OGJ NEWSLETTER

The recent unexpected strength in oil prices notwithstanding, analysts have returned to the game of guessing when and how far oil prices will fall in the near term.

Oil prices are primed for a big fall, perhaps $4-6/bbl in second quarter 1992, warns East-West Center's Fereidun Fesharaki.

After firming to $26 by January because of declining Soviet exports and continuing strong Asia-Pacific demand, WTI will plunge in the seasonally weak quarter with sooner than expected Kuwaiti supplies on the market, Fesharaki says.

Philip Verleger sees a similar volatility, noting precautionary stockbuilding has added about $1/bbl to oil prices and created a climate that could spike prices $5/bbl if an accident disrupts supplies. But as producers scramble to lock in higher prices through hedging, their subsequent sales of hedged oil will depress prices. As prices fall, buyers will liquidate stocks or defer purchases, worsening the slide, he says.

Kuwait expects to restore crude flow to at least 1.5 million b/d by yearend 1992. Kuwaiti Oil Minister Hamoud Abdullah al-Rukbah estimates output, including Neutral Zone, will rise from 550,000 b/d at yearend to 950,000 b/d by July 1992, when 16 gathering stations and 100 new wells are to be on stream.

Royal Dutch/Shell Group Managing Director John Jennings takes a pessimistic view of oil price trends, noting spot Dubai was $14/bbl in November 1986 and in real terms is about the same level at $18/bbl today. Jennings doesn't see a sustained price hike in real terms before the mid-1990s.

He contends producers that hiked output in 1990 won't willingly out it to accommodate Kuwait and Iraq. He also expects non-OPEC production to be stable even with a substantial decline in Soviet output and to be far less price sensitive than popularly thought.

Surplus productive capacity will persist, Jennings warns, and current prices can be maintained only through production restraint mainly by major Persian Gulf producers.

"In the past they have never found this easy, and there is no reason why, with the additional pressures of paying for the ravages of the gulf war, they should find it any easier now.

"I can see very little logic in expecting higher prices and many reasons for testing investments against lower ones."

The Russian republic's petroleum company is negotiating with Japanese companies purchase of about 700,000 tons of tubular goods valued at about $500 million and drilling equipment and supplies valued at about $200 million, reports Kyodo News Service.

It is talking with Nippon Steel, NKK, and some major trading houses. If the deal jels, the Japanese firms will seek financing from Japan's Export-Import Bank and trade insurance from MITI.

Privatization continues apace in the former Communist eastern bloc of Europe. Czechoslovakia's Chemopetrol has hired Credit Suisse First Boston Ltd. to help it in its proposed privatization and seeks foreign investors to help fund modernization and expansion projects. About 100 km northwest of Prague, Chemopetrol is a 90,000 b/d refinery and petrochemical complex that produces olefins, polyethylene, polypropylene, synthetic ethanol, ethylbenzene, phenols, ammonia, CO2, and other products. Negotiations with foreign partners are to continue into 1992.

In a surprise move, the French government will sell 5.8 million shares in Elf, reducing the state's holding to 51.5% from 53.5%. The sale, through a domestic and international share offer, is expected to raise about 2 billion francs ($359 million).

It is the first major divestment of a French state owned company since President Mitterand said 2 months ago he won't object to partial privatization if the government retains a majority holding in the companies concerned.

Lenders led by the World Bank want Bolivia to privatize construction of a gas pipeline to Brazil and a gas fired power plant in Bolivia so the cash strapped country doesn't assume sole responsibility for the $600 million investment.

Brazil is preparing a standby pact to commit to buying $10 million/month worth of electric power for Mato Grosso and Matto Grosso do Sul for at least 1 year from start-up of the 500,000 kw power plant planned near Bolivia's border with Brazil.

The pact settles Brazilian utility Eletrosul's outstanding debts to Bolivian utility ANDE and provides supply contract guarantees needed to qualify for the project loan.

Taiwan plans to construct one or more LNG fueled electric power plants near each of the island's major cities. The Ministry of Economic Affairs predicts domestic electric power consumption will more than double the next 10 years. Environmental concern has spurred the choice of LNG to fuel the power plants despite its higher cost. Taiwan's LNG demand will get a further boost if the government allows its use as a motor fuel. Vice Economic Minister Lee Shu-chiu says Taipei is reviewing current rules banning use of LNG as a motor fuel, and if those revisions are completed and approved early next year, LNG fueled cars could be introduced by yearend 1992. The ministry flashed a green light to expand Yung An LNG terminal in southern Taiwan and is studying plans for a second terminal in northern Taiwan.

Iranian and Pakistani state oil companies have issued a tender to shortlist consultants for a detailed feasibility study of the proposed joint refinery project in Pakistan.

Bid deadline is Nov. 30. The proposed 120,000 b/d grassroots refinery, to be built at Karachi or another coastal city, would process Iranian heavy crude to produce high octane gasoline, high speed diesel, fuel oil, kerosine, LPG, and sulfur to meet domestic demand and export surplus products.

BP Canada has hit the sweet spot in the Monkman area of northeastern British Columbia. BP Nov. 1 began deliveries of 45 MMcfd under a long term contract with BC Gas and 5 MMcfd to Vancouver Island pulp mills in addition to 40 MMcfd already being sold to existing markets. Since 1989 BP has drilled seven wells in the Monkman area with 100% success, with flow rates of 15-75 MMcfd at line pressure. Proved 1991 reserve additions from Monkman alone top 130% of total BP Canada gas output.

U.S. crude and products imports jumped 9.4% to 7,349,000 b/d in October from a year ago but are down 7.4% to 7,633,000 b/d for the first 10 months vs. the same 1990 period, says API.

U.S. crude output fell 2% to 7,396,000 b/d in October from a year ago but was up 0.5% for the 10 months.

The Clean Air Act will hike the cost of refining gasoline enough to boost prices 6-10/gal, according to a poll of oil industry executives by Arthur D. Little. Chief culprit is supply and cost of oxygenates. Other factors are capital outlays needed to reformulate gasoline and extent of cuts in toxics and aromatics. According to the survey, higher prices will trim gasoline demand by 1-5% by 1995. Increased taxes, lifestyle changes, improving fuel efficiency, and alternate fuels will contribute to dampening demand. But gasoline demand will recover slowly through 2005, the survey found. Of those surveyed, 41% think waivers and deadline extensions will be needed to meet oxygen requirements for 1992 and 1995, but 38% thought most refiners will meet the deadlines. Many, however, see the new rules forcing smaller refiners, marketers, and blenders out of business.

Salomon Bros. sees alternate fuels as a major threat to U.S. gasoline demand growth early in the next century, especially if more states follow the example of nine northeastern states that adopted California's ultratough air emissions standards (OGJ, Nov. 11, p. 25). It estimates that by 2010 U.S. gasoline demand will be 7-10% less than it would be without the new standards. That's bad news for refiner/marketers, says Salomon Bros., leaving them little guarantee they will recoup the big investment in reformulated fuels through increased sales beyond 2000, when the first ultralow emission (most likely electric) cars are sold commercially.