Looking ahead

Oil price firms as OPEC output policy appears steady. At press time, oil prices remained firm, bolstered by a strong gasoline market and the probability that OPEC at its June 5 meeting would keep its production level steady for the short term. Theoretically, OPEC already has cut production by at least 2.5 million bopd, in an effort to prevent any glut in the market.

Venezuela asks foreign firms to cut output. State firm PDSVA has requested foreign companies that operate marginal fields to reduce oil production, to help the country meet quotas set by OPEC. This is the first time that the country has made such a request of its international investors. The companies affected by this directive are those operating the 18 marginal fields under contracts awarded in 1997. The firms will be asked to reduce output by 9.4% (30,000 bopd).

EIA says U.S. will see prolonged high prices. The Energy Information Administration expects average monthly prices for regular gasoline to range between $1.50 and $1.75/gal nationwide this summer. The $1.60 mean of this range would be about 5% above last year’s record. Regarding electricity, EIA notes that while nearly 2,000 MW of new generating capacity will go online in California this summer, the new capacity will not be enough to satisfy the state’s growing demand. In April 2001, spot natural gas prices averaged $13.30/Mcf in Southern California, or 50% higher than levels in Northern California and about 2.5 times greater than rates in the rest of the country. EIA predicts that U.S. gas demand will rise 1.9% this year, to 23.18 Tcf, and in response to high rates of drilling, U.S. gas output will jump 2.7%, to 19.65 Tcf.

Cheney sees balanced report for U.S. Energy. At press time, U.S. Vice President Dick Cheney remained coy about details of the plan that his energy task force was due to release. Cheney did say that his task force’s recommendations for solving a growing energy crunch will seek to bring more domestic energy production to market and prevent future electricity blackouts, such as those seen in California.

Saudi says OPEC will "see to" U.S. oil demands. Saudi Arabian Oil Minister Ali al-Naimi said that OPEC would ensure that U.S. oil supply needs are met this summer. "The U.S. is the most important client for the sale of oil. If there is a need, as sellers, we have to take care of the client," he said. Naimi was responding to questions concerning U.S. gasoline supply shortages as he arrived for his first meeting with U.S. Energy Secretary Spencer Abraham.

Algeria offers projects for auction. State oil company Sonatrach has launched tenders for the auction of five field development projects. The list includes Zarzaitine oil field, currently operated by Sonatrach and producing 30,000 bopd. In addition, there are two sparsely explored gas fields, and two unnamed projects. The auction process is split into two phases. In the first phase, interested companies must offer technical models for the projects. These are followed by submission of economic and commercial qualifications in the second phase. A data room for the projects is now open, and the deadline for technical bids is October 30, 2001. Final closing date for the auction is March 31, 2002.

Alaska seeks to keep gas benefits. State lawmakers passed a bill that prohibits the building of a gas pipeline from Alaskan fields through Canada. It forbids Alaska’s Dept. of Natural Resources from granting right-of-way permits for a 1,400-mi line that would transport gas output eastward, via an "over-the-top" route that veers into the Beaufort Sea before tying into Canada’s Mackenzie River Delta. Resolution sponsor, State Rep. Jim Whitaker (Republican-Fairbanks), says the route would bypass most of Alaska, preventing the state from enjoying economic benefits of its own gas resources. All 20 state senators signed on to Whitaker’s bill, in sharp contrast to Gov. Tony Knowles (Democrat), who favors the Canadian route. On a federal level, Sen. Frank Murkowski (Republican-Alaska) favors a route that would run through Alaska and include a hub in Whitaker’s hometown of Fairbanks. A Murkowski spokesman said the Canadian route has "insurmountable environmental challenges."

Conoco remains confident about Libyan assets. While some Libyan oil managers favor selling Conoco’s oil fields in that North African nation, Conoco CEO Archie Dunham is optimistic about retaining ownership. "We feel very strongly that the Libyan national oil company will do nothing to diminish our ownership in that concession," Dunham stated, adding that while the U. S. would negatively perceive confiscation of the assets, advocates of such an initiative did not appear to be in the majority in Libya.

Iran’s new buy-back terms to help revitalize aging oil patch. International oil companies support Iran’s new contract terms on major-buy-back deals, but finalization remains elusive. According to a top official in Iran’s Petroleum and Development Company (PEDEC), some majors have in principle accepted modified buy-back terms, but intense negotiation about how to implement them is still underway. Buy-backs allow foreign investors to receive compensation in oil output without taking an equity stake. Hammering out disagreement over the fine print of the contract may require months to resolve.