Due to a holiday in the U.S., data for this week's Industry Scoreboard are not available
This is the view of London's Centre for Global Energy Studies (CGES), which said oil inventories at the beginning of 1999 were sufficient to meet 92 days' worth of forward consumption-7 days more than in early 1998.
"The outlook for prices has deteriorated," said CGES, "and will remain grim as long as the inventory overhang is not dealt with. OPEC's members need to reduce their output, if they wish to see any recovery in oil prices in 1999."
CGES reckons a further cut in production of 1.5 million b/d worldwide is needed to reduce the stock overhang of 550 million bbl over a year, but describes OPEC's position as "dilatory-comatose even."
"Should OPEC members fail to agree to further cuts at their forthcoming meeting," said CGES, "or, more importantly, to implement them afterwards, oil stocks will be even higher than last year, and prices will stay flat...Unless they can tolerate an 18% cut in oil revenues from last year's levels, doing nothing does not appear to be an option for the OPEC countries."
With no end in sight for oil industry woes, operators are continuing to announce slashes in both work force and capital spending.
BP Amoco will cut another 3,000 jobs, on top of 7,000 already announced. Range Resources will lay off 54 workers, and Gulf Canada 200, following cuts of 150 last fall. Meanwhile, Canadian Occidental has cut 112 employees.
ARCO plans 1999 spending of $950 million vs. $1.59 billion in 1998. Gulf Canada's spending will be $800 million (Canadian) this year, down 60% from 1998. PennzEnergy will spend $250 million in 1999, a $50 million cut from earlier plans and $159 million less than in 1998. Tesoro will spend $170 million vs. $185 million in 1998. Ecopetrol has reduced its 1999 spending plans by $300 million from earlier estimates, to $775 million. And Total-Petrofina will cut its joint exploration budget by 15% to $400 million.
Some firms are bucking the spending-cut trend in an effort to take advantage of low acquisition prices. In its 1999 capital budget of $546 million, Questar has included a $192 million "exception fund" for a large reserve acquisition.
Even without the fund, the budget is the second highest in its history.
Entrepreneur Philip B. Smith and Natural Gas Partners have formed a new Tulsa-based firm, Prize Energy, to acquire U.S. oil and gas assets. The firm has been capitalized at $25 million.
"The ongoing turmoil and current lack of liquidity in the energy business are combining to create intriguing investment opportunities," said Smith.
Despite the downturn, major integrated energy firms remain anxious to participate in formerly state-run petroleum sectors.
Duke Energy is making a bid for control of Chile's Endesa. Duke Energy International said last week it would make concurrent cash tender offers in the U.S. and Chile for Endesa's common stock and American Depository Shares totaling 51% of outstanding shares. The offer will be 250 Chilean pesos/common share and 7,500 pesos/ADS.
Duke Energy International CEO Bruce Williamson said, "Together, Endesa-Chile and Duke Energy would become the first truly regional power generation and energy trading and marketing force in Latin America, creating an unparalleled basis for future growth across all forms of energy in the region."
India's Essar Oil has admitted it is courting potential partners for participation in the 210,000 b/d refinery it is building at Vadinar, Gujarat (OGJ, Aug. 10, 1998, p. 30). Royal Dutch/Shell and Exxon are among those rumored to be considering a stake in the project, although Essar would not confirm the reports. Essar has also unveiled plans to increase the refinery's capacity to 420,000 b/d after it starts up later this year.
Meanwhile, Shell has indicated to FSB International Bank it is interested in acquiring Nigerian Gas Co. (NGC), a unit of Nigerian National Petroleum Corp. NNPC has appointed FSB to handle the sale of subsidiaries NGC and Nigerian Petroleum Development Co. One industry source says Shell's interest is likely to be connected with its desire to ensure that it gets a market price for the gas it sells in the country, where it is a major producer.
NGC distributes all of Shell's gas production in the Niger Delta.
Norwegian state firm Statoil has postponed a gas/condensate field development project because of low oil prices.
The decision to delay the Kvitebjorn project was made after a reassessment of the country's gas-delivery requirements in light of the current oil market.
The firm will undertake a complete review of the development to identify solutions adapted to an oil price of about $10/bbl.
The original plan involved presenting options for the project to Norway's Gas Supply Committee this June, with a view to delivering gas to Continental Europe starting in 2003. Given this latest development, the committee is not likely to consider the project before 2000, in the next gas allocation round.
Another oil-state legislator is aiming to help ailing producers weather the crisis (OGJ, Feb. 8, 1999, p. 30). Rep. Bill Archer (R-Tex.), chairman of the tax-writing House ways and means committee, wants to give U.S. oil producers a tax credit for their losses for the previous 5 years.
He plans to insert the measure, like one the Clinton administration has proposed for steel companies, in a tax bill this spring. Archer said, "If the government's going to take from you when you are prosperous and then say you can't deduct your losses when you lose money, that's an unfair situation."
State oil firms have been accused of competing unfairly in the U.S. gasoline additives market.
The U.S. International Trade Commission plans an investigation into MTBE imports, especially from Saudi Arabia. It will hold a hearing Apr. 1 in Washington, D.C. ITC said U.S. MTBE producers complain increased imports "are the direct result of the Saudi Arabian government's provision of butane feedstock to (Saudi) MTBE producers at a substantial discount to world market prices."
Upon completion of a "major review of the economics and environmental impacts" of MTBE use in gasoline, SRI Consulting has concluded that MTBE should not be banned. "Many of the concerns and economic costs that have been attributed to MTBE are a result of historical leaks from underground gasoline storage tanks," said SRIC. "With the completion of tank upgrades (required by lawellipse) and the use of currently available treatment technologies, future impacts of MTBE in water are expected to be dramatically smaller."
The additive, used to meet U.S. and California gasoline specifications, is under fire because it has been detected in groundwater in certain areas (OGJ, Jan. 18, 1999, p. 18). SRIC concludes MTBE use does not pose unwarranted public health risks. "Even after including environmental impacts in the evaluation of MTBE," said the firm, "gasoline with MTBE remains California's lowest-cost fuel option for decreasing automotive emissions."
SRIC's report was sponsored by the Oxygenated Fuels Association.
The U.S. EPA has proposed an 11.7 million lb/year reduction in the offshore discharge of synthetic-based drilling muds and drill cuttings.
EPA admits discharging synthetic-based fluids is preferable to oil-based fluids but says the synthetics still affect the ocean environment because they do not disperse easily in water. It said that only about 140 wells/year are drilled using synthetic muds, made of oleaginous base materials such as vegetable esters. The rule would not amend the current rule for water-based drilling muds or the zero-discharge requirements for drilling wastes in coastal waters. A public hearing on the proposed rule is planned for Mar. 5 at EPA offices in Dallas.
A proposal to levy a broad European tax on energy use was preliminarily rejected by the European Parliament last week.
European deputies voted 239 to 215 to send the text to a parliamentary commission for further elaboration. The draft was presented by the European Commission, which had intended to levy a first phase of taxes in 1998 but was forced to postpone the "eco-tax" plan until next year.
The deputies could not agree on a number of amendments providing tax exemptions for certain industries viewed as nonpolluting. The commission plans to penalize industries that are considered to be the most polluting, with a graded system for fossil fuels hitting coal, oil, and gas to different extents. The proposed tax on oil amounted to about 22 euros ($24.50)/metric ton.
Iceland is seeking to do away with burning fossil fuels altogether in a bid to become the world's first "hydrogen economy."
Reykjavik consortium Vistorka signed a cooperation agreement with Daimler Chrysler, Norsk Hydro, and Royal Dutch/Shell to establish a joint venture to explore the potential for running Iceland on hydrogen. The Icelandic Hydrogen & Fuel Cell JV will test applications based on hydrogen fuel cells or hydrogen carriers, beginning with a bus service in the capital, with further projects, such as public and private transport and fishing vessels, to be introduced during 2000-02.
Other governments are looking to secure more-conventional feeds for power generation. Czech officials are holding talks with Ras Laffan LNG (Rasgas) on the long-term purchase of LNG for a Czech power project.
The Czech Republic receives most of its gas supplies from Russia and Norway by pipeline but wants to diversify its gas sources, said Josef Rychtar, Czech ambassador to Qatar. The republic hopes to purchase at least 1 billion cu m over a 15-year period, beginning in first quarter 2000. Rychtar also said he is hopeful that Rasgas might contribute $40 million toward the power project in the form of equity shares, although funds will be sought from other sources as well.
Lebanon has also announced its intention to purchase LNG from Qatar, although quantities and prices have not been determined. Negotiations with Lebanese authorities and Elf are continuing, says Qatari Minister of Energy and Industry Abdullah Bin Hamad Al Attiyah. The gas is to be shipped from Qatar to the Lebanese coast, near Tripoli. Elf reportedly will finance construction of the regasification plants, pipelines, and terminals under a buy-operate-transfer deal.
Japan's refiners are examining the need to boost production of low-sulfur fuel oil if supplies of China's Daqing crude remain unstable.
Japan imports low-sulfur crudes such as Daqing, Indonesia's Minas, and Viet Nam's Bach Ho for power generation. In late January, China told Japanese firms it had no Daqing available for export in February. But sales agent Chinaoil told Japanese buyers last week that it had export availability after all and asked term lifters to submit new nominations. Chinaoil has not said whether it will have export availability for March and beyond. Petroleum Association of Japan Chairman Keiichiro Okabe, also president of Cosmo Oil, said his company weathered the supply shortage by securing spot supplies of Indonesian crude.
In the fiscal year ended March 1998, Japanese power utilities consumed 250,000 b/d of fuel oil and 206,000 b/d of crude oil. China is under contract to provide Japan 6-8 million metric tons/year of Daqing crude during 1996-2000.
Copyright 1999 Oil & Gas Journal. All Rights Reserved.
