OGJ NEWSLETTER

A mix of progress and setbacks continues to mark the massive challenge of revitalizing the Soviet oil industry.

Delay in awarding contracts to develop oil and gas off Sakhalin Island in the Soviet Far East may stem from more than just bureaucratic infighting between local and central republic officials.

Japanese sources say Sakhalin's local administration wants the winner to facilitate $15 billion in foreign loans to develop roads, airports, and telecommunications on the island.

They contend, as did Moscow officials last month, that a combine of Exxon and the Japanese group Sodeco is favored to win the contract, estimated variously at $6-10 billion (OGJ, Oct. 28, p. 32). Even if awarded the project, Sodeco could face problems with the Japanese government.

Minister of International Trade and Industry Eiichi Nakao says $1.8 billion worth of trade insurance will depend on resolving Japan's claim for return of the Kurile Islands seized by the Soviets at the end of World War II. Nikkei Weekly said the Soviets told the Japanese delegation economic cooperation will facilitate a solution to the territorial issue. A senior official told the newspaper MITI doesn't want to see economic cooperation move fast only to leave the islands in Soviet hands.

However, another official said economic cooperation was moving forward despite the unsettled territorial problem.

Saudi capital will help finance development of Kazakhstan's oil industry, including development of supergiant Tengiz oil field and modernizing the Karaganda refinery in the heavily Moslem former Soviet republic.

Saudi business group Dallah al-Baraka plans to open a development bank capitalized at $150 million at Alma-Ata by January. Al-Baraka Investment & Development Co. and Kazakh trade and banking entities would split interests 50-50 in the bank.

Even the Soviets have climbed aboard the reformulated motor fuels bandwagon.

Pravda reports encouraging test results after start of production of "ecologically clean" high octane gasoline at the Nizhnekamsk refining/petrochemical complex in the former Tatar autonomous republic. The new gasoline has an octane rating of one number higher than conventional Soviet AI-93 gasoline and features a threefold out in carbon monoxide emission.

As the wild well nightmare in Kuwait draws to a close this week (see story, p. 28), the government presses reconstruction efforts. A group of major international banks led by J.P. Morgan will lend Kuwait $5 billion to finance repair and reconstruction of the country's civil infrastructure, ravaged by the Iraqi occupation and Persian Gulf war.

Meantime, EPA says preliminary data indicate no acute health problems from Kuwait's oil well fires and spills.

EPA says smoke from the oil well fires has had no measurable effect on weather or climate outside the Persian Gulf, but questions remain about the long term environmental effects of the 6-8 million bbl oil spill into the gulf.

Technip is a victim of strained relations between French and Iranian governments.

A 1 billion franc ($175 million) contract for construction of a fractionation unit at the Bandar Imam petrochemical plant has been withdrawn because French state guarantees for financing contracts in Iran are no longer available. The French government is taking a tough line on relations with Tehran after reports that Iran's government was tied to the assassination of former Iranian Prime Minister Shapour Bakhtiar in Paris 2 months ago, Technip remains project manager for the overall Bandar Imam revamp but is concerned $300 million of work on the Tabriz petrochemical project also could be in jeopardy.

The growing world surplus of coproduct butadiene in olefins operations has dropped its price to a point where many steam cracker operators outside the U.S. are looking to hydrotreating for relief. Hydrotreating the butadiene in the C4 steam cracker stream converts it to olefins and paraffins of higher value than the unextracted butadiene. A number of such units are on stream with planning and studies under way for more. A relatively cheap source of hydrogen is needed, meaning refiners with steam cracking operations are well positioned to proceed with such units. One industry official thinks as much as 1 million tons/year of butadiene may be targeted for hydrotreating.

European Community energy ministers seem much less enthusiastic about a package of measures to limit CO2 emissions, including a controversial carbon tax, than their environmental colleagues. But they have agreed to a working group of energy, environmental, and financial officials to advance the proposals.

The energy ministers don't want to go it alone on CO2 emissions limits, and their support for EC CO2 measures could hinge on other big energy consumers agreeing to such limits.

European markets are concerned crude prices may have advanced too far on fears of supply tightness this winter. Brent, after climbing to $22.10/bbl in mid-October, eased back more than 50 last week, to recover slightly to $21.75/bbl Oct. 30. London traders say a spell of cold weather or evidence that supplies of Soviet crude and products, particularly gas oil, are being severely disrupted, would prevent further price falls.

A steady stream of small development projects is likely to proceed of the U.K. in the near term.

A survey by County Natwest Woodmac shows 52 oil and gas fields are likely to obtain DOE development approval the next years or so. These will involve capital outlays of 16 billion ($27.2 billion in current dollars) and tap fields estimated to hold a combined 2.3 billion bbl of oil and 14 tcf of gas.

The survey shows a significant swing to gas developments.

The first seismic off Northeast Greenland has been obtained. Carried out in August-September between 72 N. and 79.5 N., a group led by Greenland's Nunaoil acquired more than 3,000 line km as the first phase of a 14,000 line km, 5 year seismic program off Northeast and Northwest Greenland. Partners with Nunaoil--owned 50-50 by Denmark and Greenland's home rule government--are BP, Exxon, JNOC, Shell, Statoil, and Texaco.

The world's biggest oil tanker has its first assignment.

Construction of the 565,000 dwt Jahre Viking, which can carry as much as 3 days of total Norwegian North Sea crude production, was completed in Singapore for Norwegian owners led by Bulls Tankrederi, Finanshuset, and Bjarne Rieber.

Exxon hired it for a 60 day, $60,000/day round trip charter, destination undisclosed.

Japanese companies continue efforts to round up LNG supply sources. Sumitomo is negotiating to buy a 12% interest in the Santos led $1.69 billion Petrel gas field development/LNG export project for $775 million, Kyodo News Agency reports.

Petrel, 300 miles west of Darwin in the Bonaparte Gulf off western Australia, could support LNG exports of as much as 3 million tons/year, Sumitomo estimates. It would be the company's first equity stake in an LNG project. Gas would move via pipeline--with a possible spur later to nearby Tern gas field-to an LNG plant and terminal at Darwin.

U.S. gas imports continue to rise.

Texaco's gas marketing unit has asked DOE for a 2 year blanket authorization to import as much as 75 bcf/year of LNG. It would obtain LNG from a variety of sources and use existing U.S. LNG terminals. Masspower wants DOE to approve another 20 bcf/year of supplemental supplies the next 2 years for its 239,000 kw cogeneration plant at Springfield, Mass., beyond Canadian pipeline gas and LNG supplies earlier approved for Orchard Gas and Distrigas to supply the project.