OGJ NEWSLETTER

Nov. 8, 1993

8 min read

Business opportunities are creating unusual political bedfellows in the Middle East and former Soviet Union. Qatar has decided to postpone signing an agreement with Israel covering 25 years of natural gas supplies, reports Middle East Intelligence Report, due to Israeli Energy Minister Moshe Shahal's disclosure of the planned agreement. A deal could have been signed by early December, New York Times reported, but Qatari officials reportedly backed away from the agreement, noting economic relations are not possible with Israel while the Arab boycott is still in effect. The Times reports the project would include shipping LNG from the Persian Gulf to the Israeli port of Eilat on the Gulf of Aqaba. A proposed pipeline would transport the gas across Israel to either Ashdod or Ashkelon on the Mediterranean, where it would be exported to Europe via a new subsea pipeline. The Times quotes Israeli officials as saying feasibility studies are in progress.

Iran is reportedly shipping oil to Europe via Israel. The Jerusalem Post reports oil is shipped to Eilat, then piped to Ashdod on the Mediterranean where it is transported to Europe. The arrangement enables Iran to avoid transporting around southern Africa, allowing it to discount the crude.

Turkey and Ukraine have agreed to cooperate on getting Ukrainian crude to world markets. Turkish Energy Minister Veysel Atasoy and Ukrainian Deputy Prime Minister Valentin signed an agreement calling for transportation of crude via pipeline from Turkey's Black Sea coast across Turkey to the Mediterranean terminal of Ceyhan, Beijing's Xinhua News Agency reports.

Meantime, Turkey is asking for U.N. permission to import oil from Iraq despite sanctions against Baghdad, reports Middle East Economic Survey, to compensate for its losses from the 3 year old sanctions. Turkey says it has lost about $3 billion/year in trade and revenue. The amount of oil Turkey wants is undisclosed, but the country is citing exports to Jordan as an example, Xinhua reports. Jordan is allowed to import some 50,000 b/d of oil from Iraq with U.N. permission. Turkey closed the oil pipelines from Iraq's Kirkuk fields to Ceyhan after the U.N. imposed sanctions against Iraq.

Yemen is negotiating with undisclosed U.S. and French companies to build a grassroots refinery and upgrade the existing refinery in Aden.

Abdul Qadir Bajamal, director of Yemen's free zones authority, told U.A.E. daily Al-Khaleej a U.S.-Asia combine has proposed a $400-600 million, 120,000-200,000 b/d refinery in the nearby port of Mukalla.

He says the company has asked authorities to expand the Aden free zone to cover Mukalla so it can have full ownership of the project.

Amoco and Nadymgazprom have presented in Salekhard the development feasibility study covering three fields on Yamal Peninsula. Rostovskoye, Novoportovskoye, and Bovanenkovskoye fields are included, and as many as 4,000 wells could be used for development. Amoco plans to participate in drilling for deeper zones in the latter two fields, calling for possibly 2,000-3,000 wells. It is anticipated once production begins gas transportation will be mainly through existing Russian pipeline systems, while icebreaking tankers are being considered for oil transportation. Amoco says the plan was endorsed by local leaders but there is still work to do with other government agencies. A test well program could begin as early as 1994-95.

Viet Nam unveiled a plan to increase oil production to more than 400,000 b/d by 2000, OPEC News Agency reports, relying solely on production from Blue Dragon, Big Bear, and White Tiger fields. Speaking at an exhibition and seminar in Ho Chi Minh City, Petrovietnam Chairman Ho Si Thaong also says an exploration contract for Blue Dragon offshore field is likely to be awarded before yearend. Thaong disclosed a decision is to be made this month about building a 125 km gas pipeline from White Tiger field to shore for processing and export. Currently the gas is flared.

OPEC's production slashing agreement may not be enough, given shifting fundamentals in the oil market. NatWest Washington is slicing its forecast of the call on OPEC crude in 1993-94. The analyst says recent data show world economic activity has not improved as projected, exports from the former Soviet Union have held up in spite of declining production, and there has been modest slowing in the decline of U.S. crude production. The factors lead NatWest to peg the call on OPEC oil for 1993 at an average of 24.6 million b/d vs. its April estimate of 25 million b/d.

Earlier predictions of the 1994 call on OPEC crude at 26 million b/d have been cut to 25 million b/d. NatWest says there is even some risk further reductions in oil demand will have to be included.

Unocal is following the same path as Chevron in a battle with U.S. EPA over a clean fuels permit. Late Nov. 2 a federal court in San Francisco granted Unocal's request to block an EPA order shutting down preconstruction work on a clean fuels project at its Los Angeles refinery. EPA had ordered Unocal to stop work effective Nov. 4. "Now we can keep moving ahead, so we are ready to begin construction once we have received the permit to construct from the South Coast Air Quality Management District," said Unocal Pres. Roger C. Beach. Chevron was able to resume work on its project after similar court action (OGJ, Nov. 1, p. 32).

U.S. ethylene demand by 2002 will grow by 3.1%/year from an estimated 41.3 billion lb this year to 52.9 billion lb, predicts Petral Worldwide, Houston. Further, ethylene feedstock mix over the period will tilt toward heavier feeds, mainly naphthas, and away from lighter ones, mainly butane.

British Gas will be technical operator for distribution and Tenneco Gas will be operator of transmission operations for the proposed Trans-Andean gas pipeline linking Chile with Argentina. The pair agreed to jointly develop the system early this year (OGJ, May 24, Newsletter). The project, still in the evaluation stage, would include laying almost 5,000 miles of gas distribution system for Santiago and other Chilean cities and 750 miles of transmission line from Neuquen field in western Argentina over the Andes to Santiago. A feasibility study is to be complete by yearend 1994.

Amoco Canada reports a $1 billion (Canadian), 15 year contract for natural gas cogeneration in the California market. Amoco will sell 45 MMcfd for the $250 million U.S. Crockett cogeneration plant near San Francisco, to be owned by a unit of Pacific Generation Co., a unit of Pacific Corp., Portland, Ore. Scheduled for operation in 1995, it will generate steam for C&H Sugar and provide 240,000 kw of power for PG&E.

Canada's National Energy Board has approved plans by TransCanada PipeLines for new facilities in Saskatchewan, Manitoba, and Ontario provinces to deliver more than 283 MMcfd in long and short haul natural gas service. Most of the capacity will be dedicated to export markets.

Construction will occur in 1994-95.

Gulf Canada Resources completed its asset sale program ahead of schedule, divesting $443 million (Canadian) of nonproducing and western Canada producing assets. The company had set a $400 million divestment goal in March. Assets sold represent about 9,700 b/d of liquids and 25 MMcfd of gas production. Gulf Canada posted third quarter 1993 earnings of $17 million vs. $18 million same time last year.

Meanwhile, several integrated Canadian companies report improved third quarter profits as a result of increased drilling and cost rationalization programs. Petro-Canada reports profit of $55 million (Canadian) for the quarter vs. a loss of $56 million in third quarter 1992.

PanCanadian Petroleum reports third quarter profits of $53.4 million vs. $43.2 million third quarter 1992. PanCanadian was the most active driller in Canada the first 9 months of 1993 with interests in 902 wells. It reported 396 oil producers and 374 natural gas producers. The company plans to spend $550 million on exploration and development this year. Shell Canada reported a $1 million profit after extraordinary items in third quarter 1993 vs. a loss of $5 million in third quarter 1992. Shell Canada Pres. Chuck Wilson said the improving performance is encouraging but the level of earnings was disappointing after major restructuring efforts. He said restructuring, including previously announced staff cuts, will continue.

Canadian drilling activity, primarily for natural gas, which has contributed to improved profits for many companies, remains on the upswing.

The Canadian Association of Oilwell Drilling Contractors reports an average of 220.6 active rigs in western Canada the first 10 months of 1993, double the average of 110.6 active rigs for the first 10 months of 1992.

Caodc says an Alberta government drilling incentive program that ended in August gave an initial boost, and activity is expected to continue strongly in 1994.