OGJ Newsletter

• U.S. Industry Scoreboard 9/28 [44,128 bytes]

A group of CEOs and other top officials with some of the world's biggest oil companies will meet at a high-level summit in Venice Oct. 3-4 to discuss the sea change under way in the petroleum industry today and what lies ahead. Among the roughly 20 participating companies listed at presstime were Royal Dutch/Shell, BP, Chevron, Elf, Total, ENI, Statoil, Saudi Aramco, Gazprom, Lasmo, and Sasol.

Summit organizer is Petroleum Finance Co. (PFC), Washington, D.C.

The purpose of the meeting is not, as some early press reports have indicated, to discuss oil prices. J. Robinson West, PFC chairman, told OGJ that the Venice summit had been planned for a year and was modeled after a communications industry conference PFC was aware of.

West emphasized that the summit's intent is not to discuss oil prices, and he noted that former U.S. Deputy Secretary of Energy Lynn Coleman, now a Washington-based energy lawyer, will attend, mainly to keep reminding people that they shouldn't.

The reason for the meeting? West said, "This industry is still in the process of dramatic structural change. Companies are going to have different roles, and they wonder where it is going to lead." He added that participants were intrigued because the meeting wasn't thrown open to everyone, just to a small cross section of companies. For instance, Chevron was the only U.S. firm invited.

Other press reports have speculated on prospects for other big deals, coming on the heels of the BP-Amoco megamerger, being cut at the summit-apparently reading the tea leaves behind Shell's prediction of oil prices at $12-16/bbl for 2-3 years (see Watching the World, p. 42) that accompanied its announcement that it would close four of its European headquarters offices.

However, it is likely that issues such as global warming, alternate fuels, and geopolitical oil flashpoints will also be high on the summit agenda.

OPEC and non-OPEC oil ministers are continuing the whistlestop parade as well. Oil ministers from Kuwait, U.A.E., Iran, Algeria, and Oman met last week in Kuwait City to discuss oil prices, following a meeting the prior week of Saudi, Kuwaiti, and Qatari oil ministers in the Kuwaiti capital.

This week, Saudi, Venezuelan, and Mexican ministers are to meet.

Iran says any proposals for further production cuts are "negotiable," U.A.E. says the "option is open" for a third round of output cuts, and Kuwait says, "ellipseit is necessary to take measures to support prices."

Coming a week after fairly cautious statements that more time is needed before the focus should turn to further cuts, the ministers appeared to be trying to talk up the market ahead of the onset of the winter heating season and the next full OPEC ministerial meeting in Vienna late in November.

That seems to have worked, together with the early onset of cool weather, a drop in U.S. oil stocks, and the threat of supply disruptions by Hurricane Georges last week. Despite a drop of a few cents on the day, the Sept. 23 Nymex November contract close of $15.81/bbl was one of the highest oil price levels since spring.

In another sign of the gloomy times, Occidental's Bakersfield, Calif.-based international upstream unit is cutting the work force there by 260 from 395. Oxy Oil & Gas laid off 80, will eliminate another 130, and will transfer another 50.

The unit's president, Roger Abel, notes Oxy's lagging stock, which dropped in value by 50% from March to August, as the catalyst for the restructuring.

Unaffected are the operations in the former Elk Hills Naval Petroleum Reserve, which Oxy recently acquired from the federal government.

U.S. Energy Sec. Bill Richardson has named Melanie Kenderdine to advise him on oil and gas issues. DOE said the new position underscores Richardson's commitment to promoting U.S. oil and gas production.

Kenderdine, currently deputy assistant DOE secretary for liaison with the House, was Richardson's chief of staff and legislative director during 1983-89, while he was a congressman representing New Mexico.

The U.S. House has overruled its appropriations committee, voting 231-182 to restore a ban on U.S. fiscal aid to Azerbaijan.

Congress voted the sanctions in 1992 in response to Azerbaijan's blockade of Armenia. The Clinton administration had lobbied to lift the ban (OGJ, Sept. 21, 1998, Newsletter).

The terms of Mexico's petrochemical privatization are still looking unfavorable to outside investors. As a result, BASF-on a mission to expand its petrochemical holdings in North America and become Mexico's leading petchem producer-on preliminary investigation, favors building a grassroots ethylene unit at its Altamira, Mexico, complex, perhaps in 2003-05.

BASF has not ruled out participating in Mexico's privatization, however, with the Morelos site being its preferred target. Dietz Kaminski, executive director of BASF Mexicana, said, "We will at least look at it. We are analyzing what are the conditions, what is the process like, and if this fits into our strategy."

Pemex's ethane feedstock monopoly remains a major deterrent to both privatization efforts and grassroots cracker construction in Mexico.

Mobil has decided to go ahead with a planned petrochemical complex on Singapore's Jurong Island, despite the Asian downturn.

An $800 million naphtha cracker is planned by a joint venture of Mobil and Singapore's Economic Development Board (EDB), with EDB Investments taking a 20% stake. Plant capacity is pegged at 800,000 metric tons/year of ethylene and 400,000 tons/year of propylene. The project will proceed only after sales pacts with customers are secured, so start-up is not expected until 2003.

Mobil Chemical Pres. Raymond McGowan said that, while Asia's economic difficulties have pushed back the project's timing, Mobil believes the region retains the fundamental ingredients for long-term economic growth.

Like the rest of their counterparts in Asia (see related story, p. 43), Japanese refiner/marketers are scrambling to cope with brutal market conditions.

Japan Energy Corp. has further cut its production plan for the fourth quarter, cutting crude runs by 2.1 million bbl, or 9% from 1997's fourth quarter, to 21 million bbl. JEC had planned to reduce its crude throughput by 5%.

But a grim outlook for oil products demand in the domestic market forced the oil firm to cut runs further. Crude throughput at its refineries is expected to total 44 million bbl in the final quarter, down 8% from a year earlier.

Seven Japanese oil wholesalers in October will begin using half the 300,000-kl storage and shipment facilities of Cosmo Oil Co. in Matsuyama, Ehime Prefecture, Japan. This will be the first time Japan's domestic oil wholesalers will share the distribution base of a single company, and it indicates a readiness to extend their current consolidation of product lines to distribution networks.

JEC, Nippon Oil, Idemitsu Kosan, Mitsubishi, Showa Shell, and General Sekiyu are participating in the plan, which will cover gasoline, kerosine, gas oil, and fuel oil. Total volume is estimated at 500,000 kl/year, or more than 10% of total demand in Ehime. JEC, General Sekiyu, and Mitsubishi will close their storage facilities once the plan takes effect. Cosmo expects to earn about ¥100 million/year from leasing the facilities to other wholesalers, who in turn will likely save tens of millions of yen per year each in storage/shipment costs.

Indonesia plans to liberalize its petroleum sector and privatize state-owned firms Pertamina and PGN, says Minister of Mines and Energy Kuntoro Mangkusubroto. Plans also call for phasing down costly oil industry subsidies.

Mangkusubroto believes the oil industry, which accounts for 33% of national revenues, could play a key role in revitalizing Indonesia's battered economy. His aim is to create, over the next decade, a petroleum industry that is world-class, in terms of cost competitiveness, technological sophistication, and service standards. To reach this goal, it will be necessary to open up downstream oil and gas sectors to full competition and convert Pertamina to a fully commercial enterprise, he says.

Italian and Croatian state firms will undertake joint development of the Gas Energy Adria (GEA) project, a natural gas transportation system extending from Italy to Croatia, with possible expansion to other countries.

The project initially will involve a 330-km gas pipeline-130 km of which will be in the Adriatic Sea-and an initial investment of about $300 million.

Snam, the natural gas arm of Italy's ENI, and INA, the Croatian national oil and gas company, will also cooperate in marketing the gas. The two firms signed a gas sales deal last December, providing for sale of about 77 bcf/year to INA.

The GEA project enables ENI to expand its natural gas sales to new markets. It also allows Croatia and neighboring countries to integrate their national gas pipeline systems into the European gas grid, thus diversifying supplies and increasing reliability. The system will foster growth of the Croatian gas industry and use of natural gas in the power generation sector, where ENI is ready to invest in combined-cycle power plants.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.