APS Conference: Middle East Gas Developments; Importance of Venezuela.

Dr. Jorge Zemella, the London director for Petroleos de Venezuela, chaired the second session, on Middle East gas developments, and in his keynote address he reviewed the rapid growth of the importance of natural gas in Venezuela. Marie-Francoise Chabrelie, secretary general of Cedigaz, made a presentation on the economics of gas pipelines for export versus LNG ventures. All the new LNG export ventures around the world have been affected by the fall in oil prices. Some of most recent LNG projects would be delayed or cancelled. But those in the Middle East which have been under construction before the fall of oil prices in 1997 will be implemented according to plan. Mrs. Chabrelie said the main challenge in the LNG business was to reduce costs further. There is the possibility of costs in the upstream, midstream and downstream elements of the LNG chain being reduced by another 10% or more. LNG transportation costs would be reduced with the use of larger tankers, with vessels of 200,000 cubic metre capacity to be built. On the other hand, the economics of gas pipelines for export have become more favourable. Major gas pipeline projects proposed to pass through more than two countries would need better security, however, as negative regional politics could affect them and the markets in the long run. Michael Corke, of the leading LPG consultants Purvin and Gertz, gave an optimistic view of expansion of world trade in LPG and in condensates. World LPG trade will grow from the current level of 175 million tons/year to near 240 million tons/year by 2005. However, much of the increased Middle East LPG production will be used as feedstock within the region, which is preferable to exporting LPG. As world trade in condensate expanded, Corke continued, it was possible that relatively more condensate will be shipped spiked into crude oil to take advantage of low transportation costs. Peter Riches, senior vice president of Texaco International Petroleum, chaired the third session which was on Middle East and Caspian oil trade. Antony Scanlan of Associated London Energy Consultants, UK, provided a macro review of how Middle East oil and gas will fuel expansion of the world economy in the coming years. Of critical importance is the oil and gas supply to the Asian/Pacific region, which will have half the world's population by the year 2011. Scanlan emphasised that the present economic recession in the Asian/Pacific region will merely postpone projected energy demand by a year or two. To restore confidence, it is essential that the Asian/Pacific region undergoes some restructuring and that there is greater orderliness and transparency in all aspects of finance. The Trans-Malay project for piping and storing crude oil across the Malay Peninsula - thus bypassing the congested Straits of Malacca - was analysed by Pierre Shammas and Koichiro Nagata, the venture's chief executive. This will include a 2 million b/d pipeline and eight storage trains to be built on both sides of the peninsula, which will be essential to move Middle East oil to the Far East. The project is costed at $2.2 billion for the terminals, the pipeline and storage facilities. The project would be supplemented by two major oil refineries which would cost another $3.8 billion in the first phase. Shammas gave a view of the growing oil demand in the Asian/Pacific region during the next twelve years and underlined the strategic importance of the Trans-Malay project. He said this would become an important element in the management of future oil crises in that region (see Gas Market Trends). Dr. Narsi Ghorban, of Tehran's new International Institute for Caspian Studies, reviewed the issues which influence the building and use of oil and gas pipelines for the Caspian region. He gave a brief profile of each project proposed and underlined the role which Iran was prepared to play as a transit country and in oil swap deals. He concluded that co-operation between Iran and the other Caspian countries in oil and gas projects were the most logical and economic approach.

Paul Griffin, a partner of the London law firm Ashurst, Morris, Crisp dealt with the legal issues which will arise with Caspian export pipelines. There are many possibilities for new pipelines. Those proposed to pass through Iran are likely to be seen to have substantial political and economic merit. It is likely that institutions such as the European Bank for Reconstruction and Development will be involved in the financing of such projects. The export pipelines will need careful drafting of treaties between the states involved, a sound legal structure and preferably clearly defined procedures for dispute resolution. Larry Wheeler, president of Pecten Arabian Oil Co., chaired the fourth session, which was on Middle East oil refining and petrochemicals. He said in his keynote address that, although profitability of Middle East petrochemicals was now as bad as it possibly could be, the worst was probably now over. The long term future for Middle East petrochemicals was good. Gilbert Jenkins of Associated London Energy Consultants, UK, reviewed the factors which will influence the building of new oil refining capacity in the Middle East. The profitability of oil refining has been poor for many years but within the next decade the surplus of refining capacity could vanish. New refining capacity could earn an adequate return on the capital invested.