OGJ NEWSLETTER

Is OPEC finally getting the word it's overproducing?

A surge in Iranian output boosted OPEC production to 25.49 million b/d in November-the highest level since 1980, Middle East Economic Survey reports. MEES reports Iran produced 3.835 million b/d, 215,000 b/d more than October's level. Kuwait increased production in November by about 100,000 b/d to about 1.45 million b/d, MEES says, and Kuwaiti sources told MEES output easily will exceed an average 1.5 million b/d in December.

U.S. oil markets rallied on word Nigeria plans to cut production.

Nigeria's oil minister says he wants to reduce output 10% and urges other OPEC members to do the same. Nymex light sweet crude for January delivery settled at $19.41/bbl Dec. 16, up 460 from the day before and 570 higher than the Dec. 9 closing (OGJ, Dec. 14, Newsletter).

"The market is in the mood to be bearish, but it has stopped interpreting everything as bad news," Cambridge Energy Research Associates told London's Financial Times. Traders are still looking for evidence OPEC is trimming output. Iran stressed Dec. 14 it had cut 300,000 b/d, offering further cuts to less than its latest OPEC quota, and called on other OPEC members to consider further ways of strengthening the market.

Oil producing associations in Russia's western Siberian Tyumen province are preparing to adopt western management methods to increase profits by converting to the world practice of trading in refined products, Moscow's business press reports. Ventech Engineers is building a 2,000 b/d topping unit for Uraineftegaz (OGJ, Dec. 14, p. 30), and reports say another contract has Krasnoleninskneftegaz and Petroleum International in a similar transaction for a 6,600 b/d unit. Both deals are valued at $17 million, press reports say.

Moscow praised Tyumen crude producers' initiative because the Russian government lacks funds to restructure the nation's energy industry in the foreseeable future, Moscow weekly Commersant reports.

Shortly before becoming Russia's prime minister last week, Viktor Chernomyrdin discussed his views on the nation's oil industry at an international conference on petroleum resources management in Moscow.

He said, "During the next 5 years, Russia must carry out comprehensive modernization of the oil sector. Russian oil production is in a state of crisis. This year we will produce less than 400 million metric tons (8 million b/d) of oil, which is 100 million tons less than the record level achieved in 1988." Chernomyrdin, previously a deputy prime minister in charge of fuel and energy, added he believes "attraction of foreign investment together with other measures will promote oil industry stabilization."

Australia has approved development of BHP group's giant Griffin oil field off its northwest coast (OGJ, May 18, p. 32).

Griffin is expected to produce for 13 years with peak output of about 80,000 b/d of crude and 40 Mmcfd of gas. First production is expected by February 1994. BHP will use a floating production, storage, and offloading unit, and operating costs are expected to be about $21 million/year.

BP plans to cut another 9,000 jobs worldwide by 1995. Of those, about 5,000 will be mainly in the oil and chemicals units and the rest from divestment of the nutrition division and other noncore businesses.

The cuts will be spread fairly evenly around the world, and they are in addition to previously announced plans to cut 11,500 jobs by early 1993.

BP Chief Executive David Simon plans to cut $1 billion/year from operating costs by 1995, reports Financial Times, which will add $600 million/year to profits. Cuts include $400 million from R&M costs, $300 million from the corporate center, $200 million from E&P, and $100 million from chemicals.

Ottawa has submitted legislation to remove one of the last provisions of Canada's National Energy Program related to frontier development.

The bill would remove a requirement for minimum 50% Canadian ownership of oil and gas production licenses on arctic or offshore frontier lands. The program, introduced in 1982, included nationalist measures designed to increase Canadian ownership of the industry, and most provisions have been repealed by the present government. The energy department says the proposal would remove a factor that makes the Canadian energy sector less competitive with other regimes internationally.

Petrofina's proposed $500 million sale of its U.S. refining/marketing assets to private Saudi investors could be jeopardized by Saudi government reluctance to sanction the deal, reports Financial Times.

The planned sale involves 50% of the two Fina refineries at Port Arthur and Big Spring, Tex., and Fina's small chain of service stations and chemical plants. Petrofina owns 86% of Fina Inc. Francois Cornelis, Petrofina chief executive officer told a press conference in Brussels last week that negotiations with the Saudis had made little headway since November. "The main hurdle to the sale is the resistance of the Saudi government," said Cornelis. "The decision is now in their hands."

In response to pleas from oil and other companies, President Bush has authorized U.S. companies to establish trade missions to Viet Nam.

Although the order does not lift the U.S. trade embargo on Viet Nam, it allows U.S. firms to get licenses to open offices there, hire employees, make engineering and feasibility studies for projects, and sign contracts that would take effect when the trade embargo is lifted. That may occur Jan. 5, when a U.S. commission is expected to report improved cooperation by Viet Nam on returning remains of U.S. soldiers.

Alaska Gov. Walter J. Hickel has asked Bush to lift an export ban on Alaska North Slope oil. Bush extended the ban in September.

Hickel says if Alaska were allowed to export ANS oil to Japan, it would mean $200 million/year to the state because of reduced transportation costs compared with shipping oil to the Lower 48.

"If we had a law that said Kansas couldn't export wheat, it wouldn't be acceptable," Hickel says. He notes there isn't enough demand for Alaskan oil on the Pacific Coast, and shipping the oil farther east adds $4.50/bbl in transportation costs vs. 600/bbl if the oil goes to Asia.

Is the U.S. natural gas market in 1993 going to be a repeat of 1992-a weak first half followed by a second half revival?

Salomon Bros. thinks so and is lowering its 1993 gas price forecast 10 to $1.70/MMBTU at Henry huh-So below the 1992 average.

The analyst's reasons: current storage levels are adequate, weak oil prices have combined with the distribution companies' run on lower cost storage gas-to reduce inventory costs-to gut January futures prices, and November was only slightly colder than normal. Only a cold December or severe cold snap in January will buoy prices again, Salomon Bros. says.

AGA says 1993 U.S. gas demand should increase 3.4% from 1992 to 20.6 tcf with a return to normal weather and modest economic growth.

AGA pegs demand at 19.9-21.1 tcf, given economic and weather variables. It says residential and commercial gas use grew 1% in 1992 and should jump 5% next year.

In the industrial area, 2.2% growth is anticipated vs. 8% growth in 1992. Use of gas by electric utilities is forecast to increase 3.3%.

Gas utilities are queueing up to take advantage of President-elect Clinton's promised strong emphasis on natural gas in his energy policy.

A study commissioned by Southern California Gas Co. shows a $20 million/year investment in natural gas technologies in southern California by 2000 would produce more than $1 billion of goods and services and by 2010 add 30,000 jobs to the region's battered economy.

Funds would go to the region's underutilized high tech research and manufacturing infrastructure to develop new gas technologies.

A Gallup Poll has found energy and the environment are not very important to 150 new and returning members of Congress.

Just 5% of the congressmen said those two issues were of critical importance to the new Congress. They ranked energy and the environment 16th among the 18 issues covered by the poll. Returning members thought energy and the environment were more important than did new members.

Meantime, the Bush administration has agreed to speed federal protection for endangered species.

Environmental groups had claimed Interior was so slow to protect plants and animals that 36 species have been lost while awaiting designation as endangered species. To settle a lawsuit, the administration says it will increase protected species from 749 today to about 1 150 in 4 years and will study another 900 species to determine if protection is warranted for them.