OGJ Newsletter

U.S. Industry Scoreboard 2/19 [72659 bytes]

Oil markets are volatile even without results from the Iraq-U.N. talks.

No details at presstime last week had emerged of secret talks that began Feb. 6 between Iraqi and U.N. officials over limited sales of Iraqi oil to fund humanitarian aid. There were few details of progress at a Feb. 14 press briefing, although Iraqi envoy Abdul Amir Al Anbari was eager to put a positive spin on the talks. Western diplomats claim negotiations so far had touched only a few issues to be resolved before limited oil sales can proceed under U.N. Resolution 986.

Hans Corell, leading U.N. negotiators, reportedly gave a cautious assessment of progress when he briefed the Security Council, but diplomats believe Saddam Hussein has not yet decided on whether to proceed with restricted oil sales.

One diplomat said, "They've certainly been talking pretty seriously for a week now. But the Iraqis are talking the talks up, and in the end they might turn around and blame the U.N. for failure."

Another said Saddam Hussein was under a lot of pressure to show in Baghdad he has control of the negotiations: "It's very much a propaganda effort."

Iraq may have a loophole of sorts, contends Salomon Bros. The analyst contends Iraq won't accept Resolution 986 officially, but the resolution doesn't require it to do so. It lays out conditions Iraq must adhere to in order to allow oil sales.

"Iraq's position to reject 986 officially but comply with 986 in reality is a dramatic departure from its prior intransigent position," thus increasing the likelihood of Iraqi exports in time, Salomon Bros. said.

Geoff Pyne, oil market analyst at UBS Securities, London, said oil traders are generally ignoring the Iraq issue for the moment, and there is no link to rising oil prices the prior week. Brent for March delivery has hovered near $16.50/bbl since the Iraq/U.N. talks began, but jumped 95 to close at $17.79/bbl Feb. 13 and another 14 Feb. 14. Pyne notes the crude oil market is very tight, and surging heating oil demand was the main driver of the price jump.

"Heating oil inventories are very low, because holding stocks equals losing money at the moment." A sudden surge in demand led to a U.S. stockdraw of more than 1 million bbl of crude last week, notes Pyne, taking stocks to their lowest level since the modern low in April 1986.

"The markets have factored in discounts for limited sales of Iraqi oil," said Pyne. "Some 70-80% of traders believe partial exports of oil from Iraq will happen. If it weren't for the Iraq question, Brent could be $19-20/bbl by now."

Meanwhile, Baghdad newspapers report Moscow has signed an agreement with Iraq to develop Iraqi oil fields after sanctions are lifted. They involve giant oil projects some claim could be worth $10 billion to Russia.

OPEC will have to cut output to avoid a price slump if Iraqi oil sales resume. OPEC produced 26 million b/d in January, up 860,000 b/d from December.

Middle East Economic Survey (MEES) pins most of the jump on Iran, which hiked output by 685,000 b/d to an average 4.04 million b/d, about 400,000 b/d over quota. MEES says about 200,000 b/d of Iran's monthly average increase could be blamed on loading delays at Kharg Island in late December due to bad weather, thus counting that volume in January's total.

In addition, Nigeria is clawing back money lost through political and technical troubles last year and raised output by 40,000 b/d to 2 million b/d last month, about 130,000 b/d over quota. But Venezuela continues in its role as chief quota violator, MEES claims, topping even Iran's quota exceedence with a rise of 100,000 b/d to 2.9 million b/d and its own quota by more than 500,000 b/d.

Once again Shell Nigeria has had to defend itself against allegations over its relationships with Nigeria's government (OGJ, Nov. 20, 1995, p. 37). In the latest furor, Nigerian and international newspapers charged Shell has been involved in importing weapons to Nigeria to arm Nigerian police.

Shell denies it imported weapons, saying it only paid for handguns acquired 15 years ago by Nigerian auxiliary police assigned to protect Shell staff against increasingly violent crime. Shell withdrew from Nigeria's Ogoni region in 1993 after attacks on personnel and sabotage of oil field installations.

Meanwhile, a $2 million environmental survey of the Niger Delta region, backed by Shell but conducted by independent bodies, is under way (OGJ, Feb. 13, 1995, Newsletter). Early indications seem to corroborate a World Bank report last May that did not cite oil pollution as a priority in the region, says Struan Simpson, project director at Conservation Foundation, London, part of the survey steering committee. "From press coverage you might think the delta was totally devastated," said Simpson, "but this is not the case...The priority is poverty. If local people were better off, the question of pollution wouldn't be so prominent."

The first licensee for Haldor Tops e's breakthrough alkylation technology will sign up this year, says Tops e's Phil Geren.

Refiners worry about hazards posed by traditional alkylation catalysts of hydrofluoric and sulfuric acids. Geren told OGJ's catalyst conference in Houston Feb. 1 the Tops e process replaces those acids with a small amount of liquid, nontoxic acid adsorbed on a solid that won't form a dangerous aerosol.

It can be easily retrofitted onto existing alky plants, work without refrigeration, and alkylate problematic isopentane. The U.S. has more than 1 million b/d of alky capacity, much of which Tops e sees as a target for retrofitting.

Warnings of a downturn in profits for petrochemicals producers have made financial analysts think of downgrading their rating of expected company performances. Some analysts are nervous about impending profit disclosures, but London's Chem Systems says that while petrochemical profits in 1996 will be about half that of 1995, this does not mean the sector is headed for another cyclical downturn. The analyst contends petrochemical profits were healthy until third quarter 1995 and predicts fourth quarter 1995 results will show a big drop in profits. Prices for polymers have plunged to about 68/kg from $1.22/kg in March 1995, while feedstock and operating costs have not fallen.

Falklands Islands exploration is likely to be high cost, with risk offset by potential for discovery of significant volumes of hydrocarbons, says Smith Rea Energy Analysts, Canterbury, U.K. Sea conditions around the Falklands are less harsh than along North Sea's North Atlantic margin, says Smith Rea.

"Modern floating and subsea production technology as now being employed West of Shetland and in the Norwegian Sea would permit profitable exploitation of significant oil finds, notwithstanding the absence of existing infrastructure."

Following the recent disclosure that British Gas plans to split into two companies by spring 1997, a price dispute with gas industry regulator Ofgas appears inevitable. Ofgas is working on changes to the price formula used in charging for third party use of BG in time for full liberalization of the U.K. gas market in 1998. Ofgas is expected to cut how much BG can charge third parties to use its network. The company claims Ofgas won't allow enough for its investment in pipelines and their maintenance. The dispute likely will again be referred to the U.K. Monopolies & Mergers Commission (MMC) this year for resolution. BG called in MMC when it felt Ofgas placed too many restrictions on it as London pushed for an open gas market (OGJ, Aug. 10, 1992, p. 18).

Amoco and Conoco plan to build a 75 mile, 50,000 b/d crude oil pipeline from Billings, Mont., to Elk Basin, Wyo., in Montana to compete with the $530 million, 170,000 b/d Express export pipeline (see map, OGJ, Sept. 25, 1995, p. 47).

Amoco and Conoco contend theirs is a better alternative for increased export capacity than the Express project, but Express says the new project won't affect its plans. Amoco and Conoco plan to have their line on stream this summer with initial throughput of 20,000 b/d.

In a new rule, MMS has given itself more flexibility in bidding systems it uses to sell offshore oil and gas leases. The regulation will allow MMS in future lease sales (see related story, p. 24) to set a minimum royalty lower than the usual 12.5%, defer royalties for set periods, and calculate royalty rates under variable systems that might include product prices. MMS says the new systems will be considered for tracts believed to have subsalt reservoirs, those with uneconomic reserves, or those that netted high bonus bids but were unexplored.

Now that President Clinton has signed a bill allowing the government to sell its 78% interest in Elk Hills Naval Petroleum Reserve in California, DOE will begin efforts to assess its value and schedule an offering.

Congressional Budget Office estimates a sale will net $1.5 billion, but industry estimates are higher.

Energy Sec. Hazel O'Leary will seek to establish a permanent interagency panel of high level federal officials to discuss policy and regulatory issues affecting the U.S. petroleum industry. National Petroleum Council last summer urged formation of such a panel. A poll of NPC members found most were concerned about federal actions affecting consumer fuel choices, cumulative effect of federal rules, and access to federal lands.