OGJ NEWSLETTER

OPEC doesn't want to take the sole rap for the oil price slide.

OPEC will consider a joint meeting with non-OPEC oil producers when it meets in Vienna Nov. 23, Qatar's energy minister said.

The comment came after oil prices plunged to their lowest level in more than 3 years (OGJ, Nov. 15, Newsletter), confounding the group's efforts to prop up prices with its September accord cutting production. Kuwait ruled out cutting its production, and its Oil Minister Ali al-Baghli urged non-OPEC producers to consider a 1 month output cut to buoy prices. Oman and Egypt are mentioned as possible candidates for any initial non-OPEC cuts.

Last week oil prices held steady, with Brent for December hovering at $15.50-16.20/bbl. Brent for January closed Nov. 17 at $16.11/bbl.

Markets are nervously looking at OPEC overproduction and surging North Sea production in October while the specter of Iraq's return to the market looms again this week with the expected meeting of Iraqi Deputy Minister Tariq Aziz and U.N. officials. Iraq again is asking that sanctions be dropped, citing progress in eliminating weapons of mass destruction. However, U.N. officials insist the sanctions will remain until Iraq honors all Security Council resolutions, including long term monitoring and demarcation of borders with Kuwait. Baghdad's bid to have sanctions lifted is complicated by reports it used chemical weapons against Shiites in southern Iraq.

Meantime, the Security Council Nov. 11 imposed sanctions against Libya that freezes its foreign financial assets and bans exports to that country of certain petroleum equipment as of Dec. 1. Reuters reports Libya months ago moved about $6.5 billion in cash into Third World banks, out of the West's reach. The sanctions don't include Libyan oil exports, which, despite a U.S. threat to do so, has limited support in the council. Libya has until Dec. 1 to hand over to the U.K. two men suspected of planting a bomb that destroyed an airliner over Lockerbie, Scotland, December 1988.

If Libya won't comply, exports of the following will be prohibited: oil and gas pumps and compressors of more than 350 cu m/hr capacity; crude oil export terminal equipment, including loading buoys, single point moorings, flexible hoses, and anchor chains; any pumps that could be substituted for prohibited equipment and pigging tools of 16 in. diameter or more; refinery equipment, including boilers, furnaces, fractionation columns, pumps, catalytic reactors, and prepared catalysts; and any related spare parts.

London's Centre for Global Energy Studies contends there is little OPEC can do to engineer a lasting price recovery.

It notes OPEC's September pact to peg quotas at 24.52 million b/d was achieved only with great difficulty, adding, "Had further reductions been possible, they would at least have been seriously considered in Geneva."

It said finding a compromise to satisfy conflicting claims of Iran, Kuwait, and Saudi Arabia was not easy. To expect OPEC to agree to output cuts across the board when it meets this week is a tall order.

"There is no compelling evidence from market fundamentals to suggest that OPEC's current output ceiling is too high," said CGES. It still estimates the call on OPEC crude, excluding stocks, at about 25.5 million b/d and 26 million b/d in the fourth quarter and first quarter 1994, respectively.

An average winter stock draw of 1 million b/d is likely this winter if OPEC members stick to quotas. CGES says this would eliminate excess stocks by second quarter 1994, and only then can prices be expected to recover.

Others look beyond OPEC and sanctions, focusing on two market surprises: weaker than expected demand and surging Russian oil exports.

Those two factors, says NatWest Washington Analysis, have only postponed a jump in demand for OPEC oil from 1994 to 1995. Current forecasts of economic growth in the U.S., Europe, and Japan are down sharply from spring and summer predictions. And NatWest projects Russian oil exports at 2.2 million b/d in 1993 and possibly higher in 1994, compared with its April forecast of 1.9 million b/d in 1993 and 1.5 million b/d in 1994 vs. 1992 exports of 2.1 million b/d. NatWest sliced its forecast price for WTI to $18.50/bbl from an earlier $20.50 for the fourth quarter and to $19.50 from $21 for 1994. Kidder Peabody puts current oil exports from the entire former Soviet Union at 2.4-2.5 million b/d and pared $2 from its 1993-94 spot WTI forecasts, calling for $17.50 in the fourth quarter 1993 and $18.50 in 1994.

NatWest predicts a substantial global recovery under way by 1995.

U.S. refineries produced almost 3.5 million b/d of home heating oil and diesel in October, the highest monthly output of distillate in more than 15 years, says API. Industry delivered 1,826,000 b/d of low sulfur diesel to the market last month, exceeding estimates of underlying consumption. Low sulfur diesel is required on highways as of Oct. 1. API said, "Although the low sulfur diesel market got off to a bumpy start in some locations due to flood related pipeline problems in the Midwest and a combination of refinery and other problems in California...by month's end the situation was clearly improving and prices for low sulfur diesel were dropping."

Meanwhile, EIA reports U.S. gasoline prices in mid-October were about 2cts/gal below what they were a year ago, despite a 4.3cts/gal increase in the federal excise tax on motor fuels Oct. 1.

EIA said weak global crude demand and OPEC overproduction should keep gasoline prices stable through first quarter 1994.

Is the U.S. gas bubble about to be resurrected? Carol Freedenthal, principal of Jofree Corp., Houston, notes that possibility, citing a U.S. gas demand increase of only 1-2% so far this year vs. a jump in supplies of more than 4%. If the trend continues, there could be more of a squeeze on currently weakening gas prices. He predicts gas prices will average $2.01/MMBTU in 1993 and $1.95/MMBTU in 1994. U.S. demand will continue to show moderate growth in 1993-94 but not the accelerated growth needed if new gas supplies, including imports, continue to grow, he said.

Alberta & Southern has stopped buying gas from Canadian producers after more than 3 decades. The company, a unit of PG&E, has bought about 9.5 tcf of gas for U.S. markets since 1961. Canadian market deregulation took effect Nov. 1 under pressure from the California Public Utilities Commission. California buyers can now buy directly from Alberta shippers.

A&S is being wound down and will be out of operation next April. About 100 employees are being laid off.

Meantime, a $1.7 billion expansion of the Pacific Gas Transmission pipeline system from Alberta to California started up on schedule this month. PGT is satisfied with initial flow of 70% pipeline capacity. Gas flow totaled 1.8 bcf Nov. 1 in the expanded system compared with total capacity of about 2.3 bcfd. Throughput is expected to increase when cold weather hits.

Texaco has categorically denied allegations of extreme environmental damage from its former operations in Ecuador's Oriente jungle. Lawyers representing Ecuadorian Indians living there recently filed a $1 billion lawsuit against Texaco, alleging that during the company's 20 years of operating Ecuador's main producing area, hundreds of spills had exposed the natives to health risks and polluted their habitat (OGJ, Nov. 8, p. 23).

The plaintiffs jumped the gun on completion of an environmental audit Petroecuador hired Canada's HBT-AGRA to conduct of Texaco's operations in the area. That study was to be complete in September, but Petroecuador has disclosed no further details. Environmental groups in advance rejected validity of the audit, citing lack of public and local input and study parameters being set by Petroecuador and Texaco.

Texaco, which turned over its Oriente operations to Petroecuador in 1992, has proposed marketing refined products in Ecuador, but Oil Minister Francisco Acosta won't agree to that until he sees audit results.

Some preliminary details of developing supergiant Shtockmanovskoye gas field in the Barents Sea off Russia are emerging (OGJ, Aug. 23, p. 12). Giroprospetsgaz Institute, St. Petersburg, is conducting a feasibility study for Russian joint stock company and project operator Rosshelf.

The study, to be complete in second half 1994, calls for two 400 m tall, 100,000 metric ton platforms to be installed and almost 550 km of subsea gas pipeline to be laid, either twin 1,200 mm lines or three 1,020 mm lines. With line wall thicknesses of as much as 35 mm, Russia would have to import pipe for the lines or begin producing its own from scratch.

A 1,400 km onshore pipeline with nine compressor stations would carry the gas from Teriberka to Folks. Plans also call for onshore facilities for natural gas liquefaction, a topping plant to produce gasoline from condensate, and a methanol plant. The study also will recommend importers of gas and condensate to target, projected export volumes, and what proportion of equipment used in the project should be Russian. The study authors note the project's gas export revenues must exceed costs of imported equipment because Russia's economy could not support simultaneous development of Shtockmanovskoye and Yamal Peninsula gas fields.