OGJ NEWSLETTER

World economic recession together with overproduction by OPEC is keeping a damper on oil prices.

EIA notes expected OECD economic growth of 2.2% in 1992, OPEC's response to increased output from Kuwait and possibly Iraq, relatively warm weather in developed nations, and continued uncertainty over C.I.S. oil exports are the keys to oil prices the next 18 months.

EIA estimates U.S. demand for petroleum products in 1992 will rise 1.3%, or 220,000 b/d, from 1991 levels.

But if economic recovery stalls and the unseasonably warm first quarter continues, the demand rebound could collapse. A first quarter 15% warmer than normal could eliminate more than half the demand growth expected for all of 1992, EIA warns. The agency expects C.I.S. oil exports to fall by about 610,000 b/d in 1992 and about 240,000 b/d in 1993.

Has the oil price collapse bullet been dodged? The prospect of $15/bbl or lower oil price now seems remote in view of OPEC's agreement on new quotas (OGJ, Feb. 24, p. 36), says Merrill Lynch. The analyst expects WTI to stabilize at $18-20 after initial weakness and rise to $24 by yearend as rising demand places renewed strains on OPEC capacity.

Purvin & Gertz, contending the OPEC accord was within 200,000 b/d of the market breakpoint, sees WTI at $20 by early second quarter.

Markets remain wary about the effectiveness of the OPEC pact last week, with oil prices remaining roughly flat on the week.

Middle East crude lifters reported cuts in nominations for March from Saudi Arabia and the U.A.E., and similar reports came from North Africa, Nigeria, Indonesia, and Venezuela. However, it's still too early to determine whether the cuts in nominations will bring OPEC output to 22.982 million b/d from about 24.2 million b/d before the Geneva meeting.

Tyumen oil production may drop by 1.2-2 million b/d in 1992, warns Gazprom. Soviet Business & Economic News quotes Gazprom's chief executive officer as saying Moscow is underestimating the decline in Siberian oil production, which "may wreak havoc" with Russian plans to export 1.2 million h/d this year.

Iran continues to press ties with the mostly Islamic former Soviet republics it borders as C.I.S. states scramble to offset energy supply shortfalls from Russia (see story, p. 22). Kazakhstan and Turkmenistan have asked for Iranian help in upstream and downstream oil operations.

Turkmenistan wants Iranian assistance in building a refinery and lube oil plant there and is interested in buying Iranian gas. Kazakh officials want Iran to help to build a refinery and explore for oil.

Marathon disputes reports Russia suspended award of a feasibility study of oil and gas development off Sakhalin Island to it, McDermott, and Mitsui (OGJ, Feb. 24, p. 38). A Marathon spokesman said the MMM group is proceeding as if the agreement is still on track and could not confirm the report of award suspension. Marathon also took issue with reports MMM agreed to allow Mobil and Japanese combine Sodeco to participate in the study: "We are currently negotiating with Mobil for its participation in the project and discussing possible participation with Sodeco."

Meantime, Tass reports enterprises of Russia's military-industrial complex also- want an active role in developing Sakhalin reserves. A meeting of Sakhalin officials and Russian industry ministry officials led to an agreement to establish a joint stock company with state and private foreign and domestic investors at Yuzhno-Sakhalinsk to coordinate project efforts.

Growing animosity between the former U.S.S.R. and Cuba is highlighted by Izvestia's claim the Castro government in 1986-89 obtained more export revenue from resale of Soviet crude on the world market than from exports of sugar.

Izvestia says Cuba received an average 270,000 b/d of Soviet crude at subsidized prices in the period when its demand was only 200,000 b/d. Resale of the surplus provided Castro's regime with its main income source, Izvestia says. Cuban imports of Soviet oil fell 24% to 180,000 b/d in 1991 and are expected to plunge to only 90,000 b/d in 1992, the Moscow newspaper said. Izvestia claims Cuba's oil shortage last year was not caused by insufficient Soviet deliveries but by Castro's continued reexport of oil needed domestically or to boost his army's strategic petroleum stocks.

A Franco-British group led by Sofregaz has won the international tender from Omegaz Etudes for a study of the Straits of Gibraltar pipeline crossing by the Maghreb-Europe gas pipeline. The line will deliver Algerian gas to Europe via Morocco and Spain. Other members of the group are J,P. Kenny and Beicep-Franlab. The study is to be complete in July.

New safety regulations in the U.K. North Sea could cost industry as much as $2.8 billion the next 15 years. Draft regulations and guidance published by Britain's Health and Safety Commission will require operators and owners to submit a safety case for each offshore installation by a date in 1993. And the case must be accepted by a date in 11,195.

Elf reports a production shortfall of 80,000 b/d from its Offshore Gabon fields following workers' strikes aimed at Elf Gabon since Feb. 21. Involved are wage disputes and local political concerns.

The oil industry will need to invest $1 trillion to develop at least 20 million b/d of new capacity that may be required in the next decade, says BP Chairman Robert Horton.

Without new investment, current world productive capacity will fall by 10-15 million b/d while demand will grow by about 9 million b/d.

Venezuela's energy sector leadership is undergoing another shuffle.

Rafael Guevara, former vice minister of energy and mines, was appointed acting minister after Celestino Armas was moved to minister of the presidential secretariat. A new fulltime minister will be named soon to replace Armas, long at odds with current Pdvsa leadership. And Pdvsa soon must replace Pres. Andres Sosa Pietri, whose term expires this month.

Mexico's petrochemical sector will be privatized further, El Financiero reports. The Mexico City newspaper quotes Roberto Sanchez de la Vara, head of Canacintra, the country's biggest business association, as saying, "Basic petrochemical products will be reclassified to reduce the number of products reserved for the state from 19 to eight." In 1988 Pemex had 70 petrochemicals under its monopoly.

The move to reclassify comes as a result of negotiations with U.S. and Canada on a North American free trade agreement (Nafta), according to El Financiero. Previously, only intermediate and downstream petrochemicals were fair game for private participation.

At the same time, Pemex Marketing Director Javier Jimenez insists Nafta will not result in establishment of U.S. owned retail service stations in Mexico because Pemex will retain exclusive gasoline marketing rights, Mexican news service Notimex reports.

DOE will resume filling the U.S. Strategic Petroleum Reserve.

Energy Sec. James Watkins told DOE to reenter the international spot market after light crude prices dropped to less than $19/bbl. The Defense Fuel Supply Center will acquire the oil through a continuing open solicitation.

DOE suspended buying oil for the SPR in August 1990, when Iraq's invasion of Kuwait tightened world oil supplies. Late in 1990 DOE sold 4 million bbl of SPR oil in a test sale and after start of Operation Desert Storm in early 1991 sold 17 million bbl in its first emergency drawdown.

SPR salt caverns along Texas and Louisiana coasts have capacity of 750 million bbl but currently hold about 568 million bbl.

Watkins says DOE will continue to negotiate with oil exporting countries on possible lease of crude for the SPR.

Opponents of changes to Texas prorationing rules claim more small producers are climbing onto their bandwagon as the Texas Railroad Commission last week began hearings on a proposed interim rule to more closely match Texas gas allowables with market demand.

Last month 32 of 37 companies and organizations filing written comments with TRC opposed companion proposal Rule 29, says TransAmerican Natural Gas Corp., Houston.

TransAmerican challenges claims by rules change proponents that the issue pits small Texas gas producers against large producers.

"Many of those opposed to these rules are smaller independents," TransAmerican said. ARCO says small producers are joining big producers to oppose Rule 29 because "This measure could turn Texas into a state that customers look to for spot market gas, not for long term contract gas."