OGJ NEWSLETTER

Oil markets may be stable, but the same can't be said of OPEC's membership. Ecuador apparently is backing off its statements at last month's OPEC meeting about withdrawing from the group (OGJ, Sept. 28, p. 34). President Sixto Duran Ballen says no final decision has been made on his country's withdrawal from OPEC. Ecuadorian officials reportedly are reevaluating the decision in the wake of criticism at home and abroad. And part of the rationale for the pullout, a desire to

Oct. 5, 1992

8 min read

Oil markets may be stable, but the same can't be said of OPEC's membership.

Ecuador apparently is backing off its statements at last month's OPEC meeting about withdrawing from the group (OGJ, Sept. 28, p. 34).

President Sixto Duran Ballen says no final decision has been made on his country's withdrawal from OPEC. Ecuadorian officials reportedly are reevaluating the decision in the wake of criticism at home and abroad.

And part of the rationale for the pullout, a desire to boost production to 600,000 b/d from the current 323,000 b/d, has come into question.

Petroecuador Pres. Ricardo Estrada says Ecuador could produce at most 400,000 b/d through 1996, and then only if all needed infrastructure were built. Duran is waiting to evaluate Energy and Mining Minister Andres Barreiro's report on the latest OPEC meeting before making a decision.

Iran plans to boost its oil production by about 400,000 b/d, apparently rejecting OPEC's decision to hold output steady this winter.

But Middle East Economic Survey (MEES) contends Iran's move will have little effect on the oil market, because Iran is believed to be producing at the 3.5-3.6 million b/d level targeted for the increase.

Iran claims to have produced 3.2 million b/d in August, still higher than its quota of 3.184 million b/d. MEES thinks that even with higher Iranian and Kuwaiti output the current OPEC agreement should suffice to maintain and probably increase prices.

Meantime, Reuters reports Iraq has offered to resume talks with U.N. officials on limited oil sales, proposing exports worth $4 billion during 6 months. The offer comes after the U.S. introduced a resolution to seize frozen Iraqi oil assets abroad, but terms differ from the U.N. Security Council's.

In addition to the $4 billion in exports, Baghdad proposes the proceeds go to a U.N. escrow account for humanitarian aid, subject to stringent monitoring by the Security Council, and Iraq would donate 5% of its net proceeds to relief operations. Iraq says talks broke down in Vienna last March mainly because the U.N. insisted oil be shipped through Iraq's pipeline to Turkey instead of its port at Mina al-Bakr.

Russia has approved a new domestic energy policy intended to save its energy industry from paralysis. Only the recent rise in fuel prices and new government credits to producers have prevented an even more drastic plunge in energy production than what's occurred this year, says Vice Premier Victor Chernomyrdin, noting the new policy advocates conservation of oil, gas, and coal. Russia hopes the new policy will help it maintain crude oil exports of at least 1.14-1.16 million b/d this year vs. an earlier target of 1.2 million h/d. Meantime, Russia plans to slash exports of crude and refined products to other former Soviet republics by as much as 50% in 1993 while maintaining oil exports to non-C.I.S. nations at current levels to keep hard currency flowing in. Economy Minister Andrei Nechayev says Russia will cut exports of crude and products to other C.I.S. republics to 671,000-767,000 b/d and keep exports outside the C.I.S. at 863,000-959,000 b/d in 1993. Nechayev predicts Russian oil production will fall to 6.8-7 million b/d in 1993 vs. a projected 7.94 million b/d for 1992. First half Russian oil production was about 8.25 million b/d, down from 10.3 million b/d in 1990 (OGJ, Sept. 14, p. 28). Under a worst case scenario, says Nechayev, oil output could drop to 6.2-6.4 million b/d in 1993.

President Yeltsin wants other C.I.S. members to pay in advance for oil deliveries. Chernomyrdin says Russian oil producers are owed 530 billion rubles ($2.2 billion). Russia's problems are compounded by a sagging ruble, which hit a record low Sept. 29, falling to 254:$l. The fall began the week before, triggered by Yeltsin's steps to double domestic oil prices.

The best way to restructure Russia's oil and gas industry is to incorporate and merge production and refining associations to create vertically integrated companies, says Russian Deputy Energy Minister Andrei Konoplyanik. Speaking at the Centre for Petroleum and Mineral Law and Policy in Dundee, Scotland, he doubts the likelihood of one national oil company for all of Russia. Konoplyanik notes Russia's current focus is to develop uniform bidding rules to be implemented jointly by central and regional authorities.

Five tenders have been carried out and another five planned, covering three areas in western Siberia, one in Komi Republic, and one on the Yamal Peninsula. Konoplyanik says unified bidding procedures would clarify the legal situation so everyone would know who had contractual powers. He notes some companies, to be on the safe side, are trying to get everyone, including Boris Yeltsin, to sign contracts. But, he says, presidential signatures are neither sufficient nor necessary for a valid contract, citing Oxy's successful bid for a Komi block (OGJ, June 8, p. 32) as a model.

Russia has agreed to join the group backing the 1 million b/d, 40 in. pipeline to move Kazakh oil to market. Russia is now a founding member of the project along with Oman, Kazakhstan, and Azerbaijan. Chevron may join the group later. Eastern Bloc Energy earlier reported the line's route was agreed upon this summer, moving crude from Tengiz/Korolev projects around the Caspian Sea to the Mediterranean (OGJ, Aug. 31, Newsletter).

Hungary's MOL plans to join a group planning to move Algerian gas to Europe via LNG shipments to Krk Island off Yugoslavia, where it would be distributed to consumer countries through pipelines.

Agence France Presse reports the group, including OMV, Total, Croatia's INA, Slovenia's state oil company, and Czech and Slovak gas companies, wants to import 2-3 billion cu m/year of gas, but once the infrastructure is complete, volumes could reach 12 billion cu m/year. Total project cost could hit $1.09 billion, and shipments could start in 1997.

Chiyoda Corp. wants Japan and the European Community to consider building a giant, dual grid gas pipeline loop traversing the Middle East. Agence France Presse reports the proposal is for a 6,000 km, 48 in. pipeline that would start and end in Saudi Arabia, passing through the U.A.E., Oman, Strait of Hormuz, Iran, Turkey, Syria, and Jordan. Gas would move into a European system routed from Jordan to Gibraltar and into a Japanese system extending from Iran to LNG export facilities in India.

Chiyoda estimates throughput for each grid at 600 MMcfd and total project cost at $38 billion, funded by soft loans from the E.C. and Japan. Chiyoda says the project could be complete soon after 2000.

U.S. spot gas prices have hit a 7 year high.

Natural Gas Clearinghouse (NGC), Houston, reports U.S. spot prices for October 1992 averaged $2.57/Mcf, up 680/Mcf from September spot levels. That's the highest since June 1985 and the biggest monthly increase in NGC's survey history. NGC cites continuing gas production curtailments in the Gulf of Mexico related to Hurricane Andrew, onset of winter heating season, uncertainty stemming from evolving state prorationing rules, and cash market reactions to futures market prices.

The turnaround in U.S. drilling continues, led by gas. Baker Hughes reported 755 rigs running the week ended Sept. 25, just 3% fewer than same time last year. Thirty-five rigs were added to the active fleet for the week, with Oklahoma adding eight, Louisiana five, California and New Mexico four each, and Texas two. Wells being drilled for gas still outnumber those looking for oil, 377 vs. 366.

U.S. refiners' efforts to produce less polluting. reformulated gasolines may be threatened by the environmentalist lobby. Chevron's plans for a $750 million revamp of its Richmond, Calif., refinery-including an MTBE plant-to produce reformulated gasoline may be delayed by protests and possible legal action by Greenpeace and other environmentalist groups, which allege a poor environmental/safety record at the plant.

Eight of the smaller Latin American and Caribbean oil producers will need to invest about $6.4 billion/year through 2000 to increase oil production and exports, according to a report by Venezuela's Energy and Mines Ministry. Ecuador, Argentina, Bolivia, Brazil, Chile, Colombia, Peru, and Trinidad and Tobago supply almost 4% of U.S. oil imports, and the report contends that by 2000 only Colombia, Ecuador, Peru, and Trinidad and Tobago will have crude export potential. Ecuador is expected to be a net oil importer by 2010. Proven crude reserves in the eight are expected to increase by about 30% by 2000 and then decline by about 2% by 2010. Production increases in 1990-2010 are expected in Bolivia, Brazil, Chile, Colombia, and Peru, while the remainder will see declines. Oil production from the countries increased to 2.2 million b/d in 1990 from 1.5 million b/d in 1980, buoyed by output increases from Brazil, Colombia, and Ecuador. The rest registered declines. The report notes all of the countries have launched policy reforms aimed at attracting investment to the petroleum sector.