OGJ Newsletter
Kuwait's Oil Minister Sheikh Nasser Al-Sabah said he is inclined to seek further cuts by OPEC members next time they meet, and that oil prices will not recover before winter. London's Centre for Global Energy Studies says weak oil demand and higher than expected non-OPEC supplies have pushed global stockbuild in the second quarter to a massive 2.4 million b/d, increasing stock cover by 6 days in the first half: "Until this stock overhang is brought down to sensible levels, say around 82 days' worth, there is no hope of a price recovery."
If OPEC members cut as they promised (OGJ, June 29, 1998, p. 28), CGES predicts dated Brent crude could recover to $14/bbl by yearend. Dated Brent closed at $12/bbl July 21, while September Brent was worth $12.60/bbl.
Iraq and Syria have agreed to build and jointly finance a new 1.4 million b/d pipeline to boost Baghdad's crude export capacity, Oil Minister Amer al-Rashid said. The new pipeline will have more capacity than an older pipeline from Kirkuk in northern Iraq to the Syrian port of Baniyas. The two nations also agreed to reopen the older, 1.4 million b/d pipeline which has been closed since 1982. The U.S. State Department warned Baghdad that reopening the pipeline would violate U.N. sanctions against Iraq.
Damascus and Baghdad are also planning to jointly finance and build a 140,000 b/d refinery at the terminus of the pipeline at the Syrian port.
Meanwhile, Baghdad plans to boost oil exports to 2 million b/d in a few months and to 2.3 million b/d within a year, from the current 1.7-1.8 million b/d. It is now allowed to sell $5.2 billion worth of oil in the next 6 months to buy food and medical supplies under a U.N.-brokered oil-for-aid deal. However, Iraq needs spare parts to hike output enough to support that level of exports.
Repercussions from low oil prices continue to proliferate.
Mitchell Energy & Development cut its NGL production by more than 20%-roughly 10,000 b/d-due to weak gas processing margins. The firm doesn't expect to show a profit from its NGL business in the second quarter.
"With the collapse in the crude oil market, gas processing margins are pretty ugly right now," said Chairman and CEO George Mitchell. "NGL (prices) have tracked the slide in crude prices due to weak demand and higher imports. Strong gas prices are adding to the squeeze in processing margins, since making up the volume shrinkage that occurs when we extract the liquids is a cost. With NGL inventories in the U.S. running at 10-year highs, we decided to cut back where it makes economic sense."
Mitchell halted processing altogether at its Katy and Seven Oaks, Tex., plants and began rejecting part of the ethane produced at its largest plant at Bridgeport, Tex. July NGL production is expected to run about 35,000 b/d vs. nearly 45,000 b/d in the first 2 months of Mitchell's second fiscal quarter.
Chauvco Resources has shut in production at its Remboue field in Gabon, due to low oil prices squeezing cash flow.
Chauvco is seeking a joint venture partner to help meet costs in its Gabon exploration program, and negotiations with creditors are continuing.
Global Marine reported that the company's worldwide Score (Summary of Current Offshore Rig Economics) for June fell 0.6% from May to 72.1% of estimated speculative new construction day-rate levels-the second consecutive monthly decline in the index this year. However, June's Score was up 12.4% from June 1997 and 105.4% from 5 years ago. Global Pres. and CEO Bob Rose said, "The number of work-ready idle rigs in the Gulf (of Mexico) has grown from none in March to 13 at the end of June." Rose also noted that day rates for some jack ups in the gulf have fallen by as much as 50% from earlier in the year.
Other regions are faring better, thanks to longer contract terms, he added.
Unocal has agreed to pay $43.8 million to settle a California state lawsuit over leaks of diluent in the Guadalupe oil field straddling San Luis Obispo and Santa Barbara counties. State Atty. Gen. Dan Lundgren said the fine "is possibly the largest environmental settlement in the history of California." It follows a June settlement of $18 million over similar diluent leaks under the town of Avila Beach. Unocal estimates the leaks, totaling 200,000-285,000 bbl, started in the 1950s and continued until the field was shut in in 1994.
So far, Unocal has spent about $70 million on studies and clean-up at Guadalupe. It is seeking permits to clean up both spills and expects to start this fall. Unocal has sold virtually all of its oil and gas holdings in the area but was required to hold onto the Guadalupe properties at least until the state is satisfied, which may take at least another 5 years. Other lawsuits are still pending against the company. Proceeds from the current fine will be used for habitat restoration, water quality projects, and oil spill response projects.
Nigeria's new government appears prepared to cough up $630 million in arrears, owed to its production joint ventures with foreign firms.
Nigeria National Petroleum Corp. holds interest of more than 50% in the country's onshore oil producing operations, but has been starved of investment cash by previous regimes. Shell Nigeria was told its budget for this year is $1.9 billion. This is less than the $2.1 billion requested but a significant hike from the previous regime's $1.2 billion limit (OGJ, June 22, 1998, p. 32).
Russian gas giant Gazprom has promised to pay all its federal taxes if government organizations pay their gas bills.
The move is an attempt to calm fears of foreign investors, which have begun to pull out of planned investments after the government put the squeeze on Gazprom (OGJ, July 13, 1998, Newsletter). Gazprom announced that it fully supports government efforts to reform the economy and strengthen public finances. Last year Gazprom was reported to have paid 94% of its tax bill.
Pakistan has told two U.S. companies-AES Corp. and Coastal-that it intends to suspend operations at their independent power plants in the country, citing contract irregularities and failure to negotiate tariff reductions. Both firms denied the claims. AES said two of its power projects were issued notices: AES Lal Pir, a 351-MW oil-fired plant in Punjab, and the nearby AES Pak Gen, a 344-MW oil-fired plant. Both plants continue to operate, and the offtaker, Pakistan Water & Power Development Authority, continues to meet its payment obligations.
Coastal's projects, Habibullah Coastal Power and Saba Power, were charged with taking kickbacks, overinvoicing, taking "unlawful commissions," and failing to maintain correct accounts. Coastal said it "ellipsevehemently and unequivocally denies that either of its projects has engaged in these activities. It intends to pursue all available legal options to force the retraction of these unsupportable allegations and to enforce its contractual rights."
India has decontrolled crude oil imports, allowing private and joint sector refineries to go directly to the market to meet their feedstock needs. Prior to this new policy, state-run Indian Oil Corp. (IOC) was responsible for oil imports and was sole distributor to refineries.
Amoco has signed a joint venture agreement with IOC, Gas Authority of India, and Indian Institute of Petroleum to develop, produce, and market dimethyl ether as a multi-purpose fuel in India. Amoco will study viability of applications for DME in India. Amoco will have access to further DME technology under a pact with Haldor Topsoe for its process to make DME from natural gas.
The oil sector's first-ever global agreement on labor relations was signed in Copenhagen between Statoil and trade unions.
A major player in oil, gas, and related industries, Statoil operates in 27 countries and employs more than 18,000 people. The agreement covers basic trade union rights, health, safety, environment, information, and training.
The pact is meant to foster an open channel of information between the trade unions Nopef/ICEM and Statoil management about industrial relations issues in order to continuously improve and develop good work practices in Statoil's worldwide operations. Many of the agreement's provisions are linked to standards (conventions) set by the U.N.'s International Labor Organization. Nopef/ICEM and Statoil will meet annually to review progress in implementing the agreement.
Australia has passed the Gas Pipeline Access (Commonwealth) Bill, a key reform to increase competition in the country's natural gas sector. The legislation means the introduction of free and fair trade in natural gas and ensures third-party access to gas pipelines around the country.
The bill paves the way for an integrated market that will enable gas to be freely traded across state and territory boundaries through an interconnected pipeline grid. Gas users and retailers will be able to contract for supply of gas from competing sources. It also ensures a seamless access arrangement for offshore pipelines, a crucial point for the proposed Chevron pipeline from Papua New Guinea to Queensland.
Copyright 1998 Oil & Gas Journal. All Rights Reserved.