OGJ NEWSLETTER

July 16, 1990
Arab producers at the July 25 OPEC ministerial meeting will press to extend the 22.1 million b/d first half ceiling to yearend. Saudi Arabia, Kuwait, U.A.E., Iraq, and Qatar said in a communique from Jeddah that strict and immediate commitment by all OPEC members to the November 1989 pact would make an $18/bbl target achievable. Further, the ceiling should not be increased unless a figure can be agreed upon by all 13 members, it said.

Arab producers at the July 25 OPEC ministerial meeting will press to extend the 22.1 million b/d first half ceiling to yearend.

Saudi Arabia, Kuwait, U.A.E., Iraq, and Qatar said in a communique from Jeddah that strict and immediate commitment by all OPEC members to the November 1989 pact would make an $18/bbl target achievable. Further, the ceiling should not be increased unless a figure can be agreed upon by all 13 members, it said.

U.A.E. consistently has produced about 1 million b/d over its 1.095 million b/d quota and with Kuwait has been the major contributor to OPEC overproduction. Arab states are anxious to bring U.A.E. back into the fold, but a soft market complicates the push for a higher ceiling to accommodate U.A.E./Kuwait claims.

IEA has OPEC June production at 23.2 million b/d vs. 23.6 million b/d in May and U.A.E. and Kuwait each down by 100,000 b/d to 2 million b/d and 1.6 million b/d respectively.

OPEC sources think one option is to extend the current ceiling to third quarter's end with another ministerial meeting in September to hammer out a new deal for the fourth quarter, possibly running into first quarter 1991.

Will Venezuela be OPEC's next fly in the ointment?

Pdvsa likely will seek a new OPEC quota for Venezuela of 2.4 million b/d in 1991 vs. its current 1.945 million b/d, with incremental increases of about 150,000 b/d through 1990.

Pdvsa expects demand for OPEC crude to rise by 1-1.2 million b/d/year to 2000--assuming an $18/bbl marker--with only Venezuela, Saudi Arabia, Kuwait, U.A.E., Iraq, and Iran able to meet the increased demand. Pdvsa notes Venezuela's share of OPEC output has plunged to 8.6% from 16% in 1970. It wants to boost that to about 11-12% mainly to recover lost markets in the U.S.

Further, Pdvsa wants to scrap the quota system and return to a system of consultations among OPEC members. It estimates Venezuela's current potential productive limit at more than 2.7 million b/d and sustainable capacity at 2.45-2.5 million b/d.

Venezuela is pushing to hike capacity to 3.5 million b/d by 1995 and about 4 million b/d thereafter. That will be a sizable club to wield in OPEC, especially given Venezuela's extensive downstream position in the U.S. The government has yet to respond to Pdvsa's suggestions, and industry observers attribute that reluctance to Energy Minister Celestino Armas' unwillingness to let Pdvsa Pres. Andres Sosa Pietri take an active role in shaping oil policies--a first for a Pdvsa head.

For now, the Jeddah communique, combined with lower than expected U.S. oil stock levels, has boosted a flagging market and helped Brent close 33cts higher at $16.30/bbl July 11.

Meantime, composition of that North Sea marker will change, but it still will be known by the same name. Brent blend will be commingled with crude from Ninian pipeline at Sullom Voe starting Aug. 1. Brent pipeline operator Shell U.K. and Ninian line operator BP say commingling will assure security of supply, reliable quality, and shipping flexibility.

This summer, many fields feeding the two systems will be shut down for installation of emergency shutdown valves and normal annual maintenance. The shutdowns are planned to avoid taking both lines out of service simultaneously. The commingled stream will average about 850,000 b/d after the ESV work is over.

Norwegian oil and gas production is back to normal after collapse of the unofficial strike by workers who defied a government order to end an official stoppage (OGJ, July 9, Newsletter). Output is now averaging about 1.7 million b/d.

The international tanker boycott of U.S. ports gathers momentum. Teekay Shipping Co. Inc., Nassau, said its principals have decided to cease tanker trading at U.S. ports effective July 20 in response to expected federal and state laws placing unlimited liability on ship owners and managers for oil spills.

Teekay will honor short term forward commitments but plans to withdraw all tankers from U.S. waters by August's end.

Teekay manages a fleet of 51 tankers with an average age of 7 years and has been active in U.S. tanker trade, mainly on the West Coast, since 1973. Last year, its tankers carried an equivalent average 300,000 b/d of crude shipments on almost 200 voyages involving more than 600 berth calls.

Meantime, Elf Aquitaine says about 125,000 bbl of Angolan crude worth $2-3 million was lost in the June 8 explosion and fire on the Mega Borg tanker (OGJ, June 18, p. 13). About 760,000 bbl of crude was lightered for delivery to original destinations after the explosion and about 100,000 bbl beforehand.

Last week, an unidentified bidder was reported in Galveston to inspect the disabled tanker--still anchored at the accident site--raising speculation its disposition is imminent.

For the first time, U.S. oil companies' foreign reserves, production, and E&D spending outstripped those in the U.S., according to Arthur Andersen & Co.'s annual survey of reserve data and financial disclosures. Covering public companies with more than 1 million bbl of equivalent oil reserves, the survey demonstrates U.S. industry's resilience, Andersen said, adding that U.S. companies "are successfully making the transition as the domestic oil business really becomes a global business."

Louisiana's new natural gas severance tax, approved the last day of the 1990 legislative session, is expected to raise an additional $44 million the first year, hiking the severance tax bite to more than $140 million/year.

A base rate of 100/Mcf will be indexed July 1991 to average spot prices of gas sold in the state for the 12 months ending Apr. 30. A sunset provision will drop the base to 70/Mcf in 1992, with indexing to remain in effect.

EPA has proposed standards and procedures for cleanup at hazardous waste management sites, including refineries.

It estimates as many as 4,000 facilities will conduct cleanups under the RCRA standards with program costs at $10-60 billion. EPA will publish the proposal soon in the Federal Register and plans October hearings in October.

The U.S. and U.S.S.R. have agreed to a boundary in the Bering Sea, resolving a dispute dating to 1867. Details will be disclosed when a treaty is sent to the Senate for approval, but no lease sales are planned in the area. At a Navarin basin lease sale, Interior received 26 bids on 17 blocks in the disputed area. High bidders Shell, ARCO, and Amoco were told beforehand that leases would not be issued until the dispute was settled. In December 1988, Interior authorized return of $21.6 million in bonuses and $8.7 million in interest to the firms.

Two Mitsubishi units have bought into Chevron's proposed oil development in Papua New Guinea by acquiring 79.5% of Merlin Petroleum for $75 million from Bond Corp. Holdings, Australia.

Merlin owns 6.25% of PNG license PPL 100, where Chevron has found 200 million bbl and plans a 100,000 b/d development project. Merlin also has 12.5% of PPL 101. The Merlin shares will transfer to Japan Papua New Guinea Petroleum Co.

Production of methane from abandoned coal mines in northern France, a first in Europe, will begin later this month.

Under a 1988 agreement between Gaz de France and Nord Pas de Calais the gas will be cleaned, dehydrated, and odorized before delivery at a rate of 4 MMcfd to Gaz de France's network.

Their joint venture Methamine will produce 29 bcf from abandoned mines the next 12 years.

Total and Algeria's Sonatrach have agreed to expand cooperation to include gas, petrochemicals, and technology.

Total will start exploration on Djebel Bottena and Southeast Hamra permits once partners have been found. Also under study are EOR projects and further development and export of gas supplies--including LNG projects--in Algeria. Total will participate in developing gas fields south of Hassi R'Mel to hike LPG/condensate output. Total also will study feasibility of building an MTBE plant at Arzew, with itself as customer.

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