Will oil price stability dominate the 1990s?
Analyst Philip Verleger thinks so. Using a measure of market concentration the U.S. government uses to assess mergers, he sees OPEC's prices in the long term reaching levels comparable to those in 1980. However, a concentration of market power among consuming nations, led by increasing U.S. imports and EEC economic consolidation after 1992, will enable consumers to dictate prices through import limit policies by 1995, he says.
Because limiting imports would raise domestic energy prices and thus hobble their industries, however, Verleger expects consuming nations to use that market power discreetly, allowing oil exporters to invest in consuming nations in exchange for maintaining a stable price environment. That would eliminate economic disruption of sudden price hikes yet assure producers sufficient return to expand capacity, he says.
PaineWebber sees plunging U.S. oil flow and a higher than expected call on OPEC crude underpinning $20/bbl WTI and a more stable oil market in 1990.
In the short term, a bull market is supported by record cold temperatures and natural gas and product supply disruptions in the U.S. (see story, p. 28) and uncertainty over events in the eastern bloc and Panama. Looking at week to week price increases at closing Dec. 27, Nymex WTI for February delivery rose 570 and Brent 750, heating oil 24, and propane 100.
Oil prices will slide slowly in the first half, says Purvin & Gertz. P&G expects WTI to bottom at about $18/bbl early in the second quarter. An excess of quota vs. productive capacity of about 500,000-600,000 b/d in some OPEC nations will offset U.A.E. quota breaking, and Soviet energy woes will rein eastern bloc oil exports, says P&G, but demand will lag OPEC production by almost 2 million b/d in the first half.
Merrill Lynch sees the Pacific Rim's influence growing in petroleum markets. Of special note is the outlook for LNG, which the analyst sees as having growth prospects in Japan and elsewhere in the region far better than recently thought possible (see story, P. 19).
Merrill Lynch also sees restructuring and decontrol phase-in under way in Japan's petroleum industry accelerating downstream consolidation, encouraging refinery upgrading, and boosting downstream profitability.
Growth in Pacific Rim products demand will strain refining capacity in Singapore--now rivaling the Middle East as a major refining export center--and perhaps dash U.S. West Coast expectations that rising Pacific Rim gasoline imports will be available to meet demand growth there, Merrill Lynch says.
Indonesia plans to build two more export refineries in addition to the Balongon, West Java, Exor-I plant recently announced, reports OPEC News Agency (OGJ, Nov. 20, 1989, p. 26).
Pertamina in February will receive proposals for Exor-II and Exor-III, each 120,000 b/d capacity.
Venezuela wants more foreign investment in petroleum, notably petrochemicals, and welcomes Occidental's announcement of studies under way of new investment in the country.
Venezuela last month agreed to transfer petroleum worth $42.08 million to Oxy to settle Oxy's claims related to nationalization in 1976 (OGJ, Dec. 25, 1989, p. 39).
Chinese and Soviet officials will submit feasibility studies before June on a proposed $55 million, 135 km, 2.5 million ton/year joint venture coal slurry pipeline in Shanxi Province, China's first (OGJ, Nov. 27, 1989, p. 19). Plans call for project start in second half 1991 and completion by 1995.
China wants to install two 300,000 kw generating units at the Weihe power plant in 1994-95 to be fed by the coal slurry mix moved from Bingxian County. China will buy valves, generating equipment, pumps, and a control system from the Soviets.
Competition for British Gas in its home market continues to mount (OGJ, Dec. 18, 1989, p. 20). Marathon has found a second potential customer for 2 tcf of Brae area gas in the U.K. North Sea. It is negotiating to sell the gas to Enron and ICI for use in a planned 1.5 million kw cogeneration plant at ICI's Wilton chemical complex at Teesside. A successful contract will involve a 330 mile gas pipeline from Brae to Teesside. Marathon still is negotiating to sell most Brae reserves to BG via Mobil's Beryl-St. Fergus pipeline (OGJ, Nov. 13, 1989, p. 40).
Iran, opening a procurement office in Calgary and touring facilities in Alberta, wants Canadian firms to participate in more than $2 billion in Iranian energy projects. Iran wants to double spending on goods and services in Canada to $200 million in 1990 from last year's level. Focus covers exploration to marketing, with an emphasis on offshore and heavy oil development.
Ottawa should move now, albeit cautiously, to privatize state owned Petro-Canada, says Economic Council of Canada. The council told a Senate energy committee there are better ways to invest scarce public dollars than in Petro-Canada, which has a market value of about $4 billion. The company earlier told the committee it needs $500 million to continue spending on such projects as Hibernia oil field development off Newfoundland.
Government subsidized megaprojects are not needed for Canada's energy security, says Shell Canada, disagreeing with projections that such frontier projects are needed to avoid an energy shortfall in the mid-1990s (OGJ, Dec. 11, 1989, p. 20).
Shell says it is legitimate for governments to subsidize innovative projects that demonstrate new technologies but not an uneconomic project based on conventional technology.
ARCO Alaska, Arctic Slope Regional Corp., and Anchorage have sued EPA and the Army Corps of Engineers over the agencies' memorandum of agreement imposing a new compensatory mitigation requirement for U.S. wetlands. ARCO says the agencies' move constitutes new federal rulemaking, which requires public notice and comment, and ignores Alaska's special circumstances. Alaska's more than 170 million acres of wetlands account for more than half the nation's, yet only 0.05% of Alaskan wetlands have been affected by development vs. more than 50% in the Lower 48. Because 74% of Alaska's nonmountainous area, including essentially all of the North Slope, is seen as wetlands, almost all future oil development in the state would be subject to the new rule.
Coast Guard will test a new system to track oil tankers in Alaska's Prince William Sound. It entails installing on the vessels "black boxes" that use satellite signals and other long range navigational aids to take an accurate position of the vessel and relay the data to a traffic center in Valdez. When the Exxon Valdez ran aground in March 1989, causing North America's worst oil spill, it was beyond normal radar scanning.
The House clean air bill is, on balance, strong and evenhanded, but the Senate version is ill-conceived, ineffective, and catastrophically expensive legislation that could triple U.S. clean air costs, says Clean Air Working Group. CAWG says the Senate ignored costs and economic damage in marking up the bill, which it contends has punitive and inflexible ozone rules; a SOx emissions cap that will stunt growth, especially in the South and West; risk standards in air toxics provisions that will kill some industries; CO2 rules that would almost eliminate the full size auto; and an onerous new permitting system.
The Supreme Court has limited multinational corporations from applying foreign tax deductions against U.S. taxes. The court ruled Goodyear Tire & Rubber Co. could not apply its U.K. unit's losses against its 1973 U.S. tax return when the losses resulted from British tax deductions not allowed under U.S. law.
Duff & Phelps predicts a balanced gas environment for transmission companies in the next 3 years as take or pay issues are resolved and pipelines restructure rates and services to become more competitive. A sustained period of extreme cold in major markets could bring gas supply/demand into balance quicker than expected, D&P says.
Exploration is accounting for a growing share of some U.S. operators' budgets. Encouraged by renewed stability of oil prices and the brighter outlook for gas prices, Louisiana Land & Exploration plans 1990 E&D outlays of $230 million, up more than 30% from 1989. Spending is higher because of an increase in the number of exploratory wells as well as timing of development projects. Its budget includes $120 million for development and $97 million for exploration, including $20 million for geological and geophysical expenses.
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