OGJ NEWSLETTER
Stability is returning to world oil markets even as a potential flashpoint for war in the Middle East nears.
EIA notes that since peaking in mid-October, crude and product prices have dropped substantially as markets weakened and supply dislocations subsided. By mid-December, potential shortages in kerosine jet fuel, distillate, propane, and crude had not occurred. Crude stocks dropped as refiners worked off higher priced inventories. At $25-28/bbl in December, spot WTI was within $2-5 of estimates of its long run equilibrium level before the crisis, EIA says. In addition, the greater than usual seasonal drop in gasoline demand was reflected in primary stock levels comparable to those of the past 2 years.
Current market conditions suggest retail prices will continue to fall, barring heightened war fears, EIA says.
Those trends continue to surface whenever the outlook in the Persian Gulf turns dovish. On reports of a new diplomatic push by European, Soviet, and Arab officials to get the U.S. and Iraq talking, next month crude futures prices plunged by about $2 in New York and almost $3 in London on closing Jan. 2. Tough talk by U.S. and Iraqi officials had pushed Nymex crude to $28.44 the day before, the first time since Dec. 4 it has topped $28.
In apparent disregard for 2 weeks of frigid weather in the U.S., natural gas futures Jan. 2 fell to $1.83--the lowest since Sept. 23. The same day, spot propane slipped more than 3 to 39.75, and heating oil futures dropped about 8 to 73.3--the lowest since Aug. 29.
U.S. spot gas prices also have yet to take notice of the recent cold snap. Abundant, low priced gas in storage may be a factor. Natural Gas Clearinghouse says U.S. spot gas prices for January plunged to $1.74/MMBTU from $2.06/MMBTU in December and $2.22/MMBTU in January 1990. AGA cites record storage levels, high U.S. production, and more Canadian supplies.
The North American cold snap is gobbling up gas supplies, however. TransCanada set a record for gas shipments at 5.15/bcfd Dec. 24 vs. a previous record of 4.9 bcfd. Nova Corp. and Canadian Western also report deliveries approaching record levels during the same period. Moss Bluff Gas Storage Systems, a salt dome storage facility near Liberty, Tex., that started up last month (OGJ, Dec. 31, 1990, p. 35), flowed more than 500 MMcf of backup gas supplies to intrastate markets during the yearend cold snap. Washington Energy Dec. 28 curtailed about 30-35 MMcfd of deliveries to small industrial users, following 50 MMcfd to large industrial users curtailed Dec. 17.
ARCO has agreed to pay OSHA a $3.48 million settlement for alleged workplace violations at its Channelview, Tex., petrochemical complex where a wastewater storage tank exploded July 5, 1990, killing 17 workers (OGJ, July 16, 1990, p. 28).
ARCO also agreed to revamp safety programs at its U.S. processing plants. It has spent $36 million rebuilding the wastewater treatment area and upgrading process safety management at Channelview. In addition, ARCO will take a $68 million charge to profits for settlements with blast victims' families.
Canada's House of Commons has approved legislation to sell state owned Petro-Canada. The bill, requiring final approval from the Senate, would clear the way for privatization of the company with an estimated book value of $4.3 billion (Canadian). An initial sale of 15% of the company is expected in 1991.
Elf U.K.'s $575 million acquisition of Amoco's refining and marketing assets in Britain has been referred to the Monopolies and Mergers Commission by the U.K. government. Trade Sec. Peter Lilley says Trench state control of Elf U.K.'s parent raises issues of public interest that need to be investigated. Elf has almost completed conversion of the former Amoco stations to its logo under the deal, which was completed last summer (OGJ, Aug. 13, 1990, p. 34). An unfavorable ruling could force Elf to unravel the deal. MMC's decision is required by end of March.
Britain's 12th offshore licensing round covering 120 blocks has attracted 5 bids from 80 companies.
Results will )e announced early this year. The 12th round runs concurrently with the first U.K. frontier licensing round, where the deadline for applications is Jan. 15.
Norway is having second thoughts about plans for an 830 million metric ton/year methanol plant using gas from Norske Conoco's proposed Heidrun project on the Haltenbanken area off Central Norway new Labor administration has delayed a decision on the project, a 50-50 joint venture of Conoco and Statoil, until the middle of this month. It cites environmental concerns and questions over the price for Heidrun gas.
The government asked Conoco and Statoil to study reinjecting the field's associated gas into a nearby aquifer. The two rejected this idea earlier because as much as 50% of the gas could be lost. Conoco plans to use a concrete tension leg platform to bring Heidrun on stream by 1995, but the timetable could be scuttled by doubts over an outlet for the associated gas.
Malaysia plans new incentives this year to encourage exploration and production. An export tax exemption for companies operating production sharing contracts introduced in 1985 will jump to 50% from 20% Apr. 1. By summer, new and more favorable terms will be announced for exploring in more than 650 ft of water. Most shallow water acreage has been licensed.
Petronas says the export duty cut would produce more cash flow for investing in marginal field development.
Woodside Petroleum is urging Australian firms to prepare to compete for its $250 million (Australian) Cossack field development on the Northwest Shelf. It expects a green light on the project the next few months and start-up in 1992.
A 1990 feasibility study has moved into a project definition phase to be complete in February. Woodside plans to develop the 85 million bbl discovery with a floating storage/production system similar to those at Jabiru and Challis in the Timor Sea. It is looking at existing tankers before deciding between conversion or a purpose built unit to handle 50,000 b/d. Nearby Wanaea will be more complicated, involving a fixed platform with pipelines for its higher gas ratio and oil flow projected at more than 100,000 b/d. Wanaea start-up is expected in 1995.
BHP's Pacific Resources has signed a letter of intent with Chinese Petroleum Corp. of Taiwan to study construction of a 150,000 b/d grassroots refinery in the Asia Pacific region. It would focus on light transportation fuels and related products for the region and could be on stream within 3 years of approval. Being considered are sites in Taiwan, Singapore, and South Korea.
Persian Gulf ties to the former Communist bloc are growing. Saudi Arabia, Kuwait and the U.A.E. will lend the U.S.S.R. $4 billion to accelerate perestroika, including aid for the crumbling Soviet oil industry. Officials of the countries involved say there are no strings attached and there is no linkage to Soviet support for sanctions against Iraq. Izvestia says the loan was decided before Iraq threatened Kuwait in July 1990.
Bahrain wants to establish commercial ties with the Soviets. It wants to supply products to India and Southeast Asia to back out Soviet exports while the Soviets supply more crude to western Europe to back out Bahraini supplies, cutting transport costs for both.
Iran will supply 60,000 b/d of crude to Czechoslovakia in 1991, responding to Prague's request after the Soviets said they could not meet export commitments. The Soviets last month agreed to supply the Czechs with 150,000 b/d of crude in 1991 in return for technology and equipment for the Soviet oil industry and consumer goods for oil industry workers.
Meantime, Algeria has tentatively agreed to supply gas to Czechoslovakia beginning in the mid-1990s. Delivery into the central European grid could be via the trans-Mediterranean pipeline to Italy, to be expanded, or via LNG carrier to France.
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