OGJ NEWSLETTER

All eyes are on Saudi Arabia to see if a postwar oil price collapse is to be avoided. Market fears that prices will fall further after all fighting stops and softening second quarter demand is felt were reflected at last week's Vienna meeting of OPEC ministers from outside the Persian Gulf. Ministers from Algeria, Libya, Gabon, Indonesia, Libya, Nigeria, and Venezuela conceded they are powerless to affect the market without cooperation of the major gulf producers, who declined to attend

March 4, 1991

7 min read

All eyes are on Saudi Arabia to see if a postwar oil price collapse is to be avoided.

Market fears that prices will fall further after all fighting stops and softening second quarter demand is felt were reflected at last week's Vienna meeting of OPEC ministers from outside the Persian Gulf. Ministers from Algeria, Libya, Gabon, Indonesia, Libya, Nigeria, and Venezuela conceded they are powerless to affect the market without cooperation of the major gulf producers, who declined to attend the meeting.

But they point out even if OPEC returns to a tightly observed quota of 22.5 million b/d, that won't sustain crude prices above $18/bbl. OPEC has in the past found it tough to enforce a quota of much less than 22 million b/d. Ministers' advisers were talking about a second quarter call on OPEC oil of less than 21 million b/d. Their chief fear is that Saudi Arabia might be unwilling to out output from 8.5 million b/d and especially reluctant to out it by 3 million b/d to return to preinvasion levels. However, with the allied ceasefire following the rout of Iraqi forces last week, it seemed likely the OPEC market monitoring committee meeting in Vienna Mar. 11 could discuss pricing and production without the overhanging threat of Persian Gulf war.

As the astonishing allied victory played out last week, oil prices briefly broke the psychological barrier of $18/bbl, rebounding on the strength of lower than expected U.S. stock levels. Also, warmer weather and lower prices in the U.S. were driving up gasoline demand, in turn buoying crude prices.

In Europe, Brent for immediate delivery fell $1.85 on the week to $16.60/bbl and then bounced back to $19.38 on closing Feb. 28. Nymex crude fell more than $2 from the last March delivery closing to $17.91/bbl for April delivery, rebounding to $18.86 Feb. 27. Rotterdam premium gasoline rose $14 to $233/ton in the period, while the decline in gas oil prices continued with a $10 fall to $205/ton, and low and high sulfur fuel oils recorded marginal falls. In the U.S., Nymex gasoline rose almost 90 on the week to close at 67.2/gal Feb. 27.

Another Soviet joint venture plans extensive seismic surveys in Soviet offshore frontiers. Polar Pacific Co. of Geophysics, a venture of Halliburton Geophysical Services and the Soviet oil and gas ministry's Dalmorneftegeofizika Trust, plans a 1991 program covering the Sea of Okhotsk-Kamchatka, Anadyrskiy Gulf, Chukchi Sea, East Siberian Sea, and Laptev Sea. A first phase of the program covered 8,791 line km in the Chukchi Sea in 1990. Oil companies have a precommit deadline of Mar. 29.

A Japanese delegation will visit the Soviet Union this summer to study a possible joint venture to produce LPG in eastern Siberia and elsewhere in the U.S.S.R. Sakhalin Island gas production will get priority.

One proposal calls for delivery of propane and butane to Japan from a gas processing plant to be built in eastern Siberia fed via pipeline from gas fields off Sakhalin.

The Soviets may have company in disappointing expectations of production trends, which bodes well for OPEC later this decade. China has cut its estimate of crude production in 2000 to 3.4 million b/d from 4 million b/d. The less ambitious target was disclosed after a meeting of oil industry leaders in Beijing. The cut stems from an expected plateauing of output from fields in eastern China that account for about 90% of Chinese flow. Leaders were told development of new fields in Northwest China is not proceeding as smoothly as expected. China's production last year increased by 1% to 2.78 million b/d.

Declining Soviet oil exports continue to squeeze former satellites. IMF has made its first loan to Bulgaria, $87 million, to help buy oil, in the wake of a one third cut in Soviet deliveries and Soviet demands for hard currency. Bulgaria may get another $47 million later to buy more oil. IMF loans totaling more than $5 billion have gone to Czechoslovakia, Hungary, and Poland, with Poland due to get another $2 billion soon.

Meantime, Bulgaria's strict gasoline rationing hasn't stopped hoarding. Despite a 150% price jump, single purchases have risen to as much as 30-40 gal vs. the usual 10 gal or less.

Qatar's North field LNG project is moving ahead.

Japanese utility Chubu signed a letter of intent to buy 4 million tons/year of LNG starting in 1997. Project partners are Qatar General Petroleum Corp. 70% and Marubeni, Mitsui, BP, and Total 7.5% each. Initial plans call for two LNG trains, but the liquefaction process has not been chosen. The plant will be designed for expansion to 6 million tons/year.

BHP's proposal to acquire the remaining 49.9%, of Hamilton Oil Corp. it doesn't own is a major step in its international expansion program, giving it a key presence in the U.K. North an Irish seas. With reserves pegged at 200 million BOE and two thirds gas, BHP is keen to replace declining Bass Strait oil production and expand its role in the gas industry. About 67%, of Hamilton's proved reserves are undeveloped.

Valued at $700 million (Australian), BHP would acquire Hamilton for about $5 (U.S.)/BOE.

The aggressive British Gas international expansion continues. BG will buy a 20% stake in Engigas, a small Portuguese gas engineering company, for 150,000.

The toehold will strengthen efforts to expand Portugal's gas grid. Main shareholder Gas de Portugal established Engigas in June 1990 to handle plant maintenance and lay gas lines.

Portugal has contested the Timor Gap accord between Australia and Indonesia. The first oil exploration permits under that accord were to be awarded in May (OGJ, Feb. 25, p. 25).

Portugal Feb. 23 filed a brief with the International Court of Justice questioning validity of the treaty. Although East Timor has been part of Indonesia since 1976, the U.N. still recognizes Portugal as having legal authority there.

EIA plans to publish its oil and gas reserves biannually, says API. EIA will continue to survey industry each year, but publish survey results every 2 years to cut publication costs.

GM and GRI will spend $39 million to develop light and medium duty CNG truck that could be in production by the mid-1990s. A few trucks would be produced for field research, probably built at GM's Janesville, Wis., plant. GM last July said it will produce at least 1,000 CNG conversion pickups for utility and private use in Texas and California.

ARCO has given a green light to development of Point Mc-Intyre field -- at 300 million bbl the biggest U.S. discovery in almost a decade--on Alaska's North Slope.

At a total cost of $727 million, the project would involve installation of two drillsites and production through Lisburne field facilities. Point McIntyre would start up in late 1992, with initial production from both fields at 80,000 b/d, peaking at 100,000 b/d. Approvals are still needed from partners BP and Exxon, as is a permit from U.S. Army Corps of Engineers for a controversial West Dock causeway drillsite.

Exxon is balking at Alaska's $1.2 billion proposal to settle its lawsuit related to the Marc. 24, 1989, Exxon Valdez oil spill. Its counteroffer was dismissed.

Exxon dislikes the total amount, payment schedule, and a reopener clause requiring additional payments if long term studies turn up more environmental damage. Alyeska, also sued by the state, is not involved in the settlement proposal.

Exxon's federal trial on criminal charges related to the spill starts Apr. 10, and the U.S. may file a civil suit as well.

Meantime, attorneys for former Exxon Valdez skipper Joe Hazelwood have appealed his Mar. 22, 1990, conviction and sentence, again claiming immunity against prosecution because Hazelwood reported the spill, illegal blood and urine sampling, and that Hazelwood was proven guilty of carelessness, not criminal negligence. Hazelwood was sentenced to a $50,000 fine and 1,000 hr of cleaning oiled shorelines in Prince William Sound after being found guilty of the misdemeanor negligent discharge of oil.