OGJ NEWSLETTER

Consuming nations face higher oil and gas prices in the mid-1990s, predicts Arthur D. Little in a new study.

The Persian Gulf war was "just a warning shot across the bow," says ADL. After a few years of relatively moderate energy prices, consumers face higher prices stemming from rising oil demand in developing countries and static production in non-OPEC countries. The consultant contends, "Although the spare oil production capacity in several OPEC countries was sufficient to cover the immediate shortfall caused by the gulf war, in 5 years time--even with the restoration of Kuwaiti and Iraqi production--much of the spare capacity in the world will be used by developing nations." ADL says this spare capacity will be highly concentrated and vulnerable to political disturbance.

Further, ADL says, U.S. natural gas prices will approach oil parity by the mid-1990s. U.S. production and planned Canadian imports will satisfy U.S. gas demand through 1995, but higher prices will be needed in 1995-2000 to encourage exploration and attract new import sources, the study concludes.

The world crude supply/demand balance keeps tightening.

Ecuador has ordered an 18.5% cut in production to 220,000 b/d because its storage is full and it is having a tough time placing its crude on world markets (see story, p. 107).

Of the total cut, 30,000 b/d will come from joint venture operations of Texaco and Petroecuador affiliate Petroamazonas, the rest from Petroamazonas alone.

For the time being, Kuwaiti officials are reluctant to offer firm targets or timetables for restoration of production. Kuwait Petroleum International Pres. Nader Sultan told Reuters he expects Kuwait to begin producing 50,000 b/d next month after repairs to a gathering center are complete perhaps enabled by cannibalizing parts from all of Kuwait's 26 gathering centers that are damaged. Reuters quoted Kuwaiti oil officials predicting output of 120,000 b/d in July, replacement of Kuwait's two main oil pipelines taking more than a year, and replacement of the giant Sea Island export terminal in as much as 2 years.

A big supply of Kuwaiti crude might be available soon through reclamation. Oilfield Petroleum Energy Co. is one of three service companies negotiating a possible contract with Kuwait Oil Co. to recover crude spilled on land by some of the wild wells. In the aggregate, Kuwait's spilled crude would form a lake as much as 35 miles wide and 50 miles long containing 300-500 million bbl, an official with the Taft, Calif., company says.

Iraq won't be putting much of its crude on the market anytime soon. U.N. Security Council is retaining its ban on Iraqi oil exports, except a small volume supplied to Jordan as repayment of Iraqi debt. As far as President Bush is concerned, those sanctions will remain until Saddam is out of power.

Power stations and desalination facilities at the southern Iran port of Bandar Abbas are threatened by an oil slick 18 miles long and almost 1 mile wide, reports the official Iranian news agency. Booms have been deployed to protect water inlets from the slick, about 2 miles offshore. The oil is thought to be part of the spill released by Iraqis from Kuwaiti facilities.

Cambodia plans to invite tenders for production sharing contracts later this year and is ready to sell geophysical data acquired by Soviet All Union Institute for Foreign Geology.

Canadian Fracmaster, Calgary, has forged another joint venture with Soviet and Canadian partners in Siberia. The $20 million (Canadian) program will be in Nezhnevartovsk, 102 miles east of a current operation on the Ob River east of Ural Mountains. Fracmaster Pres. Ron Bullen declines to name another Calgary firm involved until negotiations are complete on another $5 million in capital investment. A Soviet republic is also a partner. Fracmaster also is spending $7 million to expand its existing operation in which Moscow and a unit of Royal Dutch/Shell are partners. It fracked 90 wells in 1990 and plans a 160 well program this year. Fracmaster has treated 140 wells to date and plans to boost its Soviet work force to 700 from 500.

Elf Aquitaine Pres. Loik Le Floch-Frigent says reserves in the 10 million acres covered by two production sharing contracts in the Soviet Caspian Sea area could contain 730 million bbl of oil equivalent.

Work, due to begin in spring, has been postponed for a few months because a few documents still require signing.

Hyundai has signed an agreement to develop oil fields and build a new refinery at Kalmyk in the U.S.S.R. The agreement was signed by Hyundai Chairman Chung Ju-Yung and officials of the Kalmyk autonomous republic. Hyundai estimates a resource of 18.25 billion bbl of low sulfur oil in Kalmyk republic. Refinery capacity has not been decided, but it could be 20,000-60,000 b/d.

Japanese oil companies are denying a Kyodo News Agency report of agreement on a joint venture with Saudi Aramco to refine Saudi crude and market products in Japan (OGJ, May 20, p. 27).

Persian Gulf sources are more hesitant about denying the reports outright. They say the joint venture, sponsored by MITI, is still being discussed and an agreement could emerge soon.

As well as the reported Saudi Aramco participation in Japan, the agreement could lead to Japanese involvement in a joint venture in Saudi Arabia.

Meantime, Aramco has signed a contract to buy 35% of Ssangyong Oil Refining Co. for $400 million from a unit of Ssangyong Group, reports Korea Economic Daily. Ssangyong is South Korea's third biggest refiner with 160,000 b/d of capacity.

Last year, Aramco and Ssangyong wanted to jointly build a refinery in South Korea, but Seoul rejected their bid out of concern for excess domestic capacity and later told Aramco it could invest in the existing Ssangyong refinery.

Iran and Pakistan have agreed to a 50-50 venture to build a 120,000 b/d refinery in Karachi. The project will cost $590 million and use Iranian crude as feedstock.

Pakistan's three existing refineries, two in Karachi and one in Rawalpindi, have a combined capacity of 120,000 b/d.

The Singapore shipyard that repaired the Haven VLCC before it exploded and sank off Italy in April may face an $83.5 million claim from tanker operator Troodos Shipping, Cyprus.

Keppel Shipyard made that known after a series of allegations against it in Italian media by Haven officers. It plans legal action over the allegations. Keppel Managing Director Loh Wing Siew says Troodos lawyers indicate the claim could be made if any relationship is found between repairs and the accident but notes no cause has been established.

Alaska legislators want a new settlement from Exxon that would improve on the $1 billion they and a federal court rejected and Exxon later withdrew (OGJ, May 13, Newsletter). Legislators want Exxon to pay $700 million up front--vs. the extended payment plan they claim would have halved the settlement value--and the $100 million criminal fine jumped to $500 million.

Rep. Mel Levine (D-Calif.) and 26 other congressmen have urged the Bush administration not to allow exports of as much as 25,000 b/d of heavy California oil (see editorial, p. 23).

They wrote DOE Sec. Watkins and Commerce Sec. Mosbacher to protest the pilot program, which was recommended in a 1989 Commerce study and in the administration's National Energy Strategy earlier this year. The White House is expected to approve the exports in an executive order as early as next month.

A National Research Council study concludes MMS has inadequate environmental data to proceed with leasing the Georges Bank off New England. Congressional moratoriums have blocked leasing there since 1979.

NRC says it will take MMS several years to develop needed oceanographic, ecological, and socioeconomic data.

To keep U.S. stripper wells pumping on federal lands, BLM is mining a cut in its 12.5% royalty rate. BLM expects to complete a study of the issue this summer and plans a test program for several years before reducing royalties nationwide.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.