OGJ Newsletter

U.S. INDUSTRY SCOREBOARD 3/4 [72294 bytes]

Look for Iraq-U.N. talks over limited sales of Iraqi oil to resume in March.

There are rising expectations of an early resumption of the talks-which ended inconclusively last month (OGJ, Feb. 26, p. 38)-despite the killing of two former aides of Saddam Hussein. Gen. Hussein Kamel and his brother Saddam Kamel, both sons-in-law of Saddam and key figures in the president's regime, returned to Iraq after defecting to Jordan last year (OGJ, Sept. 4, 1995, p. 42). Saddam had promised clemency for the two exiles, but they were killed, reportedly by members of Saddam's Majid clan, within days of their return.

Julian Lee, oil analyst at London's Centre for Global Energy Studies, doesn't think the U.N. will let the killings derail the talks. "We have seen the first round of a long series of negotiations," he said. "We did not expect any rapid agreement, and we now expect a second round of talks later in March.

"Both sides seem more willing, or even more desperate, to find a solution than in the past. But the biggest stumbling block may prove to be the U.S. A successful outcome may depend on what pressure can be put on the U.S. to allow the oil sales."

U.N. officials cite reports from Baghdad that Iraq's Deputy Prime Minister Tariq Aziz may join the talks. This may be a strong sign a deal is at hand. But a U.K. Foreign Office official says this could be just another case of Iraqi prevarication, in which case it could only hurt negotiations.

Meanwhile, Iraq plans to send engineers to Turkey to assess repairs required on its twin oil export pipeline that traverses Turkey. Baghdad claims to have repaired war damage to the Iraqi section of the 2 million b/d capacity system, which extends 1,050 km from Kirkuk, Iraq, to Turkey's Mediterranean terminal at Ceyhan. Iraq expects to be required to transport most oil covered by the U.N. monitored humanitarian sales accord via this pipeline.

Libya soon will award a major gas export project to Agip, says Middle East Economic Survey (MEES). The deal is expected to lead to exports of 280 bcf/year from Libya by pipeline across the Mediterranean to Italy. The project involves Agip's gas discoveries on offshore Block NC-41 and the Wafa onshore find by state firm Sirte Oil Co. Plans call for production to move to a point west of Tripoli, where a treatment and separation plant will be built. Appraisal of the offshore field is complete, with reserves estimated at 8 tcf and production pegged at 575 MMcfd. Wafa reserves are put at a preliminary estimate of 4-7 tcf of gas, with production projected at 192 MMcfd. Agip has a production sharing contract for the offshore blocks and is expected to be awarded a similar contract for Wafa. It is to take delivery of dry gas for sale in southern Europe.

Agip parent ENI plans to invest more than $3.5 billion in North Africa's energy market the next 4 years. Managing Director Franco Bernabe says his company plans E&P projects in Egypt and Algeria that will push the company's North African oil and gas production to 236,000 b/d and 153 MMcfd of gas by 1999. Italian Industry Minister Alberto Clo estimates North Africa's soaring population growth will underpin a jump in oil demand to 9 million b/d of oil equivalent (boed) in 2020 from 3.2 million boed in 1992. Clo says it is critical for the region to meet that added demand if it is to guarantee increased oil and gas exports to Europe.

Demand for refined products is booming in the Czech and Slovak republics, Hungary, and Poland and is a catalyst for change in East Europe's downstream oil industry. Wood Mackenzie, Edinburgh, predicts an average increase of 3%/year in oil products consumption in these countries the next 10 years-a jump of 240,000 b/d, mostly from the transportation sector. Eastern Europeans use only 166 l./year of gasoline per capita compared with 400 l./year for western Europe. A similar gap exists in diesel use. The analyst predicts demand hikes of 92,000 b/d in gasoline and 90,000 b/d in gas oil/diesel.

The region's refineries are currently stretched and need investment if they are to meet domestic demand. Growth will not be uniform, because much capacity is not configured to meet local demand. Refining investments projected for Poland, including construction of a 120,000 b/d refinery at Kedzierzyn-Kozle, total more than $3 billion.

Hungary's petroleum privatization initiative could be in danger because of political crosscurrents there. Hungary's strongly proreform Finance Minister Lajos Bokros resigned over further budget cuts he pledged to win OECD and IMF acceptance. Bokros' spending cuts and his role in Hungary's Socialist dominated coalition were the main reasons foreign investors regained faith, climaxing in privatization of MOL and Hungary's gas distribution companies getting under way last year (OGJ, Oct. 2, 1995, p. 23). A top candidate to replace him is leftist Tamas Suchmann, who opposes planned March gas price hikes critical to the LDC privatization and thinks proceeds from sale of the LDCs should go to support welfare spending, not cutting Hungary's budget deficit. Hungary's per capita deficit is double that of any other country in the formerly Communist nations of eastern Europe.

U.K. and Argentine delegations were to meet in Buenos Aires last week to set up a joint commission for E&D in the South Atlantic. The commission will oversee licensing of an area of special cooperation southwest of the Falkland Islands, whose sovereignty is disputed by the two governments. Agreement between the two governments to share responsibility for oil and gas exploration in the cooperation zone was key to the Falklands' government opening an exploration licensing round last year (OGJ, Oct. 9, 1995, p. 36). The commission will issue licenses separately from blocks offered in the Falklands license round, due to close July 2.

Another water depth drilling record is about to fall. Shell and partners Amoco, Mobil, and Texaco plan to spud a well in March or April in a record water depth of 7,800 ft on Gulf of Mexico Alaminos Canyon Block 809, says drilling contractor Sonat. The wildcat will target salt traps along the edge of the U.S. continental slope near Mexican waters (OGJ, Feb. 26, p. 73). A Sonat dynamically positioned drillship is in dry dock being refurbished to drill the Baja prospect. Sonat drilled the previous record well for Shell, a 7,520 ft wildcat on Mississippi Canyon Block 657 in 1988 (OGJ, Aug. 15, 1988, Newsletter).

The Aires project, sponsored by oil, computer, and communications firms, has demonstrated real time analysis of offshore seismic data (OGJ, Oct. 2, 1995, p. 26). The demonstration sent seismic data from a vessel in the East Cameron area of the Gulf of Mexico to a satellite and then to onshore locations. API says the system will permit industry to analyze seismic data in a few minutes and order course corrections for the seismic vessel. It contends the reduced time for completing seismic surveys could save more than $200,000/month/survey.

Interruptible transportation by U.S. transmission pipelines continues to fall while capacity release continues to climb. Interruptible transportation declined steadily in first half 1995, while no-notice shipments grew 67% and gas delivered under capacity release arrangements nearly doubled. Ingaa says firm transportation service accounted for 53% of the 11 quadrillion cu ft of interstate pipeline deliveries to market in first half 1995 vs. 58% the prior year. No-notice deliveries accounted for 2 quads. Interruptible transportation accounted for only 14% of deliveries vs. 20% in first half 1994. Released capacity in the period jumped to 15% from 1994 midyear levels of 8% of total market deliveries. Ingaa also notes merchant sales have virtually disappeared at only 0.3% of deliveries.

Ingaa analyst Skip Horvath said, "What we have found is that capacity release is not only providing a competitive alternative to interruptible transportation, it appears to be the more attractive alternative to shippers."

Ingaa said distributors continue to dominate pipeline transportation service. While distributors account for an 89% share of no-notice transportation, their share of primary firm transportation dropped to 55% in first half 1995 from 60% in first half 1994. While accounting for only 8% of no-notice service volumes, marketers are responsible for 78% of all interruptible service volumes delivered to market.

Canadian gas producers must increase production by at least 10% the next few years, says Amoco Canada Chairman Dave Newman. That's needed to fill new pipeline capacity to the U.S. of an added 400 bcf/year by 1998. An underserved market getting needed pipeline capacity means price competition will be in the market, Newman says, rather than among producers vying for limited available transportation. He contends western Canada is able to sharply hike output to meet demand, but if Canadian East Coast gas reserves are developed and tied to the eastern seaboard, western gas producers could find themselves competing with those supplies.

Meanwhile, Calgary analyst Peter Linder says a cold winter has slashed gas storage levels in eastern Canada and the U.S. Midwest to much lower levels than a year ago. Storage levels in eastern Canada and the U.S. Midwest are about 20% and 33% of capacity, respectively, vs. 57% and 53% a year ago. Linder worries there may not be enough gas in storage to last the winter.