OGJ NEWSLETTER

Oil prices have seesawed in the wake of the U.S. imposing economic sanctions against Iran (see story, p. 26).

European Union countries decided May 2 not to join the U.S. in the embargo. By May 3, that had cut 700/bbl from the price of June delivery Brent crude, which had hit $19.38/bbl May 1. Traders apparently pushed up the price of oil on the assumption Europe might back the U.S. stance on Iran. But France, Germany, and the U.K. led the resistance to U.S. pressure to cut business ties with Iran.

Behind the drop was the fact that much of Iran's oil is exported to the Far East. "If countries like Japan are not involved, any embargo against Iran will have little impact," a trader said. Although Japan did not join the embargo, Tokyo decided May 2 to postpone a $500 million loan to Iran to help pay for a dam.

Geoff Pyne, oil market analyst at UBS Securities, London, was surprised at how much the oil price fell after the EU decision. "Nobody would normally have expected Europe to go along with the U.S. embargo anyway," Pyne said, "but there is nothing big in the wind for traders at the moment, so one can say prices were high because traders are looking for reasons to he nervous." Pyne contends Europe's snub of the U.S. ban was a small issue to have had such a large effect on oil prices. "I think the U.S. ban on Iranian oil imports will have a net positive effect on the market," Pyne said. "Iran won't sort out new sales contracts for at least a month. Any fragmentation of a market makes it difficult for buyers, which is also positive for the market." Pyne said that with European crude and products stocks down and Iraq taken out of the equation for at least several months, there is a chance Brent could approach $20/bbl.

Writing in Middle East Economic Survey, Columbia University's Gary Sick said congressional measures on embargoes against Iran represent an unprecedented effort to coerce the world into adopting U.S. policy.

"Sen. D'Amato's proposed legislation is a bit slapdash and shows signs of having been hastily conceived and written," Sick said..He warned that when it is discovered many of the bill's provisions will yield absurd results, "They will be allowed to molder on the books, largely forgotten except when trotted out to harass some unsuspecting soul who has attracted the ire of a sharp customs officer." Sick said a blizzard of presidential waivers will be required on major and minor issues of routine trade and tourism, "making a travesty of the legislative process and clogging the courts with frivolous litigation."

U.S. revenues from fuel and vehicle taxes, plus highway tolls, far exceed the cost of building and maintaining highways, reports API.

The Highway Users Federation (HUF), which distributed the report, said in 1992 road user taxes and fees subsidized $38 billion worth of other government functions. HUF Pres. William Fay said, "The driver subsidy myth would be almost amusing if it weren't for the sorry state of the nation's roads today."

Rowan Cos. has committed to design and build what it claims will be the world's biggest bottom supported mobile offshore drilling unit (MODU).

The Gorilla V North Sea class rig will be able to work in 400 ft of water. Projected to cost $135 million, it will be built at LeTourneau's Vicksburg, Miss., yard and delivered in second quarter 1998. Noting many leases in water depths beyond the capability of current bottom supported MODUS, Rowan sees the Gorilla V as a cost effective option for drilling in the North Sea.

Restructuring, asset sales, and job cuts continue to cut a swath across industry (see related story, p. 24).

Total will cut 10% of a total 3,200 administrative jobs at its Paris head-quarters and throughout France, mainly through early retirement, job timesharing, and use of part-timers, by yearend. The company cites a need to boost lagging refining/marketing profits in France.

Occidental plans to use proceeds from recent asset sales and increased profits to slash debt by at least $1 billion the next 2 years.

That will cut Oxy's future interest expense by at least $100 million/year pretax. As of May 1, Oxy redeemed $200 million in 10.75% debt.

The company logged an impressive turnaround in earnings last quarter (OGJ, May 1, Newsletter), citing its chemical operations as the biggest contributor. Oxy last week completed sale of two petrochemical businesses, its high density polyethylene operation to Lyondell for about $400 million and its polyvinyl chloride plant at Addis, La., to Borden Chemicals for $104 million.

In trying to amicably resolve a continuing dispute over tanker vs. pipeline transportation of Offshore California crude oil, MMS has temporarily withdrawn its Apr. 25 cease and desist order against Exxon (OGJ, May 1, p. 46).

Exxon had been using a pipeline to carry Santa Barbara Channel crude north to San Francisco, then tankering that crude to Los Angeles area refineries, allegedly a violation of state policy. Facing legal appeals, Exxon agreed not to use tankers for 30 days pending resolution among MMS and state and local authorities. If there is no solution by mid-June, MMS may reinstate the order. MMS withdrew the order because it wants to keep the dispute out of the formal appeal process, allowing resolution at the regional level.

New penalties for overbooking on Canada's main crude pipeline to the U.S. Midwest have slashed shipper abuses.

Interprovincial says overbooking has plummeted from triple line capacity to only 7% more than capacity. As of Apr. 27, shippers must pay a $2.70(Canadian)/bbl fine for space ordered but not used. Space is allocated under an apportionment system. If apportionment is set at 77% and a firm orders space for 100 bbl, it is allocated space for 23 bbl.

Prior to the new rules, companies had ordered space for 5 million b/d in May vs. IPL line capacity of 1.29 million b/d and total Canadian crude production of 1.9 million b/d. Requests dropped to 1.38 million b/d after the new sanctions, and apportionment for May then was set at 7%. IPL predicts apportionment will reach zero by June when U.S. refinery turnarounds end.

Cabot LNG Corp. has agreed in principle to buy 60% of the output from Trinidad's proposed LNG export project.

Amoco, British Gas, Cabot, and National Gas Co. of Trinidad & Tobago Ltd. are evaluating feasibility of building a 400 MMcfd LNG plant on the island.

Amoco is negotiating to supply all the project's gas, about 3.3 tcf of gas during 20 years from fields off eastern Trinidad. Amoco proved reserves of about 3.5 tcf in the region. Project authorization and award of engineering contracts is targeted for yearend, with first LNG output due in late 1998.

Russia's Gazprom apparently took less than 48 hr to make repairs after the Apr. 27 explosion on a gas pipeline near Ukhta, Komi republic.

Press reports of the blast said fireballs shot thousands of feet into the air, reportedly forcing a Japan Airlines passenger aircraft flying over the blast site to divert to avoid a fireball the pilot said was at 25,000 ft. The explosion scorched more than 4 sq miles of uninhabited forest with no reported deaths or injuries.

Clive Ninnes, reservoir engineering adviser at Dublin's Aminex plc, which is involved in a producing joint venture in the Komi region (OGJ, May 1, p. 42), was in Ukhta at the time of the blast. Ninnes said local residents reported debris from the blast falling from the sky. The explosion apparently occurred on a Gazprom operated trunk line of more than 30 in. built in the 1970s.

"I suspect that Gazprom will have cut out the damaged section and repaired it," said Ninnes."When we left Ukhta on the Friday after the explosion, we were told it had been repaired by then."

Pakistan will allow a pipeline to be laid across its territory from Iran and Central Asian states of the former Soviet Union via Afghanistan to old foe India, Turkmenistan Foreign Minister Boris Shikhmuradov has disclosed.

The $8 billion, 1,500 km line would carry 700 bcf/year of gas, with completion slated for 2002 and some of the gas earmarked for Pakistan.

U.K. Department of Trade & Industry (DTI), in its annual Brown Book, has increased its estimate of undiscovered U.K. oil reserves on the basis of last year's seismic surveys and drilling results.

DTI estimates undiscovered potential oil reserves at 8.5-33.4 billion bbl compared with last year's estimate of 4.1-24.5 billion bbl. West of Shetland holds the country's greatest hopes with undiscovered reserves pegged at 5-12.8 billion bbl. The prolific northern and Central North Sea regions, which have yielded the bulk of the country's 13 billion bbl of oil produced to date, are reckoned to have undiscovered reserves of 3.4-12 billion bbl. Estimates of undiscovered gas reserves are 15-56 tcf, up from 10.5-45.4 tcf in 1994, with a regional breakout of 8-24 tcf southern North Sea, 5.3-20 tcf West of Shetland, and 1.8-12 tcf northern/Central North Sea.

U.K. oil production was a record 2.534 million b/d in 1994, up from 2.002 million b/d in 1993, and is expected to be 2.3-2.7 million b/d this year before declining to 2-2.8 million b/d in 1999. Gas output is estimated at 2.45-2.8 tcf in 1995, rising to 2.8-3.85 tcf in 1999, after totaling 34.4 tcf to date.