OGJ NEWSLETTER
A consensus for near term oil price stability and healthy petroleum company profits seems to be emerging.
The effect on oil prices of last month's OPEC quota agreement setting a fourth quarter ceiling of 24.5 million ID/d (OGJ, Oct. 4, Newsletter) will be to leave them $1-2 higher than where they would have been with another rollover of the status quo, says DRI International, Paris.
During the next few weeks, the analyst contends, much of this increase will be due to bullish sentiment in the wake of the OPEC meeting. In the fourth quarter and into next quarter, seasonal factors and economic growth likely will keep prices buoyed, says DRI, which sees spot WTI at $18.70/bbl for October, rising to $21.10 in March. But a key uncertainty will be the temptation to cheat under the new, slightly higher quotas. DRI sees Iran the most likely culprit, producing 100,000 h/d over quota by March.
OPEC members' ability to resist the temptation to cheat in the fourth quarter will be complicated by a lower than expected call on OPEC production, warns Centre for Global Energy Studies, London.
The analyst notes OPEC's crude revenues in the first 3 quarters are down $8 billion from same time last year despite higher output.
CGES estimates fourth quarter demand for OPEC crude without stock level changes at 25.6 million b/d. If the market begins to draw down stocks, CGES predicts demand for OPEC crude at 24.5-25 million b/d.
Iraq and Russia, the two major wild cards in the oil price scenario, are deflating as near term price threats. With President Yeltsin crushing hardline opposition and promising speeded reforms, markets took note of the end to upheaval in Russia last week. Nymex light sweet crude for November climbed as high as an $18.79 close Sept. 30 after the OPEC meeting, an 830 jump in 2 days, then slipped to $18.40 at the Oct. 6 close.
Meanwhile, at presstime last week, talks between Iraq and the U.N. on humanitarian aid oil sales collapsed. The U.N. confirmed earlier reports Iraq has abandoned efforts for the one time sale and now wants to focus on lifting all sanctions. That's almost certain not to occur without 6 months of monitoring, but it poses a threat to markets in second quarter 1994.
Oil prices are proving less of a critical factor in major petroleum company earnings. Merrill Lynch notes third quarter earnings of seven majors it tracks are expected to rise modestly from last year despite sharply lower oil prices. It cites better than expected downstream results and aggressive cost cutting. Merrill Lynch also projects a fourth quarter earnings gain of 10% from last year for the group as oil prices recover sharply from third quarter levels. For the year, the analyst projects a 25% earnings hike from 1992 because of a strong first half and further earnings gains of 15-20% in 1994.
On an energy equivalent basis, world natural gas consumption is now almost 60% the level of world oil consumption compared with 40% vs. oil a little more than a decade ago. And at some point in the next 15 years, it could exceed oil consumption on an energy equivalent basis, contended Gaffney Cline's P.J. Jones at a Houston SPE meeting last week. Companies are likely to view participation in an expanding gas industry as more attractive than struggling in a slowly growing oil industry, he said.
DOE hopes to release its energy initiative proposals, designed to help the U.S. oil industry, by Nov. 1. A DOE official says the policy will cover promoting and spreading use of new oil and gas production technologies, increased use of natural gas, improved intergovernmental decisionmaking on energy policies, and an integrated approach to restraining oil imports. The policy is unlikely to propose an oil import fee, he said, because top DOE officials believe Congress would not approve it.
The Clinton administration and the big three U.S. automakers have launched a campaign to develop technology for an advanced generation of autos. GM says the research will seek "nothing less than a major, even radical breakthrough in automotive technology that can dramatically increase fuel efficiency, improve safety, and reduce emissions." Chrysler says, "We're trying to develop a whole new generation of vehicles that will achieve up to three times the energy efficiency of today's cars and trucks, while offering the same or improved levels of utility, safety, and affordability."
EPA is proposing a rule to require refiners, factories, and power plants to maintain continuous monitoring of smog, particulates, sulfur dioxide, lead, nitrogen dioxide, carbon monoxide, and air toxics emissions.
EPA says it has always wanted continuous data, but many companies had been unable to install high quality monitoring systems and provided only intermittent data.
The Texas Railroad Commission is preparing tough new safety rules for storing hydrocarbon liquids and gas in underground salt domes or productive or depleted reservoirs. TRC commissioners intend the rules to be a rigorous standard against which all U.S. underground storage facility regulations are measured. Draft TRC rules spell out facility design, construction, operation, and maintenance requirements, set strict standards for mechanical integrity testing, mandate installation of leak detection systems and devices, and require storage operators to develop detailed plans for employee safety training, emergency response, and citizen evacuation.
FERC has met its goal of restructuring gas pipeline rates before the 1993-94 winter heating season. Under Order 636's rate unbundling rule, it approved restructured services for 76 gas pipelines, although some issues remain to be settled on rehearing. Only two smaller pipelines have not yet received their initial restructuring orders.
FERC Chairman Elizabeth Moler says gas pipelines are ready to meet the challenge of cold weather this winter, and FERC will be on a winter storm watch in case it needs to resolve implementation problems.
Alberta government plans to abolish restrictions on natural gas sales to core market customers outside the province, effective immediately. The $1 billion core market includes residential gas users, institutions, and nonindustrial users. Following gas industry deregulation in 1986, Alberta passed regulations requiring core market customers to sign long term purchase contracts. The province said the restrictions were justified because core users could not easily switch to other fuels and required supply security. It also banned short term discount gas sales to core users. Gas marketers and producers welcomed the move. New rules for direct core customer sales in Alberta will be disclosed soon but not implemented until November 1994.
Italy's state oil and gas companies may be floated off as one company, Soc. Italiana Idrocarburi (SII), in a new plan for privatizating state energy/chemicals group ENI. London's Financial Times says this marks a radical change from earlier alternatives: merging and selling the Agip upstream and downstream businesses or floating a small block of shares in the ENI group. Besides Agip and Agip Petroli, SII is likely to include gas supply and distribution division Snam, design and engineering contractor Snamprogetti, and drilling/construction contractor Saipem.
SII would contain ENI's most profitable businesses in a group, although stakes in money losing chemicals division EniChem would probably need to be removed from the SH balance sheets.
Huge oil reserves are expected in eastern Siberia and Russia's Sakha republic, speakers told a Geneva seminar. Substantial reserves were said to have been discovered but shut in for lack of transport.
Petroconsultants reported one claim by the Academy of Sciences that as many as 14,000 pools could be discovered. Of these, 13,000 would contain less than 200 million bbl, but 18 would be giant fields, some holding more than 7 billion bbl of oil. Eastern Siberian production was predicted to reach 822,000 b/d of oil and 6.6 bcfd of gas in 2010-15.
Hanoi renewed its call for withdrawal of a Chinese oil exploration vessel from disputed waters in Tonkin Gulf. Its foreign ministry says the Nam Hai 05 has been operating in waters within Viet Nam's continental shelf since August, Agence France Presse (AFP) reports.
The dispute is just one in the latest series of confrontations between the two on offshore territorial claims in hydrocarbon prone waters (OGJ, June 14, p. 17, and Sept. 14, 1992, Newsletter). AFP reports economic sparring has replaced border clashes since Viet Nam and China normalized relations in 1991, with Beijing apparently using oil exploration vessels and award of blocks to strengthen its claim to disputed areas. Viet Nam recently offered tax breaks to maritime products companies setting up in the Spratly Islands, also disputed among China, Tawain, Malaysia, Philippines, and Brunei.
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