While President Clinton's decision to sell oil from the SPR to defuse a spike in U.S. gasoline prices (see story, p. 44) has temporarily dampened crude oil prices, there looms the prospect of yet another industry development that could spike crude prices again.
Oil company workers on Norwegian offshore platforms last week were planning to strike indefinitely May 4 in support of an action by contract employees. The protests began among contract staff on Statoil's Yme converted jack up/producing/storage system seeking pay equal to crews of fixed platforms.
Statoil said the action is likely to hit its Gullfaks A and B platforms and three Statfjord platforms, along with Valhall, Heimdal, Oseberg C, Snorre, Ula, Draugen, and Eldfisk A platforms of other operators. Statoil said the action by almost 900 members of the Federation of Offshore Workers Trade Unions could disrupt oil and gas production worth more than $30 million/day. Operators' group Norwegian Oil Industry Association reckons the strike could cut oil production by 50%-or roughly equal to OPEC's quota exceedance-and gas output by 40%. Norway recently has been producing about 3.3 million b/d and 3.4 bcfd.
Also contributing to a possible rebound in prices is the prospect of more negative signals coming from Iraq or the U.N. over future negotiations on limited oil sales.
A third round of talks between Baghdad and Security Council officials over the sales accord ended without an agreement and with U.N. members in disarray. The talks began in early February and concern U.N. Resolution 986 to allow Iraq to sell $2 billion worth of oil to pay for much needed food and medical supplies in the country. On Apr. 24 the two delegations met for the last time in the third round as signs of an inability to reach agreement caused oil prices to surge (OGJ, Apr. 29, Newsletter). Then the outstanding issue was whether U.N. or Iraqi forces should distribute the supplies. Resolution 986 requires the U.N. to handle distribution. The U.S. and U.K. appear to be the last Security Council members still to insist on this point, with other members urging compromise for the sake of Iraqi people suffering from the embargo on trade with Iraq.
A U.K. Foreign Office official said Britain hopes the talks will resume soon but remains committed to Resolution 986 as is: "We want to make sure the benefits reach the Iraqi people. That's why we've insisted the resolution be followed accurately." Middle East Economic Survey said the talks were suspended because U.N. Sec. Gen. Boutros Boutros Ghali had to travel to South Africa and would be adjourned until his return early in May.
Are the cracks in OPEC solidarity widening? Venezuela proposes the group consider thinking about a "new world oil map" organized along regional lines.
Venezuelan Energy Minister Erwin Arrieta told Paris daily Le Monde, "Everyone would benefit from savings in transport, including consumers. Why should Venezuela go and sell its oil in Asia when its natural market is in the Americas? (Persian) Gulf producers are much nearer Asia.
"Instead of quarreling over quotas, OPEC members would better serve their interests by thinking about a new world oil map." Arrieta acknowledged, however, the Americas still will be importing Persian Gulf oil in 2004.
Other OPEC members scoffed at Arrieta's notion, but it points to a disquieting trend: charter member Venezuela continuing to go its own way. Venezuela has been accused of being the chief quotabreaker in the group, allegedly ignoring calls by other OPEC officials to rein its output.
Arrieta also confirmed OPEC is exceeding its quota by 1.5 million b/d.
The fact that the market has absorbed this excess output and prices have reached "levels we have been dreaming of the last 5 years" seems to indicate OPEC "has underestimated demand," he said.
A breakthrough could mean construction could begin soon on the long delayed 1,500 km, $1.5 billion pipeline from Kazakhstan's supergiant Tengiz field to the Russian Black Sea. Chevron late last month signed a protocol to obtain the right to acquire a 15% equity stake in the Caspian Pipeline Consortium (CPC), formed by Russia, Kazakhstan, and Oman in 1992 to lay the line. Lack of pipeline capacity has squelched Chevron's efforts to hike Tengiz output.
The protocol, also signed by Russian state pipeline Transneft and prospective shippers, sets the stage for restructuring CPC under a plan that allows shippers to acquire 50% of CPC. During this transition, shippers will fund CPC work so pipeline construction can get under way as soon as possible.
The U.S. petroleum industry continues efforts to bolster ties with its Russian counterpart. API has formed a partnership with the Information & Advisory Center for the Russian Oilfield Equipment Manufacturers (ROEM CenterConsult).
The Russian Ministry of Fuel and Energy set up ROEM CenterConsult last December in cooperation with World Bank to provide a broad range of technical, commercial, marketing, and other assistance to Russian oil field equipment manufacturers needing help in the transition to a free market. Since API began licensing Russian plants case by case 5 years ago, it has certified 10 plants. It expects the new accord to spur licensing of 10 more plants in 1997 alone. API training seminars in Russia are to begin within 90 days.
FERC marks progress in two areas that will strongly affect the U.S. gas industry.
The agency has approved open access transmission rules for the electric utility industry that the U.S. gas industry hopes will make its fuel more competitive.
FERC says the action will cut consumers' electricity costs by $3.8-5.4 billion/year. It issued a rule requiring open access transmission by all public utilities that own, operate, or control interstate transmission and allows utilities to recover stranded costs. FERC also ordered the utilities to implement standards of conduct and a computerized information system. The agency says the environment will benefit from the rule because if utilities prefer gas to coal, it will enable them to more readily burn gas, thus reducing emissions.
Meanwhile, FERC is asking public comment on a proposed rule to standardize business practices of open access gas pipelines.
The rule, effective Jan. 1, is based on 140 standards suggested by the Gas Industry Standards Board. FERC says the rule would make gas easier to transport and make pipelines more efficient. It also would provide for a standard Internet connection for communication between a pipeline and its customers.
The rush by companies repositioning themselves for business opportunities resulting from the integration of gas and power markets continues to gather momentum.
Williams Energy Services (Wesco), a Williams Cos. unit that handles financial and physical transactions affecting more than 10 bcfd of gas, will begin buying and selling wholesale bulk power as a member of the Western Services Power Pool, the largest electric power pool in the U.S. West.
Wisconsin Public Service Commission (WPSC) is pressing state gas and power regulatory reforms.
WPSC hosted a technical meeting Apr. 25-26 for utilities, marketers, and consumer groups to start developing state gas industry standards of conduct. WPSC says the standards are needed because of market imperfections, possibility of anticompetitive behavior, and chance of cross subsidization by integrated energy marketers.
WPSC by yearend aims to begin laying the foundation for restructuring state power rules, including how to reorganize utility generation, transmission, and distribution units, avoid anticompetitive behavior among affiliated regulated and nonregulated business units, and ensure reliable electricity services and supplies are available to all customers in a more competitive environment. Officials envision reorganizing Wisconsin's power industry as a single system, perhaps with an independent operator in charge of transmission statewide.
LG&E Power Operating Services, a unit of LG&E Energy Corp., Louisville, signed a 1 year contract with Venezuela's Generacion de Vapor CA (Genevapca) to provide management consulting services for Genevapca's 310,000 kw Cardon, Venezuela, gas fired cogeneration plant, which sells electricity and steam to two area refineries. LG&E intends this move to serve as a toehold to establish a strong presence in Venezuela, where energy markets are poised to take off because of new petroleum sector opportunities.
Industry continues to advance alternate transportation fuels.
South Africa's Sasol reports major cuts in exhaust emissions from an engine running on its diesel fuel produced from natural gas via its proprietary process. Tests of the new fuel took place under contracts from Bechtel, U.S. DOE, and three fuel companies and showed cuts vs. conventional diesel in emissions of 38% for hydrocarbons, 46% CO, 8% NOx, and 29% particulates.
Sasol and Denmark's Haldor Topsoe recently disclosed plans to market a gas to diesel fuel process (OGJ, Apr. 8, p. 33).
U.S. DOE reports a new solid oxide ceramic fuel cell design increased electric power output by more than a third and improved its strength and durability.
Westinghouse developed a tubular configuration that boosted power output from natural gas, diesel, and jet fuel 35% each, setting a record 27 kw from a single solid oxide fuel cell module. Copyright 1996 Oil & Gas Journal. All Rights Reserved.
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