 ft of water. Sacate 1, drilled to 21,720 ft total measured depth (6,083 ft true vertical depth) from Heritage platform in Hondo field at a cost of $15 million, is producing 2,500 b/d from a reservoir expected to yield 50 million boe.

Exxon had earlier considered a separate platform for Sacate to join the three in the unit that are producing oil from Hondo and Pescado fields.

Noble Drilling spudded in another water-depth record well at 8,816 ft with the newly built Paul Wolff semisubmersible (OGJ, Sept. 20, 1999, cover).

On contract to Petrobras in the Campos basin, the semi is the first to compete with drillships, which have held the water-depth records since the 1950s. The vessel has surpassed the 8,000-ft barrier three times this year.

The $800 million fields redevelopment project agreement that Royal Dutch/Shell signed with Iran is raising hackles beyond the Clinton administration's, which has launched an investigation into the deal.

The accord is the latest by a non-US firm to invest in Iranian petroleum projects despite the threat of US sanctions against such investment (see Watching the World, p. 33). Conoco Chairman Archie Dunham said, "Reports of the participation by Shell once again illustrate that the US unilateral sanctions policy only serves to eliminate US companies from global competition and does not achieve the effect desired by Washington." Conoco launched a pioneering if abortive bid to develop a field off Iran earlier this decade but was stymied by the Clinton administration; the project was quickly snatched up by then-Total, which won a waiver on sanctions from the US following a similar investigation.

Shell may also become the first multinational firm to respond to Iran's call for foreign investment in its petrochemical sector (OGJ, May 24, 1999, p. 41). Iran's National Petrochemical Co., Shell Chemicals, and Elenac (a Shell-BASF joint venture) will jointly study the feasibility of building an olefins complex at Bandar Imam. The study involves the Olefins 8 complex in NPC's third 5-year plan. The complex will include a world-scale ethane cracker, the capacity of which will be determined by the study. NPC will simultaneously study a poly- propylene project at Bandar Imam. The study is slated for completion by mid-2000.

While one Latin American country looks to tighten governmental control of its petroleum industry, a European nation may loosen its rule.

Venezuela's constitution-revision process appears likely to result in stricter government oversight of national oil firm PDVSA and a major drive to attract private foreign investment in the petrochemical and natural gas sectors. Provisions in the proposed charter would ban the sale of PDVSA while leaving the door open for joint ventures "in the interest of state" and possibly allowing sale of PDVSA subsidiaries at home and abroad. The draft constitution will be submitted to a national referendum on Dec. 15.

Legislators in Paris are drafting a law that will liberalize France's natural gas market next year, in accordance with European Union requirements (see Watching Government, p. 38). As part of the process, France may seek to convert Gaz de France from a national firm to a limited company (societe anonyme) and might even sell some of its stake in the national gas distributor, says Moody's Investors Service. Moody's is keeping an eye on this development, together with GdF's recent diversification moves. It has placed GdF's long-term Aaa rating on review for possible downgrade.

Qatargas is planning to increase capacity at its Ras Laffan LNG plant by one-third, to 8.4 million tonnes/year, in order to increase LNG exports to South Korea and Japan. The added capacity will enable Qatargas to sell additional LNG under long-term contracts. Qatargas already holds two 25-year contracts-one with Japan's Chubu Electric Power and the other with seven smaller Japanese power and gas firms-for a total of 6 million tonnes/year.

The expansion is expected to be completed by the end of 2002; it will require minimum investment because the plant was designed for easy scale-up.

A Calgary pipeline executive says a shelved pipeline project may still be a viable way to ship natural gas from Alaska to the Lower 48 states.

Robert L. Pierce, chairman and CEO of Foothills Pipe Lines, said the Alaska Natural Gas Transportation System (ANGTS) from Prudhoe Bay via the Alaska Highway is still an effective project. Foothills is a partner in the project, which has been granted regulatory approval but was never developed because of economics (OGJ, Feb. 3, 1992, p. 25).

The proposed line would also transport gas from the Mackenzie Delta via a lateral. Pierce said Alaskan gas will be needed to meet projected demand in the US of 30 tcf/year. The Foothills executive said he recently discussed the project with interested parties in Ottawa, Washington, Whitehorse, and Anchorage.

He said advances in technology have reduced cost estimates for ANGTS, which has received regulatory approval in the US and Canada.

Statoil and Methanex Corp. inked a memorandum of understanding on forming a strategic alliance to introduce methanol as a safe fuel for fuel-cell applications. The companies will work together to establish a demonstration pilot program for fuel-cell vehicles in Europe using methanol. It will cover supply, distribution, and marketing. Methanex is a major international methanol producer based in Vancouver, BC. Norway's state oil company, Statoil, is the majority owner of Europe's largest methanol plant at Tjeldbergodden, Norway.