OGJ NEWSLETTER

The latest OPEC quota accord is just an exercise in damage control unlikely to sustain a price recovery.

That's the view of London's Centre for Global Energy Studies (CGES). It contends oil prices will remain susceptible to downward pressure from weak demand, high stocks, and rising North Sea oil production.

Further revenue declines will test members' commitment to quotas and could undermine the accord, which set a group ceiling of 24.52 million b/d for fourth quarter 1993 and first quarter 1994 (OGJ, Oct. 4, Newsletter).

The pact stands a better chance than the last two agreements, said CGES. However, the fact that it was based on volumes and not market shares means OPEC will argue about absolute volumes vs. a ceiling for second quarter 1994. CGES expects call on OPEC crude to average 25.4 million b/d in the fourth quarter. With North Sea production set to rise by 400,000 b/d in the fourth quarter and OPEC producing at the ceiling, a stock draw of 800,000 b/d would be needed to meet demand.

"This is a high rate of stock draw, but a necessary one if the stock surplus built up over the second and third quarters is to be reduced. Should OPEC hold its production ceiling into first quarter 1994, the current stock surplus will be eliminated, putting the market on a firmer footing for the second quarter. As a result, CGES does not expect prices to recover significantly over the next 2 quarters, unless there is a catastrophic reduction in oil exports from the former Soviet Union over the winter period or a major disruption of exports from OPEC member countries such as Nigeria and Libya. "

Iran is giving Oman a run for its money in trying to lock up India as a natural gas customer. Talks are under way between Iran and India over a possible subsea gas pipeline from Iran to India, reports Iran's official news agency IRNA. Iran is said to be ready to consider New Delhi's demand that the delivered price be the sum of the wellhead gas price and pipeline tariffs. Oman Oil Co., which signed a memorandum of agreement to sell gas to India, insists on tying the delivered price to the Cost Of LNG indexed to crude. BHP has proposed a $5 billion pipeline linking Iran's Qeshm Islands in the Strait of Hormuz to landfall in India's Kutch region.

Viet Nam is considering refining its crude at Mobil's 220,000 b/d Singapore refinery to meet its domestic products needs, reports OPEC News Agency. The idea is to get away from selling its crude and importing products until a domestic refinery can be built. Hanoi made the pitch to a Mobil delegation visiting Viet Nam this month. A key would be Mobil transferring technology and training Vietnamese workers. Total is conducting a feasibility study of a $1.3 billion, 130,000 b/d refinery in Viet Nam.

Oil exploration has gotten under way in Kyrgyzstan. An initial 2 year exploratory drilling program kicked off with spudding of the Tegerek prospect wildcat in South Kyrgyzstan earlier this month, Tass reports. At the same time, Aztec-Talas, a joint venture of an undisclosed U.S. company and Kyrgyzstan, has purchased a 6,000 b/d topping plant in the U.S. and plans to install it near the town of Jalal-Abad to process oil from 14 wells the venture acquired in the area, Tass reports. Those wells, formerly noncommercial at flow rates of about 73 b/d, now produce about 256 b/d after hydraulic fracturing using U.S. technology. Kyrgyzstan's total oil production is only about 2,400 b/d, but local geologists see significant potential in the Aksaaisk, Alaisk, Talass, and Issyk-Kul oblasts and the Chuisk Valley.

Poland has opened its second oil and gas exploration licensing round. The Ministry of Environmental Protection, Natural Resources & Forestry set a closing date of noon, Apr. 12, 1994. The round covers 27 onshore blocks near Lublin and in the Carpathian Mountains. Operatorships of Ciecierzyn and Melgiew gas fields also are on offer.

Promotion of the round is being handled by Simon Petroleum Technology (SPT), Llandudno, U.K. SPT said 12 companies bought data packages and 18 attended a June seminar on the second round (OGJ, July 12, p. 29). SPT noted most of the first round players are interested in the second, including Amoco, British Gas, and Royal Dutch/Shell.

Exploratory interest in the Gulf of Mexico's subsalt play continues to simmer (OGJ, Oct. 11, p. 30). Seitel Inc. has begun a series of nonexclusive, speculative, multiclient 3D seismic surveys in the gulf with acquisition techniques useful for imaging subsalt strata. Precision Seismic Inc. (PSI) is serving as data acquisition contractor for the program. The two Houston companies since August have completed one 3D shoot covering 181/3 blocks in the gulf's West Cameron area off Louisiana and another survey covering 14 blocks around Galveston Block 286 off Texas. The companies are about half finished with the first part of a 91 block, two phase, 3D survey in the Galveston and Brazos areas and expect within the next year to collect data on another 10 blocks around Galveston 286. Seitel estimates its total 3D gulf program cost at as much as $40 million the next 2 years.

U.S. EPA has defended use of hydrogen fluoride at refineries and other industrial plants in a report to Congress. Some environmental groups want HF banned, citing threat of an accidental release. EPA says existing codes and regulations adequately guard against releases, and further rules are being developed under the Clean Air Act, so legislation is not needed.

To retain support of U.S. House Republicans for the North American Free Trade Agreement, the Clinton administration has offered to slash a proposed $2.5 billion tax increase. The administration had wanted to double the current $5 customs fee travelers and commercial vehicles pay when crossing the U.S. border into Mexico and Canada and extending it to travelers from Mexico and Canada to replace revenues the U.S. would lose from reduced tariffs. Twenty seven pro-Nafta House Republicans strongly objected to any tax increases, and the administration says it's open to suggestions.

MidCon Pres. John Riordan hopes for a cold winter to test the North American gas industry's capability to operate under FERC Order 636. Riordan, outgoing Ingaa chairman, does not expect a problem. He said the gas transmission industry has more facilities, more flexibility, and a greater variety of supplies than ever before. "The only major problem we could have would be a freeze-off" in gas fields, he said.

Exxon has withdrawn its application to tanker all crude production - at peak as much as 85,000 b/d - from its expanded Santa Ynez Unit development in the Santa Barbara Channel. The move avoids a long fight over pipelines vs. tankers that Chevron endured with the Point Arguello field project a few miles north. Chevron won the right to tanker Point Arguello crude for 3 years (OGJ, Feb. 15, p. 40). Environmental groups hailed Exxon's decision. Exxon said it's dropping the application because its agreement to move Santa Ynez crude via the All-American pipeline "provides the most economically viable option" and is flexible through links throughout California and the Gulf Coast (OGJ, Sept. 6, p. 32). Exxon had wanted to ship as much as 50,000 b/d of crude from the channel in single hull tankers for 5 years.

With an eye to other markets, notably the Far East, in the face of increasing California production, ARCO has won permission from the U.S. Department of Commerce to export as much as 25,000 b/d of 20 gravity and heavier crude from its California production. The license, granted Oct. 15, is good for 1 year. ARCO has no immediate plans to use the license, but it wanted the export option because it expects more heavy crude to come on line in California, said Alan Moret, ARCO West Coast crude marketing manager. The expected increase of more than 100,000 b/d from Santa Ynez and Point Arguello in the next few months could cause pipeline or refinery bottlenecks, Moret said, noting ARCO's primary crude source in the state is the San Joaquin Valley, a connecting point for delivering the two offshore crudes. Likely export point would be San Francisco Bay area ports.

The supply crunch and price spikes that hit California's diesel markets have spurred the California Air Resources Board-the agency that ordered a new formula diesel with tougher than federal specs blamed for the squeeze-to issue an emergency order exempting agricultural and other off highway users from having to purchase the new low sulfur, low aromatics diesel (OGJ, Oct. 18, p. 32).

The new state and federal diesel specs took effect Oct. 1. Under CARB's order, off highway users can buy any diesel grade on the market, including high sulfur fuel that doesn't meet federal or state specs, until Dec. 4. Indications at presstime were that diesel prices were settling down, with unbranded rack prices in five northern California cities slipping an average 1.95/gal the week ended Oct. 15, according to Lundberg Survey.