The possibility of a wider conflict in the Persian Gulf in the wake of Iraq's conquest and annexation of Kuwait has the world on tenterhooks as awareness grows there is no true shortage of world oil supplies (see story, p. 17).
IEA's governing board, meeting in Paris late last week, decided that "no physical shortage of oil existed and there is no need to activate the emergency response oil sharing system."
IEA reminded oil companies of the 1979 oil crisis and advised them to "avoid abnormal spot purchases," recommending they instead draw down stocks--at near record levels--and warned consumers against unnecessary fuel purchases. IEA's board will meet again next week to review technical issues related to triggering the emergency oil sharing system.
In France, the government rolled back 4 years of oil price decontrol by imposing a temporary limit on refining/distribution margins. Gasoline and heating oil prices will be allowed to fluctuate according to an average price landed at Rotterdam for the preceding 8 days, but refiner/marketers' margins will be capped at 34 centimes/l. Since Aug. 3, that average margin has jumped by 10 c/l. on an average price of 5 francs/gal (of which 77% is taxes). There were no reports of similar actions in Europe at presstime last week.
In Brazil, the government jumped gasoline prices by 85% in the wake of the invasion, the first such hike since President Collor took office in March. Further hikes may threaten Collor's anti-inflation drive, which has pulled inflation in Brazil to 11% in August from 70% in February. Brazil imports 66% of its oil, about 160,000 b/d from Iraq, 140,000 b/d from Saudi Arabia, 100,000 b/d from Iran, and 30,000 b/d from Kuwait. Petrobras early this month was trying to boost liftings from Iran. An added worry is Iraq's heavy debt with Brazil, pegged with interest at about $1 billion. Further, Brazil is one of Iraq's biggest arms suppliers, and Brazilian scientists reportedly have been involved in Iraq's purported nuclear arms development.
In Venezuela, government officials denied press reports that it already began boosting oil production last week in response to the Middle East crisis. During the 1973-74 Arab oil embargo, Venezuela irked Arab oil exporters by sharply hiking crude production and exports to the U.S., thus easing the U.S. oil shortfall. The Perez government does not want to spark a production free-for-all in OPEC.
However, recent events bolster Venezuela's plans to hike production capacity to 3.5 million b/d by 1995 and its proposal to establish a strategic petroleum reserve within its borders for Western Hemisphere use in a supply crisis.
In Japan, Prime Minister Kaifu called on citizens to conserve oil, noting the country has crude stockpiles equal to 142 days of consumption.
In India, the petroleum ministry asked the finance ministry to increase its oil import budget for fiscal 1990-91 by 61 billion from the earlier planned $4.3 billion as it plans efforts to rein consumption. The U.S.S.R. is hampered by foreign exchange woes in boosting supply to India beyond long term levels of 90,000 b/d of crude and 15,000 b/d of products.
India recently purchased short term contract oil supplies of another 90,000 b/d from Moscow, 45,000 b/d from Iraq, 30,000 b/d each from Iran and Kuwait, and 15,000 b/d from Saudi Arabia.
In eastern Europe, newly emerging democracies will take a double whammy from the price surge, due to being weaned from heavily subsidized Soviet oil, says PlanEcon's Jan Vanous.
Most former Soviet satellites can't make up the difference by tapping into strategic reserves or stepping up domestic E&D, Vanous said, adding, "If you talk about as much as $28/bbl, that's like doubling the old price. They can no longer pay in soft currency, they have to pay in hard currency, and hard currency is twice as expensive. So they are getting hit twice."
In the U.S.S.R., Moscow's decision to join the condemnation and boycott of Iraq may not have been entirely altruistic.
Last May, Kuwait Foreign Trading Contracting & Investment Co., which handles transactions for Kuwait's central bank, signed a $300 million loan agreement with the Soviet Foreign Economic Bank. In 1987, seven big Kuwaiti banks granted the Soviets $150 million in credits for an 8 year period on favorable terms.
Saudi and U.A.E. ties also have strengthened with Moscow recently, with prospects of more financial aid and joint ventures. But Soviet trade and relations with Iraq far outshadow its dealings with Kuwait and the moderate gulf states. Soviet trade with Iraq in 1989 totaled more than 1.2 billion rubles vs. 10.5 million with Saudi Arabia and negligible amounts with Kuwait and U.A.E. In late July, about 5,000 Soviet technicians were working in Iraq with plans to increase that level to about 8,000 by yearend. Soviets work in Iraqi oil fields, including those near Kuwait's border, and on more than 100 industrial projects.
However, Izvestia complained of the high death rate among Soviet personnel in Iraq, adding, "practically every Soviet airline flight from Baghdad to Moscow carried the coffin of at least one Russian worker."
At least 11 U.S. oil field workers were being detained late last week in the Rashid Hotel in Baghdad, oil industry sources confirmed. Six others workers and one dependent in Kuwait haven't been heard from since Aug. 2.
Those employees detained last week at the Rashid included six from Santa Fe International Corp., three from Dresser Industries, and two from OGE Drilling. In Kuwait, two Dresser workers hadn't been heard from since Aug. 2, while three OGE employees and a spouse had been contacted by the U.S. embassy and a fourth OGE employee's status was unknown. Ten OGE employees left Kuwait after the invasion. Meantime, Chevron confirmed safety of two employees in a hotel near Kuwait City. Chevron Research licenses refining technology to Kuwaiti refineries.
The House and Senate passed and sent to Bush the comprehensive oil spill liability bill hammered out by a conference committee last month (OGJ, Aug. 6, p. 27). Bush is expected to sign the bill this month.
The current steep discount of natural gas prices vs. those for resid can't be sustained, says Salomon Bros.' Bernard Picchi. With resid selling for $18/bbl in the U.S. Northeast, the gas equivalent price would be $2.50/Mcf at the Gulf Coast wellhead vs. actual spot price of $1.45/Mcf in South Louisiana.
Picchi cites three reasons for the disparity: majors are less concerned about withholding sales of low priced gas from the market, pipeline storage is still fairly full after a mild winter, and the boom in coalbed methane drilling sparked by federal tax credits has brought on a spurt of new production that can't be curtailed easily.
Meantime, T. Boone Pickens Jr. wants the U.S. government to mandate gas parity with crude oil for energy security reasons in light of the Middle East crisis.
More MTBE/methanol capacity is due on stream in the Middle Cast. International Octane Ltd. let contract to Fluor Daniel Canada for a $400 million project to produce 2,000 metric tons/day of methanol and 500,000 metric tons/year of MTBE in Qatar.
Meantime, Qatar is pressing other efforts to utilize its huge gas resources. Under study is a new industrial city at Ras Laffan in northern Qatar as a site for petrochemical, fertilizer, and minerals processing complexes.
Qatar expects to start up the 150 tcf North field gas project by yearend at 750 MMcfd of lean gas--some of which will be exported as LNG--and 50 MMcfd of gas equivalent liquids.
Cote d'Ivoire has offered 11 blocks covering more than 30,000 sq km for exploration. State owned Beicip and Petroci have conducted a comprehensive study of petroleum potential in the region with an eye to deeper pay targets, mixed structural/strat traps, drilling in underexplored areas, and reassessment of identified prospects. Cote d'Ivoire also has sweetened terms and streamlined permitting procedures.
Copyright 1990 Oil & Gas Journal. All Rights Reserved.