April 1, 1998
Design and construction of Terra Nova production systems can now begin. [28,485 bytes] Stuctural map of Terra Noca field showing faults and contours. [39,148 bytes]
Victor Schmidt

Cat and Mouse: The story continues

Why does Iraq's President, Saddam Hussein, persist in tweaking noses through resistance to UN demands? Part of the answer lies in an article in the March issue of Scientific American. In a special report, "Preventing the Next Oil Crunch," authors Colin J. Campbell and Jean H. Laherrere review the end of the cheap-oil era. They cite the "flakiness" of reported reserve numbers and point to the systematic reporting errors created by governments and companies. They also demonstrate the importance of depletion (see last month's column for a reprise of Matthew Simmons' view of depletion).

One conclusion based on their analysis is key: "Within two years, these nations' (OPEC) share of the global oil business will pass 30%, nearing the level reached during the oil-price shocks of the 1970s. By 2010, their share will quite probably hit 50%."

Extrapolations from this require only modest brainpower. World demand growth of 2% or more, combined with increasing depletion, will ultimately overcome excess production capacity, raise prices, and generate political pressure to release Iraq from the embargo. Once Iraq is released from current constraints, Hussein (or his successor) will pursue hegemonic plans. Market forces (demand) will raise prices, thereby fueling Iraqi military plans. Through these, he can then extend control over Middle East oil production, and by proxy, the world economy.

But, the Iraqi leader has clay feet. He made a serious mistake in 1991 by tipping his hand early. Now the developed world is aware of his intentions. That is why tensions will occur repeatedly. The developed nations will protect their economies (and social systems) through limited actions, or be forced to physically occupy this major oil-producing region of the world.

No country really wants to do that. Limited wars and police actions are preferable, less expensive, and more easily managed. Thus the current strategy: threaten the "offending leader" with a war club to keep him subdued and his cohorts at bay until alternate energy sources come on-line to smooth the 50-year transition away from the era of cheap Middle East oil and its dangers.

Time is on Hussein's side, if he can persevere, because market forces will ultimately come to his rescue. Finding new petroleum sources (offshore) or a cheap replacement is the only way out of "containment."

Sakhalin Island projects advance

Major production sharing agreements (PSA) are to be signed for Sakhalin III. Rosneft negotiated the PSA's with Exxon, Mobil and Texaco, who won the blocks in 1993. Russia's Duma must give final approval. The blocks include:
  • Ayashskiy Block to Exxon
  • East Odoptinskiy Block to Exxon
  • Kirinskii Block to Mobil and Texaco.
Exxon is exploring the Sakhalin I area under an existing PSA. Mobil and Texaco are talking to Rosneft and Sakhalinmorneftegaz about their participation in Kirinskii development.

The partners plan to spend $151 million on development over the 30-year life of the project; $30 million has been invested to date (See related article on page 42).

Petrobras sale could take four forms

Brazil is seeking an investment bank to handle the sale of 31.62% of the common shares of Petrobras, the state oil company. The international sale will be held in late 1998 or early 1999 and may return as much as $4 billion to the government. The structure of the sale is not yet decided but will likely take one of four forms:
  • Selling the shares in small lots
  • Selling all shares to a strategic investor
  • Selling a controlling block to a strategic investor and the remainder in small lots
  • Selling in three equal blocks of about 10%.

Some smoke clearing on Caspian pipelines

Some of the smoke is beginning to clear regarding major pipelines out of the Caspian Basin. Recently, Azerbaijan's President Haydar Aliyev stated his preference for a line connecting Baku to the port of Ceyhan, Turkey.

This would raise the number of active pipeline routes from the basin to five: three pipelines landing on the western Black Sea coast, one northwest overland to China, and the proposed line across Turkey to the Mediterranean Sea. Azerbaijan International Operating Co. (AIOC) said that no decision had been made about the route, but President Aliyev suggested that construction could begin later this year.

"New Land" in the Atlantic

An agreement was signed by the Canadian government sanctioning the Terra Nova Alliance to develop the

Terra Nova Field offshore Newfoundland. The alliance will design, construct and install the floating production, storage, and offloading ship (FPSO), subsea components, and pre-production wells necessary to develop the field.

Field development is based on a steel FPSO with a quick disconnect turret mooring, multiple flexible risers, and an extensive network of flexible subsea flowlines and wellhead equipment. Coflexip Stena will undertake infield subsea construction of more than 40 km of flexible flowlines, control umbilicals, and dynamic risers planned for the field.

Alliance members include: Petro-Canada, Shawmont Brown & Root Offshore, Halliburton Canada, FMC Offshore Canada, PCL Industrial Contractors, Coflexip Stena Offshore Newfoundland, and Doris ConPro Offshore.

Terra Nova Field is located on the Grand Banks 350 km east-southeast of St. John's, Newfoundland. The field was discovered in 1984 and is owned by: Petro-Canada (operator) - 29%, Mobil Oil Canada Properties - 23%, Husky Oil Operations - 17.5%, Norsk Hydro - 15%, Murphy Oil - 12%, and Mosbacher Operating - 3.5%.

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