OGJ Newsletter

• U.S. Industry Scoreboard 11/11/96 [69094 bytes]

Oil prices have fallen more than $3/bbl in 2 weeks. Coupled with the prospect of a resumption of Iraqi oil exports in the near term and easing of downstream supply concerns, there is little room now to press for higher quotas.

But Singapore refiners are happy about improved margins as a result of lower crude prices. They fear profits could come under pressure again if product prices eventually dip along with crude prices. That fear could be eased, however, if a cold winter supports North Asian demand. During the past month, strong regional prices for diesel, kerojet, fuel oil, and naphtha have prompted Singapore's four refineries to restore crude runs to near-capacity levels of 1.2 million b/d.

Not only is talk of privatizing Brazil's state petroleum company Petrobras no longer politically taboo, that talk is turning into action.

Congressman Eliseu Resende, head of a special commission studying the draft bill for establishing a regulatory framework for the petroleum industry, plans to introduce into the draft bill language for privatizing Petrobras.

The draft bill results from a constitutional amendment Brazilian President Cardoso and the Congress signed last year that ends Petrobras' monopoly over most of the country's petroleum sector but retains it as a state-owned petroleum company. Despite Cardoso's promises during his 1994 election campaign and to the senate that he would not privatize Petrobras, Resende said he favors that and is working to convince other members of the commission to amend the draft bill to include privatization of Petrobras.

The draft bill sets up a national petroleum agency that would oversee all petroleum industry policy in Brazil. Resende also disagrees with Cardoso's proposal that the members of this agency be named by the mines and energy minister and approved by the President. He wants to see independent people from all sectors, including the private sector, represented in the agency and appointed for fixed terms to ensure their freedom from political pressure.

Majors continue to consolidate operations. Shell Oil affiliate CalResources LLC and Mobil E&P are considering merging their California upstream operations.

The combination-still in preliminary talks-would create the state's largest oil producer, with combined output of about 250,000 boed and proved reserves of more than 1 billion BOE. CalResources currently holds the top spot in California output, with 150,000 boed vs. Mobil's 100,000 boed.

Onshore and offshore E&P properties would be included.

If it comes to pass, the new stand-alone company would have headquarters in Bakersfield and its own governing board. CalResources would own a 60% equity interest and Mobil 40%. The companies, both major players in Kern County's Belridge and Midway-Sunset fields, hope to improve efficiency and profitability as a result of the proposed merger.

The companies have signed a preliminary memorandum of understanding on the proposed alliance. Still needed to make the deal final are a definitive agreement, regulatory approvals, and the blessing of both parents' boards.

Petrochemical prices in Europe have fallen from last year's peak, but it looks like producers are in for a period of relatively stable prices and comparatively good returns in the near future.

Chem Systems reports that ethylene sold for an average $570/metric ton in the third quarter. This is down from the March 1995 peak of $650/ton, but is reckoned to give a reasonable return on investment. Roger Longley, director of Chem Systems, told OGJ ethylene is expected to sell at $450-480/ton through the next cycle. This would represent a return on investment of 9-10% for a new cracker, compared with 11% at last year's market peak.

Longley said European petrochemical overcapacity is not as great as had been expected, although larger producers have completed debottlenecking programs. "We're looking at reasonably stable prices ahead," said Longley.

He believes Europe still needs to close some older plants and predicts at least one unit will close by 2000.

In China, a $6 billion refinery/petrochemical complex planned by Royal Dutch/Shell could be a step closer to reality.

Chinese officials say Beijing approval may come soon. The petrochemical complex, planned for Huizhou, in Guangdong Province, has been proposed since the late 1980s. If a refinery is built, it would be China's second joint-venture refinery to involve foreign participation. The 100,000 b/d Dalian refinery in northern China began trial runs in October.

Meanwhile, petrochemical demand in China by 2000 will be greater than demand in Japan, says MITI in a new report.

Japan's demand for major petrochemical products, in ethylene equivalents, is expected to rise by just 1.5%/per year to 6.2 million metric tons/year, while China's will likely increase by 10.8% to 8 million tons/year.

On the supply side, the report estimates that Japan will continue to be Asia's biggest petrochemical producer, with capacity of 7.2 million tons/year.

However, other Asian countries will see sharp rises in output, and Middle East countries will have almost caught up with Japan as a result of plans to boost capacity by 12.6%/year to reach 7.1 million tons/year by 2000.

MITI estimates the Asian supply shortage in 2000 at 4.5 million tons/year, while the Middle East is likely to see a 4.4 million ton/year surplus.

In Japan, downstream cost-cutting continues. In yet another move to slash costs, Nippon Oil Co. and Idemitsu Kosan Co. will supply gas to each other's service stations beginning next fall.

The move is the latest manifestation of continuing downstream restructuring and attempts to control costs (OGJ, Aug. 26, p. 31).

The move is aimed at cutting distribution costs and expands an existing joint-supply program. In April, the companies started joint supplies of four petroleum products, including fuel oil and kerosine.

Nippon Oil has already closed six of 18 branch offices and plans to close 10 sections at refineries and at its headquarters. Nippon's staffing is to be cut to 3,600 from 4,200 positions by the end of fiscal 1999.

Beginning this month, Kazakhstan plans to export 2 million metric tons of oil/year to world markets via Iran.

Iran and Kazakhstan signed an oil exchange deal in June calling for an initial 40,000 b/d of Kazakh crude to be delivered to Iran's refineries at Tehran and Tabriz, while Iran will make available similar volumes at its ports for Kazakhstan. An unidentified Kazakh Ministry of Trade official maintains the levels could be increased to 6 million metric tons/year in a decade.

Demand for shares in Russia's largest firm, Gazprom, has exceeded all expectations.

Western investors are showing much more interest in the Russian gas industry giant than was previously expected. The price was set at $15.75/share, which is triple the price at the Moscow market. The great demand for shares-occurring despite rumors of Gazprom's financial troubles and political instability in Russia stemming from President Boris Yeltsin's health problems-shows good prospects for foreign investments in the Russian economy.

It looks almost certain now that the company will be able to raise the expected $400 million from its first international issue.

The money will be used to fund development of Yamal Peninsula gas deposits and construction of the Yamal-Europe gas pipeline, with an estimated price tag of $35-40 billion.

Although foreign investments in Gazprom's shares are likely to be short-term and possibly speculative, the success of the launch may boost foreign interest in operations with other Russian corporate securities and in Russian strategic investments.

However, it is still not clear whether this interest is sustainable in the long-run. The political situation in the country remains tense, and the government has yet to make necessary changes in economic legislation and the stock market's institutional framework.

Meanwhile, investors are not so happy with the newly founded Romanian oil company, ROC. In an open letter to ROC, Shell and Agip assert discriminatory practices affecting private investors in the country, joining criticism that led to the formation of a second oil company, Petrogas (OGJ, Oct. 14, Newsletter). The companies warn that ROC policies could jeopardize other investments in state-owned assests. In addition to maintaining a virtual monopoly on oil production, import, and distribution in Romania, ROC controls 49% of the shares that will be offered for sale on the open market.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.