OGJ NEWSLETTER

March 11, 1991
It will take 5 years to complete the reconstruction of Kuwait's oil industry, says a Kuwait Oil Co. official. Ali al-Qabindi, coordinator of KOC's well fire containment campaign, gave that gloomy outlook after an extended tour of the burning oil fields (see story, p. 30).

It will take 5 years to complete the reconstruction of Kuwait's oil industry, says a Kuwait Oil Co. official.

Ali al-Qabindi, coordinator of KOC's well fire containment campaign, gave that gloomy outlook after an extended tour of the burning oil fields (see story, p. 30).

He estimates crude is burning at the rate of about 4 million b/d and 85% of wells linked into al Ahmadi tank farms and export terminal are on fire and the rest damaged. Further, the al-Ahmadi refinery is badly damaged but no longer afire, and nothing of the Sea Island terminal remains above water. Al-Qabindi says a single point mooring designed for crude loading still is available and crude and product loading facilities at Ahmadi jetties have much lighter damage. On Mar. 4, the country had only 14 days of stocks. Al-Qabindi also said some low pressure wells are starting to burn themselves out. KOC Reservoir Superintendent Musab al Yaseen says oil fields remain filled with mines, booby traps, and bunkers with troops still surrendering.

The recognition that Kuwait's oil exports won't reenter the market soon was one of the factors firming oil prices last week. Crude prices also rose on expectations of a smaller than expected U.S. stock build as well as anticipation OPEC will take action to buoy prices at the Vienna meeting this week.

However, market rumors that the OPEC meeting might be canceled braked the rise. Brent for 15 day delivery rose to $20.12/bbl Mar. 3 from $19.38/bbl Feb. 28, while strengthening demand pushed Rotterdam gasoline up $15 to $248/ton.

Another bullish signal for oil markets was IEA's decision to end its plan to make 2.5 million b/d of oil available in response to the outbreak of shooting in the Persian Gulf.

Aside from sales of 19 million bbl in the U.S., Germany, and Denmark the month the plan was in effect, it is tough to determine what was normal commercial stockdraw vs. strategic government drawdown.

IEA reports a seasonal drawdown of OECD stocks in January amid early signs commercial stocks continued to fall in February while government stocks were little changed. Surplus crude held by oil producing countries in floating storage or onshore was still about 80-90 million bbl. IEA put OPEC February production at 23 million b/d and noted Saudi Arabia and Iran had loaded unsold crude during the month but at reduced rates.

IEA pegs first quarter demand at 54.3 million b/d and supply at 53.5 million b/d, calling for an 800,000 b/d stockdraw.

Meantime, IEA has invited Finland to join and will discuss France's application for membership after this month.

The ephemeral consensus on oil price directions seems to be flitting toward bullishness again.

Amoco top economist Ted Eck, acknowledging a price drop after cessation of hostilities, notes, "That may be true for a day, week, or month, but I'm absolutely convinced that a year from now oil prices will be higher as a consequence of the Kuwaiti war than they would have been in the absence of the war."

Eck cites war costs and damages in Middle East countries of at least $150 billion, pointing out they will have to pay for the war and its damage but also must rebuild or improve military forces, install new petroleum facilities, and redistribute oil wealth among their populations: "We estimate ... Iraq, Kuwait, and Saudi Arabia will need roughly 50% more annual revenue in the next few years than they did in the prewar period."

British Gas looks set for a new conflict with Britain's Office of Gas Industry over its sudden move to boost the price of gas for electricity generation by 357, with only 4 hr notice.

Industry sources see the move as an attempt to put a lid on booming demand from the fast growing cogeneration market, a key to government strategy for injecting competition into the newly privatized power supply business. Ofgas says the hikes aren't justified and threatens to refer them to the Office of Fair Trading if they aren't changed. BG says it's irresponsible to jeopardize an existing market by overselling into a new market, noting short term demand for power generation gas could reach 60% of BG's current total industrial gas market.

Gaz de France soon will sign a contract to revamp Moscow's 3,000 km gas distribution network at the rate of 100-200 km/year. Plans call for replacing existing pipe with polyethylene pipe to be produced in the U.S.S.R., possibly from a new plant. GDF also is negotiating contracts to develop gas grids in

the Ukraine, Russia, and Byelorussia and build a gas storage facility in the Ukraine.

Canada's National Energy Board and its staff of 285 will move from Ottawa to Calgary later this year. The move will trim costs for industry and give NEB a better pulse on industry.

Meantime, Ottawa will abolish Petro-Canada International Assistance Corp., which provides funding and technical aid to developing nations for energy development.

Responsibilities of Pciac, which has a budget of about $53 million/year, will be transferred to the Canadian International Development Agency, which administers foreign aid programs.

Ottawa has rejected Alberta's latest appeal for aid for the $4.1 billion OSLO oil sands project in northern Alberta.

Ottawa withdrew from the project a year ago, canceling as much as $1.4 billion in promised aid. Esso and partners are completing preliminary engineering, and a decision is due later this year on whether to proceed with detailed engineering.

Meanwhile, a House of Commons committee recommended tax incentives to encourage oil sands development. It said a 15% investment tax credit available for frontier development could be extended to oil sands projects.

Exxon calls Chalkley Deep gas/condensate field in Cameron Parish, La., one of the largest U.S. onshore discoveries of the past decade.

Reserves in the South Louisiana field, discovered in mid-1989, were at least 300-500 bcf of gas as of late 1990. Exxon found the field using dip moveout, a high resolution computer processing technique that eliminates distortions. The field's productive capacity is 120 MMcfd--expected to reach 300 MMcfd as more wells are drilled (see map, OGJ, Feb. 18, p. 28).

Phillips and Northwest Pipeline have signed a definitive agreement to share working interests in about 111,000 acres of oil and gas leases in the San Juan basin.

Phillips will hold an 82% working interest and Northwest 18%. As successor operator to Northwest for most of the acreage, Phillips has set up an office in Farmington, N.M.

As suboperator, Phillips had drilled more than 150 Fruitland coal seam wells under a September 1989 preliminary agreement, adding about 100 MMcfd of deliverability to the 54 MMcfd from 1,300 conventional gas wells. More wells are planned.

EPA is proposing new Npdes rules to require further treatment of waste discharges from offshore platforms that will cost industry about $80 million/year. Final rules are to come in June 1992, new Npdes permits by 1995.

The Fort of Corpus Christi is measuring support among companies shipping oil across Corpus Christi Bay for the Gulf of Mexico's first inshore "deepwater" oil port.

Bay transport of about 335,000 b/d of crude and products would have to triple to make the proposed $455 million Safeharbor facility economic. Initially, Safeharbor could offload more than 1 million b/d from tankers docked in three berths on the landward side of Harbor Island. With a fourth berth volumes could approach 2 million b/d. The proposal calls for dredging a 10 mile long, 74 ft deep channel to accommodate fully loaded 300,000 dwt tankers. Safeharbor proponents say that would accommodate 98% of the world's supertanker fleet.

Koch Refining Co. has asked for foreign trade zone status for its Corpus Christi refinery and certain related pipelines and terminals. That would exempt the refinery from customs duty payments on foreign products used in its exports.

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