OGJ NEWSLETTER

The crystal ball gazers are at it again, trying to divine the direction of oil prices in 1993. Kidder Peabody, New York, says if OPEC cuts production by even 1 million b/d vs. the promised 1.7 million b/d for a quarter, WTI will touch $24/bbl. OPEC production for March may be down by 1 million b/d, claims Petrologistics, Geneva. It estimated OPEC's output cut the first week of March at a surprising 2 million b/d, to 23.4 million b/d-when WTI and Brent reached 5 month highs.

March 29, 1993

8 min read

The crystal ball gazers are at it again, trying to divine the direction of oil prices in 1993.

Kidder Peabody, New York, says if OPEC cuts production by even 1 million b/d vs. the promised 1.7 million b/d for a quarter, WTI will touch $24/bbl. OPEC production for March may be down by 1 million b/d, claims Petrologistics, Geneva. It estimated OPEC's output cut the first week of March at a surprising 2 million b/d, to 23.4 million b/d-when WTI and Brent reached 5 month highs.

Citing currently well matched supply and demand, Kidder Peabody contends the question should be when, not whether, oil prices will move up. And it thinks that is likely to happen in the second half, predicting WTI at $20.75 in the second quarter, $21 in the third, and $22.50 in the fourth.

Noting weaker than expected demand and a 200,000 b/d stockbuild in the first quarter and projecting a 500,000 b/d stockbuild in the second quarter, Purvin & Gertz, Houston, pegs WTI at $21/bbl in the second quarter.

Centre for Global Energy Studies, London, projects the call on OPEC oil at 23.7 million b/d in the second quarter, slightly above the current ceiling. Prices could firm significantly, it contends, if instability in the former Soviet Union trips up oil exports there, spurring a second quarter stockbuild that could push demand for OPEC oil to 24.3 million b/d.

Distillate is the fuel of the future, says Ed Krapels, president of Energy Security Analysis Inc. (ESAI), Washington, D.C. Of the 900,000 b/d/year average global oil demand growth ESAI expects in 1993-98, distillate will account for 450,000 b/d, gasoline 300,000 b/d, and fuel oil and petrochemical feedstocks the remainder. Gas oil and diesel fuel will capture 75% of the distillate demand increase, jet fuel and kerosine 25%. At an ESAI seminar in Houston, Krapels said governments can't limit demand for distillate, central to industrialization, as readily as they can for gasoline, a byproduct of industrialization. Contrary to expectations, the average crude oil barrel isn't getting heavier, Krapels said. And worldwide resid demand won't be as sluggish as some analysts forecast because of hunker demand growth coinciding with OPEC production increases, rising boiler fuel demand outside the U.S., and increasing numbers of refiners buying resid for feedstock.

Will Norway's entry into the European Community lead to expanded opportunities for private investment in its petroleum sector? The European Commission gave provisional approval Mar. 24 for Norway's application to join the EC. This means Norway can now join entry negotiations between the EC and Austria, Sweden, and Finland that are likely to take at least a year. The main hurdle to Norway's EC entry is the EC's draft licensing directive, to be discussed at the next meeting of energy ministers, planned for June 24. If the directive is approved as is and Norway joins the EC, Norway's participation in the oil industry through Statoil would be curtailed.

Greece joins the privatization scramble. It will privatize two downstream companies in the first sale of state concerns under a petroleum industry deregulation program begun March 1992. Credit Suisse First Boston Ltd., London, will advise on selling the Hellenic Aspropyrgos refinery at Athens and the EKO-Chemicals refining/petrochemical complex plant at Thessaloniki. The 125,000 b/d Aspropyrgos refinery, the second most advanced in the Mediterranean region, is equipped to meet future sulfur level regulations. The EKO complex incorporates a less sophisticated 70,000 b/d refinery with PVC, caustic chloride, and ethylene units. A network of 700 gasoline stations is included. Aspropyrgos and EKO together have more than half the Greek refined products market. There is no deadline for the sale, but the program should be complete before the next election in April 1994.

Gaz de France won't comment on a statement by Portugal's deputy secretary for energy that negotiations "definitely" won't resume over a proposal by the GDF led Natgas group to establish an LNG based gas grid in Portugal. Talks were snagged last month over take or pay concerns of Portuguese utility Electricidad de Portugal (OGJ, Feb. 22, p. 42).

The minister said his government is studying other options to supply Portugal with gas, notably via the proposed Magrheb-Spain gas line.

Poland and Russia have signed a letter of intent to lay a 4,000 km, $10 billion pipeline from Russia's Yamal Peninsula to western Europe, says Polish Minister of Trade Waclaw Niewiarowski. Poland will contribute $3 billion to the project, which includes a 680 km Polish section from Bialestok to Slubice. From the Polish border, the line would extend to Frankfurt. Niewiarowski cites financing from German and other international banks. Construction is to begin in 1994 and take about 16 years, press reports say. The line will move 2.3 tcf/year of gas to Europe, with Poland taking about 493 bcf/year. The final agreement is to be signed later this year, and Niewiarowski says Russia soon will complete a similar agreement with Germany.

Italy's ENI plans to rationalize its network of foreign subsidiaries in a bid to improve transparency and accountability. Agip Petroli and EniChem have about 60 non-Italian units and Agip 30 registered abroad.

Meantime, the huge corruption scandal in Italy has claimed three more key executives at the energy conglomerate. Chairmen of Agip Raffaele Santoro, Snam Pio Pigorini, and Saipem Gianni dell' Orto were arrested in mid-March, joining ENI and Nuovo Pignone chairmen (OGJ, Mar. 15, Newsletter). The trio was charged with falsifying company financial statements and embezzlement. Meantime, ENI Chairman Gabriele Cagliari admitted to a Milan court that ENI paid more than 20 billion lire ($12 million) to Italy's Socialist and Christian Democratic parties from secret accounts while he was chairman. General Manager Franco Bernabe, now running ENI, says all of ENI's operating and market obligations will be maintained despite the crisis.

Nominations of the new chairmen of ENI's 13 main subsidiaries will be made at its Mar. 31 annual meeting.

The British and Falkland Islands governments will sanction a competitive bidding round for exploration acreage on the Falklands Islands continental shelf. In December, speculative survey licenses were awarded to Spectrum Energy & Information Technology Ltd. and Geco Geophysical Co. Ltd., both of Woking, U.K. (OGJ, Dec. 28, 1992, p. 34). U.K. Department of Trade & Industry wrote to Spectrum and Geco Mar. 17, promising production legislation and a tax regime will be established to expedite E&D.

Saudi Aramco found an oil/gas/condensate field in a virtually virgin province north of the Red Sea in northwest Saudi Arabia, reports Middle East Economic Survey. The find is in the Medin area, 100 miles west of Tabuk. Saudi Oil Minister Hisham Nazer said further appraisal drilling and seismic work are required to determine reserves.

Could Hondo Oil & Gas have a world class gas strike in Colombia's Middle Magdalena Valley? Its 10 Lilia delineation well on the Opon contract area has been logged to 10,000 ft, indicating 10 Eocene pay zones with net pay sands of more than 100 ft-nine in Esmeraldas and the 10th in the main target, La Paz. Last week Hondo was fishing for drillpipe before running intermediate casing to 10,000 ft. Colombia, which rejoined the ranks of oil exporters in the mid-1980s, is pressing development of a major gas grid in the country's central region. The Opon contract is the first international agreement by the Roswell, N.M., independent, which former ARCO Chairman Robert O. Anderson established in its current form in 1988.

E&P companies would have to submit geological and geophysical data collected in Texas to the Texas Railroad Commission under a state bill filed this month. TRC would have to keep the information confidential for 7 years. Within 180 days of its "preparation or receipt," seismic records, electric logs, mud logs, and cores would have to be filed with TRC, which could put the information into a computer database and use contractors for data management. To enforce the law, TRC could use administrative penalties not exceeding what it considers to be the data's fair market value.

Rising demand for natural gas tests drilling capability in the U.S., says International Association of Drilling Contractors Chairman C.A. Hinton.

The president of W. B. Drilling Co., Mount Pleasant, Tex., told International Association of Geophysical Contractors' annual meeting the U.S. drilling industry can't maintain the 1,500 active rigs he thinks are needed to match gas deliverability with peak demand. Most quality rigs are busy, Hinton said. And a rig construction revival would face a tough question: "Who's going to finance it?" Hinton expects financing innovations between contractors and companies needing drilling services.