Market bulls are rearing their heads again.
Kidder, Peabody sees the second quarter stronger than expected, citing declining U.S. gasoline stocks and lower than usual crude and distillate stocks and contending "there is no commercial surplus" because second quarter OPEC sales are likely to be less than the 22.3 million b/d quota.
Salomon Bros. contends there will be no oil price collapse in 1991: "The system is inherently more stable now than before because there is only one hand on the OPEC tiller, rather than many. If the Saudis wish to stabilize oil markets further, they will push for fewer and shorter OPEC meetings."
Merrill Lynch thinks supplies could tighten significantly in the fourth quarter as the seasonal oil demand upturn coupled with economic recovery could test OPEC's ability to meet the call on its oil, perhaps hiking prices past OPEC's $21/bbl target: "The risk that oil supplies could tighten significantly in the fourth quarter must be of particular concern to the Saudis. It is perfectly understandable, therefore, that they will want to maintain an adequate cushion of supplies in the meantime, even at the risk of driving oil prices lower temporarily."
Meantime, oil and products prices have been distinguished mainly for their lack of movement, in contrast with the volatility seen during most of the Desert Shield period.
Nymex crude during March hovered at about $19-21/bbl, never changing as much as $1 day to day, closing Apr. 4 at $19.47--within 9 of where it was a month earlier. Nymex gasoline, although showing strength at the end of March, slipped to 65.97/gal--within about 1/2 of where it was a month ago.
As a result of falling oil prices, companies paid 33% less for oil in the SFR drawdown--spurred by the outbreak of war with Iraq--than they bid originally. DOE estimated the average purchase price at $16.90/bbl for sour and $18.60 for sweet crude.
Although companies had bid more, the final contract price was lowered by an index pricing system that reflected the drop in world market prices. High bidders took 67 shipments from three SPR sites in Texas and Louisiana Feb. 5-Mar. 31.
The future level of oil prices holds the key to how high U.S. oil demand and import dependence will climb, but the direction is up in any event, even with energy efficiency gains, according to government forecasts. EIA, assuming oil prices of $23-45/bbl the next 20 years, predicts U.S. net oil imports will soar to 10.8-17.7 million b/d by 2010 from 7.2 million b/d in 1989. That puts the jump in import levels to 57-74% from 42% of supply as U.S. production plunges to 3.4-5.2 million b/d from 7.6 million b/d. U.S. petroleum demand will soar to 18.9-24 million b/d in 2010 from 17.3 million b/d in 1989, while gas demand rises to 21.8-22.7 tcf/year from 18.8 tcf/year.
Will a National Energy Strategy change that outlook? The House will pass NES legislation this year, predicts Rep. Phil Sharp (D-Ind.), chairman of the energy and power subcommittee.
Sharp says his panel will begin marking up a bill in late summer or early fall. However, he said, it won't include the administration's "out of the blue" suggestion to transfer FERC to DOE under a single administrator.
Meanwhile, DOE has begun to implement another of its NES ideas: requiring "energy impact analyses" for all regulatory and legislative proposals that significantly affect energy supply and demand. H. William Hochheiser, deputy director of DOE's geoscience research office, said, "Just as environmental impact statements are required, energy impact assessments will become the norm, we hope." DOE will lead an interagency task force to develop the guidelines for these analyses.
He adds that EPA has started "cluster analyses" that cover all federal environmental requirements imposed on a given industry, with the oil and gas industry to be one of the first to be studied: "I think that is a hopeful sign."
Will the Bush administration's own OCS leasing program be part of that scrutiny? Interior has reported to Congress it would cost $113-125 million for the government to buy back 23 suspended leases in the North Aleutian basin off Alaska.
Congress banned drilling in the basin, forcing Interior to suspend the leases in 1989, and last year ordered Interior to study cost of repurchase. Interior, which opposes repurchases, notes the cost will rise to $141-186 million if the government waits to buy back the leases until 1994.
Meantime, MMS says industry can handle any oil spills that might occur in the North Aleutian basin. MMS says the largest possible spill would be 11,000 b/d during 45 days, of which 53% could be burned offshore, 9.5% could be recovered, and 37.57, would evaporate, disperse naturally, or contact the shoreline.
Key oil producing states are stepping up environmental oversight, and that means higher costs for industry.
Louisiana's Department of Environmental Quality has adopted rules phasing out discharge of produced waters in coastal areas during a 4 year span, a move industry says could cost it about $1 billion and the state another $200 million in lost revenues owing to premature abandonment.
Texas Gov. Richards last week signed legislation, effective June 27, imposing a 20/bbl fee on crude moving through Texas ports to build a $25-50 million oil spill fund. Vessels of 10,000 gal capacity or more must have an appropriate oil spill response plan or be banned from Texas waters. It also establishes five spill response centers along the coast.
Canadian E&D shows mixed progress.
A group led by BP Canada plans a June spud date for a $30 million wildcat about 7 miles northwest of Hibernia oil field on the Grand Banks off Newfoundland. Amoco Canada, however, won't drill in the Beaufort Sea this summer, relinquishing permits covering more than 3 million acres, because of lack of partner interest. It joins Esso Canada and Chevron Canada in spurning the region in 1991. Gulf Canada has yet to decide.
Alberta plans some royalty relief for heavy oil producers hit by lagging prices. The province will consider postponing royalty payments project by project for nonconventional production other than oil sands projects. Alberta also is eyeing surplus refinery capacity to boost heavy crude upgrading.
Pdvsa plans to boost its fleet by 20 oil and LNG tankers-the next 2 years--some new buildings and others bought second hand, says Lloyds List. The program will boost Pdvsa's fleet to 39 vessels of about 1.9 million dwt from 19 tankers of 768,000 dwt. In December, Pdvsa consolidated three shipping divisions into a new unit, PDV Marina, which is looking at building four tankers in Spain and another four vessels in other European yards. Lloyds List reported strong interest in contracts from Far East yards. It also reported Pertamina wants another 12 small tankers of 1,500-35,000 dwt ton. About 60 companies have shown interest in building the vessels and leasing them to Pertamina under long term charters. Lloyds List said the plan marks a significant policy switch by Pertamina, which had planned to charter second hand tankers.
Venezuela's ministry of energy and mines will provide Equatorial Guinea with technical assistance in downstream and upstream areas, including a possible joint venture to market the African nations gas and condensate production scheduled to start up by yearend (OGJ, May 7, 1990, p. 56).
Namibia is soliciting foreign oil company interest in its first round of bidding for exploration licenses. The whole country is open for bidding, to close Nov. 1, on 11,000 sq km licenses.
A 50-50 venture of Deminex and OMV has signed the first offshore exploration deal with Albania.
The production sharing contract with the Albanian Oil & Gas Directorate covers the Rodini block adjoining the Yugoslavian border in the Adriatic. Operator Deminex expects seismic work to begin later this year followed by a drilling program. Agip, Chevron, and Oxy also are talking to the Albanians.
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