OGJ NEWSLETTER

With the world economy limping along, the Saudis apparently aren't taking chances it will be further hobbled by higher oil prices.

As the OPEC ministerial meeting got under way last week in Vienna, Saudi insistence on a higher quota ceiling to accommodate an expected rise in oil demand in the third quarter was underscored by the nonappearance of Saudi Oil Minister Hisham Nazer at the meeting. Citing exhaustion, Nazer stayed home while Iran came prepared to do battle with the Saudis over Tehran's insistence on a production cut to bolster prices.

The Saudis see the third quarter call on OPEC oil at more than 24 million b/d, but Iran pegs it closer to 23 million b/d, a little less than what OPEC produced in April. Most of any quota increase is likely to be assigned to Kuwait, still rebuilding its productive capacity. Oil futures prices last week settled about where they were a month ago, with Nymex light sweet continuing to hover at $20-21, and that level is probably propped by speculation possible U.N. sanctions on Libyan oil might tighten markets.

Could OPEC retaliation for "global warming" carbon taxes be another market wild card this year?

The European Community Commission has adopted a draft order levying taxes on oil, natural gas, and coal designed to cut carbon dioxide emissions tied to purported global warming from the greenhouse effect. Starting Jan. 1 with the onset of a unified European market, EC governments would collect $3/bbl of oil equivalent, rising $1/BOE/year thereafter.

The measure might well prove toothless, however. The directive will apply only if a similar measure is adopted by other major OECD nations. Pressured by industry and many EC governments, the commission imposed that condition on EC Environment Commissioner Carlo Ripa de Meana.

Meantime, Saudi Arabia's Nazer blasted the proposed tax saying the EC is using environmental concerns as a pretext to levy excessive taxes on oil from the Persian Gulf. He warns it would lead to future oil supply disruptions and accuses some European governments of earning through taxes on oil triple what oil producers earn.

"Because our economies depend basically on the export of one commodity, policies aimed at distorting the trade would affect our options and ultimately our relations with our trading partners," Nazer said, citing $20 billion/year of EC exports to Gulf Cooperation Council countries and the community's 40% dependence on Persian Gulf oil.

The EC is expected to take action on the carbon tax issue before next month's U.N. summit on environment and development in Rio De Janeiro.

Russia has jumped its oil and gas prices fivefold. President Yeltsin signed a resolution May 18 boosting price of oil sold domestically to $2.47-3.01/ bbl from about 48 cents/bbl. The prices will he effective for about 3 months, and product prices are not expected to increase more than 50%. Russia's Minister of Economy Andrei Nechayev said, "The final decision to liberalize prices on energy products and fuels will be taken as the situation requires."

Tatarstan plans to use foreign technology to build a 180,000 b/d refinery near Romashkino oil field, reports Moscow News. U.K., U.S., Canadian, Japanese, Swedish, German, South Korean, and Czechoslovakian companies have put their names in the hat to participate.

U.S. Agency for International Development has let a $3.1 million, 3 year contract to a group led by Bechtel to provide technical assistance to oil and gas industries in eastern and Central European countries.

The contract includes training support and upstream and downstream industry sectors. The group will focus on regional refinery rationalization, privatization of oil and gas companies, development of policy and institutional frameworks to encourage private investment, development and production, and oil and gas transportation systems to link eastern and western Europe.

Included in the group are Chem Systems, Arthur Andersen, Gafney Cline & Associates, and Merklein & Associates.

Fallout from the Guadalajara tragedy continues to plague Pemex (OGJ, May 18, Newsletter). Almost half the gasoline stations in Mexico City have been closed for safety checks after last month's sewer explosions in Guadalajara were blamed on gasoline leaks. Pemex shut down 57 stations permanently and will close another 46 until they meet safety standards set by Pemex and the mayor. Pemex boosted supplies to the remaining 136 stations.

Meantime, Mexico's President Salinas has ordered Pemex to restructure, giving the company 30 days to submit a plan. The order specified Pemex is to remain under ownership and control of the state and would retain control of all aspects of the country's petroleum industry.

Canada's pipeline industry is undergoing a major expansion, says Majestic Contractors Ltd., Edmonton, and the company is seeking an acquisition. Majestic Pres. Jack Cressey notes expansion of TransCanada's system and growth in gas demand have given the company a work backlog of several years. And Ontario government's concern over nuclear power may spur more fuel switching to gas and thus more pipeline growth, he contends.

British Gas has some early competition in the newly deregulated U.K. gas market. Alliance Gas, a U.K. joint venture of BP, Statoil, and Norsk Hydro, began trading in the market effective May 18 and marked its entrance by purchasing the entire output of Hyde field in the North Sea. Reserves in the field, to go on stream in October 1993, are pegged at 143 bcf. And independent supplier Kinetica Ltd. has purchased the entire output of 320 bcf Murdoch field in the southern North Sea. Deliveries to Kinetica, to begin in fourth quarter 1993, will be via the new Caister Murdoch system and Theddlethorpe gas terminal in Lincolnshire, both operated by Conoco.

The world tanker order book is at its highest level since 1976 with 363 tankers due for delivery in 1992-95, says Intertanko.

That's despite a drop in orders in 1991 to 12.9 million dwt from 27.5 million dwt in 1990, which accompanied a weakening in newbuilding prices.

The price of a single hull 250,000 dwt newbuilding from a Japanese yard peaked last year at $95 million in August-September. At the end of February this year the same vessel was $87 million.

Low oil and gas prices and depressed day rates have crimped investment in new offshore drilling rigs, says Singapore's Far East Levingston Shipbuilding Ltd. FELS says the market appears soft in the medium term for new drilling rigs but is improving rapidly for floating production systems.

FELS recently won a contract to build, hook up, and commission a semisubmersible production platform for Petrobras and with partner Tecnica Nacional de Engenharia is to deliver by 1994 the Petrobras XVIII, designed to handle 100,000 b/d of oil, for installation in the Campos basin off Brazil.

About 15 international companies have offered bids totaling $4-6 billion covering proposals to boost production in eight Algerian oil fields, says Sonatrach. Among those responding to Sonatrach's tender is a combine of Total and Japanese companies C. Itoh, Taiyo Oil, and Impex.

Pakistan has tentatively approved a $3.5 billion project to import natural gas from Qatar via a 1,600 km pipeline from Doha to Karachi.

The government signed a memorandum of understanding with Crescent Petroleum Co., Sharjah, to conduct an $8 million, 18 month feasibility study of the project. Crescent is to arrange financing of the project through World Bank and other sources.

Crescent also is involved in a joint venture with Pakistan's Perac to build a hydrocracker complex at the state owned 53,000 b/d Karachi refinery. The hydrocracker would upgrade 32,000 b/d of residual fuel oil into 30,000 b/d of kerosine, high speed diesel, heating oil, and sulfur sold mainly on the domestic market with some exports.

Units to be included are vacuum distillation, visbreaker, hydrocracker, hydrogenation, amine treater, and sulfur recovery. A tender for turnkey engineering/construction contract is planned for June-July.

Meanwhile, Pakistan's two gas transmission/distribution companies are scheduled for further privatization this month.

The government set up a commission in Islamabad to proceed with a public offering of 26% of the government's stock in Sui Southern Gas Co. Ltd. (SSG) and Sui Northern Gas Pipelines Ltd. (SNG). The government hopes the offering will net as much as 4 billion rupees ($160 million), but East-West Center, Honolulu, earlier estimated the offering would garner only about $40 million. The government holds a 70.43% stake in SSG and a 29% stake in SNG. The divestiture is to be complete by the end of June.