OGJ NEWSLETTER

Oil markets continue to show contrary ways. Crude inventories remain excessive, and some products stocks have plunged.

Merrill Lynch sees oil stocks remaining high headed into the new year, especially with the likelihood of a call on OPEC oil of 23 million b/d vs. current output of 24 million b/d in the fourth quarter. The analyst predicts the call on OPEC oil at only 23.4 million b/d in the first quarter, compared with OPEC's own projection of 24.4 million b/d.

As fears ease of a supply crunch related to the collapsing Soviet Union, there will be a first quarter rush to liquidate stocks held as insurance today. Merrill Lynch puts the inventory liquidation at a higher than usual 2 million b/d.

World oil demand should increase 1.2% in 1992 as industrialized economies rebound, says EIA.

It contends U.S. oil demand will be much stronger this winter compared with last winter, when oil prices spiked with the Persian Gulf crisis and temperatures were unseasonably mild.

The U.S. oil industry should be able to meet winter heating fuels demand, says EIA, but extreme cold weather in December could result in shortages of propane (see story, p. 32).

Salomon Bros. attributes the fall in U.S. gasoline stocks--atypical for this time of year--and resulting price strength to a steep plunge in refining margins.

With the 3-2-1 crack spread down to $3.06/bbl in mid-October from a high of $6.70 in mid-August and the collapse in resid prices this year, many U.S. refiners have curtailed operations. Utilization has fallen to 81% from 91% in early September.

The fall in stocks has boosted prices and improved crack spreads, but Salomon Bros. sees no long term relief until light crude prices slip below $20/bbl and summertime gasoline volatility specs kick in, trimming effective capacity by 500,000 b/d.

There won't be a benzene surplus stemming from cutting benzene levels in U.S. gasoline from current 1.7 vol % to the maximum average 1 vol % the Clean Air Act requires in 1995 reformulated gasoline, says Chem Systems. In a new study, Chem Systems projects most excess benzene can be avoided by adjusting refinery operations vs. extraction. In Europe, refiners are meeting the 5 vol % benzene limit imposed on European Community gasoline by restricting blending of pyrolysis gasoline in the total gasoline pool. Although European gasoline averages 2.7 vol %, Chem Systems considers lower levels likely by 2000. But falling to 1 vol % would create big problems for Europe's refiners.

European companies continue to press efforts to capture MTBE supply sources (see story, p. 37). Total has signed a preliminary agreement to acquire Texas Petrochemicals Corp., Houston, for an undisclosed price. Final agreement, which could be wrapped up in January, is subject to Total finding a joint venture partner. TPC is the world's second biggest MTBE producer.

Pakistan has expanded its search for help from Persian Gulf producers in boosting its refining capacity.

Pakistani Oil Minister Nisar Ali Khan is negotiating with Saudi Arabia, Abu Dhabi, and Qatar for participation in a proposed refinery at Multan, Punjab. Pakistan and Iran recently marked progress on a 120,000 b/d joint venture refinery project, possibly at Karachi (OGJ, Newsletter, Nov. 18).

A third refinery, with capacity of 30,000-50,000 b/d, is under consideration by private interests at Kot Addu, and 12 bids have been received on that project. An 18 month, 18,000 b/d expansion project at the Attock refinery at Islamabad is under way, with 6,000 b/d of that expansion to be on stream by June.

Pakistan consumes 220,000 b/d of products but its three refineries have combined capacity of only 140,000 b/d.

Viet Nam soon will choose a joint venture partner for its first modern grassroots refinery, a 130,000 b/d plant planned for Vung Tau at a cost of $1 billion, reports the Hanoi press. Petrovietnam still is mulling proposals by Total, Nissho Iwai, Nippon Mining, Tomen Corp., C. Itoh, and Royal Dutch/Shell. A decision had been due in October. Viet Nam imports all its refined products and exports most of its crude to Japan, a setup that apparently favors the Japanese in the refinery project.

The Russian republic is pursuing oil and gas barter deals on its own, similar to Kremlin deals arranged previously with France and Poland (OGJ, Oct. 7 and Nov. 11 Newsletters).

Russia, taking command of its resources (see story, p. 24), will provide oil and gas to Czechoslovakia in exchange for food, medical supplies, and machine parts under a deal valued at almost $3.5 billion. Russia will supply 150,000 b/d of oil to Czechoslovakia in 1992.

The Northwest Shelf group plans to hike its LNG export commitment to Japan by 1 million metric tons/year, boosting total volume to 7 million tons during the 20 year life of the contract and creating need for an eighth LNG carrier to be added to the Northwest Shelf fleet. Group leader Woodside says shipyard time in Japan has been ordered for the vessel's construction in time for March 1995 delivery.

Compressed natural gas continues to gain wider acceptance worldwide as a vehicle fuel (see story, p. 36).

Brazil has joined that list, as Cia. Brasileira de Petroleo Ipiranga opened that country's first CNG refueling station in Rio de Janeiro earlier this month. Ipiranga, Brazil's fourth biggest oil products marketer, plans to spend $30 million the next 3 years to set up another 40 CNG refueling stations in Brazil.

Nos. 1 and 2 marketers, Petrobras and Shell, also will open CNG stations in Brazil this month.

Now that a lot of exploration capital has fled the U.S., will there be a surge in EOR as the U.S. E&P focus shifts?

Texaco plans a $104 million CO2 water alternating gas flood in Mabee oil field, Andrews County, Tex.

First CO2 injection is slated for early 1992. The project is expected to significantly boost recovery and extend life by 15 years for the 49 year old, 650 well Permian basin field, where production peaked in 1980 at 11,000 b/d.

Will California replace Louisiana as the No. 3 U.S. oil producing state in 1992? Since June, California oil production has jumped 23,000 b/d to 978,000 b/d in October and could hit the 1 million b/d mark in early 1992. That compares with Louisiana sliding 10,000 b/d since June to 1.09 million b/d in October.

Heavy crude production in the supergiants of the San Joaquin Valley has remained remarkably constant and could be sustained or rise in 1992 as interstate pipeline projects are completed, bringing in more gas to allow expansions of massive steamfloods. The recent California increase, however, stems from an unexpected expansion of Point Arguello production.

The controversial project was not expected to produce much more than 20,000 b/d until appropriate pipeline capacity was available in 2-3 years because of local opposition to tankering Santa Barbara Channel crude to Los Angeles refineries.

Operator Chevron has been moving two thirds of Arguello crude north via a Texaco pipeline to the San Francisco area, then loading most of those volumes onto tankers for shipment to Los Angeles. Because of this arrangement, Point Arguello output doubled to 40,000 b/d in October and is expected to average 48,000 b/d before jumping to 60,000 b/d in mid-December with addition of pumps on the Texaco line.

Some U.S. gas companies are prospering despite the industry's gloomy state. Enron expects to exceed its goal of compounded growth in earnings from operations of 50%/year in 1991-92,

It targets a 15%/year increase in earnings per share in 1993-96. Those projections include forecast gas price increases of only 10 cents/Mcf and 25 cents/Mcf in 1992 and 1993, respectively, and an expected sale of as much as 930,000 shares of Mobil stock.

Chairman Ken Lay cites Enron's balanced business mix expanded NGL operations, and new power and gas services businesses.