Due to a holiday in the U.S., data for this week's Industry Scoreboard are not available.
The latest evidence that OPEC not only will hew to its pledged production cuts but even roll them over past their scheduled expiration in March has rocketed oil prices to almost $30/bbl-a level not seen since the Persian Gulf war.
A recommendation by OPEC's ministerial monitoring subcommittee to extend the group's oil production cuts beyond March would likely win unanimous approval of OPEC and non-OPEC producers, says Kuwaiti oil minister Sheikh Saud Nasser Al-Sabah. The proposal has already been backed by Venezuela, he said, citing the approval's significance as a "very important element."
"I believe there is unanimity on the need to extend current cuts, and the March meeting will decide the period of the extension," the Kuwaiti minister said. With regard to oil stocks, the minister said that they were in fact diminishing, but not to levels he would hope for-a situation that could change depending upon how much demand rises during the current winter heating season, he added.
During the subcommittee's meeting, held Jan. 14 in Vienna, reports on member countries' production and supply for 1999 were reviewed, as were oil stock levels. And while the general consensus was one of satisfaction, the subcommittee members insisted on greater compliance among all OPEC members to maintain their restrained production levels.
In the latest update of its short-term energy outlook, EIA forecasts that OPEC compliance with agreed production cuts should remain strong through the end of March. "Overall adherence to stated production targets is expected to hold up well, compared with previous agreements," EIA said.
The research agency also forecasts that OPEC production would increase in 2000, averaging about 1.4 million b/d above 1999 levels. Non-OPEC production, EIA expects, will increase by more than 800,000 b/d in 2000.
In addition, US oil stocks plunged 12.7% in 1999, API reported, the biggest 1-year drop since it started keeping track of crude inventories.
Together, the three reports helped push oil prices to 9-year highs.
NYMEX February crude closed Jan. 19 at $29.54/bbl, up 69¢ on the day and marking the first time that level had been reached since Jan. 16, 1991, the day before a US-led military force launched an attack to oust an occupying Iraq from Kuwait. The rally continued, when IPE Brent for March delivery reached $26.02/bbl in early trading Jan. 20, up from the Jan. 19 close of $25.84/bbl.
US oil producers were meeting with MMS as OGJ went to press to try to resolve confusion over the latest revisions to its royalty valuation rule.
In a meeting with reporters in Houston before the MMS workshop there, officials of API, Texaco, and Marathon did not appear hopeful that MMS would heed their concerns over the proposed rule (OGJ, Jan. 3, 2000, Newsletter).
"We have no evidence that MMS will back off from its proposalellipse," said API's Dave Deal. "Litigation is a distinct possibility," he added, stressing that API would wait for a final rule before making a decision.
MMS estimates that the revised rule will increase its annual royalty revenue by $63-65 million/year, but Deal says this is "far too low."
We're disappointed by the present proposal," Deal said. "Their number trivializes the impact of this rule." The industry remains committed to solving the problem in the long term by advocating a royalty in-kind system (see related story, p. 27).
BP Amoco and ARCO say they will take the next "formal step" toward the closing of their proposed $26.8 billion merger.
Reportedly, the two firms are proposing to restart the required 20-day notice, suspended Nov. 2, 1999, to the US Federal Trade Commission. While both companies strongly believe that their combination would not adversely affect competition, prospects for FTC approval have been waning.
None too pleased with the delay in the two firms' union, Alaska Gov. Tony Knowles issued a statement to convey fellow Alaskans' disappointment and frustration that discussions to date between BP Amoco and FTC have failed to resolve the agency's concerns over the proposed merger. BP Amoco had secured Alaskan agreement in November after agreeing to a bundle of measures (OGJ, Nov. 15, 1999, p. 36).
Of main concern for Knowles is the fact that work on the North Slope had ground to a "virtual halt" during 1999. "It is my understanding the impasse is primarily due to the FTC's concerns over retail gasoline pricing issues on the West Coast-the California gas pump-and not concerns addressed by Alaska's charter agreement with BP Amoco," he said.
Refinery runs have finally yielded to 3 straight months of "exceptionally weak margins," says Purvin & Gertz.
Except for the US Rocky Mountain region, P&G says, runs have fallen to well below year-ago figures. Late December 1999 saw the sharpest declines, with products markets responding strongly to the reduction in supply, P&G says. According to the latest API report, US refinery utilization was 92.6% in 1999, a 4-year low, while operable capacity rose 3.1% to 16.3 million b/d (see story, p. 26).
France's government has approved an "ecotax" on gasoline and fossil fuel consumption by manufacturers and power producers to help rein increases in greenhouse gas emissions. Effective in 2001, the carbon tax-also to target residential use of heating oil and gas-will be ratcheted up incrementally in the next 10 years. The gasoline tax would work out to a 10¢/gal rise in that same time.
Talisman Energy says a civilian airstrip in southern Sudanese oil fields where it operates is being used to transport troops and equipment to the oil field area. Talisman CEO Jim Buckee gave the information in a letter to John Harker, an official Ottawa appointed to investigate allegations of human rights abuses in Sudan. Harker is filing a report on his findings with Canadian Foreign Affairs Minister Lloyd Axworthy (OGJ, Jan. 17, 2000, Newsletter).
Harker said Buckee told him the oil fields need protection and the protection is being provided via use of the airstrip by the Sudanese government, which is involved in a long-running civil war. Government spokesman Ghazi Salahuddin says Heglig oil field area operations in southern Sudan need protection and there are security troops there to protect the oil fields and personnel. But he says the small airstrip built 2 years ago at Heglig is not needed for military operations related to the war effort. Talisman has been criticized by human rights groups and the US government for its participation in the Greater Nile Oil Project, which is now producing oil for export. Talisman says its operations benefit the economy and the infrastructure of Sudan. Meanwhile, officials report that a recent bomb attack on the GNOP export pipeline won't significantly affect exports (see Industry Briefs, p. 30).
World-scale Asian gas supply projects continue to proliferate.
Indonesia's Pertamina has entered into talks with Malaysia's Petronas over the possible sale of gas from Indonesia's gigantic Natuna field in the South China Sea. Pertamina says negotiations with Petronas are still in early stages and no volume of gas has been discussed.
With only 40 km of new pipeline expected to be needed to make the deal work, it is expected that negotiations should firm up by next month, with a yearend 2001 supply project target date envisioned. Pertamina anticipates its purchase price from Petronas would mirror that offered by Singapore, which was the first country to agree to purchase West Natuna gas (see related story, p. 26).
Iran will postpone until September 2001 delivery of 105 bcf/year of gas to Turkey's Botas, due to the latter's financial inability to complete the needed pipeline on its side of the border. This decision goes against Iran's earlier expressed intentions to begin gas exports sometime in early January (OGJ, Jan. 3, 2000, Newsletter). Botas, still laying the pipeline, has asked Iran to extend its agreed-upon gas supply contract from 22 years to 25 years.
China is to start laying a gas pipeline system in 2001 linking output in Northwest China's remote Tarim basin with markets in eastern China.
China National Petroleum Corp. will start a feasibility study of the 4,212-km dual pipelines this year, with construction start-up in 2001 and completion expected in 2007. The two parallel pipelines will extend through 10 major cities via Wuwei in Gansu province, Luoyang in Henan province, and Nanjing in Jiangsu province before terminating in Shanghai. The lines will have a deliverability of 12 billion cu m/year each. The overall project will cost 110 billion yuan, which includes 50 billion for Tarim gas E&D and 60 billion for pipeline construction. At Tarim, CNPC, China's largest oil and gas operator, has confirmed two major gas discoveries, each holding about 200 billion cu m of original gas in place. Currently, Tarim produces 300 million cu m/year of gas; the basin's crude output rose 6.5% in 1999 vs. 1998, to 4.1 million tonnes, a record.
Tarim also remains one of the linchpins of China 's oil industry hopes.
Beijing wants to make giant oil strikes there to offset declines in its aging giant fields in the Daqing and Sheng* areas of eastern China. Foreign operators in the Tarim basin-among them ExxonMobil, Agip, and Japan National Oil, have yet to report any discoveries in the basin.
China will begin the bidding process for foreign investors for its first LNG import project in February.
This follows official approval for the project from the State Development Planning Commission at yearend 1999. The bidding process will start soon after the Chinese New Year Feb. 5. The LNG Office, based in Guangdong, is now finalizing bid documents that will set criteria for bidders, which will need to meet three basic requirements to qualify: access to existing LNG technology, LNG management expertise, and the capacity to finance the project or fund-raising ability.
To date, more than 10 foreign companies have shown interest in participating in the project, among them BP Amoco, Royal Dutch/Shell, Mobil, TotalFina, Enron, and certain Japanese firms.
Foreign investors can form a consortium if they want to jointly invest in the project. In March or April, a Chinese consortium and foreign investors are expected to establish a joint venture to build and operate the project. Foreign investors will be allowed to hold up to 35% of the project, which will include infrastructure costs of 5 billion yuan for the construction of an LNG terminal in Guangdong's Shenzhen area and pipeline facilities. The Chinese consortium consists of China National Offshore Oil Corp. (36%), Shenzhen Investment Management Corp. (10%), Guangdong Power Bureau (14%), and Guangzhou Gas Corp. (5%). The total cost of the project including the construction of two power plants will exceed 30 billion yuan. Upon establishing the JV, the partners will start a feasibility study that is expected to take 1 year to complete, followed by the bidding process for a contract or contracts to supply 3 million tonnes/year of LNG. Construction start is expected in 2001, with completion slated for 2005.
