OGJ NEWSLETTER

Will Russia's oil sector woes prove OPEC's salvation this year?

Russian Minister for Fuel and Energy Yuri Shafranik predicts that if his nation's crude/condensate production drops as much in 1993 as it did in 1992-by 1.243 million b/d, or 13.7%-Russia will "practically be deprived of its ability to export oil and will only be able to meet its own requirements." Russia thus would lose much of the 60% of foreign currency revenues from fuel and energy sales, Shafranik says, adding other C.I.S. republics "will suffer catastrophic consequences if they are forced to halt or reduce sharply their imports of Russian oil."

Shafranik notes, however, that Russia's 1993 energy outlook, while bleak, isn't as pessimistic as last year's results. Crude/condensate production is expected to fall 12% while natural gas and coal output is expected to rise 1.1% and 0.5% vs. drops of 0.4% and 4.8%, respectively, last year.

A.W. Jessup, writing in Geopolitics of Energy, notes a decline in oil and gas exports from the former U.S.S.R. would boost the call on OPEC crude. Oil exports from the former U.S.S.R. have held up fairly well in recent years-averaging about 2 million h/d in 1992-because the slide in domestic consumption has outpaced even the steep plunge in production there. Domestic consumption can't fall much further, writes Jessup, so most added loss of output means a cut in exports.

Supply disruptions in the former U.S.S.R. could increase because of deteriorating pipelines and internal unrest, he contends.

Azerbaijan has its first foreign joint venture aimed at hiking sagging onshore oil production. It signed a joint venture agreement with Turkey's Attilla Dogan Petrosan (ADP) to use advanced technology to boost crude production from old fields in the Neftechala district near the Caspian Sea coast southwest of Baku. The venture's to be capitalized at $51 million, and revenues from incremental production will be split Azerbaijan 51%, ADP 49%. Azeri onshore flow peaked at 445,000 b/d in 1940 vs. 45,000 b/d today.

Persian Gulf oil producers should raise taxes on imports from western nations if Europe and the U.S. introduce energy taxes, says Kuwaiti Oil Minister Ali al-Baghli. He made the comment after a Gulf Cooperation Council meeting in Jeddah. Financial Times, London, quoted one oil industry executive as saying gulf producers have invested too much in increasing output for threats of cuts to be taken seriously.

Meantime, Persian Gulf producers continue to press megaprojects.

Abu Dhabi National Oil Co. (Adnoc) has let a $1.3 billion turnkey contract to Technip and Bechtel for work related to the world's biggest current gas development project in onshore Habshan field. The contract calls for addition of onshore gas treating, condensate extraction, sulfur recovery, and gas injection facilities, and a gas compression complex Bechtel will build at Thamamma B, which is 5 km from a gas processing complex Technip will build and integrate into the existing two train gas processing plant at Bab/Habshan. Technip also will build the sulfur recovery plant. Bechtel will install six condensate storage tanks and associated transfer facilities at Ruwais refinery 105 km away and 245 km of 10-30 in. pipeline.

Adnoc affiliate ADCO has begun developing Zubbaya, Shanayel, Rumaitha, and Jarn Yaphour oil fields and expects to complete development of Bab oil field this year, with Bab's peak output capacity put at 100,000 b/d. Those are among seven major projects Abu Dhabi has planned the next 5 years, including Bu Hasa gas development, and part of an overall $6 billion U.A.E. push to jump oil productive capacity to 3 million b/d from the current 2.4 million b/d.

Oman and India have signed two memoranda of understanding for feasibility studies of joint ventures to lay a $4.5 billion, 1,440 km, 42 in. subsea pipeline to deliver Omani and other Persian Gulf region gas to India and build two 120,000 b/d refineries in India at combined cost of $3.2 billion. If the pipeline is approved, Oman would export 1.75 bcfd of gas to India beginning in 1997. The refineries-in which each country would have a 26% stake with remaining interests sold to private investors-would get crude from Oman and incorporate base lube oil facilities with capacity of 280,000 metric tons/year.

Independent U.K. gas marketer Alliance Gas has marked progress in its push to give British Gas a run for its money with two new supply deals. A 50 million supply contract will provide Manweb Gas Ltd. enough gas to meet expected demand growth the next 3 1/2 years. Manweb provides gas and electricity to customers in Merseyside and North Wales (OGJ, June 15, 1992, Newsletter). Alliance also bought from BP 50% of gas produced by Conoco operated Viking field in the southern North Sea to sell to 6,000 customers throughout the U.K. Alliance will take about 80 million worth of Viking gas in 5 years, with options to extend the deal to 15 years. Alliance, a joint venture of BP 50%, Statoil 40%, and Norsk Hydro 10%, has approval to import 200 MMcfd of Norwegian gas beginning in 1996.

Caught between a fiscal crunch and stiffer environmental standards. Pemex is considering privatizing its tanker fleet, reports Mexico City newspaper Novedades. Of its fleet of 35 tankers, 11 are 21-25 years old, 18 are 10-19 years old, and six are 2-8 years old. Mexico's state petroleum conglomerate has no plans this year for major outlays to renovate its tankers, despite a campaign under way in the U.S. and Europe to tighten antispill measures. If the European Community plans to ban single hull tankers more than 15 years old, 23 Pemex tankers would be banned from European waters, and five more would have only 1 year of service left. If approved, the sale of Pemex tankers would be administered by Mexico's Secretariat of Finance and Public Credit. Pemex shipped 175 million bbl of crude and products in fiscal 1991, of which 70% was transported by Pemex tankers. Its fleet totals 56 million dwt and 7.5 million bbl of capacity.

Meantime, Pemex is issuing more Eurobonds to raise money for Campeche Sound oil and gas development, reports Mexico City newspaper Excelsior. It will float a 150 million Swiss franc bond issue in the Swiss market via Credit Suisse, its fourth in that highly selective market and its second Eurobond issue this year. The first was valued at $125 million, making Pemex the top Latin American player in Eurobond markets this year.

The brutal winter weather that battered much of the eastern U.S. last week is likely to continue the freefall in the weekly Baker Hughes U.S. active rig count to another post-1940 record low.

The tally for the week ended Mar. 12 plunged another 20 units to 600, down 8% vs. the prior year and a staggering 35% from the first of the year. That's the lowest since the modern record low of 596 set June 12, 1992. Oklahoma accounted for 17 less units.

But there are couple of bright spots on the U.S. drilling horizon.

Salomon Bros. notes U.S. drilling permits in February rebounded by 16.8% from January's level for the 29 states it monitors but stood 5.2% below a year ago. And Global Marine is moving three of its cantilever jack ups to the Gulf of Mexico from the North Sea and West Africa to take advantage of higher day rates tied to continuing strong natural gas prices. It expects to land contracts for each, in addition to the eight rigs Glomar has working in the gulf under contracts extending through midyear, thus continuing the company's 100% utilization there. One Glomar jack up will move from the gulf to work for Enron off Trinidad for a six well, 14 month job.

The U.S. Northeast will get another 700 MMcfd of gas pipeline capacity under a Panhandle Eastern program that will more than double the company's expansion commitment to more than $2 billion.

Panhandle unit 1 Source Corp. plans a 10 year pipeline expansion program, dubbed Flex-X, to serve the Northeast and a new pipeline system for New England. Open season for first phase of Flex-X expansion capacity, involving Texas Eastern, Algonquin, Trunkline, and Panhandle Eastern systems, begins in June, with start-up slated for November 1995. The new pipeline for New England, Minuteman, will involve more than 100 miles of large diameter, high pressure line extending from the Algonquin hub at Mendon, Mass., to direct hookups, mainly involving electric utilities.

DOE plans to continue shipping Elk Hills crude from California to the Big Hill, Tex., Strategic Petroleum Reserve site. DOE received 21 bids in a Mar. 4 offering. Most did not meet the congressionally mandated price for the government owned light crude. The law requires DOE to sell Elk Hills crude only when prices offered are the higher of 90% of prevailing market value or the equivalent price for which SPR oil can be purchased, adjusted for quality differentials and pipeline costs. DOE has been shipping Elk Hills oil to the SPR the past 12 months. It will ship 20, 000 b/d of crude to the SPR during Apr. 1-Sept. 30 and offer the remaining 30,000 b/d to bidders.