OGJ NEWSLETTER

Oil price scenarios continue to be all over the map as Middle East war jitters wax and wane.

Belligerent statements from Mitterand reflecting a hardening of the anti-Iraq coalition pushed oil prices back up about $6/bbl after reports of Saudi concessions had dropped them to the lowest levels since early September the week before (see story, p. 19). Brent for 15 day delivery closed Oct. 25 at $32.50/bbl vs. $34.04 a week earlier but still well below the $40 or so it flirted with in recent weeks. European product prices also started to edge up again last week although they were still down sharply from the week before.

Oil prices will fall to $20-25/bbl if a solution to the crisis is found, predicts BP Chairman Robert Horton. The record $5-plus drop in futures prices Oct. 22 "showed that prices much above $30/bbl are very improbable in the long run," he said. However, his prediction of oil prices above the $18-20/bbl that had been the conventional wisdom ahead of the crisis reflects higher risks in the Middle East for an indefinite period.

WTI would have been about $24-25/bbl in the fourth quarter without Iraq's invasion of Kuwait, says East-West Center analyst Fereidun Fesharaki. Oil prices exceeding $40/bbl don't stem from market forces, he says, adding, "the fear factor explains all prices above $30/bbl."

Although OPEC's surge production has eliminated the shortfall of Iraqi/Kuwaiti crude exports, Fesharaki sees added winter demand of 1.5 million b/d spurring a supply crunch in November. A year-long stalemate in the crisis, he predicts, will push oil prices to $35-40/bbl, variable by $5 according to the level of war jitters. That will be followed by a slide to $30-35/bbl by mid-December and $25-27/bbl in February-March 1991 and $23-25/bbl for second quarter 1991.

Iraq's pullout from Iranian territory in August has enabled Iran to start refurbishment of Naft-Shahr oil field, occupied since the early days of the Iran-Iraq war. The field close to the Iraqi border is expected to produce about 20,000 b/d of light crude by mid-1991.

Pdvsa is sticking to its target of boosting Venezuela's productive capacity to 3.65 million b/d by 1995 and financing that $8 billion effort solely from its cash flow. Interim goals were raised slightly, to 2.7 million b/d by 1993 and 3.1 million b/d by 1995. Pdvsa says international partners will be needed only for E&P in high risk areas.

Meantime, Venezuela and Colombia are mulling a proposal by a former Carbocol chief that the two countries build an $800 million joint venture gas pipeline to carry Venezuelan natural gas to Colombia, linking El Vigia and San Cristobal, Venezuela, with Puerto Salgar and Bogota in Colombia.

Greece is accelerating plans to establish a national gas grid financed in large part by the European Community and fed by Soviet and Algerian gas imports. Plans include a pipeline from the Greek border with Bulgarian to Thessalonika to import Soviet gas and LNG storage/regasification terminals near Athens. Greece signed a 25 year supply deal with the Soviets covering 35 bcf/year in 1988 and an LNG supply deal with Algeria in 1989.

More Soviet ventures are on tap. Kyodo News Service reports Jeuro Container Transport ' Yokohama, has set up Jevart, an oil development/lumber joint venture in Nizhnevartovsk, Western Siberia. Jevart is capitalized at 6.5 million rubles, of which Nizhnevartovsk Oil & Gas Production Trust will provide 59.5%, Jeuro 30.5%, and the Soviet Railway Ministry Association 10%. Initially, Jevart will focus on the lumber business, but plans call for choosing two to three undeveloped oil fields from among 23 available in Tyumen Province and production projected at 8,000-20,000 b/d.

Chronic shortages of refined products in the U.S.S.R. have led to the resignation of beleaguered Soviet Refining and Petrochemicals Minister Nikolai Lemayev. He blamed his departure on "anarchy" in the Soviet system making it impossible for orders from central ministries to be implemented. In an interview with Izvestia, Lemayev said big industrial ministries are being abolished and replaced with individual enterprises free from central control--thus making it unlikely he will be replaced. One proposal calls for setting up seven major, publicly held corporations that would be the basis of a market economy. Lemayev said a number of foreign companies are interested in investing in the Soviet downstream sector should that occur. Noting the U.S.S.R. is importing gasoline at $400/metric ton, Lemayev blames Soviet products shortages on government policy placing priority on boosting oil production vs. increasing refinery capacity. The U.S.S.R. needs 10 more refineries with combined capacity of 240,000 b/d at a cost of 1 billion rubles, Lemayev claims. Instead, the government is spending 16 billion rubles for production facilities.

Meantime, Soviet officials and Tyumen oil workers have averted another labor action that could have shut down as much as 560,000 b/d of oil production by yearend. Aside from demands for higher wages, the workers opposed efforts to prosecute some of them for alleged negligence and environmental damage resulting from damaged and leaking pipelines. The workers claim they should not be held accountable for Moscow's failure to provide the needed quantity and quality of pipe and equipment. Tyumen workers and managers, who had threatened to shut down Tyumen pipelines in protest, say some shutdowns may be needed anyway because of the extreme oil leakage. Moscow is sending teams to Nizhnevartovsk to investigate the situation.

Pipeline problems are affecting Alaskan production as well. Plans to hike operating pressure in TAPS to handle increased North Slope production have been postponed pending an investigation of allegations of falsified corrosion inspection records and other misconduct by an Alyeska contractor (OGJ, Oct. 15, Newsletter). The federal office of pipeline safety denied Alyeska's request to hike pressures to accommodate throughput of as much as 2.1 million b/d. Alyeska is using a drag reducing agent, which has hiked throughput to 1.95 million b/d. Alyeska last week was to begin digging up two sections of the buried line near Atigun Pass, totaling 80-160 ft, to check claims corrosion flaws were covered up.

Elsewhere in Alaska, a federal judge in Anchorage ordered Exxon Corp. to stand trial in April on a five count criminal indictment related to the March 1989 Exxon Valdez tanker oil spill. Among Exxon lawyers' arguments rejected was a contention only Exxon Shipping should have been named in the indictment, not the parent.

More third quarter earnings reports are in, and they continue to reflect generally mixed results: upstream buoyant and downstream depressed. As Shell Oil Pres. Frank Richardson says, "It is ironic that at the time the public perceived the oil industry was profiteering and price gouging, our oil products business lost $64 million in net income in the 2 months following the Iraqi invasion of Kuwait."

Here's a sampling, 1990 vs. 1989, in millions of dollars and losses in parentheses: Adobe 4.1/(8.9), American Petrofina 26.5/15 (but down 75.7% from second quarter 1990), Amoco 530/336, Anadarko 6.6/2.5, Apache 9.5/5.1, ARCO 462/379, ARCO Chemical 56/94, Ashland 59/(39), Crown Central 2.4/8.8, Dorchester Hugoton 0.37/0.6, Diamond Shamrock 53.2/10.1, Energen 13.2/11.1, Exxon 1,075/1,075, Grace Energy 6.1/5.9, Howell 1.9/0.9, Kerr-McGee 43.1/18.9, Key 0.67/0.56, LL&E 8.2/7.8, Lyondell Petrochemical 50/73, Mapco 24.8/22.4, Mobil 379/532, Murphy 37.6/2.5, Nicor 10.1/3.7, Noble 5.7/2.4, Odeco 18.5/(46.9), Oneok 33/36.6, Oxy 109/108, Panhandle Eastern (13.5)/O.3, Phillips 178/87, Plains 2.9/2.7, Pogo (2.78)/(1.89), Quaker State 4.2/1.7, Santa Fe Energy Resources 5/8.7, Seagull 3/(1.1), Shell 227/340, Sonat 14.7/15.6, Texaco 381/305, Tosco 68.4/17.9, Trinity 0.05/(O.05), Union Pacific Resources 51/45, Union Texas 9/21, Unocal 121/79, and Valero 31.8/4.4.