OIL AND NATURAL GAS SCENE - WEDNESDAY 10/28/98 - PART 1
10/27 23:56 Vietnam says major gas deadlock could ease soon
HANOI, Oct 28 - Ho Si Thoang, head of Vietnam's state oil and gas monopoly, said on Wednesday that a long-awaited agreement with a foreign alliance over pricing the country's largest gas reserves could be concluded by the end of the year.
"I hope we will finalise soon the negotiations on the terms of the contract...maybe before the end of the year," Thoang told reporters on the sidelines at the opening of the new session of Vietnam's National Assembly.
But a source close to the negotiations on the $1.5 billion project, which involves British Petroleum <BP.L>, Norway's Statoil [STAT.CN] and Petrovietnam, said Thoang's comments were premature.
"Although recent progress has been good there are still key issues to be resolved," the source, who declined to be identified, told Reuters.
"It's too early to say when a final agreement could be reached," he added.
The BP and Statoil Alliance, which wants to tap gas reserves estimated at 58 billion cubic metres that were discovered four years ago, has been deadlocked with Petrovietnam over pricing since May last year.
The gas lies 370 km (231 miles) off Vietnam's southeast coast in the Nam Con Son Basin in the Lan Tay and Lan Do fields, and is planned to be used for state-owned gas-fired power stations and an integrated power and urea fertiliser plant.
Petrovietnam will purchase the gas and sell it on to state power generator Electricity of Vietnam.
Steve Walker, the Alliance's director-general, said in July that delays in signing the agreement were costing Vietnam $700,000 a day.
The costs included lost potential tax revenues, as well as the cost of importing diesel and the fact that generating electricity from diesel was more expensive than gas, Walker said.
OPEC to take stock at Cape Town oil meet
CAPE TOWN, Oct 27 - Just when oil producers thought prices couldn't get any worse, down they went again.
OPEC ministers, descending upon Cape Town this week for a conference grouping some 50 major oil producing and consuming nations, could be forgiven for feeling cheated this month when prices sank to near 10-year lows for the third time this year.
The anguish was understandable, for rarely has the fractious group been better at keeping its promises to restrain output and siphon off a ruinous global surplus of unwanted oil.
And rarely has such good behaviour earned such meagre price rewards for the Organisation of Petroleum Exporting Countries.
"OPEC looks like a tired sportsman. The muscles must be weakening after all the effort," said David Stedman of Daiwa Europe in London.
Tempers, too, are taking the strain as prices stumble along at a third below last year, despite OPEC-led cuts which have amounted to four percent in world supply.
"I do not accept that we become the victim of our compliance and credibility," Kuwait Oil Minister Sheikh Saud Nasser al-Sabah thundered recently at non-OPEC producers taking OPEC's market share.
In what he said was a warning, not a threat, he said that if Saudi Arabia, the United Arab Emirates and Kuwait "wanted to flood the market and destroy non-OPEC economies, then the impact upon them would be grave."
All eyes are on OPEC members once again, as they hold consultations on the sidelines of Capetown's October 29-31 international energy conference.
Industry watchers want to know if OPEC and a handful of outsiders will prolong two rounds of output cuts beyond a mid-1999 deadline or reduce its production for a third time.
Fretful producers will review the failure of the cartel's strategy to keep pace with the galloping spread of international economic malaise and resultant pressure on national revenues.
The cash squeeze has pushed the industry into a race to consolidate to sustain the high cash flows necessary to run current operations.
Oil companies have crouched into a defensive position with mergers, alliances, layoffs and cuts in precious exploration budgets that are the key to future production growth.
Fresh evidence of restructuring has emerged with word that Venezuela is considering a big corporate alliance with a U.S. oil company to accelerate investment in Venezuela's reserves.
At a meeting earlier this month, oil ministers from Venezuela, Mexico and Saudi Arabia said the output cuts of 3.1 million barrels per day (bpd) might be extended by six months to the end of 1999, depending on market conditions.
But they said they were unwilling to countenance deeper cuts.
OPEC heavyweight Venezuela and non-member Mexico argue that if good behaviour has not worked thus far, better behaviour is not the answer.
Analysts say their state-owned national oil companies are under pressure to keep up production from large, poor populations and from nationalist politicians who portray OPEC cutbacks as threats to jobs, markets and revenues.
They are also aware that international oil companies which invest in their oil industries are more than willing to cut precious spending on joint ventures if output is threatened.
Others in OPEC differ, most notably Kuwait's Sheikh Saud, who advocates more output cuts if markets stay weak.
Saudi Arabia has signalled it has an open mind but sees the priority as better compliance with existing reductions.
In Cape Town, key members of the cartel will try to lay the foundations of an agreement for approval at a decision-making OPEC conference in Vienna in late November.
Many analysts expect OPEC to choose to stick to output cuts agreed earlier in concert with non-member producers.
"Inaction is the most likely outcome," said Daiwa's Stedman. "Everyone has been pleasantly surprised at the compliance rate, which has been remarkably good -- and look where the price is.
To cut any more risks tearing OPEC's historic agreement with non-member producers.
"Even if they agree more cuts, it's hard to see a sharp price rise because of oversupply," said Paul Cheng of Lehman Brothers. "But it would be prudent for them to extend the cuts."
Asian oil demand, once the engine of growth for the global industry, may show a slow recovery next year but could still fall short of the pre-financial crisis levels of 1997.
While OPEC producers have not abandoned big price ambitions of Brent at $17 or more, these are widely seen as unrealistic.
"You're not going to see Brent at $17 any time soon," said Cheng.
Norway to decide on oil cut after S.Africa meet
OSLO, Oct 27 - Norway will decide whether to end or roll over a 100,000 barrel per day (bpd) self-imposed cut to crude production after a meeting of consuming and producing nations in South Africa this week, Oil Minister Marit Arnstad said on Tuesday.
Arnstad said she would use the meeting to sound out other producers and get views from consumer groups before making any decision on the cut.
"We will use the opportunities in South Africa to get an increased understanding of what the opinions are in other producing countries and to get an overall picture of the interests of different groups and different countries," Arnstad told Reuters in an interview.
"We will use that knowledge in our judgement when we come back," she said.
Norway imposed a 100,000 bpd cut to crude output on May 1 in line with moves by other producing countries, both OPEC and non-OPEC, to try and bolster languishing prices by reducing supply from the glutted market. The reduction runs until the end of the year.
Inspite of the cut, however, Norway has failed to meet its production projections for 1998 which have been downgraded to an average 2.97 million bpd compared with original forecasts of 3.15 million bpd including the cut.
The government's 1999 draft budget predicts Norwegian output rising to 3.4 million bpd, excluding any self-imposed limitation.
Arnstad said the ministry hoped to have new forecasts for production and investment on the Norwegian continental shelf in January.
She said that as well as the main conference in Cape Town between October 29-31, she also hoped to have bilateral meetings with major producers such as Britain, Mexico, Venezuela and Kuwait.
She said she also hoped to discuss the international economic situation, especially in the Asia region, and the European gas markets.
"One issue that should be addressed by the main conference is the implication of the increased globalisation of the (energy) industry, including the environment and human rights," Arnstad said.
Nigeria reassures oil firms on investment safety
LAGOS, Oct 27 - Nigeria's military government on Tuesday met with chief executives of oil multinationals to reassure them of the safety of their investments in the country's troubled oil region, state radio said.
Radio Nigeria said the meeting in the capital Abuja was between Rear Admiral Mike Akhigbe, deputy to military ruler General Abdulsalami Abubakar, and the chief executives of six oil majors in joint ventures with the government.
"He (Akhigbe) said the government was deeply concerned about the state of security in some oil producing areas and had taken adequate steps to protect lives and property," the radio said.
It added that the meeting also discussed plans by the government to restructure "the investment pattern" in Nigeria's oil and gas industry but did not give further details.
Nigeria holds a 57 percent average stake in joint ventures with Royal/Dutch Shell <RD.AS><SHEL.L>, Mobil Corp <MOB.N>, Chevron Corp <CHV.N>, Elf Aquitaine <ELFA.PA>, Texaco Inc <TX.N> and Agip SpA [AGIS.CN].
Armed ethnic Ijaw youths demanding amenities and more say in government have shut in a third of Nigeria's oil output of some two million barrels per day (bpd) for over three weeks. The affected facilities are those of Shell and Chevron.
The closures are part of an upsurge of unrest in Nigeria's main oil-producing Niger Delta, where impoverished locals accuse the government and oil multinationals of depriving them of the oil wealth pumped from their land.
Ethnic clashes have also erupted in the past week between Ijaws and Itsekiris in the oil town of Warri where several oil companies have their offices, claiming at least 10 lives with 85 houses burnt.
France tells Iraq to comply with U.N. rules
PARIS, Oct 27 - France told Iraqi representatives on Tuesday that compliance with United Nations resolutions was the only way to secure a possible review of an international trade embargo on Baghdad.
Junior foreign trade minister Jacques Dondoux reiterated France's position in talks with Iraqi Trade Minister Mohamed Medhi Saleh, who again pressed for an end to the embargo, Dondoux's office said.
"During the meeting, Jacques Dondoux reminded Iraq of the necessity to comply with the resolutions of the United Nations in order to obtain an overall review of the sanctions regime," a statement from Dondoux's office said.
Saleh completed a two-day visit to Paris on Tuesday, after talks with Foreign Ministry Secretary-General Loic Hennekine on Monday. The latter also urged Iraq to resume cooperating with the United Nations arms inspectors.
Baghdad broke off arms inspections on Aug. 5, saying all of its weapons of mass destruction had been accounted for and further searches by the United Nations Special Commission (UNSCOM) amounted to espionage.
Saleh and Dondoux also discussed the oil-for food plan with the United Nations which allows Iraq, since December 1996, to sell crude oil and use the revenue to buy food and medicines.
The plan, under the auspices of U.N Resolution 986, aims to ease shortages of vital medicines due to the general embargo on trade with Baghdad since its 1990 invasion of Kuwait.
Since the oil-for-food programme started, French companies rank among the main suppliers of goods to Iraq, along with Russian, Australian, U.S. and Chinese firms.
Under the latest phase of a programme that is renewable on a six-monthly basis and ends on Nov. 25, Iraq is allowed to sell $5.25 billion of oil to buy goods.
But Baghdad is expected to fall short of this ceiling by almost $2 billion because of the dilapidated state of its oil industry and low oil prices.
Tuesday's meeting with Dondoux took place because there is uncertainty over the immediate future of the oil-for-food pact itself, a French official said.
"We are currently in Phase Four (of the oil-for-food plan). The issue is to know what will happen after" the fourth phase ends, he said.
"The Iraqis want to get out of the trade embargo. In their mind, they do not want an extension of Phase Four or a Phase F Five," the official said.
10/28 01:46 Kuwait for more oil output cuts to balance market
KUWAIT, Oct 28 - Kuwait appears set to demand a third round of oil output cuts when it consults with oil producers on Wednesday on steps needed to boost world crude prices.
"Let us see what is the point of view of the brothers ... but there must be seriousness on this issue," Kuwait Oil Minister Sheikh Saud Nasser al-Sabah said before flying to South Africa where he will meet OPEC and non-OPEC counterparts.
When asked if producers had any other option but a third round of cuts to achieve the target price of $17 for a barrel of benchmark Brent, the hawkish minister said:
"We tried cuts and the price is still low ... let us see what other options the brothers might have."
Sheikh Saud told Reuters on Tuesday that world markets were still oversupplied and vowed to support a third round of cuts.
"The bottom line of this whole thing is that there is too much oil in the market...If it takes a cut in production to improve prices, we are for it.
"Cutting production should not be limited to OPEC members only. Non-OPEC (members) should also comply and cooperate with any decision taken by us," he added.
The Kuwaiti minister, whose country currently has an OPEC quota of 1.98 million barrels per day (bpd), has repeatedly said that for Kuwait it was a matter of price and not output volume.
Brent at around $13 a barrel is some $6 below last year's average, a situation dominating the build-up to this week's Cape Town informal gathering of ministers from about 50 major oil producing and consuming nations.
Sheikh Saud said on Tuesday: "It is not just our target. It is the target of every member of OPEC. When we decided to cut (production) last June our expectation were that (by November) crude would reach $17 provided every body (complied with pledged) cuts.
"This is something shared by everyone and this was the target and the reason for the cuts," he added. "The prices today are absolutely unacceptable to everyone."
But prices dropped further on Tuesday as traders concluded that the talks between OPEC and non-OPEC states offered little prospect of more output cuts.
Earlier this month, Kuwait warned other oil exporters of a production war if they failed to comply with already pledged cuts, adding that Gulf Arab allies could flood the market.
Kuwait, which controls just under 10 percent of proven world oil reserves, has so far this year cut its production by 225,000 bpd as part of two collective accords to reduce supply to world markets by 3.1 million bpd.
10/28 02:11 Kuwait oil minister assures MPs on foreign firms
KUWAIT, Oct 28 (Reuters) - Kuwait Oil Minister Sheikh Saud Nasser al-Sabah said on Wednesday he has assured parliament that it would be consulted before opening lucrative oil upstream operations to foreign companies.
The sheikh said he stressed to sceptical MPs that state- owned Kuwait Petroleum Corp (KPC) was in no way planning to conclude production sharing deals with international oil majors which would be in clear violation of the constitution.
"I explained to them the whole issue and it seems there was a misunderstanding that what we are planning was production sharing and I explained to them that it was completely far away from that," the minister told reporters.
On Sunday leading Kuwaiti parliamentarians, led by Speaker Ahmad al-Saadoun, presented a draft law aimed at controlling moves to open the oil sector to foreign firms, demanding a crucial say in the major policy switch.
It seeks to oblige the government not to sign deals until after a law is issued governing foreign investment in oil fields, setting state rights, foreign investor obligations, the method of picking a foreign investor and the duration of the investment.
An explanatory note said the law "further protects public funds and prevents the possibility of violations when exploiting natural resources by foreign investors..."
After parliament reconvened on Tuesday following a summer recess, Sheikh Saud met with Saadoun and other MPs to explain KPC's plans on the foreign role.
"I was clear and there were more clarifications... There was a perception that we were going to sign and ready but we are heading towards presenting our plans to all the companies which are ready to cooperate with us and we will listen to them according to our conditions and not their conditions," he said.
Sheikh Saud said he felt the MPs were assured.
"...Anyway we welcome the draft law although I have not reviewed it in detail and what is meant by it.
"We will discuss and study this issue together when I return and we will not take a decision on this before I return," the minister said before leaving for South Africa.
"I have asked for a meeting with (parliament's) Finance Committee to explain our plan and the steps we will take." Parliament has in the past issued recommendations to the government not to sign any upstream oil deals before consulting it but the MPs are now seeking a stronger obligation.
Sheikh Saud has repeatedly said that any upstream deals would not include a production sharing formula.
Some of the world's largest oil firms have been waiting in the wings for years with small technical agreements with Kuwait.
International hopes for a role in Kuwait's upstream operations, including oil fields close to the northern border with former occupier Iraq, were renewed last year when the Supreme Petroleum Council gave approval in principle to foreign participation.
At current production levels of just under two million barrels per day, Kuwait's oil reserves, about 10 percent of proven world reserves, would last more than 100 years.
Kuwait had earlier announced plans to raise production capacity by one million bpd early in the next century from a current 2.5 million bpd, a project which experts say requires foreign participation to secure needed technology.
In the explanatory note to the draft law, the MPs also said the government would be unable to renew concession rights with Japan's Arabian Oil Co Ltd <1603.T> in the border Neutral Zone shared by Saudi Arabia and Kuwait without referring it first to parliament.
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