OGJ NEWSLETTER

OPEC is struggling to shore up its crumbling price and production deal in the face of sliding oil prices.

Intensive lobbying produced public assurances from U.A.E. and Kuwait that despite high crude output in May they would make production cuts agreed in Geneva.

Trying to steady market nerves, Saudi Arabia said it had no intention of hiking flow beyond its new quota of 5.38 million b/d in retaliation for blatant cheating by other members.

Markets were whipsawed by alternating bearish and bullish reports last week. Early reports that OPEC production in June may be falling faster than expected were offset by API's report that U.S. crude and gasoline stocks were higher than expected.

API reported crude stocks up 1.3 million bbl and gasoline stocks--which markets had expected to decline--rose 500,000 bbl.

Still, word of production cuts outside OPEC and reports of possible tightness in U.S. gasoline markets helped oil and gasoline futures rally. Brent seesawed during the week, eventually inching up 150 on the week to $15.80/bbl at closing June 14. Nymex WTI jumped 660 on the week to close at $17.58/bbl June 13, pulled up by a surprising 3 day, 30 spike in unleaded futures.

Exchanges in London and Singapore plan Dubai crude futures contracts. International Petroleum Exchange, London, will launch its Dubai futures contract on July 19, and Singapore International Monetary Exchange will launch a similar contract this week. The two exchanges will have a single settlement price and date for the contracts, which can be traded 18 hr/day.

Norwegian oil and gas production could be shut down by a strike of offshore personnel called for July 1. Negotiations broke down last week, and operators appear ready to accept that the first shutdown since a 3 week shutdown in 1986 is inevitable.

Another protest action, by oil workers in the U.S.S.R.'s giant Samotlor field, could slice another 73,000 b/d from world supplies for several days, Izvestia reports. The action is meant to protest the Soviet Council of Ministers not fulfilling eight of 12 promised "radical measures."

The action is supported by other oil workers in the Tyumen region--where the bulk of Soviet oil and gas is produced--although similar shutdowns have not occurred elsewhere. Ministers and oil workers' representatives were to meet last week.

Alaskan production is partially shutin this week for the first of five such actions related to North Slope work that will result in a loss of 14-18 million bbl of production this year.

Alyeska accepted only about 20,000 bbl/hr from North Slope producers for 13 hr June 12 as it repaired corrosion on TAPS (OGJ, Apr. 30, p. 23). Concurrently, Prudhoe Bay producers June 7 started the first of five partial field shutdowns to tie in expanded gas handling (GHX) capacity in the field. The shutdown of Gathering Center 2 will slice about 250,000 b/d from North Slope output for about 2 weeks. GHX related shutdowns at four other gathering centers between now and the end of September will mean average loss of 200,000 b/d for 14-18 days apiece.

A new and more detailed study into the potential of the Norwegian North Sea by Statoil has about doubled estimate of undiscovered oil and gas resources. Statoil estimates there are 5.9 billion bbl of crude still to be found and 31.95 tcf of gas vs. 2.39 billion bbl and 16.77 tcf in a 1989 study.

Another western company has entered into a hydrocarbon joint venture in the former Soviet bloc.

Fluor Daniel GmbH, Dusseldorf/Weisbaden, and Ingenieurbetrieb AG Leipzig (IAB), Leipzig, signed a letter of intent to cooperate on hydrocarbon, industrial, and process projects in East Germany and other eastern bloc nations. IAB ' the biggest engineering and construction services firm in East Germany, was previously part of the E&C conglomerate VEB AG Leipzig-Grimma.

A Soviet-western joint venture figures into a cooperative pact of marine seismic companies. Grant Norpac, Houston, will market seismic vessels available through Sevoteam, a joint venture of AS Geoteam, Oslo, and the Soviet geology ministry. Grant Norpac and Geoteam also will perform joint nonexclusive surveys including acquisition, processing, and interpretation.

A joint venture involving China's Cnooc and Royal Dutch/Shell group calls for a $2 billion refining/petrochemical complex at Huizhou, China, fed by offshore heavy oil, reports Xinhua News Agency. Capacities would be 100,000 b/d at the refinery, 450,000 metric tons/year at the ethylene plant. The two signed a letter of intent and have begun feasibility studies.

Alberta is moving to a free market policy on ethane sales. Currently, Nova Corp. operates straddle plants to strip ethane from the natural gas stream for use at its two Joffre ethylene plants, receiving a guaranteed share of ethane production. Gas producers who strip ethane at field plants want more freedom to market the ethane or use it in EOR work.

Nova would be guaranteed a threshhold volume of ethane production until June 30, 2004, under a proposed new law. That volume would then be cut 20%/year until 2008, when Nova would have to buy all its ethane on the open market. Nova's threshhold level has not been set yet in the bill, expected to be approved in the current legislative session.

PG&E unit Alberta & Southern Gas wants a seasonal cut of about 100 to $1.90(U.S.)/MMBTU in the wellhead price of Alberta gas it buys for shipment to California in 1990-91. A&S told producers the out is needed to compete in that market.

Shell Canada and Czar Resources will oppose the cut in a vote by producers scheduled June 15. It requires support of at least 51% of A&S's 190 suppliers representing 607,, of contract volumes. Under a 1 year contract beginning June 30, A&S plans to offer a two tier price system under which producers would be paid less for gas purchased in months outside December-February. In other months a portion of gas purchases would be paid for at a price based on the Alberta average market price.

A&S fears losing the northern California industrial market because state regulators and buyers are aware Alberta producers are cutting prices in other markets.

Shell says Canadian gas is already competitively priced in California vs. U.S. gas and a price hike is justified.

U.S.-Mexican plans to negotiate a limited free trade agreement will not include crude oil, says Mexican President Carlos Salinas de Gortari. The pact will be less extensive than the U.S.-Canada FTA and is expected to facilitate trade in goods more than in services and investments. Trade officials will negotiate this year, laying groundwork for formal talks between President Bush and Salinas at a December meeting in Monterrey. White House aides said the pact could take 1-3 years to negotiate.

Mobil is running into problems over its now defunct labeling of plastic trash bags as biodegradable.

Attorneys general of seven states have filed suit against Mobil, alleging the company made false claims. Mobil in turn offered to provide funding and technical expertise for a joint effort to develop standards for degradable products.

Because of confusing and often conflicting legislation regulating degradability--more than 200 bills introduced at state through local levels since 1988--Mobil dropped the degradable label from its plastic bags. Many plastics producers favor recycling measures because of questions over biodegradability amid efforts to head off plastics bans due to the U.S. refuse disposal problem (OGJ, July 24, p. 13).

Congress tinkering with the Petroleum Marketing Practices Act again has refiner-marketers worried.

A proposed amendment would require any changes in dealer-supplier contracts be "fair and reasonable." That throws the whole issue to the courts, says PMAA, and API says the result will be a staggering flood of lawsuits. Says PMAA Past Pres. Bruce Chiles: "I do not believe passage of this bill will help anyone other than lawyers, and unlike petroleum marketers, there are more of them than there were 10 years ago."