OGJ NEWSLETTER

The most low key OPEC meeting in recent memory jumped oil prices to their highest level in more than 15 months.

OPEC ministers agreed last week to roll over the March ceiling of 24.52 million b/d to yearend and, as expected, canceled their September meeting (OGJ, June 20, Newsletter). Iran, struggling to maintain output near quota, is especially chummy with the Saudis on quotas these days.

The brief meeting's outcome pushed Nymex crude for July to close June 20 at $20.75/bbl, up about $2 on the week and the top settle since the Mar. 5, 1993, close of $20.93, which in turn was the highest Nymex close since late October 1992. It lost about $1 June 22 amid lessened saber rattling on the Korean peninsula.

One bone of contention emerged at the meeting: selection of a new secretary general to replace Subroto, retiring this month. After some bickering, OPEC concluded the meeting by appointing an interim secretary general. All but one member voted for former Venezuelan Energy Minister Alirio Parra to replace Subroto, who held the post for 6 years. As expected, Iran withheld its vote. Because OPEC's constitution requires a unanimous vote, the appointment has been postponed. Abdalla Salem El Badri, Libya's oil minister, was appointed president of OPEC and starting July 1 will serve as secretary general for 6 months. Quotas and appointment of a secretary general will be discussed at the next meeting Nov. 16 in Vienna.

As always, there's a divergence of opinion on the direction of oil prices after an OPEC meeting.

Rolling over OPEC quotas amid tight stock levels could underpin a steady rise in oil prices this year, contends London's Centre for Global Energy Studies (CGES). Noting an exceptionally small cushion currently in OECD company stocks, CGES says a cold snap or supply disruption could spark a price spike. It pegs OPEC's average basket price at $16.20/bbl in first quarter 1995 vs. $13.56 in first quarter 1994 and an average $14.38 year to date, citing strong oil demand, especially in the U.S.

API notes for the 4 weeks ended May 20 demand for all U.S. refined products jumped 8% and for gasoline 4.4% from a year ago. Year to date figures are up 4.8% and 3%, respectively.

However, Purvin & Gertz's outlook for world and U.S. petroleum markets remains less optimistic than the apparent consensus view, which P&G believes is bolstered by IEA's extremely strong demand projection of 66.9 million b/d for third quarter. P&G projects total world demand at 66.3 million b/d for third quarter and 68.9 million b/d for fourth quarter-only about 1% more than corresponding 1993 figures. P&G says demand cuts, particularly in IEA's estimates, would make for a quick turn in market sentiment. The recent price spike for WTI seems particularly vulnerable, and P&G expects Cushing prices to fall to about $17.50 the next several months.

Pdvsa is targeting a boost in oil export revenues in 1994 on the heels of firming oil prices. While a projection of $9.8 billion is down from 1993's $10.98 billion, it's a jump from a forecast earlier this year of $9.2 billion. It pegs average Venezuelan crude and products exports at the current level of 2.23 million b/d the rest of the year.

Meantime, Pdvsa is conducting a prefeasibility study of a $400 million project to produce 200 million metric tons/year of liquid ethane for export. It plans the project at Jose, eastern Venezuela, near big natural gas fields, a major port infrastructure, and Pdvsa's eastern cryogenic gas processing and petrochemical complexes.

Another powerful U.S. congressman is attacking EPA's proposed rule allowing Venezuelan gasoline imports under the reformulated gasoline (RFG) rulemaking (OGJ, May 30, p. 30). Rep. John Dingell (D-Mich.), energy and commerce committee chairman, grilled EPA officials last week about their justification for the rule. He also claims the State Department supported Venezuela in its bid to win better treatment in the rule.

U.S. trade groups have sued Interior over regulations issued last March that help state and federal governments determine environmental restoration costs for damages to public natural resources.

The 12 groups-among them API, NPRA, and NOIA-complain Interior abandoned standards that selected environmental restoration measures on the basis of cost effectiveness.

Delays in gas export approvals by Canada's National Energy Board are raising financing questions for a major U.S. power generation project, warns Tenaska Gas Co. Ltd., Omaha. Tenaska is working on financing as much as $200 million for a power generation project near Tacoma. It has deals with Husky and Shell Canada for natural gas supplies. Tenaska asked NEB to quickly resolve an impasse blocking export approvals.

Pressed by Alberta environmental groups, NEB since March has put several export bids on hold while it considers how much environmental assessment is required on applications (OGJ, June 20, p. 26). Tenaska says it is having to reassure the international banking community that there is not a special risk for doing business with Canadian producers. The Rocky Mountain Ecosystem Coalition says Tenaska is trying to unfairly influence the board and claims the Alberta government does not want to submit the oil and gas industry to a comprehensive environmental review.

The days of widespread growth by Canadian companies through property acquisitions and exploitation are over, claims Wood Gundy.

The analyst contends Canadian firms' growth by property acquisition has given way to growth by mergers and acquisitions. Further, Canadian operators are taking a longer term view of growth through "full cycle" E&D-as distinguished from low cost finding and development. Wood Gundy notes 1994 M&A activity in Canada to date is at a 15 year high likely to continue at that rate this year. While the number of wells drilled in Canada year to date is up 46% from a year ago, most of that increase involves development of booked or probable gas reserves. Hence, the analyst says, the idea of growth through exploration in Canada is still in its infancy.

Petro-Canada has set a July 19 deadline for offers on three of its leases in the hot Grizzly Valley gas play in Northeast British Columbia.

The sale, involving 150,000 net acres, is part of a yearlong rationalization program. Included are working interests in proved and probable gas reserves estimated at more than 100 bcf. It will also make available as much as 21 MMcfd of capacity at the Pine River processing plant in the area. The leases are in the Murray River, Ojay, and Sukunka areas, where there has been extensive exploration and some major discoveries.

A Japanese combine claims the biggest flow rate for a well off Viet Nam.

Japan Vietnam Petroleum Co. (JPV) gauged a flow rate of 10,346 b/d of low sulfur crude on a single production test of its Rang Dong wildcat from pay at more than 3, 000 m on Block 15-2 in the Cun Long basin about 120 km east of Vung Tau. JPV interests are Mitsubishi 51% and JNOC 49%. The strike is about 40 km northwest of Bach Ho, Viet Nam's sole producing oil field, and its crude and reserves potential are being compared with the 130,000 b/d Bach Ho. Two more wells are planned to delineate the find.

Meantime, BHP reports another strong producer in Dai Hung oil field, where it recently downgraded estimates of reserves potential. Its latest well flowed 5,300 b/d of crude with a gas:oil ratio of 400:1.

Thailand may have to build another refinery by 2001 to meet soaring demand for refined products that is expected to outstrip domestic capacity by late 1997. State owned Petroleum Authority of Thailand foresees need for a 300,000 b/d refinery to accommodate a domestic refining capacity shortfall of 178,000 b/d beyond addition of 700,000 b/d of capacity under way or planned by 1996.

India has decided to add state owned Oil India Ltd. (OIL) and Indian Oil Corp. (IOC) to its privatization list.

Earlier New Delhi had disclosed plans for a public offering of the biggest state petroleum company, Oil & Natural Gas Commission (OGJ, Mar. 14, p. 29). Plans call for first appointing consultants to revalue assets and restructure balance sheets. OIL, mainly an E&P company, produced 56,000 h/d of crude in fiscal 1993-94 and plans wildcats off Saurashtra and north of Brahmaputra in Assam state. IOC, mainly a refiner/marketer, will benefit from government moves to remove price controls on certain refined products.