OGJ Newsletter

• U.S. Industry Scoreboard 4/27 [44,335 bytes]

That's also important to the petroleum industry, because the subsequent increase in consumers' disposable income benefits economies overall-which indirectly bolsters energy demand-and the reduced cost of energy commodities directly bolsters energy demand. Stamford, Conn., analyst John S. Herold has quantified that windfall to U.S. consumers, estimating it at $50 billion in savings on petroleum purchases this year alone.

"Given the present level of motor fuel consumption in the U.S., a 1¢/gal decline in prices translates to $1.2 billion in annual cost savings," said Herold Chairman and CEO Art Smith. "Today's depressed prices for all oil products-down about 20¢/gal thus far this year-suggest that American energy consumers could save almost $190 per person on oil product purchases in 1998.

"Oil is unbelievably cheap," Smith said. "We recommend that savings-minded energy consumers fill up every (safe, well-ventilated) tank they have to take advantage of the situation."

In its study, Herold also noted that U.S. motorists will pay about 5¢/mile for gasoline this year: "That's a record low. It costs two to five times that much to finance and insure a car," Smith said. "Every U.S. family that has ever planned a cross-country driving vacation should take notice. You can travel coast-to-coast, excluding side trips and unexpected detours, for only $150 in gasoline costs."

While falling oil prices have squeezed oil company earnings, service and supply companies continue to prosper (see related article, p. 24).

Houston-based drilling contractor Global Marine's worldwide summary of current offshore rig economics (Score) shows that drilling contractors continue to enjoy robust demand for their services and rigs.

Global's March Score rose 0.3% from February 1998 to 72.6% as day rates remained largely unchanged in most reporting regions for both jack ups and semisubmersibles.

The worldwide March Score showed a 17.5% increase from March 1997 and a 121.8% jump from 5 years ago.

Global Marine Chairman C. Russell Luigs said, "Although oil continues to trade at low prices, offshore drilling markets have not been affected. Excluding rigs that are in transit, in shipyards, or otherwise unavailable for immediate work, the worldwide utilization rate for offshore drilling rigs remains above 99%, and day rates are at historically high levels. Although day rates on new contracts could weaken if utilization weakensellipseany softness in the market should be of modest duration and modest magnitude."

While oil companies fret over the effects of low oil prices, rising tensions involving Iraq could put upward pressure on them again.

U.N. inspection teams and Iraqi officials again traded barbs last week.

Baghdad once again appears to be stonewalling U.N. inspectors from cataloging the country's weapons stockpiles. It wasn't that long ago that U.N. Sec. Gen. Kofi Annan had to broker a deal to prevent U.S. air strikes against Baghdad for just such behavior (OGJ, Mar. 2, 1998, p. 51).

Same song, different dance. Baghdad has appealed directly to Annan to cease inspections and remove trade embargoes against Iraq as Tariq Aziz, deputy prime minister of Iraq, claimed on state television that the U.S. recruited mercenaries as arms inspectors.

This latest spat follows a report by Annan that says Iraqi oil industry is in "lamentable shape" and needs $300 million for immediate repairs to maintain exports under the Iraq/U.N. deal. Annan said Iraq would be able to export slightly more than $3 billion worth of oil under the current 6-month agreement, although the U.N. had raised its sales requirement for the period to $5.2 billion.

One diplomat said the limitation is not in Iraqi production facilities, but with export pipelines. Only one of two pipelines from Iraq to the Turkish port of Ceyhan is operational, while an export pipeline to Syria has not carried oil since 1980. Although the U.S. and U.K. have blocked requests from Iraq for spare parts in the past 18 months, Washington and London are not expected to stand in the way of parts deliveries needed to meet the oil-for-aid program.

A better tune or at least a better dancing partner apparently is getting more results with the Iraqis. Russian firms negotiating with Baghdad for development of giant West Qurna oil field are looking for contractors for appraisal, drilling, and engineering work, says Middle East Economic Survey (MEES).

Bids were reportedly taken by subsidiaries of two of the main shareholders in the Russian consortium, Lukoil and Zarubezhneft, says MEES. West Qurna is Iraq's largest field, with reserves pegged at 19 billion bbl of oil. Lukoil and partners plan to redevelop part of the field, damaged during Iraq's retreat from Kuwait in the Persian Gulf war (OGJ, Apr. 14, 1997, p. 19). MEES said Lukoil and partners plan to drill 560 wells with an aim of building output first to 250,000 b/d and ultimately to 600,000 b/d of oil. The Lukoil group is expected to produce a total 4.4 billion bbl of oil over the contract's 23-year duration.

Elsewhere in the former Soviet Union, efforts to further development in the Caspian Sea region are continuing. BP Exploration Operating Co. Ltd. has commissioned a study by a group of contractors of development options for Shakh Deniz prospect in the Caspian Sea.

Shakh Deniz lies in as much as 600 m of water with difficult seabed conditions (OGJ, Jan. 30, 1995, p. 31). Although undrilled, estimates of the prospect's postulated reserves are 1.5-3 billion bbl of oil and 2-4 tcf of gas.

The contractors are London-based AMEC Process & Energy, Fluor Daniel Ltd., and J.P. Kenny, with subcontractors Gipromorneftegaz and the Caspian Drilling Co. joint venture. The study will define practical and innovative options for bringing Shakh Deniz into production, introducing deepwater technology and experience from the North Sea and Gulf of Mexico (OGJ, Apr. 13, 1998, p. 34).

Shell U.K. E&P is applying to Norwegian authorities for permission to move the derelict Brent spar loading buoy, ready for dismantling. The spar is currently moored in Erfjord near Stavanger. The operator proposes moving it to Yrkefjord, about 30 miles from Haugesund, where there is a well-established deepwater construction site (OGJ, Feb. 9, 1998, p. 30). The operator hopes to receive U.K. and Norwegian approval so it can begin work this summer.

Chevron has discovered a promising new gas trend in the Gulf of Mexico off Mississippi.

The Viosca Knoll carbonate trend marks the discovery of the first offshore gulf gas reserves in lower Cretaceous James reservoirs.

"These particular geologic-aged reservoirs have never before produced in the U.S. gulf." said Chevron. "However, they have been highly productive onshore in Texas, Louisiana, and in Mexico."

Chevron U.S.A. Production Pres. Peter Robertson said the significance of the discovery lies in the probability that there are additional undiscovered reserves of lower Cretaceous gas in the area. He suggested that gas reserves in this trend in the Viosca Knoll area could exceed 1 tcf.

To date, the firm has discovered five new fields in the trend. Chevron said it will continue E&D work there this year and next "to better determine and fully exploit the reserve potential of the carbonate trend."

Another major pipeline project to export natural gas from western Canada to the U.S. Midwest has stumbled (see related story, p. 27). Viking Gas Transmission Co., a partner in the proposed Viking Voyageur gas pipeline from Emerson, Man., to the Chicago area, says it has been unable to secure enough shipper support for the project and is discussing options with partners TransCanada and Nicor but notes no decision has been made. The 42-in., 773-mile line would carry 1.4 bcfd and start up on Nov. 1, 1999.

Sasol has put its nose farther ahead in the gas-to-liquids process race with an agreement with Chevron to start design and engineering work for a proposed GTL plant in Nigeria. Sasol and Chevron intend to build a plant that can convert natural gas into 20,000 b/d of diesel fuel and naphtha. While a schedule for the proposed plant was not disclosed, Sasol said the intended site is alongside Chevron's Escravos gas project, commissioned last year.

Escravos is Nigeria's first major gas plant dedicated to utilizing associated gas produced in local oil fields and until recently flared. The GTL project is intended to commercialize gas reserves of Chevron Nigeria and eliminate flaring (see related article, p. 32).

Sasol said the proposed plant will incorporate its slurry phase distillate technology, Chevron's hydroprocessing experience, plus autothermal reforming technology provided under license by Haldor Tops

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