OGJ Newsletter
Iraqi and U.N. officials have begun a third round of talks in New York over sale of as much as $2 billion of Iraqi oil to fund purchase of food and medical supplies for Iraq's long suffering population. With both sides optimistic for further progress, the biggest obstacle remains who is going to distribute humanitarian supplies, U.N. or the Iraqi army. At OGJ presstime there had been no detailed briefings by either side on progress to date, but a U.K. Foreign Office official said negotiators were optimistic of an agreement by the end of last week.
However, the U.S. government insists Iraq agree to Resolution 986 as it stands, requiring U.N. forces to distribute Iraqi supplies.
Iraqi Deputy Prime Minister Tariq Aziz said, "very important differences" remain between the two sides and Iraq's "very integrity and sovereignty" are at stake. Aziz's comment apparently refers to Baghdad's fear humanitarian supplies will be given to Kurdish rebels in northern Iraq, as well as to government supporters. Aziz also says this round of talks may not be conclusive and a fourth round may be required. This procrastination is expected to bolster oil prices.
Meantime, Brent crude for May delivery has hovered above $20/bbl since Apr. 1. The May Brent contract was trading in London at $22/bbl early Apr. 11, following a jump of $1.33 the previous day when it closed at $22.03/bbl.
On the Singapore exchange, May Brent closed Apr. 11 at $22.02/bbl, up $1.23 on the day. On Nymex, May crude surged to $24.21/bbl in early trading Apr. 11.
Geoff Pyne, analyst at UBS Ltd., London, says while this high is not expected to last, it seems refiners have been caught off guard by the long winter.
"This is simply a case of refiners reaching the bottom of their tanks. Demand is strong, and winter lasted longer than expected, and now U.S. refiners in particular have noticed they are not building gasoline stocks fast enough."
Pyne says it is impossible to predict short term oil prices. "Even if the price were $30/bbl, if demand was tight, the price would go up."
Second quarter world demand for crude is expected to fall 3 million b/d, which will loosen the market. But refiners likely will need another 300,000 b/d beyond base demand in second and third quarters for stockbuilding.
The spike in Brent is contributing to European refiners' woes (see related story, p. 34). Already low margins will fall further because demand is beginning to slacken while crude prices remain strong. European refiners were barely eking out a profit before the latest bull run in crude and now may get serious about cutting runs.
Look for more turnarounds among European refineries this month ahead of switching product slates for the summer driving season. That will slacken demand and prices for crude in Europe just as demand and products prices pick up, especially given the persistent low level of stocks in the U.S.
While Europe's refiners wring their hands and try to guess who will give way first and shut down capacity (OGJ, Apr. 8, Newsletter), Kuwait Petroleum Corp. (KPC) plans to add more than 1 million b/d of refining capacity in Asia and Europe.
Kuwaiti Oil Minister Abd al Musin al Mudij told Middle East Economic Survey KPC is negotiating joint venture refining projects in Asia with distillation capacity totaling more than 700,000 b/d-a 120,000 b/d refinery at Orissa, India, expandable to 250,000 b/d; a 200,000 b/d plant near Hub, Pakistan; and a 300,000 b/d refinery in Thailand.
In Europe KPC plans to add 300,000 b/d capacity to its current 125,000 b/d. Last year KPC agreed with Agip on a deal to buy 50% of a 300,000 b/d refinery at Milazzo. Al Mudij said the plans "provide secure markets for our crude in Asia and secure supplies for our Asian partners, and this is in keeping with our planned oil strategy. It provides market stability for Kuwaiti oil by guaranteeing long term outlets."
France's oil industry continues to step up its attacks on tax incentives for alternative fuels. French trade group UFIP commissioned a study by economist Jean-Jacques Rosa that found revenue losses totaling 60-80 billion francs/year for the oil industry because of tax preferences in favor of natural gas and electricity.
These "distortions" also cost the French public the equivalent of 1.4-1.8% of GNP, he found. The study advocates tax neutrality for all energy sources. Meantime, France's draft clean air law includes the introduction by 2000 of only a "minimal" volume of oxygenates in gasoline and fuel oil. The idea is to avoid European market distortions accompanying introduction of a large volume of subsidized oxygenates that in turn would result in French taxpayers also subsidizing the agricultural products of other European countries in an otherwise open market. The draft law also calls for tax incentives for vehicles fueled by electricity or gas.
French companies continue to help China expand its natural gas infrastructure, mindful of forecasts that Chinese gas demand will rocket to 2.1-2.8 tcf/year from the current 595 bcf/year.
Gaz de France (GdF) affiliate Sofregaz and Bouygues Offshore affiliate Technigaz have won a 246 million franc contract to install a natural gas grid in the Pudong district east of Shanghai. It includes development of a gas storage/peak shaving site. GdF earlier helped develop gas grids in Chengdu and Xian and installed an automated remote control system for gas consumption in Beijing.
Middle East LNG projects continue to mark progress.
Oman has chosen an international group of banks to arrange financing of its $2.25 billion LNG export project. Project financing is to be completed by August, with first disbursement set for May 1997. The banks also will work with export credit agencies to arrange loan guarantees. Oman LNG, a group of Oman's state petroleum company and foreign partners led by Royal Dutch/Shell, this month signed a final agreement for sale of 4 million metric tons/year of LNG to South Korea during 25 years beginning in 2000, confirming a heads of agreement signed last month (OGJ, Mar. 18, p. 38). South Korea will use its own LNG carriers and take the LNG fob, steps that slashed $1 billion from the project cost.
Meantime, Qatar has let $1 billion in contracts for upstream work related to its $5 billion Ras Laffan project (see Industry Briefs, p. 36), for which LNG exports also are dedicated to South Korea for 25 years beginning in August 1999.
Qatar has two other LNG projects. Qatargas will supply Japan with LNG beginning in 1997, and a third, more speculative project is to supply India and possibly Israel and Jordan beginning after 2000.
Romania's E&P foreign investment push is getting off high center. Plans call for Romania to offer as many as 15 blocks in a tender in Bucharest Apr. 23, its first national license round. The blocks, of 500-2,000 sq km, are in Transylvania, eastern Carpathians, eastern Romania, and in the Black Sea. The Bucharest conference will be followed by similar programs in London and Houston. Exploration is expected to get under way early in 1997. Key to revitalizing its E&P sector is Romania's attractive new petroleum fiscal/legal regime (OGJ, Jan. 15, p. 18).
Smith Rea, Canterbury, U.K., says there are 14 play concepts in the Rockall trough off western Ireland, where blocks are on offer. In March Dublin offered 615 blocks and 35 partial blocks for exploration. They are classified as frontier acreage and are in 500-2,500 m of water (OGJ, Apr. 1, p. 83).
"Exploration activity to date," said Smith Rea, "has included fairly extensive seismic plus limited drilling, mainly along the eastern margin. The area is now thought to be potentially prospective and seen as a whole probably more oil than gas prone, with prospects for large to medium size oil discoveries."
Environmental issues and litigation continue to go hand in hand for the U.S. petroleum industry.
API has sued in the D.C. Court of Appeals challenging a National Oceanic and Atmospheric Administration rule under the 1990 Oil Pollution Act on how natural resource damage is assessed in oil spills. API complains NOAA has abandoned standards ensuring environmental restoration methods are chosen on the basis of sound methodology and reasonable cost. It says the rule allows use of contingent valuation methodology to calculate liability, which relies on public opinion polls to determine value of natural resources.
The U.S. Court of Claims has ruled the federal government must pay 18 oil and gas companies damages for not allowing them to explore leases off North Carolina. The firms bought the leases in the early 1980s, paying more than $663 million in bonuses and delay rentals. The court says the government was wrong to delay drilling for environmental reviews required by the 1990 Outer Banks Protection Act. The court will determine the amount of damages later.
Yet another study claims emissions of CO2 and other greenhouse gases released by human activity, such as the burning of fossil fuels, have had no discernible influence on climate. A review by Washington, D.C., think tank George C. Marshall Institute concludes most climate data suggest a continuation of the gradual, natural warming the earth has experienced for the last several hundred years. It says extreme weather events, such as hurricanes and tornadoes, are not increasing in frequency. Further, it claims there is no evidence human activity causes global warming, but if it did, that would amount to less than 0.5o C. in the next century.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.