Looking ahead

Bush concerned with awaiting energy problems. President George W. Bush may have to act quickly to prove that he truly can "reshape the United States energy policy." Already, he faces not only the possibility of re-surging oil prices but also the fear of heating oil shortages in the Northeast; record-high natural gas prices nationwide; soaring electric bills and an almost daily threat of blackouts in California. An additional challenge for the Bush administration is OPEC’s decision, last month, to cut production. That decision will greatly test his administration, especially after his top advisors expressed their opinions that the answer to potential energy crises is to increase oil and gas supplies. This means that the administration needs to find a better way to coax OPEC oil producers to hold prices down, a goal that can be realized, Bush said, by incorporating his plan to "utilize a strong diplomatic effort." Also, there is a need to boost the country’s energy production, something Bush promises he will do, even suggesting that the Alaska National Wildlife Reserve be opened to oil and gas exploration, thus increasing the nation’s self-sufficiency. He also needs to find a way to deal with the rapidly changing electricity supply system. For more on issues facing the new administration, see article page 43.

ANP prepares Brazilian state oil firm gas well audit. Petrobrás is suspected of "wasting" natural gas, because of flaring, and the firm – which already pays 10% royalty on the production cost for the 141.2 MMcfgd that it flares in Campos basin – may be punished further if the allegation is validated. Brazil’s oil and gas regulator, National Petroleum Agency (ANP), is expected to conclude its investigation of the said allegation this month. Several reports claim that Petrobrás could be flaring as much as 211.9 MMcfgd, about one third of the country’s demand. It is believed that Petrobrás is flaring gas to increase demand for Bolivian gas and to assure the high probability of the Bolivian-Brazil pipeline. ANP is hoping to develop new measures that will better control Brazil’s fuel market.

Phillips raises cost of Bayu-Undan project. After a bi-annual review of its Timor Sea gas field, and due to rising construction and drilling costs, Phillips Petroleum has increased the Bayu-Undan development cost by 5% to $1.57 billion. The venture’s first production, estimated at 100,000 bpd is slated for 2004. Last month the firm won control of Australian oil and gas company Petroz NL – one of the partners – ending a fight with the Italian contender Eni. Phillips’ bid of A$0.70 a share topped Eni’s offer of A$0.56 a share, allowing Phillips to achieve 100% compulsory acquisition. Phillips is attempting to raise its share of reserves. Petroz’ share of expenditures has increased to $129.4 million from $123.3 million. However, steps have been taken to reduce development costs.

Indonesia plans to tender 21 oil & gas tracts while oil output decreases. State oil firm Pertamina intends to tender 21 new oil and gas concessions within the first half of this year. Energy and Mineral Resources Minister Purnomo Yusgiantoro said, "The 21 blocks will be tendered as production sharing contracts, and on top of these, there will be some technical assistance contracts." However, private contractors were hesitant to venture out on new exploration projects before the government announced its decentralization plan, which was scheduled for last month. The plan would take away a larger portion of revenues and more power from investors, allowing the local authority more control in investments.

   Meanwhile, the country forecasts a 10% drop this year to 463.2 million bbl of oil production. The estimate stems from the fact that new wells were not on stream yet. But, reports show that Indonesia’s output has been declining for the past three years. In 1998, output stood at 542.1 million bbl; in 1999, 519.9 million bbl; and last year, 515 .6 million bbl. The decline is expected to continue, reaching as low as 460 million bbl by 2005, if no significant steps are taken to improve output. Last year, the country missed its projected target number of new oil wells drilled by 73, due to conflicts with local communities in drilling areas.

UK operators face big decommissioning bill. In the coming years, oil firms will pay £11.8 billion (US$17.2 billion) to decommission platforms and other installations in the British North Sea. This is the result of decisions made in Shell’s Brent Spar decommissioning case in the 1990s. The ruling required companies to completely remove their offshore oil and gas structures, instead of dumping them in the sea as before. ExxonMobil and BP face the biggest cost – £1.5 billion (US$2.2 billion), each, in real terms. Closely following is Shell at £1.3 billion (US$1.9 billion) and then TotalFinaElf at £642 million (US$937.2 million. Wood Mackenzie research found that an estimated 298 fields will be decommissioned between 2004 and 2021. The peak in expenditures is expected to be in 2011, when 12 northern North Sea fields are likely to be decommissioned, including Brent, Ninian, Dunlin and Heather, at a combined cost of £1.1 billion (US$1.6 billion) in real terms.

Three oil firms agree on gas exploration deal. The Canadian subsidiaries of Chevron, BP and Burlington Resources have embarked on a joint-venture deal to explore for gas in the Mackenzie River Delta area. Natural gas is in great demand, due especially to recently soaring prices. Burgeoning demand is encouraging exploration for new gas reserves that dropped significantly two years ago because of low prices. This action will do much to increase North American supplies. The government believes that recent energy deals will lead to a construction boom, creating jobs as oil firms tap into the Delta’s gas reserves, estimated to be worth $200 billion.