January 2000 Vol. 221 No. 1  International

Kurt S. Abraham,  International Editor

While U.S. ponders, Middle East plans and acts

WASHINGTON – Despite the hubbub of pre-Christmas activity out on the city’s streets, the pace of action by U.S. federal authorities regarding energy policy has ended the 1990s with the same stance as the decade began – hardly a whimper. That is certainly the impression that attendees received at the Geopolitics of Energy into the 21st Century conference, here in the U.S. capital.

This does not mean that there are not plenty of issues related to energy that require action and should concern U.S. policymakers and the E&P industry. On the contrary, as numerous political, industry and think-tank speakers enunciated, there is a host of issues, including what to do about volatile oil prices, how to solve the policy stalemate between energy and environmental matters, relationships with producers in the Middle East, and who will control vital reserves and supply routes in the future. Yet, hardly anything gets done in the U.S. on these issues.

Perhaps Sen. Joseph Lieberman (D-Connecticut) summed it up best when he said, "Energy matters are just not an issue in the U.S. at the moment. Hardly any of the public or legislators is paying attention or listening. The challenge for us is how to get their attention." To that end, the Center for Strategic and International Studies (CSIS), a co-sponsor of the conference, has assembled and just released its own "strategic energy initiative," The Geopolitics of Energy into the 21st Century.

Actually, what attendees received is a draft version of the report, although no major alterations are expected. In essence, CSIS developed the report as a response to federal inaction, hoping that it will serve as a blueprint for a real U.S. energy policy (we can already hear our jaded, long-time U.S. readers cackling with laughter). CSIS wants its "initiative" to educate policymakers, corporate executives and analysts about energy issues for the next 10 to 15 years. We will have more about the report and other observations from the conference in next month’s issue.

Meanwhile, the Middle East and other regions continue with their own agendas. Listed below are several examples of ongoing dialogue and action.

Kuwaiti situation clarifies itself. Just exactly how a $7-billion project to further develop four northern Kuwaiti oil fields will be awarded became clear during an unprecedented industry conference in Kuwait City. Literally hundreds of upstream oil executives and negotiators descended upon the event hosted by the Kuwaiti Oil Ministry and Kuwait Petroleum Corp. to hear senior officials describe how only one Operating Service Agreement (OSA) will be awarded.

According to wire service reports, Kuwait Petroleum CEO Nader Sultan told the gathering, "we envisage that there will be only OSA, which covers all of the north Kuwait fields. We have one OSA, and that will be given to a multi-national consortium of international oil companies. Sultan also added a qualifier to that formula – the consortium must represent companies from more than one country. If one large operator tried to win the bid for itself, that would not be allowed. Kuwaiti Oil Minister Sheikh Saud al-Sabah echoed Sultan’s comments, stressing that his preference is for a multi-national consortium. "I don’t think anyone in this hall would be happy that one single company takes over 10 billion bbl of oil reserves," said Sabah.

Kuwait intends to offer two large northern fields, Raudhatain and Sabriya, and two smaller ones, Ratqa and Abdali. Raudhatain and Sabriya possess world-class oil reserves, estimated at 5.1 billion and 4.3 billion bbl, respectively. However, companies selected to function as the consortium developing the fields will have roles strictly as contractors, as opposed to being bonafide operators. The latter role would be a "violation" of the Kuwaiti constitution.

There is considerable speculation that Kuwait will make sure that the "core" of any consortium includes one U.S. firm and one UK company. Nevertheless, plenty of other countries’ firms were in attendance to make their interest known, including France’s TotalFina, Australia’s BHP Petroleum, Italy’s ENI and Malaysia’s Petronas. Kuwait instructed the various companies to begin forming consortiums among themselves, preparatory to bidding for the right to boost the fields’ output to 900,000 bopd from 450,000 bopd by 2005.

Iran inks Soroush / Nowruz deal with Shell. After several months of worry and fret, National Iranian Oil Co. (NIOC) and Shell signed an agreement to redevelop Soroush and Nowruz offshore oil fields. As per the deal signed in Tehran, Shell will operate the project to redevelop a combined output of 190,000 bopd by third-quarter 2003, at a cost of $800 million. Both fields have been severely curtailed, ever since they sustained heavy damage during the eight-year Iran-Iraq war of the 1980s.

Sitting in shallow Persian Gulf waters 50 mi west of Kharg Island, Soroush and Nowruz were discovered in the early 1900s and hold reserves for redevelopment estimated at 500 million and 550 million bbl, respectively. At full output, Shell is expected to produce Soroush at 100,000 bopd and Nowruz at 90,000 bopd. The plan anticipates achieving some early production from Soroush by third-quarter 2001, followed by full output at both fields two years later.

Terms of the pact follow Iran’s "buy-back" model, in which the foreign company, serving as a contractor to NIOC, finances and runs the project. Shell will be reimbursed by NIOC for capital expenses, financing charges and a preset remuneration fee that generates a reasonable return on investment.

OPEC may postpone summit until autumn. Originally scheduled for March 30, OPEC’s heads-of-state summit is likely to be reset for September 2000, although the venue would remain Caracas, Venezuela. A special OPEC committee has recommended to ministers that the event be delayed for two reasons. First, it would coincide with OPEC’s 40th anniversary if held in September. Second, this would allow planners more time to formulate a proper agenda of substantial issues. There are reports that most OPEC Members concur with this logic, because this will be the first heads-of-state summit since 1975, and they want the event to be substantive and memorable.

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