OGJ NEWSLETTER

Soviet plans to halve oil exports this year will give support to oil prices otherwise softened by a glut of OPEC oil. Soviet oil exports will plunge to 1.2 million b/d in 1991 from 2.5 million b/d in 1990, President Gorbachev says, citing declining production caused by a shortage of spare parts for shoddy Soviet oil field equipment (OGJ, Mar. 11, p. 26).
March 25, 1991
7 min read

Soviet plans to halve oil exports this year will give support to oil prices otherwise softened by a glut of OPEC oil.

Soviet oil exports will plunge to 1.2 million b/d in 1991 from 2.5 million b/d in 1990, President Gorbachev says, citing declining production caused by a shortage of spare parts for shoddy Soviet oil field equipment (OGJ, Mar. 11, p. 26).

CIA estimates 1989 Soviet oil exports at 3.7 million b/d, split about even between Communist and non-Communist countries. IEA estimates Soviet exports to non-Communist countries fell 200,000 b/d in 1990 and will fall another 300,000 b/d in 1991.

If the Soviets follow through on halving exports, the former Soviet bloc will become a net importer of oil this year.

Meantime, the Soviet government has failed to take up a German offer to help finance modernization of the Soviet oil and gas industry. The neglected offer was brought up by German Foreign Minister Hans-Dietrich Genscher in talks with Gorbachev and his foreign minister, Alexander Bessmertnykh.

If OPEC produces at quota of 22.3 million b/d this year, that would top expected demand for its oil by 1.3 million b/d--exactly the decline in Soviet exports. The wild cards: Likely OPEC cheating on quotas and continuing unrest in the U.S.S.R. Soviet coal miners last week won support from Tyumen oil workers for strike actions over low wages. The miners' strikes are worsening chronic shortages of steel and chemical products.

Meantime, oil markets have been holding fire on giving a firm verdict on the OPEC agreement earlier this month.

Since the end of the Geneva meeting, Brent for prompt delivery has slipped $1.35 to $18.45/bbl Mar. 20 in generally quiet trading. Product prices in European markets have shown even less movement, with premium gasoline down $4 to $238/ton and gas oil down by $7/bbl to $158/ton. Light and heavy fuel oil prices were flat on the week at $96 and $65/ton, as was Nymex crude at $20.38/bbl for April delivery Mar. 20.

Plans for a $1-1.2 billion, 120,000 b/d grassroots refinery at Rostock on Germany's Baltic Coast have gotten a boost from Japan's Marubeni and Finland's Neste Oy.

The combine is undertaking a feasibility study of the project expected to be complete in June.

A favorable decision on the project would trigger a contract for the first phase of construction with Thyssen Neste Oy.

The refinery, the first in eastern Germany to use African and North Sea crudes vs. Soviet imports, could start up in 1994.

Iran's long term plans call for restoring capacity at Abadan refinery to a prewar level of 630,000 b/d, although no est in the Middle East, g the Iran-Iraq war. The first two reconstruction phases have returned capacity to about 250,000 b/d. NIOC is trying to hike capacity to 380,000 b/d.

Arab Petroleum Pipelines Co. is pushing ahead with a $120 million project to expand the Sumed pipeline linking the Gulf of Suez with the Mediterranean. Capacity of the twin 198 mile, 42 in. lines will rise to 2.4 million b/d from 1.6 million b/d with addition of a large pump station at Dahshur, south of Cairo.

Contract for engineering and procurement services was awarded to Engineering for the Petroleum & Process Industries, part of Egyptian General Petroleum Corp.

Another EGPC subsidiary, Petrojet, has a contract to expand storage at both ends of the system. Plans also call for expansion of shipping facilities. APPC is held by Egypt 50%, Saudi Arabia, Kuwait, and Abu Dhabi each 15%, and Qatar 5%.

Doubts over the future of Mobil's Oso condensate project off Nigeria (OGJ, Feb. 26, 1990, p. 27) have been removed by an agreement to reschedule Nigeria's foreign debt. Foreign bankers were threatening to block NNPC's ability to raise loans to meet its 60% of the project after the government had fallen into arrears on debt repayments. Meantime, BP is preparing to return to Nigeria for the first time since its assets were nationalized a decade ago. In a joint venture operated by Statoil, BP bid for seven deepwater blocks off the Niger Delta as part of the government's first offshore licensing round.

Iran plans to produce gas from the portion of giant North field that extends from Qatari waters into Iranian territory.

Oil Minister Gholamreza Aghazadeh says a well tapped the structure in Iranian waters. Iran claims 30% of the 150 tcf field is in Iranian waters. A deal for a development project was signed with an undisclosed group of Italian and Soviet companies.

Royal Dutch/Shell is ending its service contract to run Qatar's offshore fields. That follows the company's failure to persuade Qatar General Petroleum Corp. to return some of its former equity interest in the fields because it no longer is interested in working as a contractor.

Shell was sole equity holder in the early days of exploration off Qatar and found and developed Maydam Mahzam, Idd el-Shargi, and Bul Hanine fields. Qatar's government, through QGFC, first took a stake in the Shell operations in the early 1970s, and by 1977 the operation was completely nationalized.

Brazil's fuel supply crisis worsens as the oil workers' strike drags on despite being declared illegal by the Supreme Labor Court last week. The court ordered the workers to return to work without pay for strike days. Union organization Sindipetro says 80% of strikers are ignoring the court's ruling.

Petrobras says refinery runs are back up to 480,000 b/d-still less than half the usual level--from 280,000 b/d, but Sindipetro disputes that. Meantime, unions representing Brazilian oil tanker employees have gone on strike for higher wages. Fronape, the company operating the 69 tanker fleet, transports half of Brazil's 400,000 b/d of oil imports and accounts for 90% of intracountry crude and products movements. Fronape's union claims 18 tankers are on strike, Petrobras claims only two.

Interprovincial will halt crude receipts into its Sarnia-Montreal line effective Apr. 25. IPL plans to purge the line with nitrogen. If there are no further deliveries planned in the next 12 months, as expected, IPL will mothball the line.

Six companies have taken the first step to work together to move Mackenzie Delta gas via pipeline. Esso Canada, Foothills, Gulf Canada, Polar Gas, Shell Canada, and IPL signed a statement of principle to identify work and costs to prepare an application when the market dictates need. Meanwhile, NEB probably won't hold a hearing on applications to export Mackenzie gas before June. Esso, Shell, and Gulf have conditional NEB approval to export the gas to the U.S., but groups opposing such exports are threatening legal action without a full public hearing.

Outlook for U.S. 1991 drilling activity grows bleaker.

Baker Hughes has trimmed its forecast of active rigs this year to 1,104 from 1,160, although it hiked the prediction for Canada and the rest of the world 6 units to 152 and 12 to 980, respectively. Salomon Bros., however, puts the counts at 1,060, 160, and 975.

FTC says a U.S. oil import tariff would be a very inefficient way to raise government revenue.

Bills pending in Congress would require a percentage of oil imports to be contributed to the SPR--in effect, a tariff. FTC says a $5/bbl tariff on crude and products would cost consumers $2.54 per $1 of revenue raised for the government because of its secondary effects on the economy, while a comparable excise tax on products would cost only $1.05 per $1 of revenue.

Although Exxon will pay $1 billion to settle criminal and civil charges related to the Exxon Valdez spill, its true costs will be far less, contends Congressional Research Service.

CRS claims the settlement will cost Exxon $421-524 million, taking into consideration deductibility of civil payments and benefits to Exxon of making most payments in the future.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.

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