OGJ NEWS LETTER

The petroleum industry is pinning its hopes on continued strong growth in oil and gas demand.

World oil products demand the next 5 years is likely to grow 2.3%/year-well above consensus-predicts Lehman Bros.' Bernard Picchi.

Picchi told API's annual meeting last week supplies will be adequate and predicted real oil prices in 2000 at $15-20/bbl.

Lawrence Goldstein, president of Petroleum Industry Research Foundation Inc. (Pirinc), estimates 52% of U.S. reformulated gasoline (RFG) demand will be in PADD I and about 20% in PADD V. with average 1995 U.S. RFG demand of 2.5 million b/d. Pirinc projects U.S. RFG capacity as being well in excess of demand.

However, Pirinc sees a tenuous RFG supply/demand balance in PADD V. Gulf Coast RFG productive capacity is growing toward an expected 650,000 b/d, and Pirinc predicts pressure on Colonial Pipeline and intensive Gulf Coast-Northeast Jones Act tankering to adequately supply the U.S. Northeast, with little room for disruption.

U.S. EPA head Carol Browner believes the RFG delivery system will work, but does not rule out discussions of appropriate relief if snags occur.

IPAA predicts U.S. oil demand will rise 1.5% to 18 million b/d in 1995 following a 3% increase in 1994 to 17.7 million b/d.

At the same time, TPAA expects U.S. crude oil production to drop 2.8% to 6.7 million b/d in 1994 and another 2.5% in 1995 to 6.5 million b/d, a level not seen since 1954. As a result, U.S. oil imports will hit a record 9 million b/d for all of 1994, reaching 50.5% of average annual consumption for the first time, according to the forecast by IPAA's supply/demand committee.

On the gas side, look for U.S. consumption to jump by 3.,5% to 21 tcf "his year, slowing to 1 % growth in 1995 to 21.2 tcf.

IPAA estimates U.S. gas production will climb by 2% to 18.7 tcf in 1994 and a further 1% to 18.9 tcf in 1995. U.S. imports of gas are expected to jump 9% to 2.56 tcf in 1994 and by 3% in 1995.

API says total petroleum products supplied to the U.S. in October rose a strong 4.1% to 18,032,000 b/d. Gasoline deliveries were up an unusually high 6.7%, distillate rose 8.9%, and kerosine jet fuel was up 9.4%, compared with the same month a year ago.

API said, "The pattern of stockbuilding this past summer abated, and total imports correspondingly dropped to 8,688,000 b/d, slightly below the underlying 9 million b/d trend this year. A drop of 12 million bbl in conventional gasoline stocks was tied to the need to turn over tankage for the new reformulated gasoline, which must be in terminals by Dec. 1 and ready for delivery at the pumps Jan. 1 under Clean Air.Act regulations. October's decline brought gasoline stocks to 200 million bbl, near the estimated minimum operating level."

A U.S. government-industry task force working to improve ways MMS values natural gas royalties faces some critical decisions at a Nov. 29-Dec. 1 meeting in Golden, Colo. The thorniest question is how to make workable a proposed system for large producers to index royalties based on value of production from a certain basin. Small producers will be able to pay royalties on gross proceeds realized. MMS will incorporate the reg-neg panel's recommendations in a proposed rule making next spring.

MMS is seeking comment on which offshore lease sales should be included in its 1997-2000 sale schedule.

It wants recommendations on methods to ensure the government gets fair market value for leases, environmental issues, dispute resolution techniques, and regionally tailored approaches to the leasing program.

More petroleum industry operations are going on the auction block.

Kerr-McGee is discussing with prospective buyers the sale of its refineries, marketing operations, and pipelines separately or in groups.

Kuwait's state owned Kuwait Petroleum Corp. is putting up for sale the E&P operations of its Santa Fe International unit. Sale is targeted for completion by mid-1995. Santa Fe, mainly a leading drilling contractor, has about 1,100 wells in the U.S. and 30 outside the U.S. that produce about 124 Mmcfd of gas and 5,200 b/d of crude. Principal U.S. operations are in the Gulf of Mexico, Kansas's Hugoton, and Oklahoma's Anadarko and Arkoma areas.

Suncor plans to spend about $250 million (Canadian) to expand its oil-sands operations at Fort McMurray, Alta., and boost oil production there to more than 80,000 b/d from 68,000 b/d the next 3 years while positioning the plant for further expansion. At the same time, Suncor expects to add to conventional oil and gas reserves this year a total of 20 million bbl of oil equivalent (BOE), or double annual production. By 1998, Suncor expects its total production to be up 20% to 120,000 BOE/day.

Five years after it invaded Kuwait, Iraq has recognized the sovereignty of that nation, fulfilling a major U.N. prerequisite for removing an international ban on Iraqi oil exports.

Iraq's action came just before a bimonthly U.N. Security Council review of sanctions against that country. The council retained its sanctions but said it will consider Iraq's action at its next bimonthly review. Iraq now formally recognizes Kuwait's political independence and the border a U.N. commission drew between the two nations last year. Russian Foreign Minister Andrei Kozyrey had persuaded Saddam Hussein to agree to recognize Kuwait, an action later endorsed by Iraq's Revolutionary Command Council and parliament. Russia has signed a $10 billion economic cooperation pact with Iraq that will take effect after U.N. sanctions are lifted. Russia and France have argued in the Security Council that the U.N. should establish a 6 month probation for Iraq and lift sanctions if Iraq complies with the 28 U.N. resolutions during that time.

U.S. Ambassador Madeleine Albright said, "We are not convinced that recognition of Kuwait means we are dealing with a new Iraq." She contends Iraq's movement of troops toward Kuwait in October reminded the world that "Iraq's intentions are anything but peaceful." Albright said Iraqi recognition of Kuwait is an important step, but Iraq must prove its peaceful intentions through long term compliance with U.N. resolutions before sanctions are removed.

Steps toward peace in the Middle East mean burgeoning business in the petroleum sector. Midor, an Egyptian-Israeli joint venture, has let contract to Fluor Daniel for preliminary engineering services for construction of a 100,000 b/d refinery at Alexandria. It is the first major cooperative venture between the two countries, Fluor Daniel says. Products, to be supplied to Egyptian and eastern Mediterranean markets, will meet U.S. and European environmental standards for 2000. Project is scheduled for completion in 1998.

A Filipino-Indonesian joint venture plans to build a $2.2 billion, 120,000 b/d refinery in Philippines. Pertamina unit Elnusa and Indonesian construction firm Citra are in the JV with Philippines' Kabigan Holdings. Plans call for construction to start in October 1995 on Nonoc Island, south of Manila.

A joint venture led by Total plans to build what is claimed to be the world's first ethyl tertiary butyl ether (ETBE) unit that directly produces ETBE from grain ethanol. JV Nord-ETBE will build the 150 million franc, 50,000 metric ton/year plant at Total's Dunkirk refinery using a proprietary technology developed by France's Institute Francais du Petrole that uses fluidized bed catalysts vs. fixed bed catalysts. It will use 30,000 tons/year of ethanol and is scheduled to start up at the end of first quarter 1996. French regulations allow blending of 5-15 vol % ETBE in gasoline.

Azerbaijan's parliament has ratified a production sharing contract (PSC) between state owned petroleum firm Socar and a group of foreign companies that covers development of three major oil fields in the Caspian Sea under an $8 billion program. The draft PSC was signed Sept. 20 in Baku (OGJ, Sept. 26, p. 48).

Amoco has spudded Poland's first coalbed methane (CBM) well to evaluate its 500 sq km concession in the Upper Silesia coal basin near Katowice. It is the first of 15 exploratory CBM wells planned in 3 years at a cost of $1 0 million. Average well depth is 1,200 m. If exploration is successful, it would lead to a development program involving several hundred CBM wells at a cost of $150-200 million.

Amoco earlier this year pulled out of an agreement with Warsaw involving oil and gas exploration on two blocks, citing lack of progress in resolving tax issues and low prices (OGJ, May 2, p. 48). It notes tax issues were resolved when Warsaw issued a tax decree in August that "recognizes the special needs of the oil and gas exploration industry in relation to cost recovery."

Issue date: 11/21/94