OGJ NEWSLETTER

A surplus of oil overhangs the market today, but could plunging Soviet oil exports turn that into a shortfall in the months to come? A major concern of oil markets in the near term should be whether or not the looming Soviet energy crisis accelerates (see story, p. 22). Emergency measures to prevent a further decline in Soviet oil production were agreed to by a special meeting of the Soviet cabinet last week, Financial Times reported.

Feb. 25, 1991

7 min read

A surplus of oil overhangs the market today, but could plunging Soviet oil exports turn that into a shortfall in the months to come?

A major concern of oil markets in the near term should be whether or not the looming Soviet energy crisis accelerates (see story, p. 22). Emergency measures to prevent a further decline in Soviet oil production were agreed to by a special meeting of the Soviet cabinet last week, Financial Times reported.

Soviet industry will get a 25 billion ruble cash injection this year for new equipment and for improving workers' conditions. The move was in response to warnings from Western Siberia about danger of allowing further production declines.

The cabinet also decided to allow local oil associations to keep more hard currency export earnings, as much as 70%.

Further, the internal price of crude has been raised to an average 70 rubles/metric ton from an average 23-25 rubles--but still well below what associations requested.

Low cost areas like Tyumen will get only 60 rubles, but high cost areas can get as much as 120 rubles.

The short term measure is aimed at reactivating facilities shut in for lack of equipment or poor maintenance.

To boost production for the rest of the decade, the cabinet ordered a long term investment program drawn up by mid-1991.

Total and Repsol will pool their new Soviet E&P interests into a three company joint venture with Petrofina.

The equally owned venture also will focus on joint E&F studies in cooperation with Soviet partners. Included in the venture is Total's protocol for an E&F deal in the Timan Pechora basin (OGJ Dec. 31, 1990, p. 29) and negotiations covering rehabilitation of Romashkino field in the Volga-Urals area, as well as Repsol's agreement for technical appraisal of a number of areas in the Turkmen Republic possibly leading to E&P deals.

Flagging oil prices are creating cracks in OPEC cohesion-if that's the right term, considering several members are warring (see story, p. 20). OPEC Pres. Boussena wasn't deterred by an adverse response from key Persian Gulf producers to his call for a Feb. 25 meeting to hash over oil price concerns. Instead he sought to convene an informal gathering in Vienna on that date of ministers from Venezuela, Nigeria, and Indonesia and from any other members who cared to attend. Without Persian Gulf representation, the gathering cannot be upgraded to a full ministerial meeting with decisionmaking powers. However, OPEC sources say the informal gathering will provide a forum for future strategies.

Contributing to the bearish outlook are plans by Venezuela to consider ordering state owned Pdvsa to hike crude and products exports because lower than expected oil prices are crimping revenues. The Venezuelan cabinet probably will recommend exports immediately be jumped to about 2.15 million b/d from about 1.8-1.9 million b/d. At the end of January, Venezuela's crude production was about 2.4 million b/d. Pdvsa hopes to hike crude productive capacity to 2.97 million b/d by yearend from 2.8 million b/d last year and crude production to 2.5 million from an average 2.35 million b/d in 1990.

Another sign of lower oil prices in 1991: Iran's latest budget estimates 1991 oil revenues at $20 billion, calculated on an average oil price of $18.40/bbl. President Rafsanjani said oil production will increase by 410,000 b/d in 1991 starting in March but didn't given a basis for the increase.

Iran continues to stump for a gas pipeline link with Europe through Turkey to deliver gas to France, Austria, Italy, Romania, Czechoslovakia, and Yugoslavia. Iranian Finance Minister Mohsen Noorbaksh told a conference in Switzerland that European gas companies had been approached individually about using the line. He suggested if these companies were interested in the project, they should form a single group.

Japan's $9 billion contribution to financing the Persian Gulf war could be partly funded by doubling the current 2.04 yen/l. import tax on crude and products. That's likely to spur protests from peeved Middle East producers who believe absence of plans to tax other energy imports is discriminatory.

Nippon Petroleum Refining Co. will build Japan's biggest refinery, a 120,000 b/d plant with FCC capacity at Kudamatsu, Yamaguchi prefecture. Cost of the refinery, to start up in 6 years, is pegged at 100 billion yen.

China has unofficially asked Japan to provide $6 billion in unsecured loans for its energy development projects, Kyodo News Service reports. Negotiations to that effect were suspended after the 1989 crackdown in Tienanmen Square. The loans would be in addition to Japan's loan package of 810 billion yen for 1990-95. Involved are development of five oil fields and some coal mines. Japan may offer the loans after the next Group of Seven summit meeting slated for July in London, Kyodo reports.

One of those proposed oil field developments involves a project in China's remote Tarim basin for which Japan National Oil Corp. has agreed to conduct a development feasibility study. JNOC is willing to bear cost of the study, estimated at several billion yen, although it apparently has had no more success than other foreign firms in being allowed to participate directly in Tarim E&D. The study will get under war by yearend, with Chinese officials visiting Tokyo in April to work out details.

The U.K. government push to cut the number of North Sea fallow blocks has met considerable success.

A fallow block is one licensed for at least 10 years yet has not seen drilling in that time or at all. By yearend 1990, drilling or relinquishment had slashed the number to 41, with 29 in mature areas, from 125, with 104 in mature areas, at the start of 1989. More progress is expected in 1991.

A government-commissioned study says benefits far outweigh risks in permitting exploration in British Columbia's Fraser Valley. A report submitted by Commissioner David Anderson made 59 detailed recommendations on proposed activity in the gas prospective area east of Vancouver.

A group including B.C. Gas, Conoco, and Dynamic Oil Ltd. has proposed three wildcats in the area (OGJ, Mar. 12, 1990, p. 52). The provincial government will study recommendations in detail before decisions are made on drilling plans.

Canada will wind down the federal agency responsible for administering exploration, drilling, and production on federal frontier lands. Canadian Oil and Gas Lands Administration, set up under the now rescinded National Energy Program, will be scrapped by the end of March. Cogla's remaining responsibilities will be split between Indian Affairs and Northern Development Department, Energy Department, and National Energy Board.

U.S. independent producers, not major oil companies, profited the most from crude price increases following Iraq's invasion of Kuwait, EIA says.

It noted independents' profits soared 378%, in the fourth quarter, while majors' only increased 77%. Independent refiners' profits, however, dropped 54% due to weak product demand and lower margins, and majors' U.S. R&M income fell 7%.

As of Nov. 1, 1992, almost 30%, of the U.S. gasoline pool will be reformulated or require oxygenates in winter, says Information Resources Inc., Washington. By 1995, that will jump to 50%. By 2000, the volume affected by Clear Air Act amendments will top 5 million b/d, IRI says in a new study.

EPA has proposed more stringent tailpipe emission reduction standards for 1994 model passenger cars and light trucks. The rules would tighten tailpipe standards for CO, NOx particulates, hydrocarbons, and inaugurate nonmethane hydrocarbon standards.

AGA says natural gas can displace oil in 90% of residential, commercial, and electric generation use and 75% of industrial use in New England the next 10 years. Oil equivalent backout of 360,000 b/d is possible if gas pipelines are built into the region, AGA says.