OGJ Newsletter

June 22, 1998
U.S. Industry Scoreboard 6/22 [44,403 bytes] Oil prices were jerking upwards just before OGJ went to press. Prices of some blends rose more than $1/bbl on June 17, but the cause appeared to be bargain hunting by traders rather than any return of confidence to the market. By close of trading that day, Brent for prompt delivery had reached $11.39/bbl, a rise of 72¢ from the previous day's close, while August-delivery Brent rose 62¢ to close at $13.46/bbl. This was welcome relief for
Oil prices were jerking upwards just before OGJ went to press.

Prices of some blends rose more than $1/bbl on June 17, but the cause appeared to be bargain hunting by traders rather than any return of confidence to the market.

By close of trading that day, Brent for prompt delivery had reached $11.39/bbl, a rise of 72¢ from the previous day's close, while August-delivery Brent rose 62¢ to close at $13.46/bbl. This was welcome relief for producers, after Brent hit its lowest level for more than 10 years (see related story, p. 30).

As London's International Petroleum Exchange closed on June 17, Nymex crude was trading $1.13/bbl higher than at the same time the previous day, at $13.94/bbl. As OGJ went to press, however, the London price for Brent was holding firm, according to an IPE official.

Christopher Chew, head of global energy research at London's ING Baring Securities, told OGJ there was tremendous speculation in the market, although the sharp lift was because low trading volumes exaggerated its effect.

Chew said the market is hovering at the moment, and it will be a few weeks before any new market trend takes shape, as traders wait to see what OPEC members agree on in Vienna on June 24.

"The market is of two minds over whether OPEC will deliver further cuts," said Chew. "The oil price has fallen 20% since just before the Amsterdam agreement (the second deal between Saudi Arabia, Mexico, and Venezuela to cut output). So far, producers have promised to cut a further 620,000 b/d of production, and it appears OPEC's target is a total 800,000 b/d reduction. If OPEC achieves this-and there is evidence that members are complying with pledges-we could see a stronger oil price."

It's official: President Bill Clinton has named United Nations ambassador Bill Richardson to replace Federico Pe?a as Energy Secretary. Pe?a is stepping down at the end of the month (OGJ, Apr. 13, 1998, p. 31).

The Energy Department mostly oversees nuclear programs, which are important to the economy of Richardson's home state of New Mexico.

World energy demand grew by only 1.6% outside the former Soviet Union in 1997-half the growth rate of the previous 3 years-according to the 1998 BP Statistical Review of World Energy.

When FSU energy consumption is included, BP reckons global demand grew by only 1%. FSU demand is now barely 60% of its 1990 peak level. Nevertheless, oil, along with hydro-power, was the fastest growing primary fuel, with use of gas and nuclear fuels decreasing in power generation.

Ireland notched up the fastest growth in energy consumption at 9.8%, while others showing rapid growth were Brazil, Iceland, Indonesia, Spain, and Taiwan. India increased energy consumption by 6.1% to become the world's sixth largest energy market, ahead of France, Canada, and the U.K.

BP said worldwide oil consumption rose 2.1% in 1997 to 71.7 million b/d, while worldwide oil production grew by 3.1%, the fastest growth rate since 1988. OPEC producers accounted for 41.5% of output, its largest cut in more than a decade.

The numbers are in on South Korea's oil demand decline. Oil use fell 16.6% to 178.3 million bbl during first quarter, vs. first quarter 1997. The decline is, of course, due to higher oil prices and the region's economic slump.

March oil consumption fell 10.6% from the previous year, to 63.11 million bbl, following 21.8% and 16.9% declines in January and February, respectively.

Oil exports increased 38.8% to 77.12 million bbl in the first quarter compared with last year, while imports declined 13% to 47.37 million bbl for the period. Refinery throughput in the first quarter declined 6.8% to 218.64 million bbl.

South Korea's LNG demand also has fallen, triggering concerns that Korea Gas Corp.'s (Kogas) long-term contracts with gas producing countries may be in jeopardy (OGJ, Apr. 27, 1998, p. 32). Kogas's financial position may also be worsening.

As domestic demand has declined during the region's economic crisis, the company has no alternative to its "take-or-pay" LNG contracts, which total 11 million metric tons this year. The company has imported only 4.5 million tons so far this year-a lag of 1.5 million tons behind scheduled use.

Asia's continuing economic slowdown has forced Caltex Petroleum to reorganize its operations, says company Chairman David Law-Smith.

"Changes in the market for petroleum products, the economic crisis in Asia, and the opportunity for considerable improvement in efficiency have caused Caltex to fundamentally reassess its activities and organization," he said.

The company, which serves Asia-Pacific, Africa, and Middle East markets, will be reorganized along business units instead of geographic areas. Layoffs are planned, but just how many is yet to be determined.

Caltex is jointly owned by Texaco and Chevron.

Japan's Ministry of International Trade and Industry is poised to lift an 18-year ban on constructing oil-fueled thermal power plants. It also plans to support a proposal to bring natural gas to Japan from the Sakhalin area via pipeline and to encourage domestic construction of nuclear power plants, MITI sources said.

The moves are part of a drive to help stem global warming by reducing coal use. Coal-based power plants emit 20% more CO2 than petroleum-based plants, and 60% more than gas-fired units, says MITI.

The ministry wants 20 nuclear power plants built by fiscal 2010 to raise the nation's nuclear power supply percentage to 45% from 35% in fiscal 1996.

MITI hopes the changes will help Japan honor the cuts it agreed to under the Kyoto Protocol to cut greenhouse gas emissions.

MITI also plans to curb the country's annual growth rate in power demand to an average 1.2% through fiscal 2010 by toughening energy-saving regulations for household appliances. If no such measures are taken, demand growth is expected to be 2.1%/year through 2010.

The Governor of Sakhalin has established a new state oil company for the island. Sakhalin Oil Co. will be responsible for exploration and production of oil and gas resources, as well as for tendering production-sharing agreements to support further development under the Sakhalin 1 and Sakhalin 2 projects (OGJ, June 8, 1998, p. 33).

Stuart R. McGill, president of Exxon Co. International, has called for a joint industry effort to facilitate local health care in remote areas of operation. He made the statement at the recent SPE Health, Safety, and Environment Conference in Caracas.

As E&P firms go into third-world countries with inadequate medical infrastructure, local communities sometimes seek the costly western health care that operators bring with them for their expatriate and national employees. This has become a major issue for firms operating in such areas.

McGill says that local governments must shoulder the ultimate responsibility for the welfare of their communities. Exxon participates in such a program in Sakhalin, said McGill, and is in partnership with local health organizations and governments to launch an unprecedented HIV/AIDS education and control program in Chad and Cameroon.

Iraq has approved a development plan for its Tuba oil field on Abu Khema block by an Indian joint venture. The plan was submitted by Oil & Natural Gas Corp. (ONGC) and the E&P arm of Reliance Industries.

The Tuba field was discovered by ONGC in 1974. ONGC and Reliance will need to invest about 15 billion rupiah in the field and hope to produce as much as 240,000 b/d. ONGC is currently producing about 2,000 b/d from an existing well on Abu Khema.

Sen. Richard Lugar (R-Ind.) plans to propose a sanctions reform bill that would make it harder for the U.S. Congress to impose bans on trade with other countries.

The legislation also would create a commission to review sanctions already in force and recommend if they should be retained, amended, or deleted.

ARCO is considering a buyout offer from Lyondell Petrochemical for its ARCO Chemical subsidiary.

Lyondell has offered to purchase 80 million shares in ARCO Chemical in a deal thought to be worth about $5.6 billion. ARCO would likely use proceeds for its planned acquisition of Union Texas Petroleum (OGJ, May 11, 1998, p. 36).

ARCO is the world's largest maker of propylene oxide. Other major products include styrene monomer and the gasoline additive MTBE.

ARCO gained $43 million from the sale of its 49.9% stake in Houston-based Lyondell last year.

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