OGJ NEWSLETTER

The news on the oil and gas demand front continues to he good.

The.U.S. posted its biggest year to year oil demand jump in 8 years during the first half, soaring 4.2% to 17.6 million b/d.

API cites strength of the U.S. economy, with harsh winter weather accounting for only 1 percentage point of the rise. First half hikes were registered for gasoline 1.7%, distillate 1.4%, and resid 7.6% vs. a year ago.

Year to date, total U.S. refined product demand for the 4 weeks ended June 24 jumped 4.9% from the prior year, according to Salomon Bros.

And U.S. refineries are humming. Utilization rose to 91.6% in the first half from 90.6% a year ago, with a peak of 94.6% in the second quarter-the highest quarterly rate in decades, says API.

Meanwhile, U.S. crude production dropped 3.6% to 6,653,000 b/d, the lowest 6 month level in 36 years.

Total U.S. crude and products imports rose 4.1% to 8,733,000 b/d, with the supply/demand gap made up by a net 150,000 b/d stockdraw compared with an average stockbuild of 200,000 b/d for the period in recent years. API thus estimates underlying growth in imports at 9-10%/year.

OPEC has revised its estimate of third and fourth quarter demand for members' oil, says Middle East Economic Survey.

Expected third quarter demand for OPEC oil was raised 190,000 b/d to 24.15 million b/d, while OPEC's projection for fourth quarter demand fell 70,000 b/d to 26.12 million b/d. MEES blames the changes on new expectations of oil production in the former U.S.S.R.

Natural gas occupies center stage in the outlook for rebounding energy demand in western Europe.

Despite energy efficiency gains, western Europe primary energy demand will grow 1.5%/year by 2000 and 0.9%/year during 2000-15, says DRI, Paris. That works out to 1.56 million tons of oil equivalent (MTOE) in 2000 and more than 1.77 MTOE in 2015, up from 1.43 MTOE in 1993. Natural gas will set the pace, gaining market share in all end use sectors, especially power generation. Western Europe's electricity gas demand will jump by 9.6% during 1993-2000, and total gas demand to 338 MTOE in 2000 and more than 462 MTOE in 2015 from 254 MTOE in 1993. Oil, paced by transportation demand growth, still will dominate western Europe's energy mix rising to 663 MTOE in 2000 and 696 MTOE in 2015 from 632 MTOE in 1993.

Only if oil demand projections remain on the high side will oil market strength continue in the near term, warns Purvin & Gertz. PG sees second half world demand at 500,000 b/d below IEA forecasts of 66.4 million b/d and 68.9 million b/d in third and fourth quarters, respectively. If that happens, PG says, expect WTI to drop to about $18/bbl by September.

Oil prices showed some slippage last week as fears of major oil export supply disruptions in labor strife-torn Nigeria failed to materialize (OGJ, July 18, Newsletter). Nymex crude fell to $19.20 at July 20 close, down $1 on the week. Talks between Nigeria's military government and union leaders aimed at ending the 2 week old strike led to the government offering to release jailed opposition leader Moshood Abiola. However, striking Nigerian oil workers rejected union leaders' calls to return to work and continued the strike to pressure the regime into handing over power to Abiola, widely considered to have won the presidential election in 1993.

Russia is urging the U.N. Security Council to set a deadline for considering lifting the Iraqi oil embargo.

Citing progress in Iraqi elimination of weapons of mass destruction, Russia contends implementation of plans to set up long term monitoring of Iraqi compliance with U.N. directives could begin as early as September.

Analysts see a period of at least 6 months of long term monitoring before significant Iraqi oil exports could reach markets again.

Tensions are mounting over what some former Soviet republics claim is Russia's demand for a veto over Caspian Sea oil and gas projects.

Kazakhstan says it would insist on dividing the sea among all Caspian countries rather than accept Russia's proposal for joint development of any Caspian project by all states bordering the sea. Kazakhstan, with support for its position from Azerbaijan, accuses Russia of market interference by opposing efforts by other Caspian republics to build pipelines carrying Caspian oil and gas across Turkey and Iran instead of Russia and imposing restrictions on exports of crude from Kazakhstan's supergiant Tengiz field.

Gaz de France and Statoil will study feasibility of a pipeline to move gas from Norway's Sleipner field to the French coast at Calais/Dunkirk.

GDF, to receive 455 bcf/year from Norway by 2000, wants direct landfall in France vs. transit via Zeebrugge, Belgium, or Emden, Germany.

The alternative for Norway would be to double size of the Sleipner-Zeebrugge line. Either option would start up in October 1998.

If Calais/Dunkirk landfall is feasible, GDF would build a line from there to its underground gas storage site at Gournay sur Aronde, near Compiegne, northern France. The study is to be complete in 3-4 months, with Norway's decision expected by yearend.

ARCO's restructuring ultimately will result in the elimination of 3,300 jobs. It plans to cut 400, or 25%, of Los Angeles headquarters positions, in addition to an earlier disclosed cut of 750 jobs in Alaska.

That leaves another 850 jobs to be cut between ARCO Products and ARCO's coal and transportation units before the second phase of the company's restructuring is complete. Most remaining cuts probably will come by yearend and be in California. The first phase of ARCO's restructuring, completed last year, eliminated 1,300 jobs in Lower 48 oil and gas operations.

ARCO plans to take after tax charges of $150 million against second quarter earnings for second phase restructuring costs.

Pdvsa is developing plans to let private companies explore for and produce natural gas on a widespread basis in Venezuela for the first time since nationalization in 1976. Vice Pres. Luis Urdaneta said the program will entail broad scale E&P to develop gas for domestic use, notably in EOR, as opposed to the big offshore LNG export project Pdvsa unit Lagoven is developing with Exxon, Royal Dutch/Shell, and Mitsubishi. Lagoven wants to triple its natural gas production by 2002.

Meantime, Pdvsa unit Corpoven found a major oil field in northern Barinas state in Southwest Venezuela. Pay depth is about 8,000 ft, and initial estimate of potential reserves is 600 million bbl.

In the mid-1980s, Corpoven found large reserves of light and medium gravity crudes near the Colombian border in Apure state, south of Barinas, and has been producing them for several years.

Petroperu's privatization is getting off high center.

A Peruvian privatization committee is offering for sale information packages and databank access to companies interested in buying its 102,000 b/d La Pampilla and 62,000 b/d Talara refineries and Petrolube lubricants business. They are the first to go up for sale under a privatization process Lima hopes to complete this year. Petroperu will retain an interest in most of the businesses to be sold. Also on the auction block soon are interests in and operatorship of Petroperu's producing blocks 8 and X on the northern coast and in the 200,000 b/d North Peruvian pipeline.

Efforts to privatize by the Philippines' biggest oil company, Petron, could be stymied by legal action seeking to block the earlier sale of 40% of the refiner/marketer to Saudi Aramco for $502 million. The Philippines Supreme Court earlier this month ordered Manila to prove by July 25 to explain why the Aramco sale should not be scrapped and an initial public offering halted. The IPO, involving another 20% of Petron, got under way last week, but analysts warn the court order could dampen interest. Petron promised to repay investors if the court bans the IPO. The Philippines refining/marketing industry is to be deregulated as of Dec. 27, 1996.

Singapore faces a drop of 10-15% in refined product exports to less than 850,000 b/d in the late 1990s and is likely to become a net importer of naphtha after 1997, when the island nation's big new petrochemical complexes go on stream. Other big export declines after 1996 are expected for jet fuel and fuel oil. By 1997, naphtha consumption.by Singapore's petrochemical complexes is expected to top 110,000 b/d, up from the current level of 29,500 b/d. Exports of gas oil and gasoline are expected to rise, however, with respective growth to 347,000 b/d from 332,000 b/d and to 152,000 h/d from 133,400 b/d in 1994-98.