Newsletter

• U.S. Indusrty Scorebord 9/15 [57,462 bytes]

In a sharp turn from recent trends, optimism has moved downstream.

Salomon Bros. says U.S. refining margins have risen 65% in the last month. California refining margins have been particularly robust, nearing $10/bbl (gross). This is a 125% increase in a month's time.

"The influence of Iraq on the tightly balanced supply/demand of crude oil cannot be underestimated," said Salomon.

Purvin & Gertz shares Salomon's optimism.

Early third quarter U.S. gasoline demand has been setting records, resulting in a rather sharp stock draw, says P&G. Summer price peaks usually occur in the second quarter, although consumption peaks in mid-summer.

The market was strengthened in early summer by lower-than-expected global stock builds.

Non-OPEC output failed to meet expectations due to Colombian and North Sea supply disruptions, and continued delays in Iraqi sales held OPEC output in check.

Gasoline strength in the Atlantic Basin was the key driver for strong crude prices last month, as evidenced by sharply improved refining margins.

There is a downside, however.

"All signals still point to a sharp collapse from these inflated levels over the next month. We have already seen the first round of this with prices having dropped almost 10¢/gal over 2 days from mid-August peaks," said P&G.

Refinery runs are setting records as the season closes. This seems to ensure a weakening of the market, warns P&G. Combined with expected deterioration of global balances, crude and product prices should fall sharply the rest of the year.

Exxon has had to shut down the alkylation unit at its Baytown, Tex., refinery for undisclosed reasons.

The move comes on the heels of the restart of a catalytic cracker at the refinery, the loss of which had helped create tight gasoline markets.

Iraqi Foreign Minister Mouhammed al-Sahhaf has asked the U.N. to reconsider terms of the oil-for-aid agreement.

There has been no official response to his proposal to loosen strict time limits on delivery of food and medicine.

In a message to U.N. Sec. Gen. Kofi Annan, al-Sahhaf said Iraq is displeased that its petroleum exports must adhere to a rigid schedule while delivery of aid items is "endlessly dragged out."

Al-Sahhaf says Iraq is "ready to pay with petroleum for the already delivered food, not for promises."

Florida has again thwarted Venezuela's long-standing efforts to penetrate the U.S. market with its patented boiler fuel, Orimulsion (OGJ, Oct. 21, 1996, Newsletter).

Citing environmental concerns, Gov. Lawton Chiles and his cabinet voted to require new hearings on a request by Florida Power & Light (FPL), the state's largest utility, to burn Orimulsion at its 1,600-MW Manatee County generating plant on the Gulf Coast.

FPL says Orimulsion will save $4 billion in fuel bills in 20 years, but Chiles wants additional hearings on toxic emissions and the potential dangers of shipping large volumes through Tampa Bay.

"Why should Florida be the first state in this country to use an experimental fuel when even Venezuela won't use it?" asked state Atty. Gen. Bob Butterworth. FPL notes that Venezuela does not use Orimulsion because it has plentiful, cheap oil. Although FPL's plan to convert the facility meets EPA standards and has been approved by Florida's environmental authorities, Chiles and most of his cabinet voted last year to delay implementation.

Over environmentalists' objections, BLM has approved Conoco's bid to drill a wildcat in the new Grand Staircase-Escalante National Monument.

When he made the area a monument last year, President Clinton said existing leases such as Conoco's would be honored.

The Southern Utah Wilderness Alliance said it would appeal BLM's decision. BLM said the well would have little environmental impact because it would be next to a road in an area of previous exploration. It deferred action on other Conoco drilling permits until the first wildcat is completed.

A U.S. judge has denied Pennzoil's motion to block Union Pacific's $4.2 billion takeover bid after UP voluntarily submitted six internal documents relating to its bid (OGJ, July 28, 1997, Newsletter).

Further contention is expected.

Amoco Argentina and Bridas plan to merge most of their South American assets.

Amoco will have a 60% interest and Bridas 40% in a combined firm operating in Argentina, Bolivia, Brazil, Chile, Paraguay, Peru, and Uruguay. As part of the deal, Bridas will acquire a minority interest in Amoco Bolivia, which owns 50% of Empresa Petrolera Chaco SA.

The deal includes production of more than 140,000 boed and 1.5 billion boe of reserves, about half of which are proved. Mike Ivy, Amoco Argentina president, said, "Our business strategies are very comparable regarding the tremendous energy market opportunities in (South America's) Southern Cone."

Canada's gas producers predict an average plant-gate gas price of $1.87 (Canadian)/Mcf by 1999, says Canadian Energy Research Institute.

This clearly reveals optimism on the part of producers, who consider this price increase of about 10¢/year to be sustainable in the long term.

Corporate budgets show that Canadian companies expect to add 13.5 tcf to reserves this year. Higher prices and producer overconfidence explain why capital spending estimates are at record levels, CERI says.

"Overall, the investment outlook could probably be qualified as extremely aggressive," said CERI.

Canadian Resources Minister Ralph Goodale wants industry to make stronger commitments to reduce greenhouse gas emissions.

Goodale told a conference in Calgary the more that can be accomplished by voluntary commitments, the less likely it will be that other options will be considered. About 640 Canadian firms have registered with a voluntary emissions reduction program, and 360 have filed specific action plans since it began 2 years ago.

"Canada must act not precipitously in a way that damages our economy but with a pragmatic step-by-step approach that is sustainable for Canada under our circumstances," the minister said.

He added that Canada will not make commitments at the upcoming climate change conference at Kyoto unless it can deliver on them.

Three companies active in energy and telecommunications are building a fiber-optic network linking Portland, Ore., and Los Angeles. They are Williams Cos. unit Williams Communications Group, Enron's FirstPoint Communications, and Montana Power's Touch America subsidiary.

The 1,620-mile network also will serve Bend, Ore.; Boise, Idaho; Salt Lake City; and Las Vegas. Completion is due in December 1998.

Chevron is urging Saudi Arabia to consider E&P joint ventures with international oil firms, similar to those the kingdom uses for refineries and petrochemical plants.

Michael O'Connell, Arabian Chevron president, says Chevron-one of the biggest lifters of crude in Saudi Arabia-has billions of dollars available for E&P projects. Chevron officials hope to discuss the issue with Saudi officials during the Second Saudi Arabian Gas Conference next month in Yanbu.

Russia's First Deputy Prime Minister Boris Nemtsov vowed Rosneft privatization will occur "in the presence of many journalists in an open and clear manner. We will not tolerate any behind-the-scenes dealing."

Rosneft will be auctioned in two tranches, with no restrictions on foreign shareholding. The state hopes to reap at least $1 billion from the sale of 50-51% of the company in the first tranche.

Investors will bid on 41.4-42.4%, and 7.6% will be reserved for employees.

In the remote Falklands, several operators will cut costs next year by sharing a drilling rig and common services.

One operator, International Petroleum Corp., said, "This is a unique agreement for the oil industry, which will result in the drilling of at least five consecutive wells beginning in May 1988. The accord will enable the operators to reduce the cost of the upcoming drilling campaign and will assist in minimizing the impact on the offshore Falklands local infrastructure."

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