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Vol. 225 No. 11 |
| KURT S. ABRAHAM, MANAGING/INTERNATIONAL EDITOR |
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Petrobras to pour cash into Argentina
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Brazilian state firm Petrobras said it would invest $1.4 billion in Argentina through 2007, most of which will go toward exploration and production of oil and gas. The plan includes exploration in two deepwater zones offshore, where the firm's bids are awaiting governmental approval. Since 2002, Petrobras has already invested $542 million. The company operates in 18 exploration zones, compared to just five in 2002. Executives expect to have 530 producing wells by the end of this year.
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Ramco enters tracts offshore Montenegro
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Britain's Ramco Energy, via its Medusa subsidiary, has joined Jugopetrol Kotor (JPK) and Hellenic Petroleum in Prevlaka exploraton Blocks 1 and 2 offshore Montenegro. JPK already holds a 49% stake in these blocks, while Hellenic (11%) and Medusa (40%) acquired the interest of Star Petroleum Holdings. These Adriatic Sea blocks lie north of Ulcinj Block 3, where Ramco, JPK and Hellenic have already been working. The firms will soon begin a technical work program in the Prevlaka blocks.
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Lukoil sets field plan
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Russia's Lukoil will spend about $300 million to develop the Bolshekhetskaya depression fields in Yamalo-Nenetsky Autonomous Region in 2005. Most of the spending will go to preparation of Nakhodkinskoye gas field for development, along with subsequent completion of its infrastructure. Construction of the field's production complex should be completed next April. Forty production wells will be drilled over the next 12 months. Total development costs for Nakhodkinskoye may eventually reach $500 million.
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Repsol-YPF plans second Cuban well
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Repsol-YPF expects to drill its second deepwater wildcat offshore Cuba in 2006, reported Reuters. Last summer, the firm drilled a well about 30 km off the coast, to a depth of 1,500 m. The well found oil, but the company declared the find non-commercial, because it was not light crude.
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Oil price resumes climb to new, all-time high
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On Oct. 15, 2004, crude oil futures reached $55/bbl for the first time, ever, settling at a record high of $54.93/bbl. This record level for West Texas Intermediate came after comments by US Federal Reserve Chairman Alan Greenspan, who was seen as downplaying the negative economic impact of high oil prices. Greenspan's basic message was that GDP may slow, but high prices will not kill the economy. Nevertheless, from mid-September to mid-October, most grades of crude gained an average $10/bbl, due to various factors. Among traders' concerns were continued unrest in major producing countries like Nigeria and Iraq, a continued shutdown of 475,000 bopd in the US Gulf of Mexico due to hurricane damage, continued output declines in non-OPEC countries, a prolonged offshore workers' strike in Norway, and demand growth in China and elsewhere. Traders expected a bull market for heating oil prices in the US Northeast this coming winter.
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MMS monitors hurricane damage recovery in US Gulf
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In the aftermath of Hurricane Ivan, the US Minerals Management Service continued to track the offshore industry's progress in restoring disrupted Gulf of Mexico output. As of mid-October, about 475,000 bopd and 1.8 Bcfgd were still shut-in, due mostly to pipeline damage. “The companies are engaged in around-the-clock repairs, and only bad weather (can slow down) further progress,” said MMS Regional Director Chris Oynes. “The operators are now starting to approach MMS with alternative ways to return to production while pipeline repairs are continuing.” Indeed, one example is BP, which was looking at either transporting oil via tankers or creating temporary tie-in lines into other operational pipelines. BP's Na Kika oil platform offshore Louisiana was a prominent victim, because it was able and ready to produce 110,000 bpd, yet both BP- and Shell-operated pipelines were out of commission. Oynes said he expected Gulf output to return to 96% of normal levels within six months.
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Saudis, Iran tout oil output expansion plans
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Saudi Arabian Oil Minister Ali al-Naimi said that his country may increase crude production by 30% within two years, to prevent future market shortages. As reported in local media, Naimi said the kingdom will be able to increase output capacity by about 3.2 million bpd, by expanding or newly developing six specific oil fields. Almost 70% of the output gain would consist of light or extra-light crude, which is preferred for refining into gasoline. Already, over the last several months, the kingdom has increased its output capacity to 11 million bopd from the previous level of 10.5 million bopd. Across the Persian Gulf in Iran, Oil Minister Bijan Zangeneh said his country will raise its capacity by about 140,000 bpd by next March. He said that the extra output would come from continuing development at the Soroush and Nowrooz offshore fields. In addition, there are plans to add 260,000 bopd through commissioning of Azadegan, Darkhowein, Salman and Foruzan onshore fields.
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Tribal violence halts work onshore Pakistan
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Compared to frequent unrest in Sindh and Balochistan provinces, the first-ever threat of tribal violence in Pakistan's North West Frontier Province put a halt to development work. Hungary's MOL ceased operations on its Tal Block after tribal elders threatened to blow up a pipeline segment, as well as upstream assets. MOL has been building a $20-million gas pipeline on the block, as well as conducting development of Gurguri field, along with further exploration in the area. At press time, MOL said it expected to resume work shortly, after the government and local tribes reached an agreement. The tribes had demanded employment of local workers, plus provision of gas supplies for residents.
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Norway approves Marathon development, strike continues
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Marathon Oil's plan for development and operation (PDO) of the Alvheim group of fields offshore Norway has been approved by the government. The PDO comprises the Kneler, Boa and Kameleon oil fields in the North Sea, as well as the Vilje discovery. Combined reserves are estimated at between 200 and 250 million boe. Project details include using an FPSO to produce up to 50,000 bopd. In a related note, the Norwegian and British governments reached agreement on small extensions across the continental shelf boundary for Boa field, as well as Playfair oil field, which is being developed in the UK sector by CNR International. Meanwhile, the ongoing strike by Norway's Federation of Oil Workers' Union had cost the local industry $119 million into early October and cut output by 55,000 bopd at Glitne and Varg fields. With no end in sight, it will also delay development drilling at five additional fields, preventing planned output of an additional 150,000 bopd.
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Casino gas project receives green light offshore Australia
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Santos and Mitsui gave the formal go-ahead for development of Casino gas field in the Otway basin, offshore Victoria state. The $200-million development approval follows finalization of a larger gas sales agreement with SPI Electricity Pty Ltd, trading as TXU. Gas production should begin in first-quarter 2006. Casino will be the first commercial development within VIC/P44. The field is about 30 km offshore Port Campbell in water depths of about 70 m. Raw gas from subsea facilities at Casino will be transported to the coastline through a sea-floor pipeline, and then on to TXU's Iona processing facilities. Casino's planned annual production is slated to plateau at 35 petajoules, based on proven plus probable gas reserves of 285 petajoules. Field construction activities are due to start in first quarter 2005.
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Opinion
Events last month prompted a couple of observations by this editor. First, it is obvious that a number of oil traders on the New York Mercantile are “gaming” the system. How else can one explain the disconnect between statistical facts and the behavior of futures prices, which jumped $10/bbl in just the four weeks between mid-September and mid-October? Consider this: The principal driver behind the first run-up in oil prices during last spring and summer, burgeoning Chinese demand, has peaked and leveled off at about 6.4 million bpd. During that initial four-month run-up between April and August, futures prices jumped nearly 40%, to $48/bbl from $35/bbl. Concurrently, Chinese demand rose more than 8%, accounting for virtually all of the world's net growth. However, China's oil thirst has not gone higher than 6.4 million bpd since the end of August, nor has any other factor surfaced to suggest that global consumption will go beyond IEA's current forecast of an 82.4-million-bopd average for 2004. Nevertheless, futures prices rocketed to a record high of $54.93 on Oct. 15, even though China cut back on oil imports during August and September, as power plants switched to coal as a cheaper fuel. Another factor not well publicized is limited capacity at Chinese oil import facilities. China may need to purchase an extra 400,000 bpd of crude during 2005, yet this figure may not be achieved unless plans for building new terminals, pipelines and storage tanks are accelerated. So, what gives with futures prices? Traders like to cite potential sources of disruption to crude supplies as reasons for pushing up prices, including worker strikes in Nigeria; militant attacks on Iraqi pipelines; unrest in Saudi Arabia; a tax battle between Russian officials and Yukos; and political tension in Venezuela. Yet, none of these factors has sufficiently disrupted output in any key producing country. The only significant destruction was caused in the US Gulf by Hurricane Ivan, affecting 475,000 bopd. However, traders make their money on volatility, any way they can get it. Even more amusing is that the very Washington politicians who handed this commodities casino to traders, when they legalized oil trading in the early 1980s and subsequently enjoyed cheap crude for some years, are now screaming bloody murder when the same system whacks them with $50-plus prices.
The second observation made by this editor is that rumors may be true that the heads of several major US oil companies were artificially keeping down gasoline prices to help the economy, and thereby help the re-election chances of President George W. Bush. Consider these data: Back in April, when oil futures prices were about $37/bbl, retail US gasoline prices were $1.85/gal, or a ratio of 20 to 1, about the same as it had been in January. In July, futures prices were $41/bbl, and gasoline prices were $1.95/gal, or a ratio of 21 to 1. In August, futures prices were $45/bbl, and gasoline was at $1.92/gal, or a ratio of 23 to 1. By September, futures prices were up to $47/bbl, but gasoline was still stuck at $1.92/gal, widening the ratio to 24.5 to 1. The trend is unmistakable; so, is it a coincidence? Gee, hmmm…….
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