Will oil prices stay high longer than most expect so industry can generate enough capital for current and future investment to replace oil and gas production?
Salomon Bros.' Bernard Picchi thinks so. Assuming no demand growth the next 5 years, world oil and gas demand could total 175 billion barrels of oil equivalent (BOE) for 1990-94, Picchi estimates. Assuming production replacement rates of 50-100% and $5/BOE finding costs in 1990-94, producers will need $440-875 billion for upstream outlays alone the next 5 years.
Adding downstream, environmental, and other outlays pushes the total to $900 billion-$1.75 trillion.
Picchi doubts the level of investments needed will occur in the U.S.S.R. and moderate Arab nations, for respectively economic and political/military reasons.
Latin America is making its bid to attract some of that capital to hike oil production there and gain a higher profile as a stable source of new oil and gas supplies. Association of Latin American State Oil Companies Sec. Gen. Alvaro Teixeira says Latin America has enough oil to meet indigenous demand for 70 years. With reserves pegged at 125 billion bbl of crude, production at 7 million b/d, and demand at 4.7 million b/d, the region could be a net oil exporter for the foreseeable future. Brazil alone could produce 920,000 b/d, based on identified potential reserves, if it had the upstream capital it needs, says Petrobras E&P Director Joao Carlos Franca de Luca.
Industry also is pushing gas utilization in Latin America, where proved reserves in 1989 topped 250 tcf, says Olade, another regional energy association. Gas flaring in Brazil's Campos basin alone totals 74 MMcfd. The push for a Latin American common market would have to have a continental gas grid as a key element, says Olade Technical Director Alexis Rivero.
Much of the industry capital flowing to Latin America will head downstream as well. Pdvsa will spend $5 billion for refining/petrochemical projects the next few years.
Outlays will go for one and perhaps two new refineries in eastern Venezuela, upgrading and expanding existing refining/petrochemical capacity, and modifications to meet new environmental standards for products sold in the U.S. and Europe.
Pdvsa will boost refining capacity in Venezuela by 400,000 b/d and at its leased Isla refinery in Curacao by 100,000 b/d. Venezuela's six refineries together have 1.16 million b/d of distillation capacity and 815,000 b/d of conversion capacity.
The energy industry could spend more than $250 billion the next two decades to meet new environmental regulations worldwide, says M.W. Kellogg Venture Operations Vice Pres. G. Phillip Tevis. The U.S.S.R. and eastern Europe will account for 80% of that investment, he contends.
Just as important for industry to gauge how much environmentally driven capital investment will displace investment in new plant and production capacity is to convince the financial community its plans and priorities are in order, Tevis says.
At the same time, industry will have to turn to equity financing to remain active or win new business in less developed countries as international debt financing dwindles, says Kellogg Director of Project Financing William Pearce.
Many LDC projects involve import substitution, thus generating local currency instead of the hard currency international banks seek to service debt, he says, adding that the situation is worsened by the debt crises in many LDCs and export credit agencies are only a partial solution.
The U.S.S.R. has it hands full now, as labor woes add to economic problems and perhaps threaten to worsen a looming world oil supply shortfall next quarter (see story, p. 43).
Soviet oil workers in western Siberia's Tyumen province, source of almost two thirds of Soviet crude and condensate production, have threatened to declare a general strike. Union leaders say Moscow has done little to meet demands made last March for realistic oil and gas prices or to improve living conditions there.
Tyumen sells its oil to the central government for 23 rubles/ton, or less than 53/bbl at realistic exchange rates, while Moscow in turn has sold Tyumen crude at $20-30/bbl this year.
Tyumen oil workers contend Moscow's offer of 60 rubles/ton ($1.37/bbl) in 1991 is less than the cost of producing oil in marginal fields. They want to sell 70% of Tyumen crude to Moscow and let the province sell the rest domestically or abroad at market prices. Tyumen workers also deem insufficient Moscow's offer to double in 1991 the price it pays for natural gas.
In March, a brief strike was intended to show the workers mean business, but they say the latest demands shouldn't be dismissed as mere pressure tactics.
U.K. gas industry's evolution into a competitive business proceeds as pipeline/power project plans continue to jell.
Enron signed contracts for joint venture operations and power sales covering all 1.725 million kw of capacity at its proposed cogeneration power plant adjoining ICI's petrochemical complex at Teesside, U.K. Four U.K. regional power companies, ICI, and an Enron-ICI joint venture marketing firm committed to purchase power from the project, to be built by an Enron affiliate under a $1.1 billion turnkey contract. It will be fed by 300 MMcfd of gas for 15 1/2 years from U.K. North Sea fields proposed for development by an Amoco group via the Amoco group's proposed 1.4 bcfd CATS system to Teesside (OGJ, June 25, p. 13).
Power sales are for 15 years beginning Apr. 1, 1993, with options to extend. The four regional power companies are expected to take a 50% equity stake in the joint venture operating the project, and ICI may buy as much as 10% of the remaining equity from Enron after startup. Separate Enron-ICI joint ventures will have rights to transport another 300 MMcfd through CATS and certain rights to NGL in the CATS stream.
Norway received applications for most of the 52 blocks offered in the North Sea, Barents Sea, and Haltenbanken areas in its 13th licensing round. Most interest focuses on 22 blocks offered in the North Sea. Although Barents exploration has disappointed so far, companies showed a high level of interest in 25 blocks offered there but less so in the Haltenbanken.
Norway will announced awards early next year.
The federal agency governing Canadian frontier exploration says it will hold new discussions on control of arctic development and environmental management. Canadian Oil and Gas Lands Administration announced the review as it postponed a decision on a Gulf Canada's proposed 3 year Beaufort Sea drilling program rejected earlier by a Northwest Territories agency.
Oil prices continue to seek higher levels as near term supply disruptions loom. Brent forward topped an 8 year high, set Sept. 18, by closing Sept. 20 at $36.03/bbl for October delivery, $35.98/bbl for 15 day delivery, and $33.13/bbl for November.
Dubai light Sept. 20 closed at $30.80/bbl, topping $30 the first time since the early 1980s.
Have higher oil prices sparked added U.S. drilling beyond the usual seasonal pickup? Baker Hughes' weekly tally of active U.S. rigs has jumped by more than 20 units twice in a row to reach 1,060 last week, up 9.8% from a year ago and 48 units from the week of Sept. 3. Rigs identified as drilling for oil accounted for 73% of that gain, and the proportion ratio of oil to gas rigs rose to 55.4% from 54.6% during the period.
EPA says Clean Air Act reauthorization would save the U.S. at least 800,000 b/d-1 million b/d of oil by 2005, or more than the volume of lost U.S. oil imports from Iraq and Kuwait.
API hasn't studied EPA's numbers but said, "We would be surprised if that were so." House and Senate conferees are working on a compromise CAA bill, which Congress is expected to pass before October adjournment. Says key conference committee member Rep. John Dingell (D-Mich), "I do not believe silly statements by people who should know better that this legislation is going to lower the dependence of the U.S. on foreign oil."
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