INTERNATIONAL OIL & GAS STORIES / Part 1
Article Index
Russia Will Auction Off Part Of Big Natural Gas Monopoly
Iraqi-Jordanian Oil Pipeline Reportedly Auctioned Off
Interview - Filakos Sees Oil Recovery
GRI Study Sees Strong Growth in Energy Consumption by Industrial Markets
Russia Will Auction Off Part Of Big Natural Gas Monopoly
Seattle Post-Intelligencer
President Boris Yeltsin issued a decree yesterday permitting the
cash-strapped Russian government to auction off up to 5 percent of one of
its most valuable assets - the natural gas monopoly Gazprom, the world's
largest gas company.
Yeltsin, who was recovering from his latest illness at the Black Sea resort of
Sochi, signed the order approving the auction and allowing foreign investors
to take part.
Meanwhile, Yeltsin's condition, which aides described as fatigue and high
blood pressure, provoked a new round of attacks and calls for his
resignation by Communist rivals.
The decree on Gazprom was a rare sign of Yeltsin's involvement in tackling
Russia's worst economic troubles since the 1991 Soviet collapse.
He has spent little time in the Kremlin in recent months, handing control of
the economy and other day-to-day duties to Prime Minister Yevgeny
Primakov.
No date for the Gazprom auction was set, but the Interfax news agency
quoted unidentified officials as saying the government may decide not to sell
a stake in Gazprom this year because its stock price has fallen sharply. If the
auction goes ahead, no more than 3 percent of the company will be sold.
The government has repeatedly postponed the sale because it was hoping to
get a better price.
Russia's financial troubles have scared away foreign investors and driven
down share prices.
But with the International Monetary Fund reluctant to give Russia more
loans, the government has little choice but to sell more shares to pay off its
huge debts.
The government currently holds 40 percent of Gazprom shares and said it
may gradually reduce its holdings to 25 percent. Private investors in Russia
and abroad hold the remaining shares.
In August, the Russian government set the starting price for a 5 percent
stake in Gazprom at $1.65 billion - more than double the international
market price. But unidentified officials speaking to Interfax said the starting
price would be "far below" $1 billion.
Iraqi-Jordanian Oil Pipeline Reportedly Auctioned Off
BBC Monitoring Middle East - Economic
Text of report by Jordanian newspaper 'Al-Arab al-Yawm' on 11th
November
In a deal whose complete details are yet unknown in addition to the parties
organizing it {as heard}, the "Tapline" {previous word in English, transcribed
into Arabic} oil pipeline linking Iraqi oil fields with Haifa seaport and cutting
through Jordanian land, was auctioned off for a reported sum of only 4m
Jordan dinars {JD}.
According to informed sources, the auction, in which only one bidder - an
investor from the United Arab Emirates - participated, is considered illegal
because only one bidder was there. The pipeline was sold at JD10 a ton,
while a ton of used steel, scrap metal, sells at JD50 a ton.
The value of the tender to remove and dismantle the pipeline is estimated at
JD250,000. Work on removing the pipe and dismantling it started a short
while back in preparation for exporting it to the investor. It was not clear
whether the government or the investor would be covering the costs of
removal and dismantling.
A high-level government source told 'Al-Arab al-Yawm'that the auction
took place a month ago, claiming that the pipeline was no longer fit to
transport crude oil because it had not been used for about 50 years. He
added that the crude oil in the pipeline turns to paraffin oil, which makes its
maintenance more costly than simply building a whole new pipeline. He
pointed out that the pipeline's power is low.
Contrary to this source's statements, an informed source said that the
pipeline is in good shape and is one of a kind in terms of the materials it is
made of. He said the pipeline could be fixed and made functional again to
carry oil from Iraq to the Jordan Oil Refinery near the city of Zarqa. He
added that the cost of maintenance and reconnecting the pipeline to the
refinery was low and economical. Arrivals from Baghdad affirm that
maintenance work on the pipeline to make it operational again has been
completed in Iraq, which reinforces the possibility of reoperating Tapline.
The pipeline on the Iraqi side was connected after maintenance work on it
was completed and was fitted with valves all the way to the border area in
Turaybil.
Unconfirmed information states that the pipeline can be used for several
purposes at the forefront of which comes the transport of crude oil, water
and oil derivatives.
Estimated costs for connecting the Iraqi pipeline with the refinery stand at
250m dollars, to be covered by both the Jordanian and Iraqi sides upon its
implementation, and it could be replaced with the Tapline after maintenance
work on it is completed and its course diverted.
The project of setting up a pipeline between Iraq and Jordan, whether for
purposes of local consumption or for exporting goals, is one of the vital
projects examined by the two sides to maximize gain and minimize expenses
and environmental damage.
Jordan's oil needs are estimated at 4.8m tonnes a year, mostly composed of
crude oil, with a daily rate of 100,000 barrels. A Jordanian-Iraq land fleet
made up of 4,000 oil tankers transports oil from Iraq to the Jordan Oil
Refinery.
The cost of transporting one barrel of oil or petroleum products is about 2
dollars added to the agreed price. This cost will be greatly decreased if the
oil is transported via the pipeline.
What remains to be said is that this file must be opened to determine the
parties responsible for this mysterious deal. The government must, in all
cases, clarify the details of this issue.
Interview
Filakos Sees Oil Recovery
CNNfn
NEW YORK - Despite the looming threat of U.S. military action against Iraq,
global oil companies are pessimistic about the near-term prospects for
depressed crude prices, a despair that at least one analyst says is a buying
opportunity.
Merrill Lynch oil strategist Gus Filakos told CNNfn's "Business Day" that
the industry's apparent problems are temporary ones of supply, while overall
technical factors remain strong and indeed undervalued for the long term.
Here is a partial transcript of his comments.
JOHN DEFTERIOS, CNNfn ANCHOR: Let's start in terms of this
cutback. At the American Petroleum Institute meeting yesterday in San
Francisco, nobody said oil prices are going to go up next year. Do you think
they have it right?
GUS FILAKOS, OIL ANALYST, MERRILL LYNCH: Well, first of all, I
don't think the oil companies are in the business of forecasting oil prices.
Forecasting oil prices is a very hazardous exercise and people don't engage
in it.
I think, though, it's very prudent for every major oil company to plan on the
basis of conditions being weak. You cannot just go out and start spending
on the assumption that oil prices will recover. If they don't, then you're in
trouble, so you have to be cautious.
DEFTERIOS: Mobil (MOB) said yesterday it was going to cut a half billion
dollars as part of a restructuring plan to keep the profits up. That company's
done a tremendous job over the last three years. As you know, they're not
alone here and it's not a new trend in this business. They're all looking to
keep their costs down.
FILAKOS: The industry is engaged in very aggressive cost cutting
throughout the 1990s. I think this is a very positive development. It
reinforces this cost-cutting ethic, which I think is going to position the
companies much better when industry conditions recover -- and they will.
I don't share the pessimism that's out there. I think we will be surprised. The
pricing war is going to recover much faster than people think. This is not a
secular problem, it's an inventory problem, and it's going to correct. And I
think once it corrects, industry conditions improve.
In the meantime, the oil companies are going to reduce costs even more, and
the leverage on the upside is quite significant.
DEFTERIOS: We could have a double whammy go into effect here. With
the companies cutting their cost and the situation with Iraq picking up, we
could have oil prices rebound well into the winter months here.
FILAKOS: My view is that even without a problem in Iraq, the inventories
which are very excessive now -- we all know there's an inventory glut -- will
correct by the end of the winter and they're going to be down to normal
levels.
There are, of course, a lot of uncertainties in the weather, the economies of
the world. But my supply-and-demand analysis suggests that these will
correct. Certainly, if there's a crisis in Iraq and we loose Iraqi oil supplies
even temporarily, that could result in an increase in the pricing wars much
sooner than people expected.
DEFTERIOS: Now, the big question is people are saying that Iraq hasn't
been on the market and they haven't had full production on the market, so
how does that factor into the world oil supply?
FILAKOS: But, John, you have to remember there's been a tremendous
increase in Iraqi oil supplies as a result of the Oil for Food Program. And
one of the reasons why you have an inventory glut is, in fact, because Iraqi
production has increased dramatically in exports.
We blame everything on Southeast Asia. True, Southeast Asia's a problem.
It has lowered the growth and demand, but Iraqi oil supplies have also risen,
contributing to the glut. So, if we lose Iraqi oil -- right now Iraq produces a
lot of oil, nearly 2.5 million barrels a day -- that could tighten the market
quite a bit.
DEFTERIOS: In terms of decimating Iraq's oil installations, do you think that
is a target of the administration right now?
FILAKOS: Why, I think that would be insanity. I mean, why destroy the
installations? At some point, we're going to need Iraqi oil. I wouldn't say that
would be appropriate strategy. You may get errant missiles that could affect
some infrastructure, but I don't think that would be the objective.
The concern of the oil supplies is that if there's a military strike, the Oil for
Food Program will come to a temporary halt and that will curtail oil supplies
temporarily.
DEFTERIOS: In fact, Iraq was confirming that this morning. With that
strategy in mind, how should one play the oil stock market right now? I
looked at the price/earnings ratios yesterday. They're not cheap for the
international players -- 22, 23 times earnings. I guess everybody's making a
bet on the future.
FILAKOS: Well, in today's marketplace, of course, stocks are very high on
this year's earnings because this year's earnings are very depressed. The
price of oil's been very low, chemicals have been eroding, the business
conditions have not been very good.
But I think there's going to be a dramatic recovery in profits next year. On
the basis of next year's profits, I think the stocks -- particularly major
international oil companies -- are standing at a discount of about 10 to 15
percent versus the market.
I think it's a very attractive valuation. For the last 11 years, the major
international oils have sold at a market multiple, and history has shown that
the time to buy the major oils is when the price of oil is low, when there's
tremendous despair, when nobody expected the price of oil to recover.
This is not a secular problem. It's an inventory problem and I think people
who buy the stock at depressed prices will be rewarded.
GRI Study Sees Strong Growth in Energy Consumption by Industrial Markets
PRNewswire
ARLINGTON, Va., Nov. 12 /PRNewswire/ -- The U.S. industrial sector
--which accounts for about one-fourth of the nation's total energy use -- will
increase its demand for energy by a brisk 1.3 percent annually over the next
20 years, resulting in a more than 25 percent increase in that sector's energy
demand, a new Gas Research Institute report says.
The report, "1998 Industrial Trends Analysis" (GRI-98/0146), completed
by GRI along with Energy and Environmental Analysis Inc., Arlington, Va.,
projects that total industrial energy consumption will grow from 27.3 quads
in 1995 to 35.1 quads in 2015. During the same period, industrial
consumption of natural gas will increase from 10 quads in 1995 to 13 quads
in 2015. Natural gas has a dominant share of industry's competitive "fuel and
power" segment, at 40 percent, and this share is expected to be maintained
during the projection period. This market includes stand-alone boilers,
industrial cogeneration and process heat.
The report examines a range of factors affecting industrial energy
consumption and analyzes energy demand by fuel type, standard industrial
classification (SIC) and region. The report also discusses why natural gas
will continue to dominate future industrial energy needs, and how this
sector's energy demands could be significantly impacted by future
carbon-emissions regulations.
Among the report's conclusions is that the 1.3 percent annual increase in
energy consumption will be spurred by a 2.3 percent annual rise in industrial
production and low, flat energy prices. Even with the projected strong
growth, energy demand will actually increase at a slower rate than in the past
as energy-intensive industries become less important contributors to overall
industrial production. For example, production in the less energy-intensive
metal durables industry is projected to increase 3.3 percent annually.
Conversely, most energy-intensive industries will grow at below-average
rates, with the exception of the chemicals industry, where growth is expected
to average 2.6 percent annually.
"Despite these structural changes in the industrial sector and forecasts of
lower electricity prices resulting from electric restructuring, natural gas should
not lose market share," said Marie Lihn, GRI project manager. "This sector
will remain important to the gas industry and will contribute to a stable gas
base load with its strong growth in production. This stability is beneficial to
all gas industry segments and provides the economic underpinning for gas
consumption in other sectors.
"For energy providers and strategists, the report's analysis of this vital and
diverse end-use sector provides highly beneficial market insights and
intelligence," she said. "Understanding prospective production rates in each
segment of this market and the likely direction of energy prices serves as a
solid foundation for making 'educated' estimates of consumption levels for
natural gas and other fuels."
Among other highlights of the study's 20 year-projection are:
-- Natural gas prices will remain competitive, especially relative
to residual fuel oil, a competitor in the stand-alone boiler market.
While electric restructuring may reduce electricity prices in the
industrial sector, the declines will not be large enough to induce any
switching based on price. Note that fuel competition in the industrial
sector occurs only in certain types of markets, such as "fuel and
power." There is no fuel competition in "feedstocks," which use
hydrocarbons as raw materials for products such as fertilizer, plastics
and rubber, and in "lease and plant," where natural gas is used in
well, field and lease operations, and gas processing plants.
-- In the competitive fuel and power markets, natural gas will (1)
increase its share of the stand-alone boiler market at the expense of
coal; (2) grow in cogeneration markets, partially reflecting end-user
preference for gas combined-cycle technologies; and (3) maintain its
dominant share of the process heat sector, despite inroads by
electricity.
-- Four regions account for more than two-thirds of U.S. industrial
energy consumption: West South Central, composed of Texas, Louisiana,
Oklahoma and Arkansas; East North Central, which includes Michigan,
Illinois, Indiana, Ohio and Wisconsin; and the South and Middle
Atlantic regions, composed of coastal states from New York to Florida.
The chemicals, primary metals, refining and paper industries are the
largest industries in these regions.
The GRI report includes a special section analyzing the potential impact of
global climate change regulations on U.S. industrial energy consumption.
Currently, carbon emissions are greatest for the refining industry, followed
by the chemicals and primary metals industries. However, the projected
robust growth in the chemicals industry would increase carbon emissions to
levels that surpass those of the refining industry by 2010. While carbon
emissions of the primary metals industry are expected to remain high,
declines through 2010 are projected to reflect efficiency gains and shifts to
more electricity-intensive processes. By 2010, the mining industry surpasses
the primary metals industry as the third largest carbon-emitting industry.
GRI, established in 1976, manages a cooperative research, development
and demonstration program for its 335 members and the natural gas
industry. GRI conducts R&D that benefits the entire industry and its
customers; and targeted benefits R&D in which consortia and individual
organizations partner with GRI to develop or apply technologies to improve
their competitiveness and benefit customers in specific gas and related
energy markets.
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