OGJ NEWSLETTER
OPEC overproduction and a North Sea output surge have sent oil prices plunging to their lowest level since before the Persian Gulf crisis.
Brent for December delivery fell to $15.23/bbl during early trading Nov. 11 following a week of steady decline. By closing Nov. 10, Brent had fallen to $15.32/bbl vs. $16.12/bbl Nov. 5. Middle East Economic Survey (MEES) estimated OPEC production at 24.78 million b/d in October, topping the group's ceiling by 260,000 b/d (OGJ, Oct. 4, Newsletter). London's Centre for Global Energy Studies (CGES) reckoned new Norwegian and U.K. fields in production added about 200,000 b/d to North Sea output for October. CGES's Leo Drollas said the North Sea surge should not have come as a surprise because it was predicted in August and traders had written it off.
"What is a surprise is weaker than expected demand," said Drollas, noting IEA trimmed its fourth quarter demand prediction again, to 68.2 million b/d. With weak demand, said Drollas, OPEC overproduction and new North Sea output added up to a 400,000 b/d oversupply for October. MEES noted Iran topped its 3.6 million quota by 110,000 b/d and Iraq overproduced its 400,000 b/d allocation by 100,000 b/d. OPEC ministers are due to meet again Nov. 23 in Vienna. Drollas said members might panic if the price falls below $15/bbl and cut production across the board.
"OPEC should stand firm and see how the price develops over winter," said Drollas. "If OPEC cuts quotas to, say, 24 million b/d in total, this would put upward pressure on prices." He thinks a subsequent price increase would encourage OPEC members to break ranks again and thus OPEC should just implement its September accord and ensure no overproduction.
Kuwait's oil ministry reports an oil discovery in the Neutral Zone dividing Kuwait and Saudi Arabia.
The South Umm-Gudair DW-1 wildcat tapped oil in upper Jurassic Gotnia for the first time, MEES reported. The well flowed 6,144 b/d of 25 gravity crude through a 1 1/4 in. choke. Drilling was conducted by Kuwait Oil Co. and Texaco Saudia Inc. MEES said Neutral Zone exploration will continue to focus on the Najma, Sargelu, and Marrat prospects, also all Jurassic.
Neutral Zone deep drilling is said to have been spawned by discoveries in Kuwait in the 1980s.
Steps to privatize petroleum proliferate around the world.
Kuwait's government is considering allowing foreign oil companies to participate in exploration and development with state owned Kuwait Oil Co. (KOC), Kuwaiti Finance Minister Nasser al-Rodhan told Al-Seyaaseh newspaper. London's Financial Times reported talks had begun between KOC and some oil concerns that offered Kuwait foreign expertise and-more interestingly in view of the country's $5 billion budget deficit this year-foreign capital. BP has a contract with KOC to provide technical consulting, while Union Carbide is said to have a contract to build a petrochemical plant.
President Yeltsin has decreed creation of a fund to provide for privatizing Russia's state owned gas distribution network.
The decree calls for changing management of Russia's gas grid by transforming the state owned enterprises of Rosstroygasifikatsiya into joint stock companies. The fund would be used to finance construction and expansion of the country's gas distribution networks, including upgrades and replacement of equipment to improve safety and operating efficiencies.
Ecuador's government has finally submitted to that country's congress a draft of the new hydrocarbon law, including reforms that would open Ecuador's petroleum sector to greater private/foreign participation, under a 15 day, fast track review that would have meant a Nov. 12 deadline. Congress bounced it back, asking for more review time. The controversial draft was to have been submitted in September (OGJ, Oct. 18, p. 30).
Maraven, a unit of Venezuelan state oil company Pdvsa, plans to install at its Cardon refinery in western Venezuela a $168 million, 15,000 b/d commercial demonstration plant using a new high conversion technology developed in Venezuela. The plant will use the HDH process developed by Pdvsa research unit Intevep to upgrade heavy oil and vacuum residues.
Intevep claims HDH has a liquids yield of more than 90 wt % using Morichal crude vacuum resids with a gas cut of less than 10 wt %. HDH operates at lower pressures than competing processes, about 1,910 psi, and employs a catalyst recyclable for use in the steel industry.
HDH, deemed commercially viable after 10 years of research and testing in Venezuela and a successful pilot at Ruhr Oel's refinery in Germany, might also be used to process Venezuelan heavy and extra heavy crudes.
Canadian petroleum executives are taking a wait and see attitude toward the country's new Liberal party government but applaud a key appointment. Anne McLellan, 43, a former Alberta law professor, has been appointed Canada's minister of natural resources. The Liberals formed a majority government in the Oct. 25 election in which the Progressive Conservative party was almost wiped out and reduced to two seats in parliament after governing for 8 years. Industry officials are awaiting clarification on specific Liberal energy policies from the new minister. A previous Liberal administration in the early 1980s introduced the National Energy Program (NEP), a nationalistic policy that hurt industry. The Liberal government headed by Jean Chretien, a former Liberal energy minister and now prime minister, has offered assurances NEP type policies will not be revived. Gerry Protti, president of Canadian Association of Petroleum Producers, sees as a positive sign from Ottawa that a resources minister has been appointed from Alberta, Canada's top oil and gas producer. He said industry wants an early meeting with McLellan on recent industry economics and effects of deregulation, which he contends has allowed industry to make its own decisions.
FERC has scheduled a Feb. 24 hearing on whether it should change its regulation of gas pipelines' gathering systems.
In Order 636, FERC required pipelines to issue gathering rates and services separate from mainline transportation rates.
But FERC has not imposed other 636 requirements on gathering systems and does not regulate intrastate gathering systems. Ingaa contends FERC should not regulate pipeline or affiliate owned gathering systems.
Alyeska Pipeline Co. owners have pledged to correct operating and maintenance problems with the Trans-Alaska Pipeline System, following release last week of a critical BLM report.
BLM Director Jim Baca told a congressional hearing, "We are going to hold Alyeska's feet to the fire as far as operating a safe pipeline."
BLM is preparing to order specific changes in the pipeline's operations. Exxon, BP, and ARCO agreed changes are overdue, and pledged to strengthen Alyeska leadership and correct problems in a timely manner.
U.S. EPA Administrator Carol Browner has called for a major rewriting of the Superfund law. The legislation, up for renewal in Congress this year, governs cleanup of toxic waste sites. Browner said sites need to be cleaned up faster, noting, "Let's put fair procedures in place so we can focus on getting the job done, not haggling about who owes what." She also said, "We must find ways to reduce the liability concerns of people who want to buy a piece of contaminated land and redevelop and reuse it."
Norway is considering tightening its petroleum tax laws to stem capital outflow from the Norwegian oil industry. Under tax reforms introduced last year, a 78% tax on production income encourages foreign companies to fund developments with debt equity, against which tax allowances can be claimed. According to the Ministry of Finance, companies are "seizing the opportunity to repatriate funds" to parent companies by transferring reserve funds into share capital. Finance Sec. Arne Oeien told an Oslo conference reform options include regulation of the capital structure of petroleum companies, tax rules limiting debt ratios, limits to or abolition of tax allowances on debt interest payments, and increased tax rates.
Three Japanese refiners will pull out of a $9.5 billion joint venture with Saudi Aramco and Caltex.
The venture planned to buy two existing Japanese refineries from partners Nippon Oil and Nikko Kyodo and build a new refinery in southern Japan. Nippon Oil, Nikko Kyodo, and Arabian Oil Co. Ltd. blame their exit on a sharp fall in petroleum demand caused by Japan's economic slowdown. The Japanese refiners apparently decided they could not afford to build a new plant that would become profitable only after a minimum of 12 years. Aramco reportedly has begun negotiations with other potential joint venture partners in Asia. The company plans to expand downstream operations in Asia to guarantee access to markets for its crude from joint projects.
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