CHAPTER III : US OIL SCARCITY & PEAK OF US CONVENTIONAL OIL PRODUCTION IN THE 1960s-1970s

NOVEMBER 1970 - AUGUST 1971 : THE PERFECT STORM??(PART 1)?

“ So watch for Aug. 13. It will be remembered as ‘Participation Day’ “?

-Oil & Gas Journal, July 26th?1971

“ we must protect the dollar from attacks of international money speculator “?

– Richard Nixon, President of the U.S.A., August 15th?1971

Note : This research working paper is part of the third chapter of a work focused on the oil and monetary crisis of the 1970s. Seven chapters of economic history research attempt to enlighten the confused events of the 1970s, with a strong emphasis on energy and petroleum, on monetary policy, and on macroeconomy. This work on the 1970s is entitled?August 15th?1971 : Oil Resource Constraint and the End of the Bretton Woods Monetary System[1]?and is part of a Global Energy History Research Program[2].

November 1970 : the beginning of the end

U.S. reached its peak of conventional oil production at the end of November 1970. After this historical event, the world oil market situation deteriorated quickly, between oil importing and exporting countries. At the time, oil market experts were able to foresee the coming catastrophe, which would happen in 1973. By “experts”, we mean the US oil industry leaders, US policy decision makers, OPEC leaders, and market specialists in the finance industry[1]. They all knew what was unfolding.

The world deflagration would happen in October 1973. But as soon as 1970, as OPEC had realized there was no longer any significant surplus US oil productive capacity[2], the US – and behind them, OECD importing countries - were losing control. The Tehran and Tripoli agreements signed in February and April 1971 respectively, were for a few weeks presented reassuringly as long-term agreements (up to 1975). They were supposed to end the negotiation escalation by OPEC, and therefore to provide some stability and foreseeability: OPEC price increases had been theoretically agreed for the next 5 years[3].

From the end of 1970 up to august 1971, the crescendo tempo of the situation between OECD and OPEC would show that the 1970-71 clash and its fixing at Tehran and Tripoli had just been a “first round”. In fact, with no longer any effective US oil spare capacity, the threat of embargo or production cuts, often mentioned from 1970 on, would terrify OECD member countries, most of them large oil importers.

More precisely, with the spiraling evolution from November 1970 on, oil market experts, and especially the financial markets participants, could observe the following major trends :

-???????US surplus spare oil capacity would decline ; and thereafter production???[CAP-PROD]

-???????US oil demand was rising fast and unimpeded????????????????????????????????????????????[DEMAND]

-???????So, US oil imports would rise fast, and from Middle East even faster????????[IMPORT]

-???????Middle East oil price would rise, as well as tanker freight costs?????????????????[PRICE]

-???????OPEC would escalate on participation/nationalization issues?????????????????????[PART-NAT]

This article aims at demonstrating how a “perfect storm”??caused by all these major trends in the world oil market in 1970-71 have probably led to major world monetary consequences in August 1971[4].

Participation and Nationalization

Price was one of many levers in the negotiation between OPEC and the OECD oil importing countries, via the western oil companies. Other topics were taxation rate ; price quality bonus ; freight costs ; and above all the “participation” of OPEC countries in their oil industry, in the western companies or subsidiaries operating in their own country. “Participation” was the polished word used to avoid “nationalization”, even though the nationalization process by OPEC was already under way in 1970. OPEC had been clear about it. The ink of Tehran and Tripoli agreements would not yet be dry, that this new negotiation battleground would be escalated by OPEC, with Venezuela, Algeria and Libya taking the lead. U.S. Administration had been warning the other OECD members of the risks as soon as July 1970[5].

The financial markets knew how devastating that new battleground on participation/nationalization would be.??But first and foremost, it would be a demonstration that the Tehran and Tripoli Agreements – supposedly providing long-term stability- were worthless, and that the escalation would be endless …

Oil & Gas Journal

The main source used in that chapter III,?Oil & Gas Journal?(O&GJ), is a weekly magazine which was then – and still is- the reference in the world oil market (150-200 pages each week in those years).?For each of the above major trends of the world oil market (Tags : [CAP-PROD] [DEMAND] [IMPORT] [PRICE] [PART-NAT]), the reader is redirected to O&GJ publications excerpts in appendix.?Some of O&GJ information are editorials, some are newsletter pages, most are plain articles.

The following graph (FIG. N°1) displays US Oil production reported weekly by the O&GJ from November 1970 – with the US peak oil-, to August 15th?1971 -with the end of Bretton Woods (Nixon Shock) ; and a selection of worth reading O&GJ articles in appendix.

FIGURE N°1

Some comments :

1.?????Up to the end of 1970, the denial of the unfolding crisis by some experts of the oil industry was pathetic. Erroneous forecasts – and many policy prescriptions- had been provided on unfounded basis, especially regarding the US spare oil capacity and the forthcoming peak oil. The inconclusive debate – that had divided the Nixon Administration itself- on “The Oil Import Question” (1969-70) was a case in point.?[6]

2.?????For oil experts, the large surplus US oil productive capacity available in 1967, during the Six Days War embargo by OPEC Arab countries, had save the day. Its fast disappearance in 1970-71 was rightly seen as catastrophic. Let’s remember that US Oil spare productive capacity was estimated and reported by the US oil industry itself.

3.?????Obviously, the Oil &Gas Journal was then the voice of the petroleum industry : strong lobbying for US Government support -especially fiscal- ;??bashing of any reform anti-industry ; price liberalization. Petroleum products prices in the US market were then under sharp control and monitoring -almost freezing-??by the U.S. Administration. If the “higher oil price" lobbying by the US oil industry was overestimating its response production capacity to such price signal[7], it was not unfounded. Contrary to the common thinking of economists, “the cure to high price is high price” would not be enough. The impact of higher price in U.S. would be, as usual, higher investment (CAPEX) in oil Exploration & Production in U.S., which would not translate in much higher US oil production …

From November 1970 on, US oil production would decline, with most of the left spare capacity production in Texas -shrinking fast. The following graph (Fig. N°2) shows US crude oil production, and Texas production, as reported weekly by the O&GJ. Global US production was declining faster that the regulated Texas production.

FIGURE N°2

These weekly O&GJ data were based on estimates. In reality, the fall of US production would be even steeper from November 1970 on. These O&GJ weekly data were from the same source than those published monthly by the Federal Reserve of Texas, which was also monitoring the U.S. oil market[8]. But oil market experts were also informed readers of the monthly publications by the U.S. BEA Administration : the US Survey of Current Business[9]?(US SCB). With these US SCB data, they would have a clearer view of the dramatic decline of many U.S. oil fields.

On the following graph (Fig N°3), the US petroleum (crude + lease condensate) production is displayed monthly, as reported by the Dallas Fed one month later, and in the US SCB, two months later, from April 1970 on.?

FIGURE N°3

Note that before the November 1970 peak oil production, the climb in S2 1970 was due to (1) strong US demand and (2) perturbation of oil imports from the Eastern Hemisphere from May 1970 on. The gap would be supplied by an increase in Texas production, enabled by higher allowance of production (red dots in fig. N°3) by the Texas Railroad Commission (from 55% in July to 87% in October 1970)[10], thus reducing US spare capacity. The TRC allowance set at 87% in October 1970 would enable a US peak production the following month.

Dallas Fed production figures publications for December and January 1971 were close to the O&GJ weekly data in Fig N°1, coming from the same source. Fig. N°3 shows that those production figures were much too optimistic. As soon as April 1971, monthly production reported by the US SCB for January had been corrected, showing in reality a steep decline in January and February 1971. That decline would go on the following months, even though the Texas allowance would be maintained at a high level, above 80%.

For readers of the O&GJ, as soon as the beginning of 1971 January 4th??in the article entitled :?“Where Texas’ shrunken crude cushion is located”,??the issue was clear :?“(…) This, then, is how some of the biggest and best fields in the state stack up. And while the comments of field operators hardly add up to conclusive evidence, they certainly indicate that the excess capacity remaining in Texas is a much smaller volume than generally recognized. (…)”

This was the beginning of the end.

Escalation on participation

O&GJ publications in appendix all show how the world oil situation was deteriorating fast, and how the world oil market power was shifting from buyers to sellers of oil. The participation/nationalization issue was more and more present in the agenda from January 1971 on??: Jan. 18 ; Feb. 15 ; Mar. 1 ; Mar. 29 ; Apr. 27 ; Jul. 12 ; Jul.26). This July 26th 1971 editorial?(“Participation day … it’s coming”) is extremely pessimistic on the issue :“(…) Pachachi?[OPEC secretary general]?then made his point – “We are dead set on implementing this resolution at once.” And when OPEC is dead set on something these days, watch out.?With the admission of Nigeria, the cartel now controls 62% of all free-world oil production and 93% of its exports.?Several factors have accelerated OPEC’s participation drive. Most important probably was Algeria’s outright seizure of 51% of the French holdings there. “If they can do it, why can’t we ?” is the feeling now in many producing countries.

Venezuela also has set some savory examples for fellow OPEC members with its nationalization campaign. So watch for Aug. 13. It will be remembered as “Participation Day”.”

On August 15th?1971, President Richard Nixon took a historical decision.

Afterword

A dashboard with graphics of various indicators (production ; drilling ; imports ; prices …) were published each week by the O&GJ, at least from 1966 on. One of them was the US crude oil production, showing also the previous year.

On November 9th?1970, the very historical week of the US conventional peak oil, the “Crude production” graphic of the O&GJ was the following, where one can see that US crude oil production was reaching 10 million barrels per day :

On the O&GJ issue of August 16th?1971, the graphic was this one :

At the end of December 1971, the O&GJ graphic was this one :

From this date on, the “Crude production” O&GJ graphic would never be published again.

Michel LEPETIT

March 24th?2022

ANNEX I : OIL & GAS JOURNAL EXCERPTS CHRONOLOGY

NOVEMBER 1970 – AUGUST 2022

Oil and Gas Journal, 1970 NOVEMBER 9 [PRICE][IMPORT]

EDITORIAL : It’s poor policy to restrict growth of petroleum at home

Oil and Gas Journal, 1970 NOVEMBER 16 [CAP-PROD] [PRICE]?

EDITORIAL : Higher prices the only road to stepped-up drilling in U.S.

Oil and Gas Journal, 1970 NOVEMBER 23 [PRICE]

ARTICLE : Price hikes spread to Nigeria, Kuwait

Oil and Gas Journal, 1971 JANUARY 4 [PRICE]?

ARTICLE : OPEC working for even bigger share

Oil and Gas Journal, 1971 JANUARY 4 [DEMAND]

Newsletter pages : US oil consumption

Oil and Gas Journal, 1971 JANUARY 4 [CAP-PROD]

ARTICLE : Where Texas’ shrunken crude cushion is located?

Oil and Gas Journal, 1971 JANUARY 18

EDITORIAL : International oil beset on every side?[PRICE][PART-NAT]

Oil and Gas Journal, 1971 JANUARY 18

ARTICLE : U.S. Supply losing race to demand?[CAP-PROD][DEMAND]

Oil and Gas Journal, 1971 JANUARY 25

EDITORIAL : OPEC’s pressure tactics are clear warning to U.S.?[PRICE]

Oil and Gas Journal, 1971 JANUARY 25

ARTICLE : OPEC faced with collective bargaining?[PRICE]

Oil and Gas Journal, 1971 JANUARY 25

ARTICLE : Nixon moves to aid foreign oil talks?[IMPORT] [PRICE][CAP-PROD]

Oil and Gas Journal, 1971 JANUARY 25

ARTICLE : 1971 FORECAST/REVIEW?[CAP-PROD] [DEMAND] [IMPORT] [PRICE]

Oil and Gas Journal, 1971 FEBRUARY 15

Newsletter : Nationalization fever spreads …?[PART-NAT]

Oil and Gas Journal, 1971 FEBRUARY 15

ARTICLE : Global oil flow hit new high in 1970?[DEMAND]

Oil and Gas Journal, 1971 FEBRUARY 22

ARTICLE : Persian Gulf now has taken oil reins?[PRICE] [IMPORT]

Oil and Gas Journal, 1971 FEBRUARY 22

EDITORIAL - More drilling is still key to solving energy crisis?[IMPORT] [PRICE]

Oil and Gas Journal, 1971 FEBRUARY 22

EDITORIAL : Tough bargaining in Libya?[IMPORT] [PRICE][PART-NAT]

Oil and Gas Journal, 1971 MARCH 1

EDITORIAL : Tehran price agreement best compromise possible?[PRICE]

Oil and Gas Journal, 1971 MARCH 8

ARTICLE : Average cost of tankering oil up 40-50% in a year?[PRICE]

Oil and Gas Journal, 1971 MARCH 8

NEWSLETTER : World crude-oil production in January shattered records, with global Middle East producing countries scaling all heights.?[IMPORT]

Oil and Gas Journal, 1971 MARCH 8

EDITORIAL The energy crisis – two views from Washington?[PRICE][IMPORT]

Oil and Gas Journal, 1971 MARCH 8

ARTICLE : Tremendous consumption seen to 1990?[DEMAND]

Oil and Gas Journal, 1971 MARCH 8

EDITORIAL The energy crisis – two views from Washington?[PRICE][IMPORT]

Oil and Gas Journal, 1971 MARCH 8

ARTICLE : Tremendous consumption seen to 1990?[DEMAND]

Oil and Gas Journal, 1971 MARCH 15

ARTICLE : Utilities gobbled startling 32.3% more oil in 1970?[DEMAND]

Oil and Gas Journal, 1971 MARCH 15

ARTICLE : Libya easing tough oil-price stance ??[PRICE]

Oil and Gas Journal, 1971 MARCH 22

ARTICLE : US to consume 5% more oil this year?[CAP-PROD] [DEMAND]

Oil and Gas Journal, 1971 MARCH 22

ARTICLE : Venezuela confirms gas nationalization?[PART-NAT][DEMAND][IMPORT]

Oil and Gas Journal, 1971 MARCH 29

NEWS PAGES?[IMPORT]

Oil and Gas Journal, 1971 APRIL 04

ARTICLE : Shipyards bustling with tanker orders?[PRICE][DEMAND]

Oil and Gas Journal, 1971 APRIL 12

EDITORIAL : Libyan oil agreement makes big waves?[PRICE]

Oil and Gas Journal, 1971 APRIL 19

EDITORIAL : Five years of stability ? Maybe.?[PRICE] [PART-NAT]

Oil and Gas Journal, 1971 APRIL 27

EDITORIAL : Permanent gas shortage makes oil the fuel for all seasons?[DEMAND]

Oil and Gas Journal, 1971 MAY 3

EDITORIAL : Playing dominoes in the Mediterranean?[PRICE]

Oil and Gas Journal, 1971 MAY 10?

ARTICLE : FICTION & FACTS?[PRICE]

Oil and Gas Journal, 1971 MAY 10

ARTICLE : U.S. energy needs confound forecaster?[CAP-PROD] [DEMAND] [IMPORT] [PRICE]

Oil and Gas Journal, 1971 MAY 10

ARTICLE : U.S. crude price may hit $4.50/bbl by 1980?[PRICE]

Oil and Gas Journal, 1971 MAY 31

EDITORIAL : Short-term outlook fuzzy for world oil production?[DEMAND]

Oil and Gas Journal, 1971 MAY 31

EDITORIAL : Strategic oil reserve to become political issue?[CAP-PROD]

Oil and Gas Journal, 1971 JUNE 7

EDITORIAL : Decline of spare capacities in production, refining ominous?[CAP-PROD]

Oil and Gas Journal, 1971 JUNE 21

EDITORIAL : Big question : Can U.S. afford imported oil ??[IMPORT]

Oil and Gas Journal, 1971 JUNE 21

ARTICLE : World oil industry licks its wounds, plans ahead?[DEMAND][PRICE] [PART-NAT]

Oil and Gas Journal, 1971 JULY 12

EDITORIAL : More headaches for international oil?[PART-NAT]

Oil and Gas Journal, 1971 JULY 12

ARTICLE : Louisiana leads oil productivity drop?[CAP-PROD]

Oil and Gas Journal, 1971 JULY 26

EDITORIAL : Participation Day … it’s coming?[PART-NAT]

---------------------------------------------------------------

Oil and Gas Journal, 1970 NOVEMBER 9??[PRICE][IMPORT]

EDITORIAL : It’s poor policy to restrict growth of petroleum at home

?(…) The lure of low-cost foreign crude is certainly waning, and the days of cheap energy are gone everywhere. The folly of depending on foreign supply also is too apparent for even the worst die-hard to ignore. Such dependency weakens the American economy and undermines the U.S. posture as a world power.

(…) It’s up to oilmen to guard against losing their exploration incentives. (…)

Oil and Gas Journal, 1970 NOVEMBER 16 [CAP-PROD] [PRICE]?

EDITORIAL : Higher prices the only road to stepped-up drilling in U.S.

HIGHER PRICES for crude, natural gas and products still remain the most effective incentives for petroleum growth.

They may in fact be the only practical incentives left – or at least the only one the industry can do anything about.

This makes it imperative that all segment of the industry face facts immediately, as the initial moves to increase crude prices take place and as the FPC faces decisions to raise gas prices. These actions deserve wide support.

LOOK at the record. It shows clearly the domestic oil and gas industry badly needs incentives to push it off dead center.

Drilling activity has hit a long-time low. Given the present economic circumstances, there’s slight prospect for any radical upturn.

The industry’s spare producibility has almost vanished, and reserves of both oil and gas approach the danger level.There’s too little being done to improve either of them.

Company earnings on domestic operations have been steadily declining for 2 years – profits for the independents have been sick even longer.

(…) The volume of reserves in presently discovered fields and the producibility of presently drilled wells quickly could be increased immeasurably with higher crude prices.?

Oil and Gas Journal, 1970 NOVEMBER 23??[PRICE]

ARTICLE : Price hikes spread to Nigeria, Kuwait

NIGERIA and Kuwait are the latest to join the world parade of oil-producing countries winning boosts in crude prices.

Nigerian crude goes up 25c/bbl retroactive to Sept. 1. Kuwait crude-oil postings were increased 9c/bbl as of Nov. 14.

Libya, Iraq, and Iran already have won price hikes from foreign oil producers, and Saudi Arabia is expected to do the same shortly.

In fact, Indonesia appears to be about the only big world producer not pushing hard at the moment for higher oil prices. (…)

Oil and Gas Journal, 1971 JANUARY 4 [PRICE]?

ARTICLE : OPEC working for even bigger share

THE Organization of Petroleum Exporting Countries (OPEC) has set its sight on slicing deeper into the earnings of international oil companies operating in those producing nations.

An across-the-board increase in posted crude prices and a new 58% minimum income tax on oil-company profits were agreed on by the 21st?General Conference of OPEC in mid-December in Caracas, Venezuela.

(..) Persian Gulf oil producers already are called to a special meeting in Teheran early this month to talk to a regional OPEC committee comprised of officials of Persian Gulf exporters Iran, Iraq, and Saudi Arabia. The three will represent themselves and Abu Dhabi, Iraq, Kuwait, and Qatar.

Another regional committee will represent Mediterranean exporters Saudi Arabia, Iraq, Algeria, and Libya. And a third committee will represent Venezuela and Indonesia.

Two weeks after the Teheran meeting, the OPEC announcement said, an “extraordinary” conference session is to take place “to evaluate the results of the committee’s and the individual companies’ negotiations.

“In case such negotiations fail to achieve their purpose, the conference shall determine and set forth a procedure with a view to enforcing and achieving the objectives as outlined in this resolution through a concerted and simultaneous action by all member countries.”

Resolution XXI 120. (…)

Oil and Gas Journal, 1971 JANUARY 4 [DEMAND]

Newsletter pages : US oil consumption

U.S. oil consumption this year will rise more than 5% … and the rate will continue to 1975

This forecast by Otto N. Miller, chairman of the board of Standard Oil of California, also sees daily demand climbing to more than 19 million b/d by 1975. (…)

Oil and Gas Journal, 1971 JANUARY 4 [CAP-PROD]

ARTICLE : Where Texas’ shrunken crude cushion is located?

CARLOS BYARS - Southwest Editor

TEXAS has little spare producing capacity.?And the little there is will have a tough time getting quickly to market in event of a big further jump in demand.

Just how much excess capacity the state does have – and its availability- is both a matter of concern and dispute by an assortment of industry groups, national and state governmental bodies and agencies.

In an effort to pin down this elusive figure, and distribute it among state fields, the Journal interviewed companies and individuals knowledgeable about a host of Texas fields.

The list of fields chosen is considered to be inclusive, not exclusive. A number of these – indeed the majority – appear to have little or no capacity to produce above current allowable levels. However, all fields with the possibility of yielding significantly greater output are believed to be on the list.

The Journal list of fields was crosschecked as closely as possible with companies and agencies engaged in similar studies – in particular with the Dallas office of the Bureau of Mines. While the bureau’s roster was more inclusive, it did list all of the fields covered in the Journal survey.

Interviews were conducted with the object of determining how the fields were performing at current allowables, and what their performances might be at 100% market-demand factor. In addition, assessments of problems also were sought – in particular casinghead-gas production, salt-water disposal, and pipeline bottlenecks.

Problems. The most persistent problem in the field surveyed is excessive casinghead-gas production – a situation pointed out most forcefully when the Texas Railroad Commission temporarily chopped back production in 282 fields early in October in a drive to prevent flaring. Nine of the surveyed fields were affected by the order although it is possible that some of them were not contributing to the problem. (The TRC cut the allowable for all fields served by an overloaded gas plant. Where a casinghead-gas plant was connected to more than one reservoir, allowables for all the reservoirs were reduced equally.)

Many of these situations were rectified by addition of rented compressors and in other cases additional permanent compression was either being installed or planned.

In some fields it was enough to closely schedule production so as to make the most of available plant capacity.

Problems with handling salt-water production were cited as limiting production in six fields surveyed, but in virtually all cases these situations can be eliminated fairly rapidly by drilling additional disposal wells and adding new water-handling facilities.

The inference then is that salt water will be of little consequence as a limiting factor on Texas production beyond the short term.

Pipeline capacity, or lack of it, is cited as a restricting factor in six fields but here again work was under way in some areas to remove the bottlenecks.

General findings. An overall look at the state indicates that there is virtually no surplus capacity above present allowables in the large areas known as West Central, Central, and North Texas.

The surveyed fields generally are found in East Texas, the Gulf Coast, and West Texas. A breakdown shows three in TRC Dist. 2, five in Dist. 3, one each in Districts 4 and 5, four in Dist.6 (including the East Texas field), one in Dist. 7B, three in Dist. 8A Districts 1, 7C, 9, and 10 have none.

Only 10 emerged as solid candidates to have husky amounts of excess capacity. There are a couple of others which ultimately may join this group – and a couple conceivably could turn up short when “wide open” time comes.

These leading contenders, ranked in no particular order, are : Conroe, Webster, Tom O’Connor 5900, West Hastings, East Texas, Yates, Hawkins, Wason, Sacroc, and Neches.

Here’s a look at these and other fields, their potential and problems.

(…) Dist. 2 (…) Dist.3 (…) Dist. 4 (…) Dist 5 (…) Dist. 6 (…) Dist. 7B (…) Dist. 8 (…) Dist . 8A (…)

(…)

This, then, is how some of the biggest and best fields in the state stack up. And while the comments of field operators hardly add up to conclusive evidence, they certainly indicate that the excess capacity remaining in Texas is a much smaller volume than generally recognized.

For the state as a whole, the production outlook is grim. During December the TRC forecast that the state would produce 3,425,000 b/d at a market-demand factor of 83,5%. By projecting the TRC’s own chart relating market-demand factors to anticipated productions, it appears that December output will prove out at only 143,000 b/d below expected production at 100%.

If the form chart still holds true when the state hits 100% - and some sources see this coming early this spring- most of what is excess now will have been thrown into the pot.

But even then there will be a little left. The pessimists, and they appear to be in the majority, put the figure at about 200,000 b/d. And here is where they find it : East Texas, Yates, Wasson, West Hastings, Claytonville, and Sacroc. There may be more but, if so, it is well hidden.

Oil and Gas Journal, 1971 JANUARY 18

EDITORIAL : International oil beset on every side?[PRICE][PART-NAT]

FRANCK GARDNER - International Editor

Recent Libyan settlement appears to have been deciding factor in “new look” for international oil. Venezuela talks gas nationalization, Algeria still pushing French, OPEC aggressive, and Libya back for another share of pie.

Dark clouds settled over the international oil industry last week, as it fended off attacks and threats from nearly every quarter. And the situation threatened to become worse before it gets better.

In North Africa, Libya was making new demands on its oil operators and engaging them in new rounds of price talks. Algeria, in its negotiations with the French, nevertheless persisted in new demands as recriminations came from both sides.

In Venezuela, a system of timetables was set forth for establishing a new tax-reference price for crude exports, and President Caldera, in his first speech of the year to congress, revealed plans for nationalization of the natural-gas industry there.

In the Persian Gulf, talks between officials of the Organization of Petroleum Exporting Countries (OPEC) and oil-company representatives adjourned after only 2 days of debate over tax and price boosts for OPEC countries.

The whirlwind pace of events put the much-touted flexibility of the major oil companies to a grueling test, as it pitted itself against a newly confident and aggressive OPEC.

The Libyans startled industry people there by summoning them to a sudden meeting for presentation of the government’s demands, and exactly a week later, calling in the first two operators – Occidental and Nelson Bunker Hunt- for individual negotiations.

The Teheran talks started only 2 weeks after disclosure of the OPEC resolutions in Caracas.

And Venezuela wasted no time in pursuing its new reference prices in the wake of its late December boost in oil-profits taxes from 52% to 60%.

Several important factors underlie the “new look” in international oil.

For one thing, the producer governments, following the industry’s surrender to the Libyan authorities last fall, now not only realize the full extent of their power but are confident they can exercise it. They (OPEC members) control 56% of the free world’s oil output, 90% of its crude exports, and 77% of its reserves.

There’s also a new spirit of unity among OPEC members that accompanies the realization of power. In its earlier days, the organization suffered from jealousy and competition among some of its members. That weakness has not totally evaporated, but it has largely been replaced by the feeling of togetherness that exhibits itself today. Along with power and unity, OPEC now has, since the Libyan surrender, a new awareness of the vulnerability of the international oil companies, large and small.

(…) Persian Gulf hearings. In the Gulf region, two more Arab countries – Saudi Arabia and Abu Dhabi- hiked their tax rates to 55% to enlarge the circle of Persian Gulf countries already in the 55% club.

Across the gulf, the first OPEC committee meeting called for by the Caracas conference in December got under way at Teheran, exactly on schedule 2 weeks after the Caracas resolutions were published. Purpose of the meeting is to negotiate higher postings for gulf crudes.

Just what the governments – Iran, Iraq, and Saudi Arabia- asked of the companies was not revealed. But industry sources said the 2-day session ended temporarily after the government representative presented their demands. “They just want to find out what the OPEC members wanted,” said one.

But the committee has only 1 week to report on its progress to the OPEC secretary general. So some results should become available this week. Then, within 15 days, an extraordinary meeting of OPEC will convene to discuss a plan of action against the companies.

What that action might be is what has international oil deeply worried these days. Some sources fear unilateral cutoff of shipments from OPEC ports, but such a drastic move was discounted in most oil circles.

Oil and Gas Journal, 1971 JANUARY 18

ARTICLE :?U.S. Supply losing race to demand?[CAP-PROD][DEMAND]

API reports record domestic demand and production last year – and a 22-year-low mark in drilling. Crude output rose 4.8% to 9.1 million b/d, while demand jumped 4.9% to 14.8 million b/d. Refinery runs were up 2.4%.

THE U.S. faces a potentially serious gap between the rapidly growing demand for petroleum energy and diminishing level of secure, proved reserves to meet that demand.

This warning came from the American Petroleum Institute as it reported record demand and production while drilling hit a 22-year low in 1970.

(…)

Oil and Gas Journal, 1971 JANUARY 25

EDITORIAL : OPEC’s pressure tactics are clear warning to U.S.?[PRICE]

THE OIL PRICE talks in Tehran between OPEC and the group of 14 oil companies carry an ominous note for consumers throughout the free world. The message is even more pointed for political leaders in this country.

The talks mark the emergence of OPEC as a formidable international cartel dedicated to fixing prices by controlling supply. Since the nations represented in OPEC control a major part of free world petroleum resources, this gives the cartel a potential economic death grip over consuming nations. This real threat to security of energy supply for the free world easily could develop into an intolerable position. (…)

IMPLICATIONS for the U.S. are even more clear.

It’s growing more dangerous than ever to rely on imported oil.?

(…) A domestic petroleum reserve is the only answer for these threats. And in view of what’s happening, the current objections to the Alaskan pipeline, opposition to offshore drilling, demands for higher petroleum taxes, clamor against higher oil and gas prices at home – are virtually suicidal. It’s time our leaders realized they must remove the restraints on petroleum exploration. And they must reexamine incentives that will renew the hunt for new reserves.

The days of cheap foreign oil are over ; OPEC is dedicated to getting ever-higher prices. But the security of domestic oil will make it cheap at nearly any price.

Oil and Gas Journal, 1971 JANUARY 25

ARTICLE : OPEC faced with collective bargaining?[PRICE]

?(…)?Finally, if no agreement is reached, does the world face a unilateral cutoff of most of its oil supply ? That’s the question that had the industry whistling in the dark last week. The answer should come this week, and most industry observers are placing their bets on the “No” side.

Only one thing is for sure. Petroleum products worldwide are going to carry higher price tags, and consumer-country governments are now well aware of this.

Oil and Gas Journal, 1971 JANUARY 25

ARTICLE : Nixon moves to aid foreign oil talks?[IMPORT] [PRICE][CAP-PROD]

Besides sending State’s John Irwin to Mideast, U.S. joins major European consuming nations in push for an agreement. Also, new interagency task force is watchdogging developments. U.S. firms given antitrust clearance.

(…)?Meanwhile, the Interior Department has given the White House a report showing U.S. oil supply will be adequate in 1975, assuming imports continue to rise under the present program. But, according to the report, spare capacity will be gone.

(…)?But they were deeply disturbed by the militancy shown by Libya. Last year’s output slowdown in that country led to higher prices and a worldwide supply squeeze still being felt.

Members of the task force were working on the assumption that another curtailment is quite possible, even a shutdown of Libyan production.

(…) U.S. officials described the situation as potentially more serious than any yet faced by Western Europe and the U.S. since imported oil attained such a major role in their energy supply.?

Consuming countries are still paying the price of last year’s disruption of only 3% of world supply which skyrocketed spot tanker rates 250%. The loss of even a portion of Libya’s export would aggravate the situation.

U.S. officials didn’t rule out the possibility that any disruption by petroleum-exporting countries could result in widespread export boycotts. They cited the new appearance of unity in OPEC, making possible concerted action on an unprecedented scale. But officials considered that any showdown would be more likely to be with one or two countries. Most OPEC members are viewed in Washington as willing to compromise on terms acceptable to companies and consuming countries.

(…)?The U.S. – formerly Europe’s ace in the hole with its surplus productive capacity – can no longer perform this role, since the surplus no longer covers U.S. imports completely.

This facet was one of the reasons Washington reacted strongly to new unified price and tax demands of OPEC. It was the Libyan call for a bigger take, hard on the heels of last September’s tax and price increase, that activated the administration.

Without a long-term agreement, the White House sees an endless succession of similar demands, with individual companies unable to defend themselves- and their customers – from such whipsawing.

Future U.S. supply. This uncertain prospect is unacceptable to Washington, considering the fact that imports are expected to comprise a steadily rising share of U.S. supply.

But most of the increase projected in the next 5 years will come from the Western Hemisphere – mainly Canada. A new study by the Department of Interior is understood to project an increase in crude imports to 2.3 million b/d in 1975. Of this total, 1.5 million b/d would come from Canada, 50,000 from Mexico, 500,000 b/d from other Western Hemisphere – mainly Venezuela – and 450,000 b/d from Eastern Hemisphere. The volume from Canada might be less, depending on the oil available from the North Slope of Alaska.

Interior reportedly has told the White House energy study committee that U.S. crude and condensate production in 1975 will be 11.2 million b/d, an increase of 1.7 million b/d over 1970.?That includes 10.5 million b/d from continental U.S., 500,000 b/d from the North Slope, and 200,000 b/d from the rest of Alaska. Production of natural-gas liquids is estimated at 1.9 million b/d, only 200,000 b/d above last year’s level – giving total liquids production of 13.1 million b/d in 1975.

However, before that point, excess capacity will have vanished – in 1973 or 1974, say Interior experts.

That raises the question of what to do about backup supply, which is one of the main issue before the White House group – especially in view of present uncertainties over imports.

Oil and Gas Journal, 1971 JANUARY 25

ARTICLE : 1971 FORECAST/REVIEW?[CAP-PROD] [DEMAND] [IMPORT] [PRICE]

Strong demand keeps petroleum prospects bright

Industry looks for gains in 1971

(…) The outlook for 1971 on the supply side :

-???????Crude production will increase slightly to 9,683,000 b/d, a gain of 0,7% over the 9,616,000 b/d average for 1970

-???????Natural-gas liquids should average 1,731,000, a 4.3% gain over the 1,660,000 b/d produced in 1970.

(…) Supply picture. The expected shortage of petroleum supplies for the 1971 winter failed to develop because both domestic producers and refiners called on spare capacity to meet the crisis.

A worldwide tanker shortage plus production cutbacks in some areas created the shortfall in foreign supplies. These international conditions likely will prevail at least through the first half of the year.

Imported crude, however, is expected to regain its position in the U.S. supply picture and will pick up the major part of the demand increase. Crude imports will increase 30.7% to average 1,718,000 b/d. Product imports will grow 10.3% to 2,304,000 b/d with residual fuel representing the bulk of this traffic.

Domestic oil producers will share in very little of the increased demand. Their output will average 9,683,000 b/d, about a standoff with the 9,616,000 b/d production last year. Output of natural-gas liquids will increase 4.3% to 1,731,000 b/d, reflecting the continued high demand for natural gas.

The crude production picture in 1970 was not too encouraging. Although production enjoyed a 4% increase, only a few areas were able to meet this demand.

Production in Texas was stepped up by 7.9% to 3,404,000 b/d, and Louisiana output gained by 7.5% to 2,404,000 b/d. Wyoming had a 2.4% increase to 434,000 b/d while smaller volume increases were reported for Mississipi and Alaska.

Production in all other oil regions either declined or held steady. District II output declined by 3.7% to 1,169,000 b/d. District III Mountain area dipped 2% to 672,000 b/d. District III reported the only significant gain, a 6.9% increase to 6,488,000 b/d [sic!] District V produced 1.5% more averaging 1,256,000 b/d, due mainly to higher output in Alaska and the California coastal region.

Meanwhile, Canada and Venezuela continued to be this country’s top sources of imported crude. (…)

Oil and Gas Journal, 1971 FEBRUARY 15

Newsletter : Nationalization fever spreads …?[PART/NAT]

In addition to Venezuela’s pending action to take over natural-gas production (see p.40), there are outbreaks in Ecuador, Kuwait, and Pakistan.

Oil and Gas Journal, 1971 FEBRUARY 15

ARTICLE : Global oil flow hit new high in 1970?[DEMAND]

Despite major obstacles, production averaged 45.4 million b/d, up 9.5% over 1969. Free-world output was up 10% to 37.8 million b/d while Red Bloc rose 7% to 7.6 million. U.S. climbed 4.5%, Russia 7.5%.

WORLD oil producers took a severe economic and political buffeting throughout 1970. Even so, they managed to produce more crude oil than ever before in history.

Oil and Gas Journal, 1971 FEBRUARY 22

ARTICLE : Persian Gulf now has taken oil reins?[PRICE] [IMPORT]

(…) After a month of hard bargaining on both sides, a 5-year agreement was signed in Tehran on Feb. 14. Thus the companies skirted unilateral legislation of prices by the governments of the gulf countries – Abu Dhabi, Kuwait, Qatar, Saudi Arabia, Iraq, and Iran – and a threatened embargo of supplies had they failed to buckle under to the suggested new law.

The surrender, however, was not total. The companies won the 5 years of price stability in the gulf area that they demanded – with guarantees against either further price whipsawing or cutoff of supplies. (…)

Terms stiff. In return for those assurances, the gulf states got almost everything they’d been demanding of the companies. (…)

The dark side. So much for the gains. Who loses ?

The oil companies, of course, in profit margins. But some or all of that may be regained in higher product prices.

Government of consuming countries will suffer cuts, some of them deep, in foreign exchange balances.?Britain figures on a cut of at least $240 million, which may rise to $500 million in 1975. Italy can count on a $200 million minimum loss,?while the U.S. may be affected to the tune of about $250 million.?(…)?

Some effects. The Tehran agreement will have widespread repercussions, some of them already in evidence.

West Europe will turn its eyes to Russia as a source of crude as well as natural gas. Some evidence of this came to light in Britain (OGJ Newsletter, Feb. 15) a fortnight ago, when Russian-owner Nafta was authorized to import 30,000 b/d of Russian oil into England.

West Germany also is looking east. Russian pipelines in Czechoslovakia terminate near the eastern border of Bavaria, and oil-hungry Germany eyes that possibility.

Problem : Russia doesn’t have the crude. Possible solution : Oil-hungry Japan make a deal to help develop the Siberian oil fields in return for Russian oil.

(…)

Oil and Gas Journal, 1971 FEBRUARY 22

EDITORIAL - More drilling is still key to solving energy crisis?[IMPORT] [PRICE]

At least for the decade of the 70’s, the trends now point to an increasing and ever-more-costly dependence on imported oil and gas to fill the energy gap. This will put the nation’s economic and military security at the mercy of future OPEC-type negotiations. Can anyone in Washington now honestly doubt what oilmen have been warning for years – that foreign oil is cheap only so long as you don’t need it ??(…)

Oil and Gas Journal, 1971 FEBRUARY 22

EDITORIAL : Tough bargaining in Libya?[IMPORT] [PRICE][PART-NAT]

WATCHING THE WORLD - FRANK J. GARDNER

IN LIBYA, oil-company negotiators face a man who has publicly avowed that he is out to “hurt” the oil companies in an effort to make them bring pressure on the U.S. State Department to change its policy toward Israel.

Deputy Premier Jallud promises negotiation sessions in Tripoli will be “difficult and prolonged”.

(…) Asked about nationalization, Jallud declared that this was “not being considered.” Instead, “we shall exercise active control.” He added that “we are aiming at direct contact between producing country and consuming country.” (…)

Oil and Gas Journal, 1971 March 1

EDITORIAL : Tehran price agreement best compromise possible?[PRICE]

THE TEHRAN PRICE agreement has been described variously as a surrender by the western companies, as a victory for a producing-country cartel, and as a costly burden on worldwide oil customers.

It may be all of these. (…)

THE CHIEF GAIN from the settlement was 5 years of stability for the international industry. The chief question now : Is the price for this stability too high ?

On balance, the answer is “no.” It appears fair both for producers and consumers. It also appears the best compromise possible for the Persian Gulf area and should provide a calming precedent for a similar settlement in Libya and Algeria as well. (…)

The lessons for everyone are apparent.

Producing countries have an incentive to enforce the agreements, insuring that higher increases are not sought by their members. They face the possibility, if they overreach on prices, that their oil may be priced out of the energy competition.

Consuming countries have an incentive to start exploring for new energy sources or to step up their development of alternate sources within or near their own territories. Domestic reserves now are more precious than ever.

And both producers and consumers have a stake in keeping oil companies healthy as viable middlemen in the complex logistics of supply, demand, transport and marketing – something they still can’t do for themselves.

Oil and Gas Journal, 1971 March 8

ARTICLE : Average cost of tankering oil up 40-50% in a year?[PRICE]

(…) Assuming Tapline stays on stream and the Suez Canal opens sometime in 1971, Internaft draws these conclusions :

(…) At a constant 15% growth in ship demand, the position looks to be one of “acceptable” 1972 surplus followed by a balance in 1973.

At a “top-end” assumption of a 17?% /year demand growth, tonnage could be short as early as mid-1972.

Internaft cautions that such speculation is tricky, but it notes that it is betting on a growth rate of not much -if at all- lower than 15% /year.?

What’s clear, however, tanker executives note, is that there are some higher costs which have been built into the system for at least 3 years. And even though average and spot rates decline on a month-to-month basis, it’s going to continue to cost the industry more than in the past to move its oil.

If there are more severe supply disruptions in the Mideast and North Africa, no one dares predict how high the cost of tinkering oil might go.

Oil and Gas Journal, 1971 March 8

NEWSLETTER : World crude-oil production in January shattered records, with global Middle East producing countries scaling all heights.?[IMPORT]

Global output soared 10.4% over January 1970, or 4,589,100 b/d, to a high of 48,401,900 b/d. The free world … excluding the U.S. … passed for the first time the 30-million-b/d mark with 30,598,000 b/d. U.S. output was a record 10,010,000.

The Mideast soared to 15,815,000 b/d, up 19,6% or 2,593,100 b/d over January 1970. That area’s record breakers … Iran 4,2000,000 b/d, Saudi Arabia 3,997,000, Kuwait 3,077,000, Iraq 1,831,000, and Neutral Zone 620,000.

Libya slipped 12% to 3,165,000 b/d, or 432,000 less than its peak a year ago. But Algeria and Nigeria set new highs of 1,060,000 b/d and 1,403,000 b/d respectively. (…)

Oil and Gas Journal, 1971 March 8

EDITORIAL The energy crisis – two views from Washington?[PRICE][IMPORT]

WATCHING WASHINGTON - GENE KINNEY

(…) Meanwhile, the White House churns merrily toward conclusion of its review of energy prospects and policies for the next 5 years. The predictable conclusion : With some increase in natural-gas prices and fairly stable oil and coal prices, the U.S. can meet needs to 1975 without greater proportionate reliance on foreign sources. But in the process, the U.S. will have lost all its spare productive capacity. It will have to look to other foreign sources, not domestic producers for backup if imports are interrupted. (…)

Oil and Gas Journal, 1971 March 8

ARTICLE : Tremendous consumption seen to 1990?[DEMAND]

By 1990, demand will have eaten up almost all free world’s present oil reserves, AIME told. And if this skyrocketing energy consumption is to be met, industry, public, and agencies must exert a concerted commitment.

(…) And, he adds, the U.S. is expected to consume 150 billion bbl of that amount, though present U.S. reserves including Alaska are estimated at only 50 billion bbl.?

(…) Glenn considers prospects for natural-gas discoveries “very good” but expects most of the gas to be found outside the U.S., mainly in the Far East and Africa. Transportation of the gas to major demand centers in Europe, the U.S. and Japan will be one of the major problems, he added.

Oil and Gas Journal, 1971 March 15

ARTICLE : Utilities gobbled startling 32.3% more oil in 1970?[DEMAND]

CONSUMPTION of fuel oil by electric utilities last year soared 32.3% to 332,104,000 bbl, the Federal Power Commission reported last week.

Consumption of natural gas increased 11.7% to 3.894 trillion cu ft, while coal use rose only 3.8% to 310,641,000 tons. The increases tailed off in December with consumption of oil rising 26.5% to 35,048,000 bbl but gas increasing only 3.9% to 252.3 billion cu ft and coal only 1.8% to 29,640,000 tons.

Overall fuel consumption by utilities rose 11.2% for the year and 7.3% for the month. Fuel expenses, however, increased 24.3%, the FPC reported. Sales of electric power to ultimate consumers advanced 6.3%. (…)

Oil and Gas Journal, 1971 March 15

ARTICLE : Libya easing tough oil-price stance ??[PRICE]

Government extends deadline with negotiating companies 3 days to Mar. 13, as oilmen stick to “solid-front” tactics. Venezuela hikes average posted crude price to $2.555 from $2.01. French stiffen Algerian stand.

(…) A new twist was leaked from the negotiating table, however. Tripoli sources said that until the deadline time, all offers and counter-offers had been delivered orally, and under extreme secrecy, as requested by the Libyans. But at midweek, the Libyan oil officials asked that the companies submit their offer in writing – a hopeful sign that an agreement isn’t out of the question.

Failing such agreement, the Libyans have threatened “drastic action” against the oil companies, supported by the other Mediterranean oil exporters – Iraq, Saudi Arabia, and Algeria. (…)

Venezuela squeeze. As promised, Venezuela lowered the boom on oil companies there on Mar. 8. The government used the power conferred upon it last December, when profits taxes were boosted to 60% from 52%, to set unilaterally a new pattern of tax-reference prices.?

The overall impact on the companies would come to about $500 million/year and hike the government’s total take to 90% on every export barrel. The increase brings the average Venezuelan crude to $2.555/bbl, up from $2.01.

(…) The new Venezuelan prices will hold for only 9 months from Mar. 18 – after which the government apparently would feel free to raise them again.

(…) Venezuela exports more than 1.5 million b/d of oil and products (largely residual fuel) to the U.S. East Coast. The producing companies may contest the arbitrary Venezuelan action. Or they may seek to pass along the price jumps to the consuming countries, as they have with the increase in the Persian Gulf. (…)

Oil and Gas Journal, 1971 March 22

ARTICLE : US to consume 5% more oil this year?[CAP-PROD] [DEMAND]

That’s the composite forecast by companies reporting to the Texas Railroad Commission at its annual March hearing. Their predictions range from 4.5-5.6%. But imports will grab off most of the increase.

(…) Allowable to soar. The possibility of a 100% market demand factor in Texas this year was held out by B.G. Crocker of American Petrofina Co. of Texas (…)

Oil and Gas Journal, 1971 March 22

ARTICLE : Venezuela confirms gas nationalization?[PART/NAT][DEMAND][IMPORT]

IN A milder tone than expected, Venezuelan Pres. Rafael Caldera last week carried out his promise of earlier this year, when he told Congress on Mar. 11 that the government was nationalizing the country’s natural-gas reserves.

(..) The president did make it quite clear that the government would exercise a monopoly on the export of natural gas.

(…) Dr. C.F. Jones, vice-chairman of Humble, said demand for gas will be up 4% this year – and the figure would be even higher if more supply were available.

Jones also predicted that domestic production will remain stable, with the increased demand being supplied by higher imports.

Oil and Gas Journal, 1971 March 29

NEWS PAGES?[IMPORT]

U.S. imports of crude oil are expected to reach 1,440,000 b/d in April,

Climbing steadily from levels of 1,120,000 b/d, 1,323,000 and 1,410,000 the first three months, says the Bureau of Mines. (…)

Oil and Gas Journal, 1971 APRIL 04

ARTICLE : Shipyards bustling with tanker orders?[PRICE][DEMAND]

(…) In terms of deadweight tonnage the world fleet grew 14.8% during 1970, compared with 13.2% in 1969. (…)

Outlook. The schedule for deliveries for 1971 is almost identical to that for 1970, Jacobs reports.

There are 166 ships totaling 21.9 million dwt scheduled for delivery this year.

But it appears 1972 could be a year for few deliveries, the report adds. At present only 108 ships are on the books at 15.8 million dwt.

For 1973, orders total only 95 so far but add up to almost 18 million dwt. And Jacobs says it is likely 1973 will see deliveries as high as 20 million by the time that year rolls around.

The reason for the 1972 recession seems to be related to an anticipated upsurge of completions in that year of both combined carriers and other tonnage such as container vessels, Jacobs comments. (…)

Growth forecasts. During the last 3 years the annual growth rates of tanker use in the oil trade has grown at the rate of 15.3%, 13.3 and 14.0%, respectively. Looking to the future, rather than projecting these annual growth rates on historical use, Jacobs estimates the forward growth of annual tanker availability, incorporating the new construction scheduled for completion each year and allowing for a maximum availability of 75% of the combined carrier fleet.

With an allowance for slippage in deliveries from year to year and minimal scrapping, Jacobs predicts that the tanker availability will grow 15.5% in 1971; 13.2% in 1972 ; and 12,5% in 1973.

This indicates a likely scarcity of tonnage, the report says. Given no drastic alteration in the percentages of tankers employed in the various trade routes and no re-opening of the Suez, the anticipated drop in scheduled deliveries of new vessels in 1972 must be expected to strengthen the medium term outlook for the charter business when projected against booming demand for crude oil in consuming countries. (…)

Oil and Gas Journal, 1971 APRIL 12

EDITORIAL : Libyan oil agreement makes big waves?[PRICE]

FRANK J. GARDNER?

Price-tax agreement – pointing toward new hikes in product prices – boosts permanent posted prices by 64.7c/bbl and adds 25c as temporary freight premium for total boost of 89.7c. Price for 40° now $3.447.

OIL-consuming countries of Western Europe girded last week for new hikes in product prices in the wake of the hard-fought Libyan price-tax agreement. But they could take some cold comfort in the fact that had the oil companies not put up a stiff fight in Tripoli, those hikes might have been much heftier.

The Tripoli talks were probably the longest, hardest, and most acrimonious in the history of international oil. But they ended in a pact that embodied concessions by both parties.

The Libyan Government, completely confident of its bargaining power, had approached the negotiations in an inflexible manner that gradually relaxed as the talks dragged on for nearly 6 weeks. The companies, in the face of threats of embargo, stiffened their stance while slowly making new financial concessions.

The factor most responsible for the relaxation of the original “nonnegotiable” Libyan demands was probably the realization that Libya was negotiating not just for itself, but for all Mediterranean producers. If the government had succeeded in forcing demands on the companies that other OPEC countries considered unreasonable, they were under no?obligation to support Libya. This, too, played a part in the denouement.

Terms are stiff. The final agreement is a notable victory for the Libyans, however it is viewed. It raises the permanent posted price by 64.7c/bbl, and tacks on another 25c as a temporary freight premium, for an immediate boost of 89.7c/bbl. This brings the price for 40° Libyan crude from the current $2.55 to $3.447 … not bad for an Arab country that prior to the September 1969 revolution was demanding a 10c/bbl increase.

A year ago, Libyan crude was posted at $2.23. The new posting, therefore, represents a boost of 54.6%. This includes, of course, the 30c increase of last fall and the 2c escalation on Jan. 1. The current increase, from $2.55/bbl to $3.447, is in itself a 35.2% jump. The new terms are retroactive to Mar. 20.

The 64.7c permanent rise in the posted price includes the 35c achieved at Tehran, plus a flat 17c arbitrary increase, plus a 12.7c escalation premium agreed on at Tehran to take effect on June 1. The Libyans advance the escalation to take immediate effect, however, and will wait until Jan. 1, 1972 for the next escalation premium. The premium includes a flat 5c/bbl increase and a 2.5% increase to cover inflation.

The agreement calls for a 55% tax base for all the oil companies operating in Libya, except Occidental, who will pay 60% because of a provision in its contract to commit 5% of its profits before taxes to agricultural project in Libya.

The agreement, which carries a 5-year guarantee, calls for additional escalation premiums of 5c/bbl plus 2.5% to take effect on Jan. 1 of 1972, 1973, 1974, and 1975. This means that by Jan. 1, 1975, the posted price will have reached $3.80 or so, if the Suez Canal remains closed until then.

Oil and Gas Journal, 1971 APRIL 19

EDITORIAL : Five years of stability ? Maybe.?[PRICE] [PART/NAT]

FRANK J. GARDNER

MOST analysts of international oil, in commenting on the recent Libyan and Persian Gulf settlements, point to the 5-year “guarantee” as one of the chief rewards to the oil companies.

But no oilman in his right mind can relax in the comforting belief that he’s safe home for the next 5 years.

The hazards to that “guarantee”, which Libyan authorities fought right down to the line, are legion. Who, 5 years ago, could have forecast the Arab-Israeli war, the Nigerian civil war, the Algerian nationalizations, the Iraqi coup, the Oman take-over, or the Libyan revolution ?

The next 5 years is fraught with dangers apparent – the growing Russian influence in North Africa and the Middle East, the trend toward nationalization there, the growing power of government oil companies in all OPEC states, the continuing danger of another war, the threat of new coup d’etats in the Persian Gulf states following the British withdrawal, and OPEC itself.

WHO, 5 years ago, could have foreseen the increasing militancy of OPEC, and its solidification into the biggest, most powerful oil cartel in history, controlling 57% of free world output and 85% of its reserves ?

With the victories at Tehran and Tripoli under its belt, OPEC now will be emboldened to press anew for gains of another stripe.

The recent agreements dealt only with prices and taxes.??They in no way affect the ultimate goals of OPEC yet unachieved.

Briefly put, they call for direct development of oil reserves by the governments involved, either alone or with foreign partners, and for “the greatest measure possible of participation in and control over all aspects of operations”. They further state that contracts “shall be open to revision at predetermined intervals, as justified by changing circumstances.”

Most striking of the resolution, however, read “Notwithstanding any guarantee of fiscal stability … the operator shall not have the right to obtain excessively high net earnings after taxes.”

And who decides what “excessively high” is, exactly ? Already Libyan officials have accused one operator of “making too much money.”

How much is too much ? “Changing circumstances” will decide that over the next 5 years.

Oil and Gas Journal, 1971 APRIL 27

EDITORIAL : Permanent gas shortage makes oil the fuel for all seasons?[DEMAND]

(…) It is destined to become a victim of the energy crisis, highlighted by a permanent gas shortage and the new concern for the environment. Fuel oil, starting this summer, will be in heavier demand nearly year around. (…)

Oil and Gas Journal, 1971 MAY 3

EDITORIAL : Playing dominoes in the Mediterranean?[PRICE]

FRANK J. GARDNER

THE MEDITERRANEAN oil arena was a real can of worms last week.

First off, the Iraqis dug in their heels and held out for a higher posted price for crude exports from the Kirkuk fields at the Mediterranean port of Tripoli, Lebanon, and Banias, Syria. Thus the last price negotiation were left on tenterhooks.

Iraq had let the Apr. 18 deadline pass without accepting Iraq Petroleum Co.’s offer – reportedly $3.21/bbl for 36°-gravity Grade 1 crude-and is standing firm on its demand for the 10c/bbl low-sulfur premium that was granted to Libya in the Tripoli agreement.

Not that Iraqi crudes are low-sulfur. They’re not. But Iraq contends that their “low-wax” properties entitle it to the 10c premium.

The Saudis, meanwhile, are said to have been more amenable to the price offer made by Aramco but are holding off signature until the Iraqis sign with IPC. And you can bet they’ll want that extra 10c/bbl if Iraq gets it.

Then, Libya will look askance at that situation. And the leap-frogging could start all over again.

ALL THE LIBYAN need is an excuse to obviate the Tripoli agreement. They’re already making noises about the “life” of the pact. Deputy Prime Minister Jallud threatened to abrogate it last week. “If the price of articles in Europe increases very much,” he said, “this would mean the agreements would not live.”

Jallud was referring to the 2? % inflation escalation clause that was written into the Tripoli agreement. “If the 2? % increase stated in the oil agreement is incompatible with a great increase in the price of articles in Europe, then this will have a bad effect,” he said.

Farther west along Mediterranean shores, the Franco-Algerian fuss took its most ominous turn last week when the French oil companies asked for a worldwide boycott on purchase of Algerian crudes (see p.61).

The French threatened to sue any purchaser of nationalized Algerian oil, and they could well make it stick.

If the French should succeed in chocking off Algerian crude exports, what then of Libya ? The two Arab countries have pledged their troth repeatedly. And Libya is in Algeria’s debt for the cutoff of Algerian LNG to Esso when Libya was badgering Esso for higher LNG prices at Marsa al Brega last year.

An Algerian shutdown by France could bring a Libyan shutdown by Jallud, followed by OPEC shutdowns, and an international oil industry that has basked for only 2? months in the hope for 5 years of peace could find itself in total chaos. Anyone for dominoes ?

Oil and Gas Journal, 1971 MAY 10?

ARTICLE : FICTION & FACTS?[PRICE]

THE FICTION :

“Liberalization of imports quotas is needed to reduce upward pressure on costs and prices. Oil import quotas ought to be enlarged. There are foreign policy considerations, but I sometimes think too much emphasis is put upon that with the purpose of protecting the domestic producers.”?

Dr. Arthur S. Burns, chairman of Federal Reserve Bank, quoted in Washington press reports, Mar. 10, 1971.

THE FACT :

Dr. Burns ignores the basic lesson of the recent Tehran-Tripoli price negotiations. Eastern Hemisphere producing countries there applied the toughest “upward pressure” in oil history to the price of crude.

Libyan crude, for example, was pushed up by 89.7 c/bbl to a $3.477/bbl posting. Earlier, Persian Gulf postings had been advanced by 35c/bbl. Indonesian crude by 51c and Venezuelan by an average 60c. Following Tripoli, Algeria unilaterally boosted its posted price by $1.52/bbl.

(…) Dr. Henry B. Steele, economic professor at the University of Houston, recently concluded a special study on import dependency and domestic oil prices. It clearly shows what trends to expect on imported oil.

(…)?Under the tight cartel of producing nations in the Middle east, and elsewhere, the odds certainly favor regular future attempts to escalate foreign crude prices. The posted price of Libyan and Algerian crudes now exceed the average U.S. posting ($3.417/bbl east of California). Price of foreign crude moving in international trade has been considerably lower than posting in the past. This margin is narrowing, though, and the likelihood is good that actual laid-down cost of foreign crude in a few years -even with normal tanker rates- will equal or exceed domestic crude. The producing-country cartel almost certainly will push to that goal.?(…)

Oil and Gas Journal, 1971 MAY 10

ARTICLE : U.S. energy needs confound forecaster?[CAP-PROD] [DEMAND] [IMPORT] [PRICE]

Requirement by 1985 will be 63 million b/d of oil equivalent, up 2 million b/d or 3% over forecast 1 year ago, Humble’s M.A. Wright tells API Production Division. Boost laid to ecology-protection rules.

IN LESS than 1 year, developments in national energy requirements have forced an upward revision of 3% in the 1985 energy forecast for the United States – or the energy equivalent of 2 million b/d.

Chairman M.A. Wright of Humble Oil & Refining Co. presented this startling new forecast last week at the API Division of production’s annual meeting in Los Angeles.

At the same time, Wright predicted a sharper decline in domestic oil and gas production than foreseen a year ago and a steeper rise in the amount of imports the nation will require by 1985.

With these developments, Wright called on the United States to formulate a policy that will treat energy supply as a single problem so that industry, Government, and the public can work to provide the U.S. “adequate, dependable, and clean energy supplies for the future.”

Wright’s energy remarks were reinforced in papers presented by Indiana Standard Chairman John Swearingen, Sen. Gordon Allott (R-Colo.), Humble’s J.C. Posgate, and Amoco Production Co.’s L.E. Elkins.

New estimate. Wright said Humble’s revised estimate of U.S. energy demand in 1985 places the figure at 134 quadrillion BTU, or 63 million b/d of oil equivalent, a 3% increase over last June’s estimate.

The reason for the change is two-fold :

1 An upward revision in the earlier estimate of electricity demand.

2 Some additional energy requirements resulting from environmental protection measures such as automotive emission control and fuel-gas scrubbing.

Crude. Domestic oil supply will peak at around 11.5 million b/d in the next 2 or 3 years and slowly decline thereafter. By 1985, domestic production will be 10.7 million, which is well below Humble’s estimate of late June.

Oil’s share of total demand will remain at about 44% in 1985, the same as today’s, but will double in volume. This means importing 60% of the crude, compared with last year estimate of slightly over 50% for 1985.

The reason for the increase in the estimate is threefold : Higher forecast in demand, a lowering of estimated gas supply, and a cut in anticipated domestic oil production.

The increase in imports takes on “added significance,” Wright warned, because, “after the next year or so, essentially all of the U.S. petroleum demand growth must be supplied from Eastern Hemisphere imports.”?(…)

Natural Gas. Humble has altered its forecast of 1985 gas supply by lowering it 10% - despite anticipated price increases.

“The outlook is clouded by continued poor exploratory experience (Alaska excepted), the rising real cost of exploration,and the trend toward smaller and less frequent offshore lease sales,” Wright said. (…)

Secure reserves. Plumping for secure reserves in the U.S., Posgate [Humble] said recent action by the OPEC countries to raise prices and taxes on their oil is “tangible proof that we can exercise control over neither supply nor price of foreign oil.”(…)

Oil and Gas Journal, 1971 MAY 10

ARTICLE : U.S. crude price may hit $4.50/bbl by 1980?[PRICE]

(…) “ “with all these upward pressures, my price forecast of a year ago must be drastically altered to a belief that U.S. crude oil prices will increase steadily during the 1970’s, possibly averaging 10c/bbl each year, reach $4/bbl long before 1980 and approaching $4.50 per barrel by then.””(…)

Oil and Gas Journal, 1971 MAY 31

EDITORIAL : Short-term outlook fuzzy for world oil production?[DEMAND]

LARRY AULDRIDGE - Asst. International Editor

WORLD-oil production, mounting a seemingly inexorable pace for years, racked up another all-time high – an average 48,412,900 b/d- in the first quarter.

And it likely will hold high in April, perhaps even surpassing the 1971 high point to date in March of 48.53 million b/d.

But don’t go away yet. This year from April on, industry forecasters find their crystal ball getting fuzzy.

Not for a long time have they been confronted with such a complex mix of factors which could affect world production – both stimulants and depressants. (…)

(…)

Oil and Gas Journal, 1971 MAY 31

EDITORIAL : Strategic oil reserve to become political issue?[CAP-PROD]

WATCHING WASHINGTON - GENNE KINNEY

THE United States has passed one milestone in its energy history and is fast approaching another.

The first occurred 4 years ago when total oil demand exceeded domestic productive capacity. Since the U.S. still possessed a sizeable cushion over and above the actual producing rate, that milestone was passed without much of a jolt.

Now we’re looking at the day, perhaps 2 years hence, when that cushion will be gone.?Not only will domestic self-sufficiency be no more than 75%, there will be no domestic backup should we lose any significant portion of the 25% of supply made up of imports.

This new situation poses a policy question of first importance. Should the U.S. create a strategic reserve to provide the supply security that once flowed automatically from surplus capacity ? If so, what form should it take ? (…)

Oil and Gas Journal, 1971 JUNE 7

EDITORIAL : Decline of spare capacities in production, refining ominous?[CAP-PROD]

THE ALARMING productive capacity report of the Independent Petroleum Association of America should convince any doubter that the petroleum industry must be encouraged soon to mount sweeping domestic expansion in both field and plant.

The IPAA report shows spare capacity for producing crude oil and natural-gas liquid is dangerously low. It placed producibility at a little above 12.5 million b/d – 10.8 million b/d for crude and 1.7 million b/d for gas liquids.

This means a margin above present average oil production of 1.07 million b/d, a very small spare capacity with which to meet sudden emergencies, considering current high volumes of demand. By comparison, the spare capacity was 2.48 million b/d in 1967 and averaged 2.6 million b/d in the 1957-67 decade, when demand was considered lower. (…)

Oil and Gas Journal, 1971 JUNE 21

EDITORIAL : Big question : Can U.S. afford imported oil ??[IMPORT]

IN A WORLD where OPEC has imposed its tight grip on oil supply, the American people have only one choice : develop their domestic reserves or lose their security of supply to foreign powers.

Economist John Emerson of Chase Manhattan Bank puts the choice for Americans and the prospects even more bluntly :

“They can require their Government to adopt policies forthwith which will permit the conversion of our vast untapped sources of energy producing fuels into useful output … or they can sit back and watch the control of this nation’s destiny pass into foreign hands as we become more and more dependent upon foreign countries for our principal sources of energy. (…)

Oil and Gas Journal, 1971 JUNE 21

ARTICLE : World oil industry licks its wounds, plans ahead?[DEMAND][PRICE] [PART/NAT]

International Editor - FRANK J. GARDNER

?“THE moment of truth has arrived for the consumer.” Unquote Sir David Barren, chairman of “Shell” Transport & Trading Co., Ltd., as he wound up a speech in London recently.

That short statement could well epitomize the turmoil that has beset international oil over the past 6 months.

For it is the consumer who must now accept the fact that the price of energy everywhere is going up. Most of that energy is supplied by oil, a commodity that has sold on world markets at bargain prices while the cost of nearly everything else pushed steadily upward.

With the last major negotiations successfully concluded in the eastern Mediterranean (OGJ, June 14, p. 44), the oil industry can pause to see where it’s been and where it’s headed.

About where it’s been, there’s little doubt. Over the past 6 to 9 months, it’s been through some of the most profound changes in its history. But those will pale beside the ones that lie ahead, as an oil-hungry world places ever-greater demands on it.

Most important change has been the shift from a buyer’s to a seller’s market – and intimately tied into that is the parallel shift of power from the international oil companies to the governments of the oil-producing countries.

The Organization of Petroleum Exporting Countries (OPEC) has emerged from the recent negotiating sessions as a powerful force, and one that must be reckoned with in all future oil matters in the free world.

At a seminar at the Northwestern University Transportation Center in March, M. A. Adelman, professor of economics at Massachusetts Institute of technology, said the power over oil has shifted dramatically to the OPEC countries, ending a 15-year buyer’s market. He predicted more government-to-government roles in the oil trade, eroding the buffer role of the oil companies.

The producing countries, Adelman said, control the supply, and the consuming countries have few alternatives. So taxes and prices may well be increased several times without reducing sales.?He predicted that the OPEC members will digest the recent increases and be back for more.

Whether one agrees with the Adelman’s predictions or not, he did issue one clear warning to the industry, and one that must be heeded.?“The genie,” he declared, “is out of the bottle. The producing countries have had great success using the weapon of a threatened concerted stoppage, and they can’t be expected to put it away.”

At the same seminar, Paul H. Frankel of London’s Petroleum Economics said that the target of the consuming countries will be to prevent the continued cornering of the market by a “water-tight oil-country cartel.” The free world ex. U.S., he said, must cope with a “perilous situation” and the only escape may be “a transfer of wealth to oil-exporting centers that is unprecedented in the history of commodity trade.”

Another speaker at the Marsh seminar, Egypt’s former oil minister Mahmoud Younes, predicted an increase in direct government-to-government dealings in oil. He also forecast an increase participation downstream by exporting countries. As of now, he said, none of the producing countries is prepared to completely run its own oil business. (…)

NIOC sets pace. (…)

Nationalization threat. Another problem for international oil is the threat of seminationalization, if not total, as has occurred in Algeria. There’s little doubt that Sonatrach, Algeria’s state oil company, will become a major competitor on world oil markets.

So far, Algeria is the only major oil producer (1 million b/d or ore) to resort to the nationalization approach. But the threat exists in other lands -Venezuela, Iraq, and Libya. Already, Venezuela is in the process of nationalizing gas reserves (as Algeria did), and Iraq, India, and Libya are constantly voicing the warning.

OPEC on March. Following its success at Tehran and Tripoli, OPEC may be expected to follow an increasingly aggressive approach toward the international oil companies as it pursues its goals in the future.

Principal among these is participation. This is expected to occupy a prominent place on the agenda of OPEC’s next conference in July, along with a production-programming scheme which was hatched by Venezuela. (…)

Participation is something else. If OPEC wants it, it may well get it. The members proved that at Tehran. The method of approach by the 10 member countries isn’t clear from earlier OPEC statements on the subject, but Iraq may have given a clue.

Iraqi Oil Minister Saadoun Hamadi on June 10 declared that Iraq will work “unilaterally and collectively” to get its hands on 20% of the interest in Iraq Petroleum Co. (23,75% each British Petroleum, Shell, CEP, 23,75% Mobil and Jersey Standard, 5% Gulbenkian).

IPC played down Hamadi’s statement at the time, but the possibility of such an approach by a unified OPEC membership cannot be ruled out.

Under the Tehran agreement, the OPEC countries “guaranteed” no more financial demands on the companies for a 5-year period ending Jan. 1, 1976. Any demand for financial participation in the shares of the operating oil companies would be a clear violation of that agreement. But the organization conceivably could set Jan. 1, 1976, as a target date for achievement of its participation goal.

Some oilmen doubt the 5-year “guarantee” will hold. OPEC, with its new-found strength and confidence, cannot be expected to hold still for that long, they feel, without pushing the companies further.

OPEC has already openly threatened France with an oil cutoff because of the call for a boycott of Algerian oil by French oil companies. Dr. Nadim Pachachi, secretary general of the organization, said the French action threatened the interests of French companies in other OPEC countries. (…)

Prices will go up. Whether the agreement holds for 5 years or not, one thing is certain : Posted prices will continue to rise. (…)

Crude output in the Middle East countries soared 18.3% in the first 4 months of the year to average 15,945,000 b/d. Asian countries increased production by 21.7%, while Africa showed only a slight gain of 0.07% thanks to a near-shutdown in Algeria after the French boycott.

In a recent study, Petroleum Industry Research Foundation, Inc. (Pirinc) forecast total world cumulative petroleum consumption during this decade at nearly twice that of the 1960’s. “yet the oil industry’s physical capacity is not keeping pace with the growth in demand,” Pirinc said. “And given the likely prospect that the average cost of providing a daily barrel of new capacity will increase, the industry’s needs for capital will rise relatively faster and could exceed $300 billion during the 1970’s – more than twice the amount required in the previous decades.” (…)

No way out. In short, the price of energy is up, and is going up farther in the years ahead.?Those who shop for “cheap” oil are wasting time and money. OPEC has marked up its price tags 5 years ahead and is determined to keep them there.

The best approach for the big consumers remains – new sources of oil in non-OPEC lands. But to keep up with world demand, the industry must uncover many more Alaskas, North Seas, Spains, and Arctica. There’s no other way out.

Oil and Gas Journal, 1971 JULY 12

EDITORIAL : More headaches for international oil?[PART/NAT]

WATCHING THE WORLD - FRANCK J. GARDNER

ARE YOU ready for the next round ? After a year of turmoil that has seen Tapline out of business for 7 months, Libyan production cutbacks, the momentous OPEC conference in Caracas, skyrocketing freight rates, the French-Algerian fight, Venezuelan nationalization and the battles of Tehran and Tripoli, are you ready for more ?

It’s coming. OPEC holds its regular midyear conference in Vienna this week. And over the weekend, two special committees met to formulate their reports to the general session. Their mandates ? … participation for one committee, joint production programming for the other.

Production programming – call it proration – has been tried before in OPEC-land. And it failed miserably. The competitive impulse was just too tough to resist. And unless the Venezuelan delegation, which is sponsoring the idea again, has something quite unusual up it sleeve, it will fail once more.

BUT participation is something else. OPEC’s declared goal is “the greatest measure possible of participation in and control over all aspects of operations” (OPEC Resolution XVI.90, June 1968).

The big push to achieve that goal will begin this week. And chief pusher will be the usual maverick-Libya.

In a recent press interview in Paris, Omar Muntasser, vice director general of Libyan National Oil Co. (Linoco), declared that “in association with certain brother countries, especially Algeria, Libya is studying the conditions under which the foreign oil companies are operating on her soil.”

Muntasser acknowledged the many problems posed by the participation issue and conceded the political differences between the OPEC countries. But he added that recent OPEC victories held such appeal for all the members that they now should pass from “a simple financial success to a restructuring of the oil industry”.

Libya, Muntasser said, intends to take the lead in this effort, “with the fraternal cooperation of Algeria.” He cited two approaches to the problem : Participation in existing operations by the governments concerned, and the launching of entirely new programs on a totally national basis.

Libya “vigorously supports” the attempt by Iraq to gain a 20% participation in the operations of Iraq Petroleum Co. (IPC), Muntasser said, adding that the Iraqi gesture could be the subject of a “grand debate” during the current OPEC conference.

Participation ? restructuring ? Are you ready for it ? This could be the week.

Oil and Gas Journal, 1971 JULY 12

ARTICLE : Louisiana leads oil productivity drop?[CAP-PROD]

State’s decline of 270,000 b/d productive capacity for 60% of total decrease for U.S. during 1970, API reports. Increased crude-oil output takes 829,000-b/d out of spare capacity in U.S.

A DRASTIC drop in Louisiana’s crude oil productive capacity led an overall decline for the U.S. last year.

The American Petroleum Institute estimates the drop in Louisiana capacity at 270,000 b/d, about 60% of the 454,000-b/d decline – from 11,627,000 to 11,173,000 b/d – for the entire nation in 1970.

API says the state’s productive capacity at the end of last year stood at 2,699,000 b/d of spare capacity. Most of the drop was in South Louisiana.

The API report breaks out by states overall totals on productive capacity released earlier this year (OGJ, Apr. 5, p.38).

Spare capacity in the U.S. plummeted 829,000 b/d to 1,772,000 b/d, based on December production at the rate of 9,401,000 b/d. The precipitous drop resulted from a combination of rising production and declining capacity.

Productive capacity was also down for natural gas, by 1.528 billion cfd to 99.266 billion cfd. Capacity to produce natural-gas liquids followed the crude and natural-gas trend, dropping 56,000 b/d to 3,105,000 b/d, according to the American Gas Association.

Crude oil.?About two-third of the spare crude capacity was in Texas, with 1,153,000 b/d.

Texas productive capacity declined by 74,000 b/d during the past year to 4,608,000 b/d, while December production was reported at 3,455,000 b/d. The largest concentration of spare capacity remains in Dist. 6 (East Texas), with 468,000 b/d.

Offshore capacity in the Gulf of Mexico fell by some 95,000 b/d to 1,355,000 b/d, leaving a cushion in that area of only 195,000 b/d, virtually all off Louisiana.

The remaining spare capacity of consequence outside Texas and Louisiana was in California, whose 216,000 b/d was largely accounted for by the Elk Hills Naval Petroleum reserve.

A few states were able to resist the declining trend.

Alaska capacity edged up from 235,000 to 236,000 b/d – though the North Slope strike at Prudhoe Bay is not yet in production.

Other gainers included Michigan, up from 36,000 to 40,000 b/d ; Mississippi, from 203,000 to 206,000 b/d ; New Mexico, from 370,000 to 373,000 b/d ; and Wyoming, from 403,000 to 415,000 b/d.

The old producing states of Kansas, Oklahoma, and Illinois suffered declines. Oklahoma’s December production of 568,000 b/d was listed as 12,000 b/d over capacity, based on the API definition as the rate attainable within 90 days after year-end.

The API figures were 379,000 b/d higher than total capacity estimates issued by the Independent Petroleum Association of America recently (OGJ, May 31, p.32).

Natural Gas.?Louisiana made the only appreciable contribution to productive capacity last year, boosting its total by 781 MMcfd to 30,675 MMcfd.

Other increases included Alaska, up 162 MMcfd to 705 MMcfd, and West Virginia, up 156 MMcfd to 880 MMcfd.

All other states went the other direction, reflecting the decline in proved reserves for the third consecutive year. Texas’ loss led all the rest, down 998 MMcfd to 36.755 MMcfd.

Natural-gas liquids.?Gains in Louisiana (40,000 b/d in the north and 20,000 b/d in the south) prevented further slide in capacity to produce natural-gas liquids.

Louisiana partially offset the loss of 45,000 b/d in Texas and 80,000 b/d in Oklahoma, which experienced the greatest decline.

Box : Louisiana study shows capacity loss

High producing rates have taken a heavy toll of Louisiana’s estimated productive capacity.

Results of a state oil-allowable and productive-capacity study put estimated productive capacity at 2,211,000 b/d, a drop of 360,000 b/d since the previous study.

Comm. J.M. Menefee of the Department of Conservation, said in a statement that both figures are based on the March 1953 depth-bracket allowable and exclude federally controlled leases in the offshore Zone 4 area.

The latest figure is for Apr. 1, 1971. The preceding survey was for Jan. 1, 1970.

Menefee noted that the Jan. 1, 1970 report was made during a period when the depth-bracket allowable was 46%, and it is believed that the report “was somewhat optimistic since many operators were inexperienced at producing under accelerated rate and therefore overestimated productive ability of many wells.”

“This letter report was conducted during a period when the depth-bracket allowable was 75%, therefore industry was more aware of the productive ability of their wells at higher rates,” the statement said.

Menefee said the report indicates that at 100% allowable, Louisiana could expect an additional 161,000 b/d over present rates. An unrestricted allowable would push production up by 320,000 b/d, he said.

Oil and Gas Journal, 1971 JULY 26

EDITORIAL : Participation Day … it’s coming?[PART-NAT]

WATCHING THE WORLD - FRANCK J. GARDNER

THE RECENT meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna took a peculiar turn. But just what took place probably won’t be known until the usual publication of resolutions several weeks after the meeting.

As originally scheduled, the 23rd?OPEC conference was to have opened July 12, with special committee meetings to formulate the agenda 2 days earlier.

Instead, the council of ministers convened in Vienna July 8 and called an “impromptu” 23rd?extraordinary OPEC conference for Saturday afternoon July 10, which lasted exactly an hour and a half.

Thus, the formal meeting which opened Monday, July 12th, became the 24th?OPEC conference for the record. At the end of the meeting, the OPEC secretariat issued the usual brief and vague statement.

“The XXIII meeting,” it said, “following consideration of a report by the standing committee on a joint production program, adopted a resolution concerning steps to be taken in the future.

“The XXIV meeting of the conference,” the statement continued, “unanimously admitted the Federal Republic of Nigeria as the 11th?member of the organization.

“The conference considered several important matters, among them the report of the Ministerial Committee on Participation, and adopted a resolution. This resolution, together with others adopted by the conference, will be published on August 13, 1971.”

LATER, Dr Nadim Pachachi, OPEC secretary general, said the resolution on participation was “decisive and currently perhaps the most important step in new relations between host countries and operating companies.”

Pachachi then made his point – “We are dead set on implementing this resolution at once.”

And when OPEC is dead set on something these days, watch out.?With the admission of Nigeria, the cartel now controls 62% of all free-world oil production and 93% of its exports.

Several factors have accelerated OPEC’s participation drive. Most important probably was Algeria’s outright seizure of 51% of the French holdings there. “If they can do it, why can’t we ?” is the feeling now in many producing countries.

Venezuela also has set some savory examples for fellow OPEC members with its nationalization campaign.

So watch for Aug. 13. It will be remembered as “Participation Day”.

[1]?Lepetit?M.?(2021 a) -?August 15th?1970 : Oil and the end of the Bretton Woods Monetary System – Chapter 1 : Introduction – 15/08/2021

Lepetit M. (2021 b) - August 15th 1970 : Oil and the end of the Bretton Woods Monetary System –?Chapter II : Inflation, Vietnam and Oil in the 1970s”

[2]?The Global Energy History Research Program (GEHRP) architected by Global Warning includes the following sub-programs : (1) Western medieval spectacular energy-driven economy and the onslaught of the plague on a non-malthusian and fast growing society ; (2) The Industrial Revolution following the advent of coal in UK from the XVth century on, and Charles Dupin’s singular energy-based paradigm of XIXth century macroeconomics ; (3) The 1970s, its energy and monetary crisis with the US peak of conventional oil production followed by the end of the Bretton Woods Monetary System ; OECD emergency responses to the 1970s crises ; (4) XXIst century world macroeconomy and the relationship between Quantitative Easing monetary policy and the overrunning of the peak of world conventional oil production through the “shale oil miracle”.

[3]?such as Manhattan Chase Oil & Gas specialists

[4]?There was still excess productive capacity in November 1970. But it was disappearing fast. See some of the O&G Journal articles in appendices, especially 1971 January 4th?issue :?“Where the shrunken crude cushion is located”

[5]?Note there was no physical foundation for such price increases. With insight, it was only a negotiation trick to help western negotiators to save the face …

[6]?A second (forthcoming) part of this analysis will attempt to quantify the anticipated US trade balance catastrophe implied by these major trends from 1971 on.

[7]?OECD -?DIE/E/PE/70.122?: remarks by W Laird?[??Events in the Middle East and North African oil producing nations?/?Les évènements survenus dans les nations productrices de pétrole au Moyen-Orient et en Afrique du Nord??]?(July 1970)

[8]?See comments on “The Oil Import Question” in:?Lepetit?M.?(2021 b) -?August 15th?1970 : Oil and the end of the Bretton Woods Monetary System – Chapter 1 : Introduction – 15/08/2021

Lepetit M. (2021 c) - August 15th 1970 : Oil and the end of the Bretton Woods Monetary System –?Chapter II : Inflation, Vietnam and Oil in the 1970s”

[9]?Also, the US oil industry was then – as often now- underestimating the US oil field production declines.

[10]?FRED –?Federal Reserve Bank of Dallas Annual and monthly reports

https://fraser.stlouisfed.org/title/review-federal-reserve-bank-dallas-5730?browse=1910s

[11]?FRED - US Survey of Current Business

https://fraser.stlouisfed.org/title/survey-current-business-46?browse=1920s

[12]?Dallas Fed August 1970 “Business Review” :

??(…)?The increases in allowables in Texas and Louisiana followed two events creating international difficulties in getting oil to market. One was in Libya, where the government reduced Production allegedly to pressure foreign oil companies into increasing the country's revenues. The other was in Syria, where the government has delayed repairs on the Trans-Arabian Pipeline in an apparent attempt to force an increase in transit royalties. The pipeline was broken inside the Syrian border on May 3. These two events have reduced the flow of petroleum to Europe from Mediterranean sources by at least a million barrels a day. Efforts to make up the reduction are putting a severe strain on world tanker capacity, causing increased tanker rates. With the higher cost of transportation, the value of import tickets issued by the Government to allocate U.S. imports has dropped substantially, creating greater demand for domestic Production. (…)”

I would like to thank the IFPEN archives team, without whom this work would not have been possible