INTERNATIONAL BITS AND PIECES - FRIDAY A.M. 10/16/98
US to help Caspian nations on oil, natgas leasing
The U.S. Interior Department's Minerals Management Service said on Thursday it will provide assistance to Kazakhstan and Turkmenistan in areas related to offshore oil and natural gas leasing.
The United States has huge foreign policy and commercial interests in the Caspian Sea region, which is estimated to hold between 100 billion and 200 billion barrels of crude oil alone.
The Clinton administration is promoting a 1,080-mile pipeline from the Azerbaijan capital of Baku to the Turkish port city of Ceyhan on the Mediterranean Sea. The pipeline's estimated cost is $3 billion. But other interested parties, including some major oil companies, believe a shorter pipeline route through the former Soviet republic of Georgia to a port on the Black Sea might make more economic sense.
The Minerals Management Service -- with $425,000 in funding from the United States Agency for International Development over the next two years -- will help Kazakhstan and Turkmenistan as they begin to develop new regulations for drilling in the Caspian Sea. The MMS also said it will provide some limited technical assistance to Georgia.
"This partnership has been carefully designed to promote environmentally sound and safe development of the Caspian oil and gas resources while at the same time allowing companies to make stable business decisions," MMS Director Cynthia Quarterman said.
A consortium of international oil companies is scheduled to decide by the end of October whether they want to move forward with the Caspian oil pipeline project.
South Australia opens up Cooper Basin exploration
The South Australian government has moved to open up the state's Cooper Basin to new petroleum exploration after decades of monopoly by oil and gas producer Santos Ltd <STO.AX>, with 11 blocks on early offer. Natural Resources Minister Rob Kerin said the government was releasing 11 exploration blocks covering nearly 40,000 square kilometres over outlying parts of petroleum exploration leases (PEL) 5 and 6.
A Santos-led joint venture currently holds the two leases, but these are due to expire in February 1999.
"This is a unique opportunity for the exploration industry," Kerin said, adding applications closed in March 1999.
"Only rarely do such opportunities emerge in a mature exploration province where one joint venture has previously had sole control of exploration philosophy and concepts," he said.
Other blocks would be released from the leases in April and September 1999, with the total number of blocks available likely to depend on the interest generated.
Kerin said the first Cooper Basin licences were awarded to Santos and its joint venture partners in 1954, at a time when governments issued large and long tenure licences in the belief that Australia had limited petroleum potential.
The Santos joint venture had drilled more than 1,200 exploration and development wells in the Basin and brought 145 oil and gas fields on stream, producing 3.4 trillion cubic feet of gas and 160 million barrels of oil equivalent (boe), he said.
"The expiry of petroluem exploration leases 5 and 6 covering the Cooper Basin...heralds the beginning of a new, more competitive environment for onshore Australia," Kerin said.
Australia gas report aiming to break monopolies
Proposals to break a Victorian Bass Strait gas supply monopoly held by Esso Australia Ltd <XON.N> and the Broken Hill Pty Co Ltd <BHP.AX> will be part of a report to go to Australian energy ministers by December. Upstream Issues Working Group chairman Jon Stanford said the report aimed to boost Australian upstream gas competition extending reforms occuring in the downstream sector.
He said recommendations could include buying out of permits that hindered competition in regions such as Bass Strait.
"Nobody would recommend any moves to actually overturn contracts," he said. "It is a question of economics where you just have to offer the right price."
Most of Victoria's natural gas is supplied by a Bass Strait joint venture between Esso Australia Ltd and BHP.
The companies also hold major stakes in other potential production fields in the region, and have come under fire for slowing development of projects, such as the Kipper Field. "In Bass Strait there is a field there called the Kipper Field which has got gas, but it is owned by the current players and they just don't find it economical to open that field up," Stanford said.
He noted there were a number of permits for acreage in Bass Strait that were issued in the late sixties and early seventies almost in perpetuity.
Victoria's 4.6 million residents were left without gas for almost two weeks when an explosion at Esso's Longford processing plant on September 25 halted supply.
Stanford said the upstream working group was set up early this year, but the Esso blast had added urgency to the issue.
The group was also examining if joint venture partners should market gas separately, and if third parties should be permitted to market gas from processing plants.
Stanford said increased competition between gas basins had been generated by removal of interstate trade barriers.
But he said talk of building a second processing plant to duplicate Longford could see prices rise due to a reduction in the efficiencies generated by economies of scale.
"The question is would people rather pay more for gas, or less and accept these risks which are probably once in a century risks anyway," he said.
Stanford said increased upstream reform would not completely protect consumers from disasters such as the Esso explosion.
"With these major catastrophes pipelines reform and competition would help but we would still be under cold showers in these sort of circumstances," he said.
The working group's report will go to the Council of Australian Governements and the Australian and New Zealand Minerals and Energy Council by the end of the year.
China's growing natural gas demands
Policies have been proposed for accelerating the development of natural gas in China, to meet the country's increasing demand next century.
According to experts from the Institute of Energy Research under the State Development Planning Commission, the annual verified natural gas reserves will go up by at least 100 billion cubic meters to reach 3,000 billion-3,500 billion cubic meters in the year 2000; 4,400 billion-4,900 billion cubic meters during the 2000-2010 period; and 5, 650 billion-6,150 billion cubic meters during the 2010-2020 period.
The experts predict that the country will need 31.5 billion-42.2 billion cubic meters of natural gas by the year 2000; 97.3 billion 121.1 billion cubic meters by 2010; and 216.8 billion-250billion cubic meters by 2020.
To stimulate the development of natural gas, the experts recommended:
To make the exploration and utilization of natural gas one of China'slong and medium-term energy development strategies, and raise the proportion of natural gas consumption to 8-10 per cent of total energy consumption;
- To form a nationwide natural gas prospecting system; - To speed up international joint efforts to develop natural gas projects in Siberia, Russia, in a bid to boost the development of natural resources in western China with the construction of trans-national gas-transmission pipelines;
- To further develop the downstream market, and use natural gas as a
fuel and raw material.
- To rationalize prices, taxes and the management system to support the development of natural gas; and
- To establish organizations to coordinate national gas exploration, development, transmission and utilization and form large enterprise groups to develop gas resources in and outside China.
Thailand oil exports expected to rise
Thailand's oil exports are projected to rise sharply next year, aided mostly by fuel oil surpluses, a top government energy policy maker said on Friday.
Piyasvasti Amranand, head of National Energy Policy Office (NEPO), said net exports of petroleum products were forecast to rise to 157,650 barrels per day (bpd) in 1999 from 66,460 bpd seen this year.
He told Reuters in an interview that Thailand's oil products demand in 1999 would continue to contract but at a lesser degree of severity than the decline this year.
"The rise in exports will be led mostly by fuel oil and to a lesser extent by diesel. This is based on assumptions that refineries will run at full capacity," Piyasvasti said.
"The actual amount will depend on market conditions. There might be time when it is more feasible for them to cut the crude runs (at refineries) rather than to go at full capacity and export whatever surpluses." Thailand's five refineries are expected to boost their refining capacity to 771,900 bpd in 1999, from the current 750,000 bpd. Fuel oil production capacity is expected to drop to 134,320 bpd next year from 135,740 in 1998.
Despite the slight drop in fuel oil output, there will be surplus for exports since local demand for fuel oil will be hit hard by power plants switching increasingly to cleaner natural gas to meet the government's environmental guidelines.
The Thai government has suggested that power plants should switch to natural gas from fuel oil by the year 2000.
Thailand will become a net fuel oil exporter from 1999 with net sales seen rising to 34,170 bpd compared with net imports of around 4,780 bpd forecast for this year, Piyasvasti said.
Net exports of fuel oil are expected to rise to 53,810 bpd in 2000.
Industry sources estimated that demand by the state-run Electricity Generating Authority of Thailand (EGAT) for natural gas was set to rise by up to 75 percent over the next few years from 1,000 million cubic feet per day in 1998.
Thailand's demand for electricity is projected at 14,180 megawatts for fiscal 1997/98 (October-September) under a slight economic recovery scenario and move up to 14,287 mw in fiscal 1998/99, he said.
Piyasvasti said a major refinery such as the 220,000 bpd Thai Oil plant was considering a plan to build a coker unit -- a secondary refining unit that will help reduce fuel oil output amid a glut by processing it into high value lighter products.
"This kind of facility requires a substantial amount of investment and Thai Oil might not have enough money at the moment," he said.
"But if (U.S. firm) Coastal becomes its strategic partner, I think this will be one of the top priorities. The coker unit will allow the refinery to make diesel, gasoline and coke out of fuel oil. And coke can be exported," he said.
Coke is a solid coal-like substance that can be used in the manufacture of electrodes, anodes, graphite and as a carbon source for carbides.
The Petroleum Authority of Thailand (PTT), which holds a 49 percent stake in Thai Oil, is negotiating with U.S. oil firm Coastal Corp <CGP.N> for the sale of a 25 percent stake in its debt-ridden subsidiary. The stake being lined up for Coastal belongs to the Chow Chowkwanyun group which had expressed its intention to pull out of the company.
Piyasvasti forecast overall local oil demand to drop 6.2 percent year-on-year to 598,100 bpd in 1999 compared with a 9.4 percent contraction this year.
However, he said there is room for positive adjustment of the forecast as the Thai economy has started to show signs of improvement.
"At any rate, the situation will not be as bad as this year. Actually, there has been some indication that the economy might resume growth again next year," he said.
"But the fate of the oil industry in Thailand will depend on other global factors as well and not only the situation in Thailand."
Moody's may downgrade Gulf banks due to low oil prices
Moody's rating agency is warning of looming troubles at Gulf banks, which have so far been immune from the world's financial turbulence and emerging markets crises, the Financial Times reported today.
In a soon-to-be-released report, Moody's says the fall in oil prices could result in a downgrade of several banks.
Moody's disagrees with many economists and analysts who say the banks will weather the low-oil-price scenario. The analysts point to continued strong earnings reports left over from earlier times when crude prices were high.
But Moody's sees signs of a liquidity crunch, even if full fledged insolvencies are not likely.
Moody's assessment rests on the assumption that oil prices will continue to be depressed in the coming months, the Financial Times noted. Another factor is that Gulf banks operate in economies too reliant on oil and gas industry, where the private sector also depends heavily on government contracts.
As the decline in oil prices squeezes government liquidity and leads to project cancellations, overall business activity will also slump. Governments will also be forced to turn to domestic banks as appetite for Gulf risk among international investors drops off.
Liquidity ratios in Qatar and Oman are already cause for concern, the newspaper report noted. At the end of March, credit to the private sector represented 113% of banks' deposits in Oman. In Qatar, the ratio was 110% at the end of 1997.
Moody's warns that the deterioration in asset quality for Gulf banks could be very severe, since lower oil prices will affect the entire economy.
Any potential downgrade will target banks' financial strength ratings. Foreign currency deposit ratings would only be affected if there is a change in sovereign ceilings.
Moody's rates many Gulf banks' financial strength in the D or D plus range, reflecting constraints in the economy and vulnerability of oil prices.
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