OGJ Newsletter

U.S. Industry Scoreboard 10/21 [69367 bytes]

OPEC is unlikely to change its quotas when it meets in Vienna in late November, preferring to take advantage of current high oil prices, predicts London's Center for Global Energy Studies (CGES). With no inventory recovery in sight, CGES expects the oil market will remain tight this winter.

Saudi Arabia, which is best placed to increase production quickly, is expected to play a waiting game. "If Iraqi oil is unlikely to materialize before third quarter 1997," said CGES, "and Saudi Arabia, along with its Gulf allies, is reluctant to open the taps because of subsequent revenue losses, only a mild winter is capable of taking the heat out of the oil market."

Mild winter weather would reduce oil demand by 300,000 b/d, CGES said, leading to an OPEC basket price of $21-22/bbl for the period. Assuming a normal winter, with OPEC output staying at 26 million b/d in the fourth quarter and 26.2 million b/d in first quarter 1997, the OPEC basket will average about $22/bbl this quarter, rising to $23.6/bbl in first quarter 1997, CGES said.

If winter weather repeats last year's pattern, adding 300,000 b/d to OECD oil demand in fourth quarter 1996 and first quarter 1997, OPEC's basket price will reach almost $23/bbl in the fourth quarter and more than $25/bbl the first 2 quarters of next year, if no added supplies are available.

But with a cold winter and Iraq still out of the market, CGES reckons industry will be unable to replenish its stocks and prices will remain high through 1997. Even with OPEC output at 26.6 million b/d in second half 1997, after a cold winter, "The basket price would average almost $26/bbl, remaining above $25/bbl in second and third quarter 1997, before climbing above $27/bbl in the fourth quarter."

IEA, in its October monthly report, projects oil supply will exceed demand this winter by 600,000 b/d, provided there's no extreme cold and OECD end-of-winter stocks remain at year-ago levels, or 3.504 billion bbl.

IEA pegs global demand in fourth quarter 1996 at 73.7 million b/d, up 100,000 b/d from the previous month's forecast.

As friction worsened last week in northern Iraq, oil prices continued to seek new highs.

November Brent reached $25.04/bbl in London trading Oct. 15, the first time it passed $25 since Iraq invaded Kuwait in 1990. Brent wasn't able to stay above $25/bbl very long, closing at $24.64/bbl in London Oct. 15 and $24.83/bbl Oct. 16.

November Nymex crude soared to $25.62/bbl Oct. 14, but by Oct. 16 had eased to $25.17/bbl. Although Iraqi troop movements contributed to last week's surge from $23-24/bbl, extremely low stocks of products, especially heating oil, continue to be the main prop under prices.

In apparent defiance of U.N. sanctions, Iraq and China National Petroleum Corp. have signed a production-sharing deal for Al-Ahdab oil field in central Iraq, reports Middle East Economic Survey (MEES).

MEES says the agreement-as yet to draw U.S./U.N. reactions-will take effect when it receives final approval from Saddam Hussein, if that occurs.

The field is said to be a relatively modest find, with potential to produce 80,000 b/d of oil. Iraq National Oil Co. reportedly drilled four wells there in the late 1970s and early 1980s.

MEES said, "This is the first agreement to be initialed by Iraqi authorities, who have been carrying out upstream talks with foreign firms during the past 5 years."

Only four shipments of Alaskan North Slope crude have been exported to the Far East since approved last May. Charles Hunnicutt, Transportation Department assistant secretary, says foreign shippers object to the exports because they have to be carried in U.S. vessels.

But Hunnicutt notes that 95% of U.S. bulk imports and exports are carried on foreign flag vessels, and ANS exports "should result in a larger market for foreign tankers as imported oil will have to make up the Alaskan oil that is exported."

Economic growth in South America's Mercosur countries-Brazil, Argentina, Uruguay, Bolivia, and Chile-will spur investment in petrochemicals there, predicts Carlos Mariani Bittencourt, president of the Brazilian Association of Petrochemicals.

Speaking at a petroleum conference in Rio de Janeiro, Bittencourt said Brazil is expected to spend $6 billion and Argentina $2 billion in petrochemicals and other chemicals by 2000. Bittencourt also sees the Mercosur petrochemical sector with a 35% surplus of resins available for export after 2000.

In Brazil's upstream sector, Petrobras reports the second ultra-deepwater discovery in the Campos basin in as many months.

The 6-MLS-3-RJS well, drilled in 5,607 ft of water to extend Marlim field south, is the deepest water potentially commercial well in Brazil. It tapped Oligocene pay at 9,110-9,537 ft. Petrobras estimates the well's productive capacity at 5,000 b/d of oil and 24.7 MMcf/d of natural gas.

It appears there will be enough gas supplies to support the Bolivia-Brazil pipeline, says Braspetro's Renato Bertani. Speaking at the Rio conference, Bertani cited proved, probable, and possible reserves for the Bolivian basins west of the Andes, together with Northwest Argentina reserves. The figures, based on conservative assumptions about exploration and development in the areas, indicate demand can be satisfied in Bolivia and southeastern Brazil.

Britain's PowerGen plans to shut down its 500,000 kw Ince plant, the last of three power stations it had adapted for using Orimulsion, Pdvsa's extra-heavy crude-based boiler fuel. This represents a serious blow to Orimulsion, which Pdvsa is marketing worldwide as an alternative to coal. PowerGen, one of Orimulsion's first international customers, is the U.K.'s second-largest generator of electricity. PowerGen's decision adds to Orimulsion's woes. Pdvsa's efforts to launch Orimulsion on a large scale in the U.S. have been frustrated by a legal battle in Florida. Florida Power & Light wants to use large volumes of Orimulsion and has a permit to burn it but is being blocked by the state.

A feasibility study is under way on a proposed $3.5 billion, 1.6-bcfd gas pipeline from Iran to Pakistan (OGJ, Aug. 6, Newsletter). Pakistan is banking on Iranian gas to meet domestic gas demand growth pegged at about 8%/year.

The feasibility study is expected to take 9 months to complete.

Oman is walking away from a planned $10 billion subsea gas pipeline to India after spending about $70 million so far on feasibility studies.

Trade and Industry Minister Maqbul ibn Ali ibn Sultan said no more money will be spent on the "unprofitable project." He cited insufficient gas reserves and "technological problems" associated with laying the line under the Arabian Sea in waters as deep as 9,900 ft.

Although environmental groups had urged a veto, President Clinton has signed a pipeline safety bill that would require cost-benefit analysis of new regulations. The law authorizes a 4-year risk management demonstration project, allowing pipelines to work with regulators to custom-tailor their safety programs, if that provides safety equal to or greater than existing regulations.

Australian offshore petroleum seismic activity rose to the second highest level on record during the first half. About 166,204 km of offshore seismic data were recorded in the first half, and large surveys are still under way in the Timor Sea and Carnarvon basins.

However, overall drilling fell 9% from a year ago. Most of the decline came in exploration, where only 50 wells were drilled vs. 75 wells in first half 1995. Hardest hit was onshore exploratory drilling.

But development drilling followed the opposite pattern, rising by 5 wells to a total of 38 in the first half. Onshore, the number of development wells more than doubled to 31.

Industry's efforts to develop a solid-acid alkylation capability as a safer, more environmentally benign replacement for liquid-acid alkylation have stumbled.

Haldor Topsoe, which earlier had expected launching the first commercial solid-acid alkylation project by yearend, is backpedaling on that forecast.

At the NPRA Q&A session in Anaheim, Calif., last week, Haldor Topsoe's Phil Geren said that project was derailed.

In talks with an undisclosed major, after a 3-month feasibility study led to recommendations to proceed with the project, the refiner scrapped it. The refiner cites its lowest margins in 20 years, which left its capital budget for projects based on new processes at zero.

Competitor UOP says it has begun talks with a few refiners on commercializing its new sold-acid process.

UOP's John Sheckler claims his company has produced solid-acid catalysts comparable in performance and quality to those for liquid-acid systems.