Newsletter

U.S. and U.K. pleas for tougher U.N. sanctions against Iraq have, at last, ceased to fall on deaf ears.

In response to the expulsion of U.S. arms inspectors from Baghdad, the U.N. Security Council voted unanimously to cancel until April the regular 60-day sanctions reviews and impose a travel ban.

Oil markets had been holding steady before news of the tightening sanctions broke.

Brent for December closed at $19.52/bbl in London Nov. 12. Nymex that day closed at $20.49/bbl. Those prices are down about 50¢ from the Nov. 7 peak but up about 10-25¢ from Nov. 5.

Traders cited low trading volumes for market steadiness. At presstime last week, traders had yet to react to escalating tensions between the U.N. and Iraq.

In talks with Houston oil executives, Fadhil Chalabi, executive director of London's Centre for Global Energy Studies (CGES), said that, while U.N. sanctions against Iraq are eroding the government, Saddam Hussein can withstand the status quo for awhile.

Chalabi says there is no clear international policy to topple Hussein's regime because the French see him as their only means of entry into the giant Majnoon oil field. "Things are working to his benefit," he added. "Ultimately, it could be a time bomb."

Chalabi says the "disintegration" of Iraq has swung the balance of power in the Middle East towards Iran. A case in point: Although non-OPEC production has grown less than expected in 1997, a recent surge in Iran's output has taken OPEC production to a new high of more than 28 million b/d.

CGES said this year's non-OPEC shortfall has left most forecasters "looking foolish once again." CGES predicts a 900,000 b/d hike in non-OPEC average output this year, compared with an industry consensus forecast of 1.5 million b/d and IEA's prediction of 2 million b/d.

More non-OPEC production has gone offline at a time when oil markets may need it.

Damage from a Nov. 10 fire aboard the Griffin Venture floating production, storage, and offloading vessel (FPSO) off Western Australia will keep 60,000 b/d Griffin field shut in indefinitely. At presstime, the FPSO was scheduled to be moved to a Singapore shipyard for repairs following a mechanical failure and subsequent fire in the engine room that severely damaged one of five turbines that provide electrical power for the FPSO. Operator BHP is leading a team studying the fire's cause and damage extent.

Five Union Texas Petroleum employees were killed by automatic weapons fire in Karachi last week.

Four Houston-based workers-there to perform a routine accounting and auditing project-and a Pakistani employee were en route to UTP's office from their hotel when the attack took place. There has been speculation that the murders were a reprisal for the conviction in a U.S. court of a Pakistani man, Mir Aimal Kasi, in the killing of two CIA employees in 1993.

U.S. economic growth-a prime factor of oil and gas demand-soon will slow, says Joel Prakken, chairman of Macroeconomic Advisers.

The only question is how it will happen.

The current GDP growth rate of 2.1%/year can't last because the unemployment rate is falling, Prakken told the API annual meeting last week.

Falling unemployment eventually brakes growth by raising labor costs. Prakken noted that compensation measures have begun to climb.

He expects U.S. economic growth to slow naturally to 1.7% from fourth quarter 1997 to fourth quarter 1998, easing the strain on labor supply. He said a natural pause is better than the alternative: a tightening of monetary policy designed to ward off inflation.

A slowdown doesn't mean an end to economic expansion.

"Expansions don't die of old age," Prakken said. "They are killed" by bad policy or external shocks, such as jumps in commodity prices.

President Clinton is expected to sign an appropriations bill that requires DOE to sell $207.5 million worth of oil from the Strategic Petroleum Reserve to finance SPR operations in fiscal 1998.

Robert Priddle, IEA executive director, said the sale would continue a "very disturbing" trend of IEA member states selling strategic oil reserves. He said the U.S., as the holder of the most extensive reserves, is sending the wrong signal to other members.

EIA says environmental requirements have not been a critical factor in the deterioration of U.S. majors' refining/marketing profitability.

EIA examined the relationship between the low and generally declining profitability of 24 major refiners in the 1990s and their sharply increasing capital outlays to comply with the 1990 Clean Air Act amendments.

EIA's said that, during 1988-93, about 5% of the decline in net cash margin per barrel of refined product came from increased operating costs that could be traced to pollution abatement. Over the same period, return on investment to their U.S. refining/marketing operations declined by 12 percentage points; only about 1 percentage point could be attributed to increased capital expenditures and operating costs for pollution abatement.

"Much more important was growth in light product capacity-particularly gasoline-and modest growth in refined product demand."

Crown Central Petroleum Corp. Chairman and CEO Henry Rosenberg says the U.S. needs to take the politics out of environmental science.

He told the World Fuels Conference in Washington, D.C., that government needs an impartial source of reliable statistical data about the environment, just as it has the National Petroleum Council and EIA oil and gas issues.

"We ought to be able to turn to environmental scientists who don't have a stake in the outcome."

Rosenberg said establishment of an apolitical National Institute on the Environment, independent of the EPA, could provide scientific judgments better suited "for establishing consensus solutions."

Caspian area exports and exploration are on the rise.

First oil has started flowing from Azerbaijan's Chirag field.

About 7,000 b/d of oil is being shipped to a terminal near Baku, from which it will cross southern Russia to the Black Sea port of Novorossiisk.

In the Caspian exploration arena, Azerbaijan's parliament agreed to allow Russia's Lukoil to invest $70 million to explore D-222 prospect, also known as Yalama, on the Caspian shelf. Lukoil will hold a 60% stake in the project and Azeri state company Socar 40%.

Retail gasoline prices in Japan have fallen to their lowest levels in more than 10 years due to intensifying competition among service stations resulting from deregulation, a government-affiliated organization said.

The Oil Information Service Center said the average retail price of regular gasoline was ?100/l. as of Oct. 10, down ?1 from a month earlier and the lowest since the center began compiling the data in April 1987.

Prices fell in 31 of the nation's 47 prefectures.

Gasoline prices have been dropping sharply nationwide since summer.

Enron plans to conclude an agreement with Qatar General Petroleum Corp. on a $5 billion proposed venture to export LNG to India.

"As soon as we finalize our gas arrangements in India, we will complete the definitive agreements in Qatar," said Enron CEO Rebecca Mark.

Mark says the venture would deliver 5 million metric tons/year of LNG to Indian buyers and expects to start detailed gas supply agreement talks with pipeline buyers there late this month.

"Discussions in India are going well at this stage," declared Mark. "Enron is in an advanced stage of negotiations with the Maharashtra State Electricity Board to obtain approval of the gas sales agreement to supply more than 2 million tons/year of LNG to the Dabhol power project" (OGJ, Aug. 25, 1997, Newsletter).

Prospects for increased trade with Mexico in crude oil, natural gas, and petroleum-derived products are growing brighter.

The Mexican Secretariat of Commerce and Industrial Development (Secofi) has asked for public comment on the desirability of accelerating the elimination of customs duties on, among other commodities, crude oil, natural gas, propane, butane, ethylene, propylene, butadiene, and paraffin. Pemex is expected to oppose the effort to kill the duties.

Secofi will study the proposed duty reductions during January-March 1998. Deadline for comments is Dec. 19.

Illinois Power is conducting a test burn of Orimulsion boiler fuel at its coal-fired Hennepin generating plant outside Chicago.

The utility is studying the possibility of using the Venezuelan fuel to replace some of the coal it burns. The move is designed to reduce NOx emissions.

This is the most recent Venezuelan effort to penetrate the lucrative U.S. market with Orimulsion.

Venezuela hopes to export 14 million metric tons/year of Orimulsion by 2000, but it will be impossible to come close to this figure unless U.S. power plants begin buying the fuel in substantial quantities.

Venezuela exported 4.17 million metric tons of Orimulsion last year.

Union Pacific Resources appears to be weakening in its attempt to take over Pennzoil. UPR says it will terminate its tender offer by Nov. 17 unless Pennzoil starts negotiating.

In response, Pennzoil said it has "no plans to negotiate with UPR."

Third quarter earnings for non-U.S. companies, although mixed, were generally boosted by increased crude revenues.

A comparison of 1996-97 third quarter earnings for sample of non-U.S. companies follows, with 1997 results listed first and losses in parentheses: BP £2.17 billion vs. £1.84 billion; Royal Dutch/Shell £1.268 billion vs. £1.329 billion; Sabic $954 million vs. $911 million; NOVA $359 million (Canadian) vs. $323 million; Syncrude Canada $282 million (Canadian) vs. $387 million; Petro-Canada $228 million (Canadian) vs. $146 million; Amber Energy 75.8 million (Canadian) vs. 53.5 million; Talisman $66.1 million (Canadian) vs. $68.1 million; Suncor $63 million (Canadian) vs. $25 million; CanOxy $31 million (Canadian) vs. $46 million; Chauvco $29.9 million (Canadian) vs. $25.9 million; Cabre Exploration $12.4 million (Canadian) vs. $15 million; Energy Africa 16.8 million rand vs. 5.9 million; Ocelot Energy $1.535 million (Canadian) vs. ($820,000).

Saga Petroleum reported a loss of 1,665 million kroner during the first 8 months of 1997.