OGJ NEWSLETTER

The economic plight of nations weathering aftermath of communism's collapse is contributing to sagging world oil demand.

IEA predicts oil demand in eastern Europe will fall this year to 1.38 million b/d from 1.69 million b/d in 1990. Previously, demand had been steady at about 1.8 million b/d. The biggest demand declines have been in Romania, Bulgaria, and Yugoslavia. Only Hungary shows signs of a moderating demand slide.

IEA also revised its estimate of the decline in third quarter OECD oil demand, pegging a 2.5% drop from 37.3 million b/d in third quarter 1990 vs. its previous forecast drop of 3.5%.

Higher than expected demand in North America and Europe spurred the revision. OECD fourth quarter demand is expected to rise by 1.2 million b/d to 39 million b/d vs. a year ago. Relatively firm growth is expected in all regions, but the increase also reflects low levels of deliveries in fourth quarter 1990.

As their domestic crisis worsens (see story, p. 19), the Soviets have struck another food for hydrocarbons barter deal, this time with France. Before March 1992, the French will export beef, sugar, powdered milk, and infant food worth 1.6 billion francs ($287 million) in exchange for about 3.5 million bbl of fuel oil, about 7.3 million bbl of crude, and 53 bcf of gas. Elf and Total will handle the oil imports, but it isn't clear yet how the gas will be imported. Negotiations are continuing. A similar swap is under way with Poland (OGJ, Oct. 7, Newsletter).

Kuwait's last burning oil well was doused Nov. 6 in Rauhadtain field by Safety Boss teams, while Kuwait's emir reignited and capped a ceremonial well in Burgan field marking an end to history's worst oil fires (OGJ, Nov. 4, p. 28). Still, unconfirmed press reports have two wild wells, one each in Rauhadtain and Sabriya fields, continuing to spew oil. Once those are capped, all 749 wells originally sabotaged will be under control.

The European Community commission has backpedaled in its efforts to put a speedy end to gas and electricity monopolies in the community. With opposition from all 13 energy ministers, save the U.K.'s, the commission will adopt a step by step approach with "flexible and orderly adjustments."

Ultramar's defense against a Lasmo takeover bid has begun with he resignation of Chairman John Darby, Deputy Chairman Lord Remnant, and Director Lloyd Benson. Darby told shareholders he assumes responsibility for the company's poor performance that left it vulnerable to takeover. The new management has decided to sell a large parcel of land in California and surplus shipping assets and is discussing selling and chartering back three tankers being built in South Korea. The measures are expected to generate about 100 million ($176 million).

After a flurry of speculation, Venezuela's government has flatly denied it will allow any form of privatization of Pdvsa.

The speculation stemmed from a government official who was quoted in the press as saying private investment in Pdvsa might be considered in the future. That was met with enthusiastic support from business sectors that noted sales of shares would help fund the state oil company's ambitious capital spending program. However, the growing participation of foreign companies in downstream, LNG export, and marginal field projects notwithstanding, political opposition in Venezuela remains strong against direct equity stakes for foreign companies in Pdvsa ownership or its bread and butter oil and gas operations.

Pdvsa might build a refinery in Malaysia.

That prospect was raised in a recent meeting of Venezuelan President Carlos Andres Perez and Malaysian Prime Minister Mahatir Mohamad at the U.N. Previously, Pdvsa had only raised the possibility of building a major oil storage terminal in Malaysia as an entry to the fast growing Far East market.

Malaysia is mulling another LNG export complex to meet booming demand from Japan, Taiwan, and South Korea. Malaysia LNG Sdn. Bhd.--owned 60% by Petronas, 17.5% each by Royal Dutch/Shell and Mitsubishi, and 5% by Sarawak's government--says it's impossible to expand existing capacity by adding another train at Bintulu and proposes a $3 billion project to double current LNG capacity to 16 million metric tons/year by 1995. The new grassroots plant also would be at Sarawak, where offshore gas reserves are pegged at about 27 tcf. Shortly before the announcement, Petronas signed contracts covering LNG supply of 2.1 million tons/year for 20 years to four Japanese utilities.

Japan and South Korea will resume drilling in shared waters of the Yellow Sea. Under a joint program operated by BP on behalf of South Korea's state owned Pedco and Nippon Oil on Japan's behalf, the first of three wells to be drilled by 1999 will be spudded next spring. Focus is a 26,000 sq km area covering two blocks. Chevron and Texaco, operating for Pedco and Japanese companies, drilled six wells in the area in the 1970s and encountered noncommercial hydrocarbons.

Nigeria has approved private ownership of refineries to boost foreign investment in its oil sector.

Noting a disappointing level of foreign investment in Nigerian oil and gas E&D, Oil Minister Jibril Aminu said Nigeria's oil sector needs about $15 billion in capital the next 5 years in addition to $2 billion in 1991. He assures downstream investors of free use of port facilities and a guaranteed crude supply. Nigeria, with current reserves of about 17 billion bbl and production of about 1.8 million b/d, is targeting reserves of 25 billion bbl and productive capacity of 2.5 million b/d by 1995.

Schlumberger Chairman Euan Baird puts E&D in Iran at the top of his list of work prospects, even more so over the long term than Kuwaiti restoration. At a World Petroleum Congress press conference last month, Baird noted Iranian oil and gas field work has lagged for years, with many oil fields requiring gas lift. He predicts the rig count in Iran will about double to 40 in 1992 vs. 1991's level as Iran seeks to boost productive capacity.

Baird also offers bleak assessments for the U.S. or U.S.S.R. reversing declining oil production.

For the Soviets, he said, "It is hard enough to stop a trend, much less turn it around." For the U.S., "It doesn't matter what the price of oil is if there is none to look for."

Baird also contends U.S. oil companies are tired of being "beaten up by environmentalists" and have more opportunities than they can handle outside the country.

Baird's outlook is underscored by Salomon Bros.' latest drilling forecast. The analyst, citing a divergence between U.S. and non-U.S. drilling unparalleled in recent history, predicts U.S. drilling outlays will drop by another 15-20% in 1992 while international drilling spending jumps 12-15%. That continues a 1991 trend where U.S. drilling outlays are expected to fall 17% while non-U.S. drilling spending rises 15%. Salomon Bros. expects a modest recovery in 1993 but doesn't see gas prices fueling a significant rise in U.S. drilling until the mid-1990s.

Salomon Bros. also sees traders' recognition of the sooner than expected restoration of Kuwaiti production as pulling oil prices back down to $19-21/bbl in a few months.

FERC Commissioner Charles Trabant, noting some independents' concerns, says the pending mega-NOPR will help, not hinder, small producers in selling their gas. IPAA Pres. Denise Bode claims a firm representing gas pipelines and LDCs has written Southwest gas producers, trying to incite them against the rule and says IPAA supports the rule, adding, "Those concerns are being generated by folks from the other side of the rule."

U.S. Forest Service admits it erred when it began automatically excluding roadless forest areas under consideration for wilderness designation from consideration for oil and gas leasing. USFS says it now will consider oil and gas potential in its analysis leading to roadless area determinations. The policy shift is outlined in the Nov. 1 Federal Register.