Chechnya has reopened its section of a pipeline carrying Azeri crude across the breakaway Russian republic to an export point at Novorossiisk, Natig Aliyev, president of Azeri state oil firm Socar, said last week.
Two weeks ago, Chechen authorities shut down the line, claiming Russia owes them $5 million in back tariffs on the Azeri oil transiting the country, as well as money to pay security forces guarding the line (see related story, p. 35).
Due to a backlog at its storage facilities, Caspian oil operating consortium Azerbaijan International Operating Co. was forced to cut its oil production by 50% last week, cutting output to 50,000 b/d. AIOC moved the reduced output through a second line through the Georgian Black Sea port of Supsa.
Meantime, AIOC operator BP Amoco has disclosed plans to increase capacity of the Supsa export pipeline to 70,000 b/d.
It plans to commission a fifth pump station on line. AIOC Vice Pres. John Hollis says that, had the Supsa line not been available, the consortium would have lost about 2 million bbl of production due to the Chechnya shutdown.
The 830-km AIOC-built Supsa pipeline, which started transporting "early oil" from the Caspian's Chirag field in December 1998, is expected to be fully commissioned by June, when it will be able to transport about 105,000 b/d.
Industry sources say the line could take up to 250,000 b/d of oil, if more pump stations and extra storage facilities were added.
Kazakh research institute Kaspimunaigaz has completed a feasibility study of a planned oil pipeline from western Kazakhstan to China (OGJ, Dec. 14, 1998, p. 38). Kaspimunaigaz puts the cost of the pipeline-one of many under study to export Caspian oil (see story, p. 29)-which would run from Atyrau, Kazakhstan, to Urumqi, China, at $3.5 billion.
The institute will now submit its findings to Beijing. China committed to building the pipeline in 1997, when it signed a package of oil investment deals worth nearly $10 billion with the Kazakh government. The pipeline would allow Chinese National Petroleum Corp. to export oil from western Kazakhstan fields, including concessions once operated by Uzenmunaigaz and Aktobemunaigaz.
Meanwhile, the $2.5 billion TransCaspian gas pipeline project has taken a step forward with pipeline development company PSG International, London, naming Credit Suisse First Boston bank as financial advisor.
PSG was named by the Turkmenistan government in February to lead a consortium planning to develop and operate a gas trunk line from Turkmenistan to Turkey via the Caspian Sea, Azerbaijan, and Georgia. A final gas sales purchase agreement between the Turkmen government and Turkish state gas firm Botas is expected in May, after the Turkmen and Turkish governments signed an accord on gas sales in March.
Trouble still looms for the long-debated new pipeline tolling accord between Western Canada's gas producers and main line operator TransCanada. It has been rejected by the region's small gas producers.
The Small Explorers & Producers Association of Canada (Sepac) objects to provisions requiring companies to build their own lateral line connections to the main line. The new toll structure links rates to service costs and replaces a postage stamp toll system in Alberta, where producers paid the same toll rate regardless of gas location. An agreement was disclosed earlier this month between TransCanada and the Canadian Association of Petroleum Producers, representing large and medium-sized companies (OGJ, Apr. 5, 1999, Newsletter). Sepac's Ron Vogel says members do not have cash to build their own laterals, noting that operators are having to move farther from main lines in northern Alberta to find gas and that some already have cash flow problems. TransCanada says the industry is moving into a more competitive environment and there are enough companies to compete to build the smaller lines required.
Meanwhile, low oil prices continue to take a toll on Canadian E&D.
Canadian oil and gas drilling licenses issued in first quarter 1999 fell by 47% to 2,179 wells from the same period in 1998, reports Nickle's Daily Oil Bulletin. The drilling decline is attributed to cash flow problems and reductions in crude oil E&D. Canadian Association of Oilwell Drilling Contractors (Caodc) says that only 20% of successful wells were targeted to oil vs. 80% to gas. Spring road bans are now coming into effect, and the active rig count the first week of April fell to 13% of the fleet from 28% a year ago. Caodc's Don Herring says, however, that there are signs that drilling activity for oil will increase in the third and fourth quarters, especially in the heavy oil sector, where the price differential between light and heavy crude has dropped substantially in the past year.
Norway's oil and gas sector is increasingly showing signs of damage caused by recent low oil prices.
Saga, hit earlier by major asset devaluations, will cut its permanent work force by a further 220 as of July 1, while the number of consultants employed will be minimized, leading to an added 130 out of work. CEO Diderik Schnitler, brought in to turn the company around, is looking to simplify the organization and halve its number of operating units. He said, "These measures are necessary because only operators able to demonstrate steadily increasing efficiency have a future on the Norwegian continental shelf."
Norway's two giant engineering and fabrication contractors, Kvaerner AS and Aker Maritime AS, have also been hit hard after years of growing rapidly abroad on the back of their dominance of the Norwegian offshore contracting scene. Money-losing Kvaerner says it will exit the shipbuilding business and wind down all loss-making units, thus cutting its staff by 25,000 to 55,000. Meanwhile, Aker Maritime and main shareholder Aker RGI are looking to sell or merge Aker Maritime. Aker's only hint of its intentions is to say that "the gravity of the offshore market is gradually shifting from the North Sea towards areas such as West Africa, South America, and the Gulf of Mexico."
Growth in gas production from the deepwater Gulf of Mexico during 1999-2001 will counter expected declines from the shallow-water gulf, according to a new study by PIRA Energy Group. "The extent to which one offsets the other will be pivotal to future North American gas balances and therefore a key driver in setting future gas prices," said PIRA.
For shallow-water gas, PIRA says the declining number of producing wells (net) has outweighed the increase in average productivity of those wells, resulting in an overall decrease in output since 1997. PIRA predicts that shallow-water production will decline dramatically through 1999 and 2000, as a result of declining productivity of older wells and reduced drilling.
The eastern Gulf of Mexico will be the dominant growth area for deepwater gas, says PIRA, and during 1998-2001, this region's output is projected to increase by 1.6 bcfd over the period, accounting for about two-thirds of total incremental production.
Greg Shuttlesworth, Managing Director of PIRA's Natural Gas Group, said, "Declining gas deliverability thus far has been masked by extremely mild winter weather and gas demand losses to cheap residual fuel oil. In the future, rising gas supply from the offshore (gulf) will be absolutely vital to satisfy expanding gas demand."
Watch for jittery oil prices as traders look nervously for evidence that the latest OPEC/non-OPEC cutbacks pledge is taking hold.
After the previous week's rumors over Venezuela's doubts about being able to make cuts as promised, Brent crude prices recovered last week to above the psychological comfort level of $15/bbl.
Dated Brent crude closed at $15.03/bbl Apr. 13, while May delivery Brent settled at $15.18/bbl, both having dipped by roughly 80¢/bbl during the week. At the same time, gas oil closed in London at $165/metric ton. However, news from the U.S. that broke later in the day pulled London prices down the next morning. In early trading on Apr. 14, Brent crude fell by 20¢/bbl, and gas oil fell by $2/ton after API figures showed a week-on-week rise of about 1 million bbl in crude oil stocks, almost 4 million bbl in heating oil and diesel stocks, and 3 million bbl in gasoline inventories. In New York, Nymex traders had been betting that gasoline stocks would fall by as much as 2 million bbl with the approach of the summer driving season. But a surge in wholesale gasoline buying last month, as prices began to spike up in response to higher crude oil prices and refinery outages, came well ahead of a seasonal upturn in retail consumption. That pulled the whole Nymex oil group down Apr. 14, led by May crude sliding 25¢ to $16.47/bbl.
NATO air strikes have completely destroyed Yugoslavia's refining capacity, according to the Pentagon; however, the Serb-led nation still has substantial fuel reserves. NATO also has targeted petroleum tank farms.
"The sustainability for petroleum oil and lubricants and ammo has been reduced significantly," said Air Force Major Gen. Charles Wald at a Pentagon briefing early last week. "From what we understand, 100% of (Yugoslav President Slobodan Milosevic's) ability to produce petroleum oil and lubricants has been destroyed," said Wald.
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