OGJ NEWSLETTER

The brief prospect of civil war following a coup in the Soviet Union last week (see story, p. 27) has left markets reassessing the outlook for a return of Kuwaiti/Iraqi oil exports. Although the threatened loss of as much as 1.5 million b/d of Soviet oil exports was short lived with Gorbachev's quick return to power, the scare was enough to bring under scrutiny Iraq's rejection of conditions for a U.N. controlled sale of $1.6 billion worth of oil to fund purchase of food and medicine.

Aug. 26, 1991

7 min read

The brief prospect of civil war following a coup in the Soviet Union last week (see story, p. 27) has left markets reassessing the outlook for a return of Kuwaiti/Iraqi oil exports.

Although the threatened loss of as much as 1.5 million b/d of Soviet oil exports was short lived with Gorbachev's quick return to power, the scare was enough to bring under scrutiny Iraq's rejection of conditions for a U.N. controlled sale of $1.6 billion worth of oil to fund purchase of food and medicine.

Taken at face value, Iraq's rejection of the conditions for the sale would preclude an early return to the market.

More pragmatic industry officials reckon the Iraqi rhetoric could be a first step preceding a backdown and that when detailed U.N. terms and condition for Iraqi sales are known, the twin pipelines through Turkey to Ceyhan will be restarted.

Ankara says the pipelines are ready for use, but not until U.N. monitoring is in place. U.N. Sec. Gen. Perez de Cuellar has 20 days from sale approval Aug. 15 to detail plans for monitoring Iraqi oil sales and approve humanitarian purchases.

European traders are keenly interested because most of that oil is expected to hit European destinations. The Mediterranean terminal is the only operational outlet for Iraqi oil and effectively rules out the Far East, a prime Iraqi market before Iraq's blitz of Kuwait a year ago. Oil supplies from Ceyhan take 45 days to reach Japan, triple the transit time from the Persian Gulf. Japanese oil companies remain reluctant to buy Iraqi oil even apart from the transit delays, citing concerns over the U.S. stance on the issue. Kyodo News Service says Baghdad approached Japanese traders in late April offering to export oil to Japan after July but was rebuffed. Before the gulf crisis, Japan imported about 200,000 b/d of Iraqi oil.

Meantime, the aborted coup in the U.S.S.R. gave European crude markets a day rollercoaster ride. First news of the coup sent the Brent mark t into a frenzy with crude jumping about $2.50/bbl, only to ease back as the opening of U.S. markets calmed extremely active trading. A further burst of buying the second day of the coup pushed prices up again. The later reinstatement of Gorbachev stimulated trading but depressed prices. The net result was Brent for 15 day delivery closing at $19.65/bbl Aug. 21 vs. $19.30/bbl at close of trading the previous week.

Rotterdam premium gasoline was barely changed at $243/ton, although gas oil ended the 3 day Soviet adventure $23/ton higher at $207/ton after an earlier rise of $40/ton.

And the march of prospective investors into the Soviet oil sector continues apace. Amoco and prospective subcontractors have met in Baku with Azerbaijan officials to formulate a timetable, together with design and other documentation, for developing big Azeri oil field in 984 ft of water in the Caspian Sea (OGJ, July 1, p. 26), Izvestia reports. This work is to be complete by Dec. 1. Fifteen foreign companies initially expressed interest in Azeri development, and four bought packages providing field data and joint venture conditions. BP and Unocal have been mentioned as still pursuing interests in that venture. With the controversy over the Chevron Tengiz proposed joint venture (OGJ, Aug. 5, p. 14) apparently in mind, Izvestia assures readers "profits of the foreign partner in Azeri's development will not exceed a level that conforms to world practice for such agreements. The joint venture will sell the oil produced from Azeri for foreign currency, will compensate each partners for its expenses, and after payment of Soviet taxes will distribute profits in accordance with invested capital."

Austria's OMV plans to drill at least two wildcats in 1992 or 1993, possibly spudding as early as next spring, in the Soviet Yakutsk republic.

Under a joint venture with Lenaneftagasgeologiya, OMV has agreements covering two concessions, reports OPEC News Agency. The target is several hundred bcf of gas with an eye long term to exports to South Korea, Japan, and perhaps China, says OMV.

Total may take a stake in Qatar Fuel Additives, a 50-50 venture of Qatar General Petroleum Corp. and International Octane Ltd. that plans a 500,000 ton/year MTBE plant and a 450,000 ton/year methanol plant in Qatar. It also will decide soon on taking an interest in a similar MTBE/methanol project at Arzew, Algeria. Total's strategy is to focus on MTBE supplies in gas producing areas vs. Europe's downstream infrastructure.

Tokyo Gas Co. and Mitsui have signed a letter of intent with Malaysian partners to form a private monopoly to distribute gas on the Malaysian peninsula. Interests will be held 55% by a combine of Malaysian Mining Corp. and Shapadu Corp., 25% by Petronas, and 20% by TGC and Mitsui. The new monopoly, to sign a joint venture deal by early 1992, expects to start up by 1993, after pipelaying on the 740 km, 7 billion ringgit peninsular gas utilization project is complete. Plans call for initial outlay of 100 million ringgit ($36 million) and another 700 million ringgit the next 9 years. Singapore, also to tie into the system, has a memorandum of understanding (MOU) to buy 150 MMcfd.

Gaz de France has signed two pacts in Morocco covering the latter's portion of the Maghreb-western Europe pipeline to move Algerian gas to Spain. The first, signed with Morocco's energy and mines ministry, lays out the general framework for laying and operating the line. The second, with state owned SNPP, sets out details of GDF-SNPP cooperation.

Similar deals are in effect between Morocco and Enagas, Gas de Portugal, and Ruhrgas under the joint venture Omegas to conduct engineering and design of the project. The first stage involves laying a 1,265 km line to Seville through Morocco and the Strait of Gibraltar at a cost of $1.3 billion to deliver 350 bcf/year of Algerian gas to Spain. The second involves extending the system to Portugal, France, and Germany.

Mobil and Nigeria have revised their MOU to sweeten terms for the company. The new MOU jumps Mobil's margins 50 to $2.50/bbl and contains other incentives for Nigerian E&D. Mobil says the new terms reflect an improved investment climate in Nigeria.

Venezuela is dispatching Maraven exploration teams to search for oil and gas in Nicaragua. In addition, personnel from Nicaragua's state owned Petronic will receive training at Pdvsa facilities in Venezuela. Both moves come under a exploration assistance agreement the two countries signed recently.

Gulf Canada has bucked a trend in Canada's oil industry by reporting a profit of $47 million (Canadian) on revenues of $392 million vs. a loss of $51 million on revenues of $364 million for the same period in 1990. It cites gains on sale of its share of Caroline natural gas field and improved oil prices.

The cuts continue in Canada, however. Amoco Canada plans a layoff of 300 staff. Overall planned staff cuts total 1,360-1,410 people through layoff or attrition to reduce payroll to 3,140-3,190 by late 1993. Amoco, reporting a first half loss of $129 million, expects payroll savings of $150 million/year and will pay about $90 million for retirement/severance packages.

More than 35 producers, marketers, and marketing affiliates have jointly developed an exchange of futures for physicals contract now available in gas futures trading. ARCO's Shelley Hurley, who coordinated development of the contract in Dallas, says the EFF offers flexibility in delivery of gas that doesn't conform to Nymex specs on location, quality, and timing, traders a choice of trading partner vs. the random selection process endemic to Nymex, and flexible pricing contracts.

Prospects grow for EPA requiring Stage II vapor recovery systems at service stations. In a study requested by EPA, National Traffic Safety Administration says expanded use of onboard vapor recovery canisters will increase risk of automobile fires.

It says no onboard prototype systems function satisfactorily under all vehicle operating conditions, and an expanded canister system would be more complex and more vulnerable to failure in collisions and normal use.