OGJ NEWSLETTER

U. S. Industry Scoreboard 4/10 (72932 bytes)

A bullish gasoline market and growing prospects for a U.S. embargo of Iranian oil have spiked crude prices to an 8 month high.

Gasoline futures soared early last week on the strength of reports of lower stocks and refinery outages. Nymex gasoline for May climbed 1.12 on the day to close at 58.56/gal Apr. 4 as traders speculated gasoline stocks would drop sharply ahead of API's report on stock levels. That followed a week in which gasoline futures hit their highest level in 2 years amid some unexpected refinery shutdowns on the U.S. East Coast. EIA data showing U.S. gasoline stocks fell by 7.2 million bbl the week ended Mar. 31 sparked panic buying, driving Nymex gasoline to close at 64.11/gal Apr. 5.

At the same time, the increasing likelihood that the U.S. will clamp a ban on trade with Iran has contributed to oil price strength. President Clinton is considering options to tighten economic pressure on Iran, including barring U.S. purchases of Iranian oil. Current rules ban U.S. firms from importing Iranian oil, but they can buy it and sell it overseas. Clinton recently blocked Conoco from helping Iran develop two offshore oil fields (OGJ, Mar. 27, p. 25).

Meantime, the U.N. Security Council voted to maintain economic sanctions against Libya but rejected the U.S. call for the extended embargo to include a total ban on oil trade with Libya.

While the net effect on world supply/demand of a unilateral U.S. oil embargo of Iranian oil might be negligible in the medium term, the ensuing scramble by U.S. refiners looking to replace Iranian crude could cause short term regional supply disruptions. May Nymex crude flirted with $20/bbl last week, jumping 380 on the day and almost $2 since mid-March to close at $19.56 Apr. 5. IPE May Brent shot up 410 to close at $17.97 Apr. 5. Brent was trading at $17.98 early the next day, suggesting a likely correction was not imminent.

Continuing concerns over adequate supplies of U.S. reformulated gasoline (RFG) may be driving prices as much as anything else. Analysts last week cited a 3.9 million bbl drop in RFG stocks as a key contributing factor in the week's crude and products price runups. But a 0.79 drop in Nymex gasoline Apr. 3 was spurred in part by a decision by Wisconsin Gov. Tommy Thompson to exempt three counties near Milwaukee from EPA's RFG program.

Meantime, lobbyists and agencies are trading fresh volleys in the political battle over RFG.

A government study has found no significant fuel economy differences between conventional gasoline and RFG sold in Wisconsin, where motorists had complained about lower gas mileage with RFG.

EPA and Wisconsin Natural Resources Department said cars using conventional gasoline in road tests averaged only 2.8% better mileage than those using RFG with additives such as MTBE, ETBE, and ethanol and noted temperature changes might be a factor.

Oxygenated Fuels Association, responding to USGS studies that found traces of MTBE in Denver area groundwater and precipitation, cites EPA findings that the water samples were taken from shallow monitoring and irrigation wells and that the MTBE concentrations of 0.6 ppb are well below anything EPA would consider a health risk. The ethanol lobby Fuels for the Future heavily publicized the USGS study last month (OGJ, Apr. 3, Newsletter).

The U.S. House transportation committee has approved a Coast Guard authorization bill that would block a rulemaking under the 1990 Oil Pollution Act requiring offshore operators to post $150 million of insurance in case of spills. The committee approved an amendment returning the financial responsibility requirement to $35 million unless regulators determine the risks involved require a higher limit of as much as $150 million.

Alaska has launched a campaign to lobby Congress to open Alaska's Arctic National Wildlife Refuge Coastal Plain to oil and gas exploration.

Alaska's Democratic Gov. Tony Knowles suggests using ANWR oil revenues for a national heritage trust fund to buy back oil leases in Bristol Bay and pre-serve national parks. He plans to use $650,000 of state money to fund congressional trips to Alaska, state lobbying missions, and booklets touting potential environmental benefits of ANWR development.

As a U.N. conference met in Berlin last week to hammer out a treaty on greenhouse gas emissions, a U.S. think tank said temperature measurements show computer studies of the greenhouse effect have exaggerated global warming. The George C. Marshall Institute, Washington, D.C., released a study that found global temperatures are rising only 0.1 C./decade, about a third of what computer studies estimate. It added that atmospheric pollution explains only a small part of the difference between computer predictions and observed global temperatures.

Ethylene prices will collapse this spring, predicts Probe Economics, Millwood, N.Y Probe Pres. Fred Peterson sees ethylene falling to less than 20/lb by second half from 28/lb in February as a result of 1994 capacity problems easing.

Peterson notes recent downstream weakness, notably ethylene glycol, and thinks polyethylene could be next. A rash of plant outages caused ethylene prices to surge last year. Market fundamentals suggest the 1994 ethylene price runup was an aberration, with worldwide ethylene capacity in sync with normal demand.

Despite solid ethylene demand growth in 1993-94, start-up of new capacity caused nameplate capacity utilization to fall in 1994, Peterson said. He thinks ethylene prices will rebound in the next 3 years.

Egypt plans a $1.5 billion petrochemical complex north of Suez.

Officials say negotiations with Canadian, Japanese, and U.S. companies are being wrapped up for joint ventures covering about 15 plants at the site. Plans call for the complex to process about 500,000 metric tons/year of naphtha and 250,000 tons/year of associated natural gas to produce 200,000 tons/year of polyethylene, 100,000 tons/year of polypropylene, 80,000 tons/year of polyvinyl chloride, 450,000 tons/year of butadiene rubber, 40,000 tons/year of polystyrene, and 30,000 tons/year of ethylene glycol. Egyptian General Petroleum Corp. will contribute 20% of initial capital of $300 million, with other likely participants Dow, DuPont Canada, Hitachi, Itochu, Marubeni, Mitsubishi, and Mitsui.

That refiners will have to spend more than $2 billion in upgrades this decade to meet stringent new government refined products specifications that refiners contend will be among the toughest in "he world.

Bangkok's new focus on cleaner fuels, advocated by Canadian advisers, is being modeled after California fuels specs and are expected to be tougher than Japan's and Singapore's, currently Asia's leaders on environmentally preferred fuels. The new specs call for cutting diesel sulfur content to 0.05 wt % in 2001 from 0.25 wt % in 1996 and the current 0.5 wt %, reducing gasoline aromatics content to 30 vol % from 50 vol %, and limiting benzene in gasoline to 3.3 vol % vs. the current 5 vol %. Bangkok also ordered refiners to cut fuel oil sulfur content to 0.5 wt %, a level refiners say is technologically infeasible.

Mobil 50%, Veba 30%. and Nippon Oil 20% have formed a group to assess exploration opportunities in the Venezuelan E&P acreage bidding round to be held this year. Venezuela's congress first must approve the round, which will offer E&P profit sharing deals (OGJ, Feb. 20, Newsletter).

Italy is making more progress toward privatizing its energy sector.

Last month, the Italian senate approved a law creating the country's Energy Authority (EA), a step deemed necessary before privatizing state petroleum holding company ENI and state electric utility ENEL. EA, a lean bureaucracy with three board members and at most 60 staffers, will monitor and regulate fuels and power tariffs under the new privatized regime. Rome wants to begin privatization of ENEL in July and ENI later in the year. To comply with European Union antitrust rules ahead of privatization, Rome must terminate Agip's exclusive rights in the Val Padana area, considered Italy's richest hydrocarbon province.

Decentralization of Russia's oil industry and its transformation into a cluster of semiprivate integrated oil companies will be complete within 3 months. That's the intent of a decree signed last week by President Yeltsin.

The decree effectively kills a proposal to convert former Soviet oil monopoly Rosneft into a national petroleum company that would in essence be an amalgam of the fuel and energy ministry and a market oriented company, a competitive edge that worried other domestic and foreign petroleum companies working in Russia. Now, Rosneft will have responsibility for selling the state's share of oil under production sharing agreements that are expected to bring in foreign investment of $7-8 billion/year. Rosneft also will manage government interests in oil industry organizations, notably research institutes, and oversee general contracting of design and research projects.