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Vol. 224 No. 1 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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OPEC output flattens, oil prices climb
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In mid-December, crude oil futures prices climbed above $28/bbl, fueled by supply disruptions in Venezuela and a leveling out of OPEC production. OPEC’s November output was 26.91 million bopd, down slightly from October’s 26.93-million-bopd level. This is in spite of the fact that cheating among 10 group members bound by quotas actually rose 30,000 bopd, to 2.81 million bopd. Exclusive of Iraq, these 10 countries produced 24.51 million bopd in November against a 21.7-million-bopd ceiling. OPEC on Dec 12 raised quotas 1.3 million bopd, in a psychological move to eliminate cheating. Meanwhile, a prolonged strike by Venezuelan oil workers caused state firm PDVSA to declare force majeure on crude exports. The strike was part of a nationwide labor protest against continuation of President Hugo Chavez’s administration. For more on Venezuela, please see page 7.
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Venezuelan strike impacts U.S. crude imports
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Export disruptions in Venezuela have affected crude oil input to U.S. refineries. At the strike’s 10-day mark, the two most affected companies were Conoco Phillips and Venezuelan-owned Citgo. During 2002, Citgo supplied about 40% of its 860,000-bpd, U.S. refining capacity with Venezuelan crude. Thanks to emergency crude purchases on the global spot market, Citgo said that it experienced no disruptions. Conoco Phillips reported that it had been using 230,000 bpd of Venezuelan crude but did not elaborate on replacement measures. Other U.S. refiners importing oil from the country include ExxonMobil, Murphy Oil and Valero Energy. Venezuela last year supplied roughly 15%, or 1.4 million bpd, of U.S. crude and products imports.
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Nigeria vows to get aggressive on E&P-related pollution
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At a health, safety and environment (HSE) conference in the country’s capital, Abuja, Presidential Advisor on Petroleum and Energy, Dr. Rilwanu Lukman, said the government would impose penalties for oil spills as part of stricter enforcement of HSE regulations. He noted that after four decades of E&P work in Nigeria, enforcement of HSE guidelines has been weak and operators’ attitudes have been even more lax. “This (penalties) is in keeping with the demands of the times, especially in the oil and gas industry,” said Lukman. “Operators seem to have paid little or nor attention to the environment.” He claimed that the impact of spills that occurred more than 30 years ago could still be seen in the Niger Delta oil region. Officials plan to put in place a new measure called “Response, Compensation and Liability for Environmental Damage in Nigeria” (RECLED) to hold firms accountable.
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ChevronTexaco reaches Tengiz accord with Kazakhstan
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A ChevronTexaco-led consortium reached a compromise agreement with Kazakhstan officials over further development of Tengiz field. In November, ChevronTexaco had put on hold a $3-billion program to expand Tengiz output to 440,000 bopd from 250,000 bopd, after a dispute arose over how to finance the project. ChevronTexaco favored reinvestment of profits from oil exports. The government preferred that the firm pays taxes, as normal, on exports and borrows money abroad to finance the expansion. Neither side would comment on the accord’s specific details, although Minister of Energy, Industry and Trade Vladimir Shkolnik said that the budget would include $200 million in tax annually. “We have found a mutually satisfactory scheme,” he said. “We have persuaded our partners.”
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BHP Billiton hits GOM deepwater discovery
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In the deepwater Gulf of Mexico’s Atwater Valley Block 261, BHP Billiton struck a natural gas find. The Vortex 1 well was drilled in 8,344 ft of water by the Deepwater Millenium drillship. In addition to the initial well, a sidetrack was drilled 2,900 ft west of the #1 well, to a 19,330-ft TD. BHP Billiton holds a one-third interest and is operator of the Vortex prospect. Partners Kerr McGee and Ocean Energy also hold interests of one-third, each.
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U.S. federal judge drops GAO suit against V.P. Cheney
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Federal District Judge John Bates dismissed a lawsuit filed by the General Accounting Office against Vice President Dick Cheney and his energy task force. While issuing his ruling, Bates noted that only seven lawmakers had expressed support for efforts to get information from the Republican administration about task force meetings with energy industry executives. All seven lawmakers are Democrats. Bates wrote, “This case, in which neither a house of Congress nor any congressional committee has issued a subpoena for the disputed information or authorized this suit, is not the setting for such unprecedented judicial action (in a fight between the executive and legislative branches).” The Democratically controlled Senate had asked the GAO to intervene on its behalf, in an attempt to force the Bush administration to turn over task force documents. GAO lawyers argued that such information would reveal whether administration energy policy was based on broad enough input from affected parties. The judge disagreed and said that those grounds were insufficient to warrant any court-ordered disclosure. Republicans this month have since regained control of the Senate, leaving Democrats to ponder their options.
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Kazakh scientist says project could trigger earthquake
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Professor Muftach Diarov, a geologist and head of Kazakhstan’s Oil and Gas Institute in Atyrau, authored a report that claims development of the country’s largest, newest oil field, Kashagan, could prompt an earthquake. Diarov’s report said that Kashagan’s hydrocarbons are under very high pressure – roughly 1,000 atmospheres. Given that petroleum temperatures are between 100°C and 120°C, Diarov said that a hydrocarbon release under such a pressure / heat combination would inevitably cause fluctuations in the earth’s crust that could trigger an earthquake. His findings reportedly have been passed on to the Kashagan consortium for further consultation.
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Indonesian peace deal may mean more gas for Aceh
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Aceh province should see an increase in upstream activity, now that a peace deal has been signed, said Indonesian regulatory agency Balak. On Dec. 9, the separatist Free Aceh Movement (GAM) signed the accord with Indonesian officials in Geneva. The deal ends 26 years of regional violence in the heavily Muslim province. Within a day of the signing, Indonesia’s military ended all operations in Aceh and pulled out about 1,000 troops. A Balak spokesman said his agency believes that operators will be able to develop numerous gas fields with the accord in place. He noted that additional gas and oil prospects are also available for exploration. ExxonMobil had closed all gas fields that it operates in Aceh from March 2001 to August 2001.
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Novus Petroleum strikes find offshore Oman
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Australian firm Novus Petroleum (40%) discovered natural gas in the Tibat 1 wildcat near Bukha field in Block 8 near Oman’s Musandam Peninsula. Drilled by Transocean Inc.’s Interocean III jackup to a 2,850-m (9,350-ft) TD, the find is within the Northern Arabian gas-condensate play. It has Cretaceous limestone reservoirs similar to those at Bukha. Partners in the well include Atlantis Holding Norway AS (25%), LG International Corp. (25%) and Eagle Energy (Oman) Ltd. (10%). Bukha field is operated by Novus subsidiary Novus Oman Ltd.
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Petrobrás resumes oil output at Roncador field
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Last month, Petrobrás brought the FPSO Brazil online, allowing the first of eight oil producers to go onstream at 22,000 bpd. Within several days, a second well was due online, to bring output to 40,000 bopd and 24.7 MMcfgd. The vessel is tied back to 11 wells, including two water injectors. Five of the producers were previously tied back to the P-36 floating production semisubmersible that sank in March 2001. After a lease agreement was signed, the FPSO Brazil was converted in a record 15 months before arriving at Roncador. Output of 28°API oil should reach the vessel’s 90,000-bpd capacity in second-quarter 2003. FPSO Brazil is on lease until 2007, when the newbuild semisubmersible production vessel takes over operations.
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Marathon’s Phase 3 off Eq. Guinea set in motion
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Eager to further commercialize gas resources at Equatorial Guinea’s Alba field, Marathon Oil has awarded a front-end engineering and design (FEED) contract for the Phase 3 expansion. This phase will construct an LNG liquefaction plant and related facilities, with an operational target date in either 2006 or 2007. Phase 3 complements the Phase 2A and 2B expansion projects that will increase condensate output to 54,000 bpd and LPG capacity to more than 16,000 bpd, respectively. Phase 2A should be completed by fourth-quarter 2003. Phase 2B is slated for completion by October 2004.
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GOM offshore LNG port application submitted
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ChevronTexaco has filed a Deepwater Port license application with the U.S. Dept. of Transportation/U.S. Coast Guard, to construct and operate an LNG receiving / regasification terminal in the Gulf of Mexico. Known as Port Pelican, the LNG project would include a ship-receiving terminal, storage / regasification facilities and pipeline interconnections to existing infrastructure. The company plans to construct Phase One of Port Pelican as an offshore facility that would initially process 800 MMcfgd. This facility would connect to ChevronTexaco’s offshore infrastructure, to deliver natural gas onshore along the U.S. Gulf Coast. From there, the gas would be delivered to shippers throughout the national pipeline grid. A second phase would eventually boost capacity to 1.6 Bcfgd. Phase One is slated to be operational in 2006.
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Britain reduces offshore hydrocarbon leaks
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“Hydrocarbon releases offshore are coming down, but more still needs to be done,” said Taf Powell, head of the UK Health & Safety Executive’s Offshore Safety Division. Leak reduction has been one of HSE’s highest priorities in recent years, and the agency has devoted a considerable amount of effort to it. “The target we set (for) industry was to achieve a 50% reduction in the number of major and significant hydrocarbon releases by the end of year 2003/2004,” said Powell. “In the first two years of the campaign (through March 2002), that (overall) figure fell by 21.6%, while the number of releases in the major category, alone, fell by 66%, which is particularly encouraging.” He said that most releases occurred not because of technical complexity, but from a failure to follow some basic practices, such as the making of bolted pipe joints.
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Yemeni oil find struck
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Vintage Petroleum and TransGlobe Energy tested combined flows of 2,361 bopd and 4 MMcfgd from three zones in the An Nagyah 2 well on Block S-1 in central Yemen. The discovery was drilled to a 5,328-ft TD and suspended as a future oil producer. The firms are now drilling An Naeem 3 as an appraisal, to test for an anticipated oil rim underlying the gas and condensate found in the Alif sandstone in An Naeem 1 and 2. 
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Opinion
Recent events in Venezuela again remind us of how relatively vulnerable U.S. supplies of imported oil and products can be. They also remind us that the U.S. is overdue to diversify its major sources of petroleum imports. During 2002, Venezuela was the fourth-largest supplier (about 1.4 million bopd). Yet, for much of last year, the country was awash in civil disturbances ranging from finger-pointing to last April’s coup attempt. Indeed, as this column was written, Venezuela had endured nearly three weeks of general strikes, including oil workers. This caused state firm PDVSA to declare force majeure on all exports. Normalcy may not return unless President Hugo Chavez leaves office, and that might be a while. Is this the type of source that the U.S. should depend on for 15% of its oil imports? Perhaps not.
Venezuela is one of four countries among the top six sources of U.S. oil imports that cause concern about supply vulnerability – the other three are Saudi Arabia (1.6 million bopd), Nigeria (600,000 bopd) and Iraq (525,000 bopd). Together, these four nations provide 45% of U.S. imports, or about 4.1 million bopd. Since our readers are very enlightened, this editor will not bore you by rehashing the obvious reasons why these places are not pillars of dependability. Ironically, most U.S. citizens do not even know that Iraqi crude is made available through the UN’s infamous oil-for-food program, better known as Saddam’s alternative warchest.
So, where should the U.S. broaden its import sources? In a short answer, go to more places like Angola. Sure, Angola has had its problems – who wouldn’t after 26 years of civil war? But signs of hope and progress are emerging, as this editor discovered in a recent 10-day visit to Luanda and Cabinda. Just last April, peace was officially declared between the government and UNITA rebels. Already, one can see new businesses opening in Luanda, and Western observers expect to see many new construction projects during the next year. Additionally, the government is eager to work with Western companies, and officials are actively courting even more investment in the upstream industry. Last but not least, the country has great geology – plenty of prospects are left to explore. As a gentleman at ChevronTexaco succinctly stated, “This place is a geologist’s dream.” The Bush administration would be prudent to encourage additional oil output expansion in Angola and similar countries. Yes, finding costs will play a role, but one should avoid putting too many eggs in the OPEC basket.
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