OGJ NEWSLETTER

Oil markets are feeling a sense of deja vu this week.

Just as OPEC prepares to meet this week in Vienna, one of its members is ostracized by most of the world and facing a possible embargo of its oil exports.

Despite first quarter concerns about a supply glut and sliding prices, the flap over Libya's refusal to turn over suspects in terrorist airplane bombings has helped firm oil prices in recent weeks. Earlier this month Nymex crude topped $20 the first time since mid-December 1991.

U.N. sanctions banning air travel to and from Libya took effect Apr. 15, and U.K. Foreign Sec. Douglas Hurd warned oil sanctions may be next.

However, oil markets took the start of sanctions against Libya in stride--possibly because oil was not included. Brent stayed flat on the day at about $18.60/bbl, still about $1 above month ago levels during a traditionally weak period.

Although Libya is a traditional price hawk, Gaddafi's defiance is giving comfort to Saudi Arabia, which had been feeling pressure from other OPEC members to lead more production cuts to avoid a price collapse.

The good news in all of this, says Merrill Lynch, is that Libya's 1.5 million b/d accounts for only about 2% of world demand. "The bad news is that the oil system is so stretched that there isn't much room for error," Merrill Lynch said. "Despite perceptions that the world is flooded with oil, inventories are not that excessive--and according to some industry estimates, they may be on the low side." Merrill Lynch contends there is only modest spare capacity to compensate for supply disruptions but a growing potential for such disruptions: eroding output in the former U.S.S.R., political turmoil in Algeria and Venezuela, economic woes in Nigeria, and Iran's growing clout in the Middle East. Even if no severe disruptions occur anywhere, "We will probably need Iraqi oil exports by yearend if we are to avoid an ominous supply tightness by then."

Azerbaijan has refused to sell India crude for payment in rupees.

Izvestia reports a high level Indian delegation returned from Baku empty-handed after trying to buy I million tons of Azeri crude this year. Azerbaijan can barely meet its own oil demand, with production sliding to 234,000 b/d in 1991 from 249,000 b/d in 1990. Baku says oil for export will be sold for hard currency only. Meanwhile, Russia has been unable to meet terms of a trade protocol calling for sale of 4 million tons of crude and 1.5 million tons of products to India for rupees (OGJ, Apr. 6, p. 42).

China is trying to perk interest in foreign investment in its E&D.

China Daily reports a delegation led by China National Petroleum Corp. Vice Pres. Zhou Yongkang is visiting the U.S. and Japan to solicit joint ventures in E&D onshore and in coastal waters less than 5 m deep, notably along the coast of the Bohai Sea, where a high yielding oil and gas discovery was drilled recently (OGJ, Apr. 6, Newsletter). In the U.S., officials will visit with Chevron, Exxon, Mobil, Texaco, and Halliburton. In Japan, talks will proceed with Mitsubishi and JNOC.

Nigeria will tilt toward production sharing agreements with foreign oil companies and away from joint venture deals.

NNPC Chairman Gilbert Chikelu made the claim after signing a PSC with Ashland Oil. Joint venture deals tend to put too much financial pressure on NNPC and slow exploration, he said.

Saudi Aramco is pressing plans to develop Hawtah light oil field in Central Saudi Arabia. It let contract to ABB Lummus Crest for a $150 million gas/oil separation plant in the field, due on stream in 1994 and to produce about 150,000 b/d. Other large contracts are expected to he awarded shortly for development south of Riyadh.

The European Community's proposed directive on nondiscriminatory oil and gas licensing procedures (OGJ, Feb. 10, p. 30) is causing palpitations in Norwegian government circles. As a member of the European Free Trade Area negotiating closer relationships with the EC, Norway might find itself subject to changes designed to provide a level playing field in European licensing. That would be a major blow to Oslo, which imposes a 50% state holding in all new licenses and gives state owned Statoil numerous privileges denied to foreign companies.

The French oil industry will need to spend about 45 billion francs ($8.09 billion) the rest of the decade to meet new EC environmental standards and new market conditions. That breaks out as 12.4 billion francs ($2.23 billion) to recover hydrocarbon vapors from terminals, service stations, and trucks starting in 1993, 5.5 billion francs ($980 million) to complete phaseout of leaded gasoline--of which 4.7 billion francs ($840 million) will he spent in 1991-94--about 4-5 billion francs ($719-899 million) to cut motor diesel sulfur levels, and 1.25 billion francs/year ($215 million/year) for general environmental upgrading of refineries a-rid service stations.

In addition, French refiners may have to spend 12.5 billion francs (2-24 billion) on deep conversion units to handle heavy crude.

Brazil's petroleum sector continues to be wracked by scandal as the government struggles to keep privatization on track. President Collor fired three Petrobras directors after press charges of corruption were leveled at them. Commercial Director Izeusse Dias Braga Jr., E&P Director Raul Mosmann, and Industrial Director Jose Brito de Oliveira were linked to Collor aide Pedro Paulo de Leoni, who was asked to resign last month after allegations of corruption and influence peddling at Petrobras (OGJ, Apr. 6, Newsletter).

A Petrobras investigative committee recommended all Petrobras crude purchase contracts be reviewed after press reports alleged possible kickbacks to the fired directors.

Meantime, Brazil's new Minister of Mines and Energy Marcus Vinicius Pratini de Morais, whom Collor appointed last month, pledged to continue privatization efforts, notably by cutting monopolies in the oil sector.

Cuba may have more help in exploring its southern offshore area.

Sweden's Taurus Petroleum will provide specialists to study seismic data gathered off the southern coast of the eastern province of Camaguey, Reuters quoted western diplomats in Havana as saying.

"Contrary to what the doomsayers are saying today, conventional oil is not a sunset business in Alberta," says Esso Resources Senior Vice Pres. Doug Baldwin. Baldwin contends it would be a serious mistake to write off the western sedimentary basin, where he estimates a remaining resource of 40 billion bbl, of which Esso has 4 billion bbl.

Conventional fields produced $6.8 billion (Canadian) in revenues in 1991, and reasonable price and production forecasts suggest conventional fields will generate $9 billion in revenue in Alberta in 2000, he says.

The British Gas juggernaut shows no sign of slowing. Latest addition to its global expansion and investment program is Natural Gas Clearinghouse. BG and Louisville Gas & Electric unit LG&E Energy Systems agreed to acquire the 68.33% general partnership interest in NGC from units of Apache, Noble Affiliates, and DeKalb for $107.3 million, with closing expected in May. As part of the deal, NGC will extend its existing long term gas marketing arrangement with Apache and sign a crude oil marketing agreement with Apache. NGC also will sign a new long term gas marketing agreement with Noble and acquire the 20% interest a Noble affiliate holds in NGC's Arklatex gas processing plant and gathering facility.

NGC gathers, processes, and markets natural gas and NGL, with current sales topping 3 bcfd and 30,000 b/d.

Proponents of alternate auto fuels continue to press their agenda in the U.S. Presidents of 12 Midwest farm bureaus called on the Bush administration to voice support for ethanol, ethanol products, and the nation's corn producers. They want Bush and EPA to include ethanol on the list of oxygenates in the Clean Air Act amendments. Officials of the National Corn Growers & Renewable Fuels Association estimate a near term increase in demand of 500-600 million gal/year if ethanol is included in the regulations. If not, they said potential demand could be about 250-300 million gal/year.

Texas Air Control Board approved methanol for use as an alternate transportation fuel in Texas. State law requires use of alternate fuels in a portion of vehicle fleets. The Methanol Institute claims total U.S. natural gas demand created by methanol and MTBE will reach 500 bcf by 1995 vs. Gas Research Institute's projection of 200 bcf of gas demand stemming from sale of compressed natural gas as a vehicle fuel.