OGJ NEWSLETTER

Some analysts see oil markets sailing into calm waters in the fourth quarter, discounting what might happen with wild cards Iraq and the U.S.S.R. Merrill Lynch expects the oil supply/demand balance will be comfortable heading into winter, backing off its earlier concerns of tight supplies. It puts the call on OPEC oil at closer to 23 million b/d in the fourth quarter vs. its earlier forecast of about 24 million b/d, citing persistently high stocks.

Sept. 16, 1991

7 min read

Some analysts see oil markets sailing into calm waters in the fourth quarter, discounting what might happen with wild cards Iraq and the U.S.S.R.

Merrill Lynch expects the oil supply/demand balance will be comfortable heading into winter, backing off its earlier concerns of tight supplies. It puts the call on OPEC oil at closer to 23 million b/d in the fourth quarter vs. its earlier forecast of about 24 million b/d, citing persistently high stocks.

Compared with an earlier forecast of $25/bbl by yearend, ML now sees WTI at within $1 of the current $22. It notes, however, light, sweet crudes such as WTI retaining a near record premium of $4 vs. the OPEC basket of crudes because of absent Iraqi/Kuwaiti supplies.

Kidder, Peabody thinks U.S. secondary stockbuilding of heating oil this summer will go a long way to smooth out the seasonal upswing in heating oil demand--as well as a number of residential conversions to natural gas after the Persian Gulf crisis erupted last year. It contends gasoline stocks have bottomed and sees no major buildup ahead, given upcoming refinery maintenance in early fall. KP predicts WTI at $20-22 through winter, assuming normal weather--but warns markets will run near capacity until Iraqi "humanitarian" oil comes into play late this year or in early 1992 (see Watching the World, p. 40).

OPEC production last month reached 23.6 million b/d, its highest level since December 1990. The impetus comes from continued Saudi resolve to maintain market stability ahead of possible supply problems in the months ahead. Saudi crude production rose to 8.4 million b/d in August--as much 8.5 million b/d the last 2 weeks of the month--apparently reflecting Saudi willingness to replenish floating and onshore stocks after a second quarter drawdown. While Saudi state trading agency Vela lifted 2 million b/d in its own or chartered tankers in August, IEA estimates National Iranian Oil Co.'s stocks may have fallen by as much as 40-50 million bbl to 10-12 million bbl. IEA notes demand for OPEC crude has been especially strong in the Atlantic region, notably for lighter Persian Gulf and gas oil rich crudes.

The Soviet Union could run out of fuel this winter, and the leading industrialized nations might have to help meet the shortfall, warns Frans Andriessen, European community external relations commissioner. Contending financial aid alone won't solve Moscow's problems, he calls on the Group of Seven to help alleviate the Soviets' impending domestic fuel supply crunch this winter. Andriessen notes, however, the difficulty those nations face in having to use a decentralized approach with the rapidly sundering union. The U.S.S.R. already has been hit by fuel shortages in the agricultural sector and reports long lines at service stations (OGJ, Aug. 12, p. 33).

The few remaining Communist nations are welcoming more foreign investment in their oil sectors. Petronas is the second wholly state owned oil company to chase an upstream deal in Viet Nam, following closely on the heels of Thailand's PTT (see story, p. 45). Petronas signed a production sharing contract with Petrovietnam to explore two blocks in the oil prone Mekong and South Conson basins about 100 miles off Vung Tau. Meantime, Mobil confirms it's discussing exploration opportunities with Viet Nam for when and if the U.S. embargo is lifted. Briefing U.S. officials, it noted Petrovietnam has sought bids for South China Sea acreage previously leased by Mobil, which drilled several major oil strikes there more than 15 years ago.

Britain will provide China a $170 million, 20 year loan to build a 140,000 ton/year ethylene plant in Xinjiang Uygur Autonomous Region. A group of nine U.K. banks led by Midland Bank is underwriting the loan, part of a foreign funding package of $390 million to import equipment from U.K., Spain, and Italy for the 2.5 billion yuan project.

The project is part of China's overall goal to jump ethylene output to 2.3 million tons in 1995 and 3 million tons in 2000 from 1.5 million tons in 1990 via expansion or new plant construction projects, 18 of which state owned Sinopec will fund solely or jointly. Sinopec, with 38 enterprises accounting for 2.62 million b/d of crude processing capacity, or 90% of the country's total, and 1.82 million tons/year of ethylene capacity, or 88% of China's total, is pursuing foreign economic and technical cooperation to reach that goal.

Japan's NKK plans a new shipyard at Tsu, Mie prefecture, that would be the first designed specifically to build double hulled tankers. NKK has two orders for 290,000 dwt double hulled vessels, and three VLCCs for Saudi Aramco are likely to be doubled hulled as well. And Ishikawajima-Harima has a tentative agreement with Navix Line and NYK Line, both of Tokyo, for two 258,000 dwt tankers.

Asean energy ministers have endorsed conducting a $3.8 million feasibility study of establishing a regional gas grid linking Indonesia, Brunei, and Philippines (OGJ, Sept. 9, Newsletter).

The ministers, meeting recently in Singapore, approved plans calling for an eight company European group to conduct the study with European Community aid. The study is to begin later this year with completion scheduled for first quarter 1993. Plans remain sketchy, but it basically calls for laying new pipelines and/or connecting existing transmission lines to form a transnational grid. The first line is likely to be laid subsea from Indonesia's giant Natuna gas field north to Singapore, Malaysia, and Thailand. Prapat Premmanee, secretary general of Thailand's National Energy Administration, estimates gas throughput costs at 50 cents/MMBTU and start-up in the mid-1990s. The European study would complement separate studies of such a project under way by the Asean Council on Petroleum, consisting of the six Asean state oil companies.

Portugal has moved into the next phase of developing a domestic gas grid with a contract for a distribution system around the northern city of Aporto. Lisbon awarded the contract to Portgas, a joint venture of Gaz de France, Gas de Portugal, Emportgas, Petrogal, national insurance company Nonanca, Lyonnaise des Eaux-Dumez's Ufiner division, and Aporto regional authorities. The 1,676 mile network will serve about 300,000 customers and be linked to a high pressure gas pipeline to be laid between Setubal and Braga by a GDF group.

Bids for Namibia's first offshore licensing round will be invited in Mid-October, says Prime minister Hage Geingob. During a week long visit to Paris, he had talks with Total and Elf. Total plans to bid, possibly in association with Chevron. Elf is noncommittal, saying it's interested in any possibility.

Companies and assets worth about $4 billion (Canadian) are on sale in the Canadian oil industry because of rationalization programs, says Sayer Securities Ltd., Calgary. Sayer estimates 41% of 141 companies it surveyed during Apr. 1-June 30 had assets for sale vs. 29% in the first quarter. It pegs worth of resource properties on the block at $2.7 billion and companies for sale at $1.3 billion. Among those up for sale are Columbia Gas Development of Canada Ltd. and Nova's interests in Husky Oil. Noting innovations to rationalize assets without selling them, the securities firm cites steps to sell a portion of future cash flow from an asset and regaining ownership a few years later.

The scramble among pipelines to serve California's gas market continues to gather momentum see story, p. 107). Altamont has ordered more than $200 million worth of pipe--including $103 million worth from Berg Steel Pipe Corp. and Mexico's Tubacero and another $100 million worth from Stelco unit Stelpipe--for its 30 in., 620 mile, 719 MMcfd system from Port of Wild Horse, Mont., on the Canadian border to link at Opal, Wyo., with the Kern River line to California. Mills at Panama City, Fla., Monterrey, Mexico, and in Canada will begin rolling pipe in early 1993, with deliveries to be complete in July 1993 for an April 1993 construction start and start-up in November 1993.