Newsletter

• U.S. Industry Scoreboard 11/21 [44,732 bytes]

Having goaded the U.S. to the point of threatening military strikes, Saddam Hussein appears to have backed off a bit from his hard-line stance. But appearances can be deceptive.

Tariq Aziz, Iraq's deputy prime minister, said Baghdad would let U.S. arms inspectors return to Iraq if the other five permanent member countries of the U.N. Security Council had equal representation on the inspection teams. A U.S. government official reportedly said Washington could not look favorably on the Iraqi proposal, as it was another attempt by Baghdad to dictate the composition of U.N. inspection teams. Baghdad then reportedly told Russia that it would allow the return of inspectors unconditionally, but U.S. Sec. of State Madeleine Albright said, "I will believe it when I see it."

The U.S. and U.K. reportedly offered to end current U.N. economic sanctions if Saddam complies fully with the arms inspectors' requests. Although details of the offer were not disclosed, Washington is expected to insist on full disclosure of weapons stocks, action on human rights, and payment of compensation to Kuwait-conditions that Saddam has declined all along.

A second U.S. proposal envisions expanding the current Iraq/U.N. oil-for-aid deal if Baghdad complies with all U.N. mandates. Baghdad's response, provided by Foreign Minister Saeed Al-Sahhaf, was blunt: "We are not a camp of refugees to be given small food. We will not accept it."

As the danger of immediate loss of Iraqi exports lessened with the hints of a diplomatic solution, crude oil futures prices fell in London last week.

Brent for January fell 73.5? to $19.35/bbl in London trading on Nov. 17. The benchmark blend fell to $19.22/bbl on Nov. 18 and $19.18 on Nov. 19.

The real cost to the U.S. of oil imported from the Middle East isn't $20/bbl, but more like $80-100/bbl, says Sen. Richard Lugar (R-Ind.). The $80-100 figure takes into account the costs of keeping shipping lanes open, keeping rogue states in check, and keeping terrorists at bay, he says.

He held the U.S. ethanol industry up as an example of the U.S.'s ability to address the problem. Ethanol producers can make 1.5 billion gal/year (97,800 b/d), thus backing out an almost equivalent volume of imported oil, he claimed.

Lugar said an increase in ethanol production of 10 billion gal/year (equivalent to only 4% of U.S. refinery input) would create an additional 100,000 U.S. jobs. Lugar did not give any figures for the increased cost to the U.S. government of ethanol subsidies under his scenario.

Although discussions on Caspian-area export pipeline routes are continuing, geopolitical issues have thus far blocked any final decisions.

U.S. Energy Sec. Federico Pe?a, following a trip to the Caspian region, said Turkey, Azerbaijan, Georgia, and Turkmenistan have agreed to study prospects for an export pipeline corridor from Baku to the Turkish port of Ceyhan. And Kazakhstan will establish a working group to accelerate development of trans-Caspian pipelines to feed the export line.

The secretary said the region needs multiple export lines, not just those through Russia. He argued strongly against export lines through Iran.

Azerbaijan International Operating Co. is due to decide about main export routes by next October.

Meanwhile, Kazakh President Nursultan Nazarbayev said his country would drop plans for a pipeline through Iran if the U.S. would provide alternative financing by next October.

Italy's ENI is considering building an oil pipeline from Romania to Italy to provide a Mediterranean outlet for production from two Kazakh deposits that ENI subsidiary Agip will operate (see related story, p. 42). The line may extend from Costanza, Romania, to Trieste.

Significant cost savings and efficiency gains are there for the taking by North American producers, says Ziff Energy Group. Well servicing, electric power, and taxes-which, together, represent about 58% of field operating costs for Permian basin producers-are the most obvious targets for improvements.

Electricity costs are higher for Permian basin producers than for those in the U.S. Midcontinent and Canada, says Ziff, because of widespread use of waterflooding facilities run by electric pumps.

"Many operations in the Permian basin, and elsewhere, have become non-optimum as production has declined and are now in dire need of a good tune-up," said Ziff's Gordon Clarke.

A National Research Council study has affirmed that double-hulled tankers and barges can significantly lower the risk of large oil spills (see related story, p. 44), but warned that not all double hulls are the same.

It says some of the new ships with double-hull designs, particularly those without center bulkhead partitions, will not protect against spills as thoroughly as other double-hull designs and are not as stable during loading and unloading. The U.S. Coast Guard should monitor the condition of older single-hulled vessels that will be allowed to operate in U.S. waters until 2015, says NRC.

All of the takeover bickering and posturing has come to naught for Union Pacific Resources. UPR scrapped its $4.2 billion bid for Pennzoil last week after a failed 6-month battle (OGJ, Nov. 17, 1997, Newsletter).

Canada's federal and provincial energy and environment ministers have agreed on a position to spread out cuts in greenhouse gas emissions through 2010. Quebec was the only dissenting vote in a general agreement that Canada should try to reduce greenhouse gas emissions to 1990 levels by about 2010, but not at the cost of hurting the nation's economy.

Alberta Environment Minister Ty Lund said he was relieved by a federal statement that Ottawa won't be legally bound by a Kyoto deal to cut emissions unless the U.S. also ratifies legally binding cuts.

A joint statement from the meeting said the Canadian delegation to Kyoto will advocate "an economically achievable agreement that provides maximum flexibility in how emissions can be reduced in each country."

The Canadian Association of Petroleum Producers said the stance is satisfactory for Alberta, Canada's major petroleum producing province.

The David Suzuki Foundation, a leading environmental group, condemned the agreement. It said Canada is now at the bottom of the heap among developed nations on targets and timetables to cut emissions.

Gas deregulation is burgeoning in disparate regions.

The European Commission seems prepared to settle for a "minimum" directive on gas deregulation in order to push it through at the December meeting of energy ministers.

Pablo Benavides, an EC official, said that, while passing the directive and achieving 100% liberalization of the gas market would be a long-term operation, the directive would act as "a triggering mechanism."

Benavides indicated a consensus had been reached on several issues, including a gradual opening of the market at different rates for each EU member country. In addition, he said, gas distributors would become eligible customers only after new lines were built, offshore upstream gas lines and storage facilities would not automatically open to third-party access, and long-term take-or-pay contracts, "whose necessity is no longer disputed," would be maintained.

Current contracts would continue, he said, even if this means only 700 bcf of the 16 tcf/year of EU supply is involved as the market opens.

Meanwhile, the Council of Australian Governments has endorsed the National Gas Pipelines Access Agreement, creating a new era of free and fair gas trade among the country's states and territories. Each state and territory must now pass legislation removing barriers to local gas markets, which in the past have isolated the states and fostered supply monopolies.

Immediate beneficiaries of the reform will be AGL, which is building a line connecting Victoria and New South Wales supply systems, and BHP, which has proposed a line linking Victoria, New South Wales, and Queensland. Chevron has proposed a link between Papua New Guinea and Queensland, which will be a major boon to Australian gas trade if it comes to fruition.

Venezuela's oil industry is facing a possible general strike as management and union leaders remain widely separated on the 1998-99 collective labor contract.

A 12-hr work stoppage was staged by leading oil and petrochemical unions, Fedepetrol and Fetrahidrocarburos, in mid-month. The unions were pressing Pdvsa to include in the new contract a 250% hike in basic wages. While that may sound like a major boost, the current basic wage is only 4,000 bolivars/day ($8). Pdvsa is thought to be amenable to an increase to a $12/day wage, rather than the requested $28/day.

Under Venezuelan law, unions must wait 120 days after calling a strike before workers can walk out.

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