OGJ NEWSLETTER

Although the issue of quotas was sidestepped at the OPEC meeting in Vienna (see story, p. 36), the Saudis are hinting they will step in with cuts if needed to halt a price slide.

Dec. 9, 1991

7 min read

Although the issue of quotas was sidestepped at the OPEC meeting in Vienna (see story, p. 36), the Saudis are hinting they will step in with cuts if needed to halt a price slide.

Saudi Oil Minister Hisham Nazer told Middle East Economic Survey the Saudis are committed to seeking a $21/bbl marker but won't slash production just to achieve that price. "We don't mind, for example, if prices go above $21/bbl in winter due to the pressure of demand, but we must also expect them to fall below $21/bbl when there is a seasonal drop in demand," he told MEES. In a Reuters interview, Nazer said, "If it is a question of priorities, we would like to keep our market share. But that doesn't mean that we would like to see a price collapse." The OPEC marker hovered at just under $20 when the meeting started.

The Saudis project the call on OPEC oil at 25.2 million b/d in the first quarter, compared with OPEC fourth quarter production likely to average 23.65-23.85 million b/d. That would be the highest demand for OPEC oil since the early 1980s, and the Saudis probably would be the only producer capable of a size-able production increase to meet the higher level.

With Saudi Arabia clearly entrenched as the market's swing supplier, the guessing game over the Iraqi, Kuwaiti, and Soviet wild cards continues apace, especially now that markets are speculating over the possible loss of Libyan supplies because of an embargo over its alleged involvement in the 1988 terrorist bombing of a Pan Am airliner.

Soviet officials predict Soviet oil production will plunge to 8.6 million b/d in 1992 from 10 million b/d in 1991, Tokyo newspaper Nikkan Kogyo Shibun reported. That compares with an IEA projection of 9.7-9.8 million b/d in first half 1992 and 11.4 million b/d in 1990. Officials with the Soviet Ministry of Rational Use of Resources reportedly made the prediction to a delegation of MITI and Japan National Oil Corp. in Moscow last month. And the All-Soviet Fuel and Energy Institute told the delegation Soviet crude exports could halt altogether in 1993.

Robert Spears, of Spears & Associates, contends the condition of gas/oil separation plants in the Kuwaiti oil fields will determine how quickly that country restores production. The plants were damaged to varying degrees, and replacing one would take a year or longer. Spears says Kuwait's goal of 1.6 million b/d by yearend 1992 likely won't be hit until mid-1993.

Longer term, Iraq's expulsion from Kuwait may have ended "the years of turbulence" for oil prices, says Fadhil Al-Chalabil a former OPEC Secretary General. He contends the war enhanced stability of oil markets because it drained the coffers of Persian Gulf countries and made them more dependent than ever on the West for their security. "Most of the oil fields in the gulf are aging and require new investment. The countries will have to go back to the oil companies for financing, (which in return will demand) partnerships or assured access to crude."

The director of the U.N. Environment Program, Adil Urabi, is at odds with other environmentalists over the amount of oil spilled into the Persian Gulf during the war. On a visit to Bahrain, he said the amount had been grossly exaggerated and did not exceed 500,000 bbl. Previous estimates put the spill at 6-11 million bbl, and a Saudi official in October said 1.4 million bbl had already been recovered. Urabi said satellites were responsible for the inaccurate estimates, wrongly identifying images of coral reefs in shallow water as floating oil. Greater environmental damage is being done in the desert, with sand compaction in some areas and loosened topsoil blown away in others, he said.

MITI is leading a Japanese mission of oil, gas, and power generation companies and trading houses to Sakhalin and other Russian far eastern regions this month to study prospects for developing natural gas reserves. A MITI official told Nihon Keizai Shimbum the ministry is trying to make development of Sakhalin's offshore reserves a "national project."

Parker Drilling has lined up a $12.5 million project loan to finance modification and winterization of three rigs in Western Siberia. A Parker unit is leasing the rigs to White Nights, a venture of Anglo-Suisse, Phibro, and Varyeganneftegaz (OGJ, Nov. 25, p. 24). The rigs will help boost White Nights output from West Varyegan and Tagrinsk fields to 150,000 b/d from 25,000 b/d.

Will Venezuela's state oil company invest in still more foreign downstream capacity? Pdvsa is said to be negotiating purchase of Unocal's 50% interest in the 50-50 Uno-Ven joint venture that operates the 135,000 b/d Lemont, Ill., refinery, according to Caracas press reports. Venezuela's four domestic refineries, with combined capacity of 1.17 million b/d, have run flat out most of the year while Pdvsa's crude output the first 9 months of the year is up 15% vs. 1990.

Meantime, Venezuela's $3 billion Cristobal Colon LNG export project may be deferred because of the weak U.S. gas market. A timetable calling for shipments to begin in 1997-98 now is in doubt, although the offshore development project is proceeding. Partners Lagoven, Exxon, Mitsubishi, and Royal Dutch/Shell are conducting a 3-D seismic survey over the Gulf of Paria fields.

Privatization of Taiwan's state owned China Petrochemical Development Corp. will continue in 1992, says the Commission of National Corporations under the Ministry of Economic Affairs.

Privatization of CPDC, a leading manufacturer of acrylonitrile and dimethyl terephthalate, began in May 1991 with a small stock offering. Plans call for at least 20% of CPDC shares to be placed with private investors.

Budding oil exporter Papua New Guinea is lining up customers for when the Chevron operated Kutubu project starts up at 100,6-00 b/d in September 1992. Project partner Mitsubishi plans to import 20,000 b/d to Japan. It can import 6,000 b/d now and wants to import the PNG government share as well.

Algeria's legislature has formally adopted a liberal new hydrocarbons law, 20 years after nationalization of the oil industry. The new regime allows foreign companies to hold a 49% stake in known or potential oil and gas reserves.

Taxes and legal conditions covering oil and gas exploration also have been made less onerous. Algeria's government hopes the new regime will attract about $4 billion in investment by foreign companies. However, the opposition said the law would be reexamined by a new National Assembly to be elected Dec. 16.

General Motors of Canada plans to produce the first methanol powered assembly line automobiles in North America in early 1992. GM is preparing to begin production at its Oshawa, Ont., plant about Feb. 1 of 4,000 Chevrolet Lumina models. The markets will be fleet operators in Canada and the U.S., particularly in California where tough emission rules are in effect. The methanol powered Luminas will cost about $2,000 (U.S.) more than the gasoline model. GM said the vehicles are designed to use a fuel mix ranging from 100% gasoline to an 85-15 mix of methanol-gasoline. The project will test feasibility of producing alternate fuel vehicles on a conventional assembly line.

Not all major U.S. gas pipelines think FERC's "Mega-NOPR" would threaten gas deliverability in peak demand seasons.

Enron Pres. Richard D. Kinder considers it a "step in the direction" toward a competitive merchant function for pipelines. "We're not worried about this bogus issue of rebundling," he told analysts in Houston. Under the FERC proposal, pipelines would have to segregate services and price each separately. Generally, major producers say the requirement is essential to FERC's goal of comparability of pipeline services. Pipelines say it will make them unable to guarantee supply in periods of peak demand (OGJ, Dec. 2, p. 28). Kinder is more concerned about pipelines' ability to recover transition costs and preservation of case by case flexibility in ratemaking.

U.S. offshore pipelines have another 6 months, to Nov. 16, to complete inspection of their systems under final rules issued by Department of Transportation last week.