OGJ Newsletter
Look for Iraq to sign within 1-2 weeks the first contracts for sale of its crude on world markets.
Iraqi Oil Minister Amer Rachid told a group of French petroleum industry officials in Paris last week Baghdad will give priority to French companies for the purchase of Iraqi crude and sale of food and medicine to Iraq. Rachid also said he believes U.N. sanctions against Iraq will be lifted before yearend.
That comment raised eyebrows at the U.N. Security Council, which recently approved sale of $2 billion worth of Iraqi oil in 6 months to raise funds for humanitarian aid for Iraqi citizens. Several Security Council members, including France, reminded Baghdad it first must fully comply with all U.N. resolutions before sanctions can be fully lifted.
Plans for food distribution in Iraq by U.N. forces were to be sent to U.N. Sec. Gen. Boutros Boutros-Ghali by the end of last week. However, a sour note emerged among all this cooperation when Baghdad barred U.N. weapons inspectors from entering sites held by Iraq's Republican Guard. Officials contend the dispute won't affect oil sales, and U.N. monitors last week were beginning to take up stations at oil facilities in Iraq in preparation for oil sales.
Meantime, the Clinton administration will allow U.S. companies to import Iraqi crude and sell food and medicine to Baghdad under the U.N. accord.
The State Department considered barring U.S. firms from buying Iraqi oil but could not justify the action. DOE argued a ban would not help U.S. foreign policy goals but would put U.S. oil companies at a disadvantage.
State said, "We believe this is the way to help the victims of Saddam Hussein, and therefore it's appropriate for American firms to be involved. Saddam Hussein will not see a penny of these proceeds." The Treasury Department's Office of Foreign Asset Control is drafting rules to license U.S. firms wishing to do business with Iraq.
The U.N.-Iraq oil sale accord led OPEC at its midyear ministerial meeting to hike its production quota to accommodate increased Iraqi production (see related story, p. 19).
That meeting left unresolved issues that increased the risk of an oil price collapse to 25% at present from only 15% in April, says DRI/McGraw-Hill's Global Risk Service. DRI thinks Saudi Arabia might boost output beyond its 8 million b/d quota "to teach a lesson" to OPEC members currently exceeding quota. This would push the global surplus to more than 3 million b/d, slashing oil prices to less than $14/bbl and perhaps $10/bbl if a production war is prolonged.
The OPEC meeting aftermath and Iraqi oil sales developments are doing little so far to affect oil prices. July futures contracts in London and Singapore opened June 13 a few cents higher, while Nymex crude closed down a penny at $20.09 June 12.
Restructuring, deregulation, and privatization moves are generally seen as positive steps in the petroleum industry, but they are not without political and human costs.
Elf's annual meeting again was violently disrupted this year by union oil workers from France's Lacq region protesting Pres. Philippe Jaffre's restructuring policy and threatening a total break with Elf.
With Lacq gas field output headed for depletion by 2005-07, Elf is cutting 400 of 1,500 jobs in the Lacq unit and 850 of 3,200 jobs in the Paris and Aquitaine E&P units. Jaffre's plan to split Elf's E&P unit into three companies would jeopardize the company's E&P research and upstream future, workers claim.
Deregulation of Japan's downstream sector (OGJ, May 6, p. 35) is resulting in rare job losses in that country's petroleum industry.
Nippon Oil and its Nippon Petroleum refining unit will cut current staff levels by about 14% to about 3,700 by yearend fiscal 1999. Nippon Oil profits have slipped each year since 1991, and the company posted an operating loss the first time in 9 years in fiscal 1995.
Japan Energy Corp. also will cut payroll, to 3,300 from 3,900 by yearend fiscal 1997, and plans for the first time not to hire any new graduates in spring 1997. This year it hired 40 new graduates, down from 440 in 1993. Analysts expect other Japanese majors to disclose work force cuts soon because of a corporate shakeup in response to deregulation.
Meantime, Nippon Steel, citing a lagging ability to compete internationally, will by fall stop making seamless drill pipe. The steelmaker will solicit voluntary retirements to trim several dozen jobs from its 130 person payroll involved in manufacturing drill pipe.
Efforts to privatize Taiwan's state petroleum company have stumbled.
Taiwan's legislature has rejected a request by the cabinet to sell stock in state owned Chinese Petroleum Corp. (CPC) in fiscal 1997 (OGJ, June 5, 1995, Newsletter). In approving Taiwan's budget for fiscal 1997, the legislature cut provisions for selling stock in three state owned firms, including CPC.
The move means a program aimed at selling 10% of CPC, slated to begin Jan. 1 1997, will now be placed on hold. The Ministry of Finance, which oversees CPC, hopes to sell 50% of CPC stock by 2000. Because of the decision to bar sales in 1997, however, this goal is unlikely to be met.
Only weeks after winning an agreement covering E&P off Sakhalin Island following 5 years of negotiations, Exxon and partners have disclosed imminent plans for work to kick off a $15 billion project to develop three giant oil and gas fields off the Far East Russian outpost (OGJ, May 27, Newsletter).
Exxon, Japan's Sodeco combine, and two Russian firms will spend $30 million to conduct a 3D seismic survey and drill a well, getting a $200-300 million initial appraisal phase off the ground. The group last week signed a contract with the Kremlin and local officials for the project, which involves developing reserves pegged at 2.5 billion bbl of oil and 15 tcf of gas.
Natural gas potential in the southern areas of Canada's Yukon and Northwest Territories is much higher than originally estimated, says National Energy Board.
In the first detailed study, NEB says the areas surrounding Fort Liard, Fort Simpson, and Hay River contain an estimated 6 tcf of marketable gas. Previous estimates put reserves in the area at about 500 bcf. NEB says only about 1 tcf of the recoverable gas could be recovered at a price of $2 (Canadian)/Mcf for gas sold at the U.S. border. Current gas prices are much lower. Undiscovered gas potential in the area is pegged at 10.2 tcf. There is only one pipeline into the area, operated by Westcoast. A number of companies recently made successful bids for exploration blocks there. NEB estimates Canada's total gas potential at 395 tcf, with 111 tcf in the western Canada sedimentary basin.
North Mexico's demand for U.S. gas will jump in fall 1998 when Mexico's first large privately funded power project begins coming on line.
Sponsors of the $647 million, 700,000 kw Samalayuca II power plant this month began building the gas fired plant just south of Ciudad Juarez, Chihuahua, and about 30 miles south of El Paso. Samalayuca II group member El Paso Energy plans a 300 MMcfd gas pipeline to the power plant from a border crossing south of Clint, Tex. Samalayuca II is to be fully on line by early 1999.
U.S. gas industry players continue to search for ways to curb costs associated with moving gas to market.
FERC authorized a group of sponsors to proceed with a 3 year field test to determine whether nitrogen can be used effectively as base gas in an underground gas storage reservoir. The approval clears the way for Gas Research Institute, Institute of Gas Technology, and Equitrans Inc., Pittsburgh, to begin withdrawing as much as 400 MMcfd of base gas from the latter's Shirley storage field in Tyler and Doddridge counties, W. Va., and replace that with 300 MMcfd of nitrogen. IGT's implementation plan calls for the group to withdraw gas from storage during the first year and inject nitrogen at the same time as gas is being withdrawn in the second and third years of the test.
Using inert gas to cushion working gas could dramatically cut start-up costs of new storage facilities, if the technology appears widely applicable.
AGA reports the number of U.S. natural gas vehicles and fueling stations has increased dramatically.
Citing separate studies, it says NGVs increased 78% from 23,191 in 1992 to 41,227 in 1994, while fueling stations tripled from 328 in 1991 to 1,107 in 1995.
In its latest move to reduce bureaucracy and streamline oil and gas regulation in Texas, the Texas Railroad Commission voted last week to begin enforcing state absolute open flow (AOF) policies for gas wells on a complaint driven basis.
The decision ends the yearly recertification process through which operators were allowed to produce wells at 100% of capacity in more than 1,800 AOF gas fields in the state.
TRC Commissioner Barry Williamson said recent operator surveys had eased concern AOF status might be misused. The new policy will allow fields to retain AOF status despite production fluctuations unless an operator objects.
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