OGJ NEWSLETTER

April 29, 1991
OPEC can expect a rough ride once it tries to reestablish quotas that include resumed production from Kuwait and Iraq.

OPEC can expect a rough ride once it tries to reestablish quotas that include resumed production from Kuwait and Iraq.

Former U.A.E. Oil Minister Mana Said al-Otaiba, now personal adviser to U.A.E. President Shaikh Zayid, says the emirates will not willingly return to the 1.5 million b/d quota set in July 1990. He contends 1.5 million b/d does not reflect the country's productive potential and was accepted only at the request of Saudi King Fahd. Current U.A.E. output is about 2.2 million b/d. Trouble can also be expected from Iraq, which has already hinted it will seek a special quota to allow economic recovery once U.N. sanctions are lifted. Iraq also protested OPEC's postinvasion decision last August to suspend quotas.

Meantime, oil prices continue to hold fast in a band of $19-21/bbl. A late cold snap in Europe has buoyed gas oil prices and given crude prices a brief boost. Strong U.S. demand for gasoline also helped the short lived rally. Brent topped $20/bbl early last week before slipping back to $19.35 Apr. 24, about where it was in early March. Rotterdam gasoline peaked at $241/ton before sliding $2 while gas oil prices rose $3 from $181 in the period. In the U.S., Nymex crude closed Apr. 24 at $20.94, down 70 cents on the week but also near early March levels.

Another factor behind the oil price rally was start of the 1991 North Sea maintenance shutdown season, which has already started to depress production levels. However, as Persian Gulf crude in floating storage starts to find its way onto European markets, the North Sea shutdown factor will disappear.

County Natwest Woodmac predicts a fresh boom in spending off Norway. The U.K. analyst forecasts 18 new field developments and two new pipeline systems will be approved by Norway's government the next 3-4 years. The upturn in activity will reflect growing European demand for Norwegian gas and the need for satellite developments to use spare capacity emerging on early generations of large platforms in the Norwegian North Sea.

The new projects will require total outlays of about $35 billion and are expected to boost total crude and NGL production to a peak of 2.4 million b/d in 1996 and enable output to re-main at more than 2 million b/d in 1992-99 vs. current output of 1.94 million b/d. Gas production is expected to rise to 7-8 bcfd by 2005 from the current 2.75 bcfd.

In a surprise move, France's national assembly has dented the gas distribution monopoly of Gaz de France. It adopted an amendment to an administrative law allowing districts not supplied with gas to organize their own local distribution networks.

For years, GDF has been fighting the European Community's proposals for common carrier status for European gas lines. The assembly's move could lead to collapse of the utility's import and distribution monopoly, which GDF claims could compromise safety and quality of French gas supplies and distribution.

The U.S.S.R. is negotiating to enter the ship demolition business through a joint venture with Mitsubishi. A scrapyard able to handle VLCCs is planned in the Soviet Far East, with steel scrap shipped to Japan. The yard is expected to benefit from an upturn in scrapping expected the next 2 years as new design criteria force tanker owners to scrap many older vessels.

Direct participation by foreign companies in Venezuela's upstream is a little less certain than it appeared earlier (see editorial, p. 25). Foreign companies, notably independents, that win agreements to revive production in 46 marginal oil fields in Venezuela will be considered long term contractors receiving a per barrel fee for crude produced. The crude will belong to Pdvsa and subsidiaries, and contractors will be neither concessionaires nor partners. It is unclear how Pdvsa will handle contracting companies' investments in new facilities.

China National Petroleum Corp. and Nova Corp. have agreed to study feasibility of gas pipelines and methanol plants in western China. CNPC Pres. Wang Tao notes China's petroleum industry is growing rapidly and wants to boost Canadian industry ties. Terms are not disclosed. CNPC also agreed to a 5 year extension of a technology exchange agreement with Alberta Oil Sands Technology Research Authority.

FERC plans a May 10 hearing in Washington to discuss the role of interstate gas pipelines in today's market. It will focus on appropriate scope and nature of pipeline merchant functions and how transportation services offered by merchant pipelines can be made comparable to pipeline sales services.

API says energy imports, mostly oil, accounted for $64.6 billion of the $101 billion U.S. trade deficit last year. The U.S. in 1990 ran up its biggest tab for imported oil since 1982 and fourth largest in its history. Since 1988, U.S. outlays for imported energy have jumped more than $20 billion, while the overall U.S. trade deficit has fallen almost $18 billion.

EPA will propose minimum requirements for state air pollution programs. The permit program would consolidate all of a source's pollution control requirements into a single, federally enforceable document easily accessible by the public. The idea is to avoid conflicting requirements.

U.S. deepwater oil ports take a step back and a step forward. The proposed Texport facility in the Gulf of Mexico will be shelved indefinitely (OGJ, Apr. 15, Newsletter). Sponsors last week in Houston agreed to the deferral and continuing studies, citing concerns about increasing capital costs, long licensing procedures, and uncertainty over future oil import levels.

Meantime, with 18 companies expressing interest, Fort of Corpus Christi will spend about $400,000 to continue studying a proposal to build a deepwater oil port on the Texas coast (OGJ, Mar. 25, p. 34). During Safeharbor's second phase, officials will seek public comment on the plan, consider further environmental implications, study funding arrangements, determine tank farm and storage requirements, and identify pipeline networks for moving oil to Gulf Coast refineries.

The U.S. rig count continues to nosedive. The Baker Hughes tally dropped another 39 units last week to 835, plunging 10.4% from a year ago, by more than 150 since the first of year, and to the lowest level since July 24, 1989.

The Smith rig count, using different criteria, plummeted 57 units on the week to 885, a drop of 167 units from a year ago.

Exxon continues to be haunted by the Exxon Valdez spill. A federal judge in Anchorage last week rejected part of the $1 billion spill settlement Exxon struck with Alaska and Justice Department, saying the record $100 million fine that is part of that settlement does not reflect extent of damage to Prince William Sound. Exxon has 30 days to respond. Meantime, the third and last year of the Exxon Valdez cleanup began last week with a 5 week survey of 577 sites along 500 miles of coastline in the sound, Kenai Peninsula, and Kodiak Island. Cost is expected to top $50 million--in addition to the more than $2 billion Exxon has spent thus far. Further, Exxon shareholders overwhelmingly rejected a "Valdez principles" resolution at the annual meeting in Orlando, Fla., last week. Environmentalist lobbies have been pressing other oil companies to adopt similar resolutions as guidelines on corporate environmental policies.

First quarter earnings of U.S. companies generally show improvement, but nothing like the upstream gains of second half 1990. Despite lower oil and gas prices, Apache posted a record first quarter net of $12.1 million vs. $11.5 million a year ago because of increased production and a contract settlement. Ashland, stung last year because of its focus on refining/marketing, had its best quarter since 1986, posting $27 million vs. $1 million in 1990. Other quarterly earnings changes: Exxon up 75% at $2.24 billion, Mobil up 78% at $710 million, Chevron up 18% at $557 million, Amoco up 6% at $492 million, Texaco up 26.5% at $415 million, and Phillips down 38% at $160 million.

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