OGJ Newsletter

OPEC may be starting to heed warnings of an oil price crisis next year, if some estimates of the groups November oil output are any guide.

Middle East Economic Survey (MEES) estimates the group cut total production by 160,000 b/d to 25.35 million b/d last month.

While such a drop is not especially significant to oil markets today, Julian Lee of Londons Centre for Global Energy Studies (CGES) sees it as a sign OPEC at least recognizes possible price problems loom in 1996.

When OPEC at its November ministerial meeting rolled over the groups 24.52 million b/d production quotaat a time when its output was 25.4 million b/danalysts saw that as ultimately depressing the market (OGJ, Nov. 13, p. 34).

Yet a number of factors sinceincluding low oil stocks, cold weather in Europe and North America, a brief scare over Saudi King Fahds health, and the growing prospect the U.S. might impose oil sanctions against Nigeriahave combined to strengthen crude prices. Brent for January delivery closed Dec. 13 at $17.94/bbl, up more than $1.50 since the OPEC meeting.

But stronger prices in the months ahead might not be all that desirable.

CGES soon will disclose data showing that if OPEC keeps producing at about 25.4 million b/d, the average price for OPECs basket of crudes will hover at $16-17/bbl in first half 1996, then plunge to $13.50/bbl in the third quarter and less than $12/bbl in the fourth. Lee frets that when OPEC ministers gather in June to review quotas, talks will occur at a time of relatively high prices and lead to complacency. We have seen in the past that if OPEC is not in crisis, it has difficulty in making decisions about anything important, said Lee.

Despite such concerns, the outlook for stronger world oil prices in first half 1996 is anything but certain. In contrast with the MEES projection of an OPEC output drop last month, IEA estimates OPEC output instead rose 60,000 b/d to 25.7 million b/d. That played a role in record world oil output of 71.7 million b/d in November. Mexico contributed about half the 1.4 million b/d rise from Octobera rebound from hurricane spawned shutinsand increases of more than 50,000 b/d each came in Norway, Australia, China, U.K., and U.S.

The chance that global oil markets will have to absorb more Iraqi oil any time soon continues to fade amid signs Baghdad still is trying to defy U.N. conditions for easing sanctions. Iraqi Deputy Prime Minister Tareq Aziz emerged last week from a meeting in New York with U.N. Security Council Pres. Sergei Lavrov dismissing as absurd reports that Jordanian officials at Amman airport had impounded missile guidance systems parts bound for Iraq and claiming the charges were fabricated to scuttle his mission to press a lifting of sanctions.

Further, the two sides have not moved closer to agreeing on conditions for permitting limited oil sales to buy humanitarian supplies.

Meantime, Indonesian Mines & Energy Minister Ida Bagus Sujana says his country aims to maintain oil production of 1.5 million b/d until 1999.

Jakarta warns the country could become a net oil importer by 2000 unless large new oil reserves are found and brought on stream.

Concerns the U.S. might impose an oil embargo on Nigeria in addition to sanctions already in place appear well founded.

Officials in Washington last week continued to warn the U.S. might institute such a measure to speed a transition in Nigeria to civilian from military rule.

Assistant State Sec. George Moose told a House panel on human rights and Africa, Nothing is ruled out, everything is on the table, including a multilateral oil embargo. We are not averse to acting unilaterally if the situation demands it.

A Republican panel member suggested an oil embargo might be the only tactic to produce results.

The U.S. on Nov. 20the day Ken Saro-Wiwa and eight other activists were executedimposed a unilateral ban on arms sales to Nigeria and visa restrictions and ended aid to Lagos. But those steps are having little effect.

Torontos city council refused to award low bidder Shell Canada a $1.2 million gasoline contract because of the parent companys involvement in Nigeria. Royal Dutch/Shell has been attacked for not intervening to try to save Saro-Wiwa. Shell says that it is in the Nigerian peoples interests for it to continue operating there.

The U.S. also is preparing to strengthen its hard line against Iran.

A U.S. Senate committee approved a bill to broaden economic sanctions by denying U.S. financing to non-U.S. firms that do business with Iran and placing them on a federal government blacklist. The proposal is expected to pass the full Senate later this month, and it is unlikely to encounter House opposition.

If so, the measure likely would hit hardest French oil firms that replaced U.S. firms in Iran earlier this year when Washington banned all U.S. trade with Iran.

A coalition of Alaska native groups has sued Interior for not consulting them in formulating reports and recommendations regarding leasing of the ANWR Coastal Plain.

Cook Inlet Region Inc., Kaktovik Inupiat Corp., and Arctic Slope Regional Corp. favor leasing and said Interior is obliged to represent the best interests of all Alaska natives but failed to do that when it decided to oppose leasing.

The White House has chastised Energy Sec. Hazel OLeary again, this time for her frequent international trips. Earlier, she was reprimanded for spending $46,500 to grade reporters (OGJ, Nov. 20, Newsletter).

The controversy mainly focuses on the expense of OLearys many travels. On three of the long trips OLeary took about 50 DOE staff members.

Vice Pres. Albert Gore said OLeary was attending official meetings or helping U.S. companies secure business. But later Chief of Staff Leon Panetta reviewed the travel allegations with OLeary.

AGA predicts U.S. natural gas consumption will jump 4.9% next year to 23.3 quadrillion BTU from 22.2 quads in 1995. The projection assumes normal weather, U.S. economic growth of 2.4%, and crude oil prices averaging $17/bbl.

Bidding for exploration licenses in the U.K.s seventh licensing round shows continuing strong interest in coalbed methane, with a fourth of all applications submitted by end of November targeting coalbed methane prospects.

The round attracted 29 offers from 25 companies for 127 blocks, and license awards will begin early in 1996.

With demand slowing in Europe and the U.S. and remaining flat in Asia, European Chemical Industry Council (Cefic) reckons the upturn in the chemical business has come to a halt, and results will probably show a fall by yearend. Cefic pegs chemical output growth, including petrochemicals, in 1995 at 2.5-3% and 2.5% in 1996 vs. 6% in 1994. Cefic expects Southeast Asia to play an increasingly important role in chemical markets, with the regions share of global activity to rise to 19% by 2000 and 23% by 2010 from 15% today.

Asian domination of world fiber markets also will grow, with South Asias share of the fibers business reaching 56% by 2010. Cefic says plastics production in South Asia will grow 8%/year to 2010, although North America will remain the worlds largest market. Huge capacity expansion in East Asia will lead to a reversal in the net foreign trade balance of Europes chemical industry.

U.S. and Norwegian firms are scrambling for a piece of the growing market for floating production systems (FPSs) (OGJ, Dec. 11, Newsletter).

Statoil and Aker have formed a venture to provide FPS modular process equipment. Advanced Production Systems (APS) will lease process modules for mounting mainly on production ships to enable development of small marginal fields nonviable with conventional technology. Statoil says the concept arose from a plan to build a small fleet of oil tankers that could be converted quickly into production ships (OGJ, May 23, p. 26). A number of small fields off Norway could be developed using FPSs with APS process modules. The fields would be depleted in 3-8 years, with individual output of as much as 10,000 b/d.

DeepTech International exercised an option with Wilrig AS to acquire Treasure Searcher semisubmersible. Plans call for modifying the unit in Pointe Noire, Congo, renaming it Bill Shoemaker FPS, and deploying it in the Gulf of Mexico in first quarter 1996. DeepFlex Production Partners LP, a DeepTech partnership with Coflexip Stena Offshore, signed an agreement with Sedco Forex International to operate DeepFlexs Laffit Pincay FPS. Sedco Forex is to provide personnel and operate the FPS, expected to go into service in February 1996 after minor modifications at Pascagoula, Miss.

A unit of Oceaneering International bought M.T. Swift very large crude carrier (VLCC) from Mobil Shipping & Transportation for conversion to Zafiro Producer FPSO. The 268,191 dwt VLCC will be the worlds second largest FPSO, with storage for 1.2 million bbl of oil and offloading capacity of 1 million bbl in 24 hr. The 1,088 ft long vessel is to be anchored off Equatorial Guinea on Mobils Zafiro field development (OGJ, Dec. 11, p. 37).

Cliffs Drilling chartered Langley jack up rig for 5 years to Sedco Forex for service as an FPS in the Gulf of Mexico. The unit is to be converted to a mobile production unit for deployment in mid-1996 off Nigeria.