OGJ Newsletter

• U.S. Industry Scoreboard 6/15 [44,174 bytes]

Saudi Arabia, Mexico, and Venezuela have offered to make further cuts ahead of the meeting (see story, p. 20). After an initial surge on June 5 following announcement of the trilateral agreement, Brent prices fell in London trading. By close of business June 9, prompt-delivery Brent had fallen $1.24/bbl to $12.71/bbl, while Brent for July delivery had fallen $0.73/bbl to $13.49/bbl. The following day, July Brent closed at $13.33/bbl, down a further 16¢.

In New York, June 10 trading saw Nymex crude for July delivery fall 37¢ to $13.48/bbl, the lowest level since May 19.

Geoff Pyne, oil market analyst at UBS Ltd., London, said the fall reflects traders' pessimism that most of the good news about anticipated cuts had appeared, while stocks remain high, and promised cuts are insufficient to rebalance supply and demand.

Other countries offering cuts include Qatar (20,000 b/d of exports) and Iran (100,000 b/d). Oman, Yemen, and Malaysia may offer combined cuts of 50,000 b/d. Kuwait and Nigeria have said they back moves to restore stability.

Pdvsa Pres. Luis Giusti said last week at the International Pipeline Conference in Calgary that Pdvsa would be willing to cut production to support world prices, but on Pdvsa's terms, not OPEC's. "We do not believe in the quota system," said Giusti. "OPEC can no longer control the market."

The Canadian Association of Oilwell Drilling Contractors (Caodc) is expecting employment and drilling to drop this year from 1997 levels because of weak oil prices. It estimates a 10% reduction in Canadian oil jobs and a decline in the average working rig count to 390 from 420 in 1997.

Caodc says about 13,500 wells will be drilled this year compared with more than 16,500 in 1997. About 60% of drilling will be for natural gas this year, vs. 40% in 1997. It predicts an 18% drop in wells drilled, but drilling days will decline by only 7-8% because many wells will be aimed at deeper targets.

Oil prices also are causing concern for Japanese retailers, with the national average gasoline price hitting a 5-month record low.

Japan's oil distributors are reportedly planning to close at least 20% of operating stations. Cosmo Oil is targeting nearly 1,000 stations, as are Idemitsu Kosan and Mitsubishi Oil.

If plans go ahead, about 10,000 of Japan's 59,615 stations will be closed within 3 years, helping distributors maintain market share, even in a highly competitive environment. But a number of industry insiders remain skeptical, arguing that the total number of stations would have to be sliced in half in order to achieve significant gains.

China's planners are looking to bring the country's domestic crude oil prices to international market levels after keeping them artificially high for nearly 50 years, according to the Xinhua news agency.

The plan became a reality as international prices tumbled, causing state oil companies to rely more on foreign supplies. The government moved June 1 to set crude prices every month based on international prices.

The move could kick-start the country's refiners and petrochemical producers, which have paid above-market prices to help subsidize their suppliers. However, it may make survival of China's upstream firms difficult because they will be more exposed to intense competition from multinationals.

Under the new system, the State Development Planning Commission sets a benchmark price for domestic oil based on international prices plus tariffs.

Looking to conserve energy and ease its oil import trade imbalance, South Korea is planning to raise the price of electricity, oil, gas, and coal gradually until 2002. Ministry of Commerce, Industry, and Energy officials say the price of energy will rise to the average level of the non-oil-producing member countries of the Organisation for Economic Cooperation and Development.

Prices of diesel, kerosine, and electricity will likely jump more than 100% during the next 5 years, officials say.

In a move to dismantle monopolies, the ministry may also allow Korea Electric Power to import gas directly for power generation, while letting gas suppliers generate and sell electricity.

The International Energy Agency has reduced its world oil demand forecast for second quarter. The 510,000 b/d revision is the result of continued weakness in Asian demand, said IEA. Other factors include weak demand in the U.S. and feed substitution in Japan's power generation sector that is exceeding previous expectations.

IEA says third quarter demand will climb 1.1 million b/d to 74.6 million b/d-a 100,000 b/d increase over last month's estimates. Fourth quarter demand is expected to reach 77.4 million b/d-an 1.8 million b/d increase.

Asia's economic slump has pushed Thailand closer to privatizing Petroleum Authority of Thailand's E&P unit (Pttep). The firm hit the auction block following an IMF mandate that forced the Thai government to sell shares in order to raise capital for its oil and gas development efforts.

PTT will sell 32.5 million shares, or 10%, of Pttep for an estimated $258 million. The equity sale represents about 50% of the government's shares; the remainder will be new issues.

Pakistan has blocked a survey aimed at determining the feasibility of a major gas pipeline from Iran to India, local news sources reported. Tehran and New Delhi had agreed on the proposed 2,200 km pipeline through Pakistan to Mumbai (formerly Bombay).

National Iranian Gas Co. is reportedly considering other options, including alternative pipeline routes and LNG shipments.

France's planning commission has urged Europe to diversify its gas supply sources rather than limit gas's share of the energy mix.

A study of natural gas prospects for the period 2010-20 found that growing demand for natural gas could force oil-producing countries into defensive strategies aimed at maintaining their market share. The report concludes that natural gas as part of Europe's energy mix will continue to grow, aided by deregulation, new trading mechanisms, and improved technology.

The report predicts that natural gas demand could increase by more than 60% by 2020. Although Europe's oil and gas bill has fallen from 6.5% of GNP in 1980 to less than 1.5% in 1995, the report says gas will account for the same percentage as oil in Europe's mix within the next 20 years (30% each, vs. 40% oil and 20% gas today).

Deepwater Gulf of Mexico activity has spurred a new alliance between two service/supply firms.

Stolt Comex Seaway, Aberdeen, plans to acquire Ceanic Corp., Houston, for $222 million to gain a strong foothold in the gulf subsea construction market.

Meanwhile, South Africa's Competition Board is mulling whether to allow Sasol Ltd. to acquire petrochemical firm AECI Ltd. in an offer valued at $892 million. AECI is owned by Anglo American Industrial Corp.

The AECI board and 75% of stockholders have agreed to the deal.

Energy giant Mobil has expanded its plan to aggressively pursue further business opportunities in Venezuela.

Mobil is planning to invest $3 billion in its Venezuela operations during the next 5 years, says Mobil de Venezuela president Joel Maness. About $100 million is earmarked for the company's retail market projects there; plans include constructing 250 service stations in the next 3 years, he says.

Looking to bolster its position, Mobil formed a strategic alliance with Inversiones Bohio, a Venezuelan gasoline distribution company with gasoline sales of 1 million gal/month. Mobil also anticipates growing its E&P business there and negotiating profit-sharing contracts to develop additional prospects. The firm has already formed a joint venture with state petrochemical firm Pequiven to build an olefins plant at Jose (OGJ, Oct. 14, 1996, p. 34).

The U.S. major plans to foster other strategic alliances to produce, upgrade, and market heavy crude from the Orinoco oil belt.

Plans for a grassroots U.S. refinery have been revived, this time without Williams Cos. (OGJ, Jan. 23, 1995, p. 67). Maricopa Refining Co. expects to announce soon that it will build a $1 billion, 100,000 b/d-plus refinery near Phoenix-the first new U.S. refinery in 22 years.

As the only refinery in the state, its products slate would be tailored for the Arizona market. Maricopa Refining has already ordered a $7 million Honeywell plant-wide process control system for the refinery.

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