OGJ NEWSLETTER

The Persian Gulf war is playing out against a placid market as it becomes increasingly clear there is little threat to Persian Gulf oil supplies outside Iraq and Kuwait.

Feb. 11, 1991

8 min read

The Persian Gulf war is playing out against a placid market as it becomes increasingly clear there is little threat to Persian Gulf oil supplies outside Iraq and Kuwait.

Crude and gasoline futures prices are now at year ago levels--suggesting war is all that is preventing an oil price collapse. For the second week in a row, oil prices have scarcely moved while hovering near levels seen when Iraq invaded Kuwait Aug. 2. Brent closed Feb. 4 about flat on the week at $20.45/bbl for 15 day delivery. Other weekly declines were Rotterdam premium gasoline $13 to $229/ton, low sulfur fuel oil $4 to $91/ton, and high sulfur fuel oil $10 to $80/ton. Gas oil, however, rose $12 to $258/ton. Nymex crude for March delivery closed Feb. 4 flat on the week at $21.14/bbl, and gasoline futures fell about 1.25 on the week to close at almost 61/gal.

The Iraqi incursion into Saudi territory and the battle at Khafji early in the month forced Saudi Aramco to halt production from Safaniya, Zaluf, and Marjan fields, cutting total output by about 25% to 6 million b/d. The platforms serving the three fields remained fully manned during the battle and apparently were undamaged. After the allied victory, Safaniya resumed production, with Zaluf and Marjan following later and combined output back to normal. The shutdown did not affect Ras Tanura or Juaymah liftings because of huge Saudi crude stocks.

Iraq last week halted all sales of gasoline, diesel, and fuel oil in the wake of supply shortfalls caused by allied air assaults on that country's oil production, refining, and distribution facilities. British military sources say British aircraft destroyed an oil pipeline pump station at an undisclosed site deep in Iraq. Refugees returning from Basra said the big refinery there had been severely damaged by repeated air raids. Meantime, air attacks on giant road tankers moving products and some crude around Iraq have slashed Iraqi exports to Jordan to about 5,000 b/d, forcing Jordan to seek supplies elsewhere. Iraq previously supplied about 80% of the country's 60,000 b/d requirements. Jordanian officials visited Damascus to arrange alternative supplies. Industry sources say Jordan's 100,000 Zarqa refinery could use heavy crude moved by road tanker from Syria.

Japanese tankers are again trading at Saudi ports in the Persian Gulf after intensive lobbying by oil companies and Japanese LPG buyers led to lifting a ban on Japanese vessels calling at Saudi gulf ports. After reassessing shipping risks, Japanese shipowners and the Japanese seamen's union revised instructions keeping Japanese flag vessels out of an area west of 52 E. --ruling out main Saudi export terminals at Ras Tanura and Juaymah and the Jubail export refinery/petrochemical complex.

The new rule will ban entry to an area above 27 30' N. in the far northern gulf--covering only Iran's Kharg Island. However, Japanese shippers can lift Iranian oil shuttled from Kharg to a point off Lavan Island in Iranian vessels.

Saudi Arabia has arranged to shuttle crude from Ras Tanura to a transshipment point in the Indian Ocean, which may prove moot given the reduced threat.

Correspondingly, tanker war risk insurance rates have been cut, say London underwriters. Insurance rates for vessels trading at Kharg Island and northern Iranian ports were cut to 0.75% from 2%. Rates on cargoes south of 27 30' N. were halved from 2%, as were rates for Saudi Red Sea ports to 0.125%.

The oil spill from Kuwait's Mina al Ahmadi terminal has spread farther south in the Persian Gulf. Oil as been reported off the tip of Bahrain and the northernmost point of the Qatari peninsula and is spreading into U.A.E. waters.

The slick is still breaking up, and desalination plants, refineries, and export terminals are well protected by booms and growing squads of cleanup specialists. The flow of oil from the Kuwaiti terminal and from Iraq's Mina al Bakr terminal, where a second spill was started, was reported last week to be very small. Oil from Mina al Bakr has moved into Iranian waters and is threatening the coast near Bandar Khomeini. Iran proposed environmental experts from Persian Gulf countries--including Iraq--meet to devise a regional effort to combat the spills.

Alpha Environmental Inc., Austin, sent its director of geoscience programs to the Persian Gulf to assess the two spills, an indication the Saudis may decide to combat the spills with microbial bioremediation. At presstime, the leading edge of the bigger spill--estimated at 10.7 million bbl of oil--extended about 100 miles long and was about 15 miles from desalination plant intakes at Jubail, Alpha said. The second spill extended about 45 miles long, but Alpha offered no volume estimate.

Eastern European countries still are struggling to cope with the double sting of the Persian Gulf crisis and plummeting imports of Soviet oil (see story, p. 38).

Bulgaria's wholesale gasoline monopoly Petrol halted gasoline sales during most of January. It previously offered a ration of 20 l./month. The Soviets delivered only 1.77 million bbl of crude in December vs. the 3.65-4.015 million bbl they promised.

Moscow has agreed to supply Bulgaria with 130,000 b/d of crude in 1991--about half 1989 levels--in exchange for machinery, equipment, medicines, and food. Early last month, Bulgaria's supply of oil covered only 3 days' consumption. Bulgaria's biggest tanker was anchored at Novorossiisk in mid-January, but loading was uncertain because Bulgaria's foreign trade bank had not issued a letter of credit to pay for the Soviet oil.

Romania in December extended its rationing on gasoline sales beyond private motorists to fleet vehicle operators.

Autos are allowed 40 l./month, taxis 200 l./month at pre-Jan. 15 prices. Vehicle owners requiring more gasoline than the new quotas must pay double the ration price.

Enagas and Snam will head a group bidding for the contract to lay Portugal's first natural gas pipeline, a 280 mile line from Setubal south of Lisbon to Braga near the Spanish border where it will tie into the European network via Spain's system. Completion of the trunkline is scheduled for 1993.

China has approved plans by a joint venture of China National Offshore Oil Corp. with Royal Dutch/Shell for a $2.5 billion heavy crude based refining/petrochemical complex at Huizhou, Guangdong Province (OGJ, Jan. 14, p. 17). Included are a 100,000 b/d refinery and a 450,000 metric ton/year polyethylene plant to be completed in 1995. Crude would come from offshore heavy oil fields to be developed. Studies are under way.

Worldwide capital spending will rise about 13% in 1991 from 1990 levels among the majors Salomon Bros. tracks.

Notable in spending plans are refinery revamps, North Sea development, and Far East projects up and downstream. Excluded are exploration expenses, and the spending plans hinge on predicted oil prices of $21/bbl or less. The reasons Salomon cites for the spending surge: Downstream profitability has improved greatly because a chronic overhang of surplus capacity has disappeared, finding costs were cut in half in the 1980s, and government is less intrusive. "Thus the motivating force behind the expected spending boom in the oil industry is not high prices or rapidly growing product demand but rather a remarkably healthy environment for the reinvestment of industry cash flow."

U.S. gas demand will rise about 13%, or about 2.5 tcf/year, by 2005 because of acid rain and natural gas vehicle (NGV) provisions in the 1990 Clean Air Act, says AGA.

That breaks out to 650 bcf/year to 1.5 tcf/year in added demand stemming from acid rain provisions and 300 bcf/year to 1 tcf/year from NGV provisions.

A Trans Mountain Pipe Line unit plans a $550 million U.S. oil pipeline to serve Puget Sound refineries in Washington.

Trans Mountain Oil Pipeline Corp., Seattle, says studies are being completed and a final decision will be made by end of February on whether to begin permitting efforts.

The project would eliminate tanker and barge traffic in Canadian and U.S. waters east of Port Angeles, Wash. It would involve an offshore oil port and tank farm at Low Point, west of Port Angeles with a 149 mile pipeline to refineries near Anacortes and Bellingham. Refineries in the area process about 460,000 b/d of Alaskan crude and 16,000 b/d from Canada.

Key senators have proposed comprehensive energy legislation requiring oil companies to contribute 9% of their total crude imports to the Defense Department or Strategic Petroleum Reserve. Cosponsors Bennett Johnston (D-La.) and Malcolm Wallop (R-Wyo.) say the bill is passable. The bill would also permit leasing the ANWR Coastal Plain and use the expected $1.9 billion in ANWR leasing revenues to fund conservation, renewable energy programs, and energy R&D. With this approach, the SPR could be expanded to 1 billion bbl from 586 million bbl in 5 years.

The Bush administration is expected to send its own national energy strategy to Capitol Hill later this month. It also will emphasize conservation and renewable energy if DOE's fiscal 1992 budget is any indicator. DOE's budget request calls for big boosts for conservation and renewable energy programs.

Interior's 1992 budget projects only two OCS lease sales in fiscal 1992--both in the Gulf of Mexico--and thus estimates a $634 million drop in OCS rents and bonuses.