OGJ NEWSLETTER
The usual OPEC quota wrangling underscores the fragility of oil prices heading into the summer driving season.
As of presstime last week, 3 days into the OPEC ministerial meeting in Geneva, members remained deadlocked over production ceilings in a scenario likely to be reenacted through the year. The sticking point remains Kuwaiti insistence on the group honoring a February meeting commitment to the emirate for a 25% quota hike to 2 million b/d starting July 1. Iran blusters in response that it will jump its quota by a proportional amount if that happens and calls for a rollover of the second quarter 23.6 million ceiling. The Saudis plead for reason in a fundamentally weak market, as analysts cite OPEC production of as much as 24.2 million b/d in May and projections of marginally higher demand in the third quarter.
Saudi Oil Minister Hisham Nazer called on members to abide by quotas as the best way for all to earn money, reported London's Independent newspaper. There is general market optimism OPEC will keep its third quarter ceiling below 24.2 million b/d, reported Middle East Economic Survey (MEES). This would allow expected overproduction to be absorbed by the market's need to build stocks in the third quarter. OPEC's May output was up 80,000 b/d to 24.2 million b/d from April, says MEES. About 50,000 b/d of this was Iraqi exports to Jordan after tanker truck deliveries resumed.
Meantime, world oil consumption is expected to rise 1.1 million b/d in the second and third quarter, with the entire increase met by OPEC. Although the call on OPEC oil will reach 25.3 million b/d in the third quarter, this is still short of total OPEC productive capacity of 28.7 million b/d, excluding Iraq. Hence quotas are still needed to prevent a potentially damaging production free-for-all, warns Centre for Global Energy Studies (CGES), London. One way to reach 25.3 million b/d in the third quarter is by a proportional increase on February quotas, says CGES (OGJ, Feb. 22, p. 34).
This would allow Iraq more than its domestic needs but keep Kuwait below the 2 million b/d it wants. A capacity based quota would give Iran and Kuwait the biggest increase. Saudi Arabia likely would object, says CGES, as would other countries required to rein production.
OPEC Sec. Gen. Subroto sees OPEC's ceiling in the third quarter increasing to about 24.1 million b/d because of rising demand but thinks deliveries to stocks could push OPEC output even higher.
A stockbuild of 300,000-500,000 b/d in the third quarter is possible, depending on expectations of fourth quarter oil demand, Subroto said in Houston last month. He also notes that when the U.N. allows Iraq to resume exporting oil into world markets, OPEC will be willing to adjust quotas of other members to accommodate the new supply. Subroto contends OPEC seeks dialogue vs. confrontation over energy taxes proposed in Europe and the U.S., adding, "We want leaders of industrial countries to know that what they are doing is unfair to us, that imposing such taxes will hurt us."
As for prices, East-West Center's Fereidun Fesharaki sees stock-building in advance of a fourth quarter demand spike strengthening oil prices in July and August, with spot WTI at $21/bbl in August, after slipping 50cts-$1 during June because of OPEC overproduction. He pegs the call on OPEC oil at 24.2 million b/d in the third quarter and 26.4 million b/d in the fourth and predicts summer driving will push U.S. gasoline and diesel prices up 5cts/gal from June levels, but high sulfur fuel oil will slip 3cts/gal.
Economic doldrums notwithstanding, OECD oil demand is expected to climb 1.5% in the second quarter to 37.8 million b/d from the same time last year, led by a 2% rise each in North America and the Asia-Pacific region, says IEA. OECD industry stocks at the end of April were essentially unchanged vs. a year ago.
Seven U.S. senators have called for an environmental addendum to the North America Free Trade Agreement, and independent Texas oil and gas producers could support it as a way of forcing open Mexican markets for U.S. gas. Texas Independent Producers & Royalty Owners Association's Tom Cooke recommended at Tipro's annual meeting last week in Houston that independents spearhead a 6 month campaign to build support for such an agreement. If properly worded, Nafta environmental provisions could speed conversion to gas of Mexico's electrical power capacity and boost gas consumption in manufacturing plants along the U.S.-Mexican border, he said.
As much as 25% of Canada's undiscovered potential natural gas resource, about 70 tcf, remains to be discovered in prolific Devonian reef formations in western Canada, says Geological Survey of Canada.
It says 20 tcf remains to be discovered in existing plays and 50 tcf in untapped Devonian strata. The study analyzed 25 mature plays and used data to form conceptual plays for Devonian formations identified but undrilled. It said 16% of the 70 tcf is recoverable at a plant gate price of $1.25 (Canadian)/Mcf and 43% at $2.50.
Industry continues to shorten turnaround times of 3D seismic surveys, but host countries interested in promoting exploration should consider longer concession periods for operators that agree to shoot them. Countries should also consider 3D expenditures on a par with exploratory drilling outlays, E.O. Nestvold, Schlumberger Geco-Prakla chief geophysicist, told the European Association of Exploration Geophysicists in Stavangar last week.
Another group has filed an application with China National Oil Development Corp. to bid for exploration and development rights in Northwest China's Tarim basin.
Shell International in alliance with Pecten Thailand has a 36% share in the group, as does Amoco. Total holds 18% and Marubeni 10%. The group acquired exploration data for $1.7 million. A group of BP, Mitsubishi, Itochu, and Nippon Oil also has bid for Tarim E&D rights.
More progress is being made on territorial disputes in hydrocarbon prone waters of Southeast Asia.
Malaysia and Viet Nam agreed to jointly explore an 849 sq mile disputed area of the continental shelf in the Gulf of Thailand. The area is outside the hotly contested Spratly Islands area where the two claim territorial rights along with China, Taiwan, Brunei, and the Philippines. Petronas and Petrovietnam have set up a committee to oversee the venture and were to meet June 14 in Hanoi to discuss details. It is the first such agreement for Viet Nam and the second for Malaysia, currently jointly exploring for oil and gas in a disputed Gulf of Thailand tract with Thailand.
Three key Japanese petrochemical producers have agreed to postpone for 3 years joint venture plans for a world scale ethylene plant, underscoring a regional ethylene glut.
Ube Industries, Mitsui Toatsu Chemicals, and Nippon Petrochemicals had planned a 500,000 ton/year ethylene plant, core of a complex that includes plants for styrene monomer and polypropylene and other ethylene derivatives, to be complete in 1995 at Ube, Yamaguchi prefecture. Construction of the downstream facilities are proceeding and are to start up this year, with plans to secure ethylene feedstock on the market.
Petrocontrol, a Total led group that planned to hike its interest in Portugal's state petroleum company Petrogal to 51% from 25% by June 1994, is hesitating because added costs have emerged. Originally, the obsolete Lisbon refinery site was to be used for storage for the privatized Petrogal. But the government has commandeered the site for a planned 1998 world exhibition, leaving Petrogal forced to build a new tank farm plus a pipeline to the Sines refinery at a cost of $400 million. Talks are under way as Petrocontrol seeks compensation for the unexpected extra costs.
Russia's petroleum sector apparently is rebounding from its 1992 investment crisis, despite continuing complaints about lack of funds. A recent jump in capital investment in fuel and energy enterprises has been unexpectedly high, reports Moscow weekly Commersant. Fuel and energy investment are expected to account for 46% of total Russian investment this year vs. 39% in 1992. While total Russian first quarter industrial investment fell 7% from last year, fuel and energy investment jumped by more than 9%.
Nevertheless, the fallout from the funding shortfall continues to plague Russia's oil oil and gas sector. Officials say developing new production in western Siberia is almost impossible because of the virtual suspension of exploration work in the region. Tyumen province's 1993 exploration season has been "wrecked," says Tyumengeologiya Chairman Anatoly Grigoryev, because Moscow was too late providing funds for 60,000 Tyumen geologists to do their work. Meantime, Russian crude flow fell to another modern low of 6.853 million b/d in May vs. 7.889 million b/d a year ago, spurring declines in output of 5% for gasoline and 10% for diesel vs. a year ago.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.