Looking ahead

OPEC’s speedy reduction surprises U.S. OPEC quickly agreed to cut production as of September 1 by another 1 million bpd, to 23.20 million bpd. The fast decision, which was conducted via telephone and surprised Bush administration officials, reflected OPEC’s concern that an economic slowdown could hurt global fuel demand. Administration officials expect the cartel to just as quickly reverse course and raise output if crude oil prices rise, but failed to specify what price level might trigger such an increase. A Venezuelan energy official reported that U.S. officials wanted OPEC to agree to a production increase by phone, if oil prices rise significantly. According to the Venezuelan official, Bush administration officials expressed no concern that OPEC’s production cut would affect the U.S. heating oil inventories for the fall and winter, nor did the administration ask that the cartel increase production at its Sept. 26 meeting in Vienna.

Russia must win energy investors’ trust. Before gaining the trust of the U.S. and other international energy investors, Russia must first prove to be trustworthy by honoring several pending energy investment projects, said the Bush administration. Commerce Secretary Don Evans said that two big energy projects are crucial to the development of this volatile relationship between Russia and the U.S, and, moreover, would prove crucial in compelling skeptical investors to return to Russia. These are the Caspian pipeline from Azerbaijan to Turkey, and Russia’s Sakhalin Island pipeline to Japan. In an interview with the Financial Times, Evans said that Russia’s treatment of U.S. investors critically correlates to the bilateral relationship between both countries.

Gazprom to retain export monopoly. Russian Deputy Prime Minister Viktor Khristenko said that the government will allow Gazprom (after completing its restructuring) to maintain a monopoly of the country’s natural gas exports. "Gazprom’s position on the external market represents the consolidated position of the whole country," said Khristenko. The information was revealed at a briefing that marked the commencement of the Blue Stream underwater pipeline project, which will ensure transport of Russian gas to Turkey. Two other companies involved in this venture are Turkey’s Botgas and Italy’s Eni. Khristenko said Gazprom’s restructuring would take a long time, and the details will be clear when the government approves a plan to develop the domestic gas market, expected by the end of 2001. Russian Prime Minister Mikhail Kasyanov said in July that one reason for Gazprom’s restructuring is to separate the firm’s gas production and transportation arms, and to facilitate access of independent producers to gas pipelines.

Peru to create new legal framework for energy sector. In an attempt to attract investments to the country’s energy sector, Peru will establish a more competitive legal framework, said Minister of Energy and Mines Jaime Quijandria. The idea, supported by Peruvian President Alejandro Toledo, includes incentives that will be offered for a two-to-three-year period, but will be valid for the whole life of the projects. Moreover, the government will offer tax exemptions to compensate for geological risk, said Quijandria. Unfortunately, no major finds have been discovered recently, despite increased private sector drilling. Quijandria said additional finds are needed to help the country’s oil deficit, which climbed to $720 million last year. Peru is in a critical situation, producing below 100,000 bopd, unlike its boom days of almost 200,000 bopd.

BP to invest $ billions in West Africa. Within the next decade, BP will invest $7 billion in its Angolan operations. After meeting with Angolan President Jose Eduardo dos Santos, Petroleum Minister Jose de Maria Vaconcelos and officials with state firm Sonangol, BP Executive President John Browne said, "Our big project is the formation and investment in Angolan staffing." It intends to employ 500 workers in Angola when Block 18 begins producing in 2006. Browne said his firm had invested $1 billion in exploring ultra-deepwater Block 31, Block 18 (as operator) and Blocks 5, 15, 17, and 21 as a partner.

NNPC to resume drilling in northern Nigeria. After stopping drilling operations in 1999, state firm Nigerian National Petroleum Corp. (NNPC) will resume drilling of seven wells in northern Nigeria, this year. NNPC began drilling in the region in 1987. Out of 23 exploration wells, the firm encountered wet gas in only one. Thus, the firm suspended drilling in the region and initiated detailed studies of the area’s geological formation. Three other multinational firms – Shell, Chevron and TotalFinaElf – began exploration activities in the region but made no commercial discoveries. Currently, most of the country’s production is concentrated in the Niger Delta.

Indonesia’s Riau province desires share of oil wealth. Last month, Riau community leaders made threats to blockade Caltex Pacific’s CPP production site, if their demands for revenue sharing were not met. The leaders said they would shut down the CPP Block, which produces some 50,000 bopd, if more revenue and financial control were not given to the local communities. President Megawati Sukarnoputri approved a 12-month extension on the block, to allow for negotiations on a new split of revenues between Riau and the central government. Additionally, the leaders have demanded a $26-million share of profits and that community representatives be granted a role in managing the fields.