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Vol. 224 No. 5 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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OPEC mulls production cut as prices stumble
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Faced with an almost certain global oversupply of crude in second-quarter 2003, OPEC oil ministers expected to hold a meeting on April 24 to discuss potential quota reductions. As the war in Iraq began to wind down, oil prices fell in tandem. Compared to rates well above $30/bbl before the war, prices in mid-April had slipped below $28/bbl for WTI and $25/bbl for Brent Blend. Supply, meanwhile, was headed toward a 2-million-bopd surplus. Algerian Oil Minister Chakib Khelil said that he feared prices could dip below $20/bbl if quotas are not lowered and/or quota cheating is not disciplined.
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New era dawns for Iraqi oil sector
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The sudden, rapid fall of Saddam Hussein’s regime will usher in a new development period for Iraq’s upstream sector, predicted observers that included US Vice President Dick Cheney. After three weeks of combat, US military forces had taken control of all Iraqi E&P facilities, including the northern oil fields around Kirkuk. The US Central Command said that coalition engineers had inspected around 800 of 1,000 oil wells in the southern fields, and they were also examining gas-oil separation plants, pumping stations and pipelines. In South Rumaila oil field, firefighters from Kuwait and Boots & Coots had extinguished all but one of a dozen fires sparked by retreating Iraqis blowing up the wellheads. Speaking to a meeting of US newspaper editors, Cheney was optimistic that Iraq could produce between 2.5 million and 3.0 million bopd by year’s end. He said output would increase 50% above 2002 levels, if the country receives enough outside help to restore field productive capacities. As for regulation of oil activity, “I expect we’ll form an organization to oversee the functioning of their oil ministry,” said Cheney. “It will be composed primarily of Iraqis. It may have international advisers from outside.”
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US soldiers patrol Iraq’s South Rumaila oil field while a well burns in the background. (Photo courtesy of US Department of Defense)
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House passes pro-ANWR energy bill
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A wide-ranging, pro-development energy bill was passed 247-175 in the Republican-controlled US House of Representatives. In addition to numerous incentives to spur expanded oil and gas output, the legislation gives an okay to drilling in Alaska’s Arctic National Wildlife Refuge. The bill provides $18.7 billion in tax breaks, including a holiday for operators on paying federal royalties for deep gas wells in the Gulf of Mexico. “It advances a balanced approach to energy production and use,” said Rep. Billy Tauzin (Republican-Louisiana), the bill’s floor leader. However, a confrontation is expected with the Senate, which this month is crafting a less-friendly energy bill. Senators previously voted against ANWR drilling, putting them at odds with the House. Furthermore, Sen. Pete Domenici (Republican New Mexico) had to strip a global warming climate plank out of the draft Senate bill before it reached debate on the floor, where it risked being voted into law.
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Canada ratchets up activity in first quarter
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Spurred by high crude and gas prices, Canadian operators appear to have had one of their best first quarters ever. In January, companies completed roughly 1,370 wells, said Daily Oil Bulletin and the Canadian Association of Oilwell Drilling Contractors. If this number is confirmed, it will be a record for January Canadian well completions. Furthermore, the two entities reported that about 1,040 wells were completed in February, which also comes close to a record for that month. Drilling rig utilization (91%) that month was also at the highest level since February 2001 (97%). Meanwhile, high oil and gas prices and strong activity levels have benefited the Alberta government. Officials said the fiscal year that ended on March 31 had a C$2.2-billion (US$1.52 billion) surplus. This will enable them to boost provincial spending 4.9% in the 2003/2004 fiscal year, to C$20.8 billion (US$14.4 billion), and still achieve another budget surplus of about C$1.1 billion (US$759 million).
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Venezuelan output returns to nearly normal levels
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Oil production returned to between 2.4 million and 2.8 million bopd in March and April, said analysts outside Venezuela. However, the president of state firm PDVSA, Ali Rodriguez, claimed output was at 3.0 million bopd. He said that the country will pump 3.1 million bopd until December, to make up for lack of output in January and February while oil workers and managers were on strike against Venezuelan President Hugo Chavez. How Rodriguez expects to pump that much crude remains to be seen, considering that Chavez fired 17,871 of 38,000 original workers for striking.
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IEA sees 1.4% growth
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Sticking to an earlier estimate, the International Energy Agency last month said it expected global oil demand to average 78 million bpd in 2003, up 1.1 million bpd from 2002’s 76.9-million-bpd level. Demand grew 2.4% during first-quarter 2003, but IEA predicts a less-robust rate for the rest of the year. Higher fuel demand from military efforts in Iraq has been offset by slumping airline activity.
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Congress wants review of offshore reserves data
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Included in US House Bill 6 that passed last month, as well as Senate legislation under debate, is a plank requiring the Interior and Energy Secretaries to inventory and analyze all oil and gas resources offshore the US. Section 30220 of House Bill 6 authorizes the secretaries to estimate resources underlying US waters. They must also say how those estimates may change if geological/geophysical data can be gathered/analyzed; if targeted exploration is allowed; and if full resource development is permitted.
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Yukos expects Russia to approve line to China
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Russian major Yukos said it believes that officials in Moscow will approve the firm’s plan to build a $2.5-billion, oil export pipeline to China. The Yukos plan is competing with another project that would build a line from Siberia to Japan. Early this month, officials were set to decide whether they wanted the 1.6-milion-bopd pipeline to run to Daqing in China or the Russian port of Nakhodka on the Pacific Ocean. Yukos termed its route “the only viable option.”
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Next Canadian oil sands phase unveiled
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Suncor Energy will spend $3 billion to raise output capacity at its oil sands plant near Fort McMurray, Alberta, to 330,000 bopd by 2007. In addition to this upgrader expansion, Suncor is already working to expand output to 260,000 bopd from 225,000 bopd by 2005. The new project will begin in early 2004, with a workforce of 2,800. 
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Opinion
Every so often, the E&P industry is in the forefront of global news coverage, through war, politics, greed, etc. Seldom is the industry in the news for positive reasons. Such is the case with coverage related to Iraqi oil fields during the latest war. Very few good things have been said about the upstream industry, whether the subject is facilities or companies, Iraqi or Western.
More irritating and exasperating, is mainstream media’s complete lack of knowledge about the most basic oil field equipment and terms, nor do they seem to care that they have it all wrong. One cannot count how many times that talking heads on television referred to “1,000 oil fields in southern Iraq.” Well, no, they should have said “1,000 oil wells.” Or try this one – a cable newsman referred to a gas-oil separation plant as an “oil well.” No less an august institution than the Chicago Tribune in a pre-war piece exclaimed, “….Saddam Hussein may ignite some of his nation’s 1,500 oil fields in the event of an invasion.” Around that time, a reporter for the self-important, ever smug ABC news operation declared, “Pentagon planners are also considering other unconventional threats posed by Iraq, including a threat to blow up oil rigs, as the Iraqis did in Kuwait.” Sorry, but the word is wells, not rigs. Then we have the Associated Press photographer, who captioned one photo, “Smoke bellows from burning oil wells above the sky of Baghdad as the sun sets….” What he should have said is “smoke bellows from pits filled with oil set afire in Baghdad.” No word is more abused by the media than rig. When all else fails, they call everything a rig – pumpjacks, wellheads, offshore platforms, tank batteries, separation plants, even, occasionally, an actual drilling rig. They also get the numbers wrong – 2,500 wells nationwide, 1,500 wells in the north, 2,000 wells in the south, etc. The actual figure is 1,500 to 1,550 wells in Iraq, with about 1,000 in the south. This leads us to the biggest whopper of all, the 2,500 burning fields hoax. Two weeks before the war began, this story from Iran’s Islamic Republic News Agency (IRNA) hit the presses in Russia and elsewhere. “Iraq Blows Up About 2,500 Oilfields,” screamed the headline that found its way into Pravda and the Russian Information Agency. How amusing, a triple error! The story was false, the word fields should have been wells, and the well figure is 1,500, not 2,500. Nice job, IRNA.
Don’t any of these people care that they are so inaccurate? And if they get these basics wrong, how badly flawed is the rest of their reporting? A massive remedial education of the media by the industry seems in order. In fact, IPAA about three years ago told an OTC press briefing that it intended to mount such an effort, yet that project never got started. Perhaps it is time for IPAA, with the help of the majors, to revive this idea. After all, if the media remain illiterate, how can we ever hope to educate the general public?
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