Integrated oil companies dip into power market

Ann de Rouffignac
OGJ Online

While the supermajor oil companies each has a unique approach to the evolving global power market, major integrated companies such as Texaco Inc., Chevron Corp., Conoco Inc., and Marathon Oil Co. are assessing their participation in the $300 billion-plus North American electricity market.

Some experts expect electricity will dominate energy markets in the future. US energy consumption is currently estimated to be composed of about 35% power, while the remainder comes from direct combustion of fossil fuels.

But Banc of America Securities analysts predict an internet economy will drive the electricity component to 50% within the next few years and, by 2025, the economy will largely be driven by electrons, with internal combustion being used only sparingly. Such predictions raise questions of how oil companies will deal with these potential changes in the market.

Texaco approached the power business differently from the other multinational oil companies when independent power emerged as a separate industry in the early 1980s. The White Plains, NY-based major oil company reorganized its business lines in 1997 to create Texaco Global Gas & Power, the third leg of the company, in addition to exploration-production and refining. Texaco changed the name to Texaco Power & Gasification in 1999.

�We looked at cogeneration very differently from the other oil companies,� says James Houck, president of Texaco Power & Gasification. �We approached it as a growth business�as a way to transform the multinational oil company to a global energy company.�

Texaco�s early approach to cogeneration shows how that company early on recognized the significance of power as a going business. A 600-Mw facility built by Texaco supplies only 30 Mw for internal use. The rest of the power is sold to a utility, explains Houck.

�This separates us from the other multinational oil companies,� says Houck. �We see power as an investment opportunity, and our board has challenged us to do more projects.�

The company is also participating in the electricity markets through its gasification technology that allows the company to take low-value, highly polluting energy sources like petroleum coke and gasify them to produce synthesis gas, a mixture of carbon monoxide and hydrogen. The company sells packages of integrated gasification combined-cycle (IGCC) power plants. Last year, Texaco partnered with TotalFinalElf SA and Electricit�e France in a 365-Mw IGCC power plant in Normandy, France.

In all, Texaco has 2,573 Mw of power in operation or under construction. The company has an additional 1,135 Mw in advanced development. The power plants are joint ventures or partnerships to sell power into the grid.

Texaco is also active on the acquisition front. The company will complete the purchase of a 25% stake in a 950-Mw generating station that supplies power to a Korean electric utility. Texaco bid against global energy players like El Paso Energy Corp. for this power plant.

It is also considering participating in several pure merchant plants in the US.

�Texaco�s strategy is to leverage its expertise in fuels management, project development, and plant operations to execute each link of the energy chain successfully with the objective of generating a substantial portion of the company earnings by 2003,� the company said in a statement.

For marketing and trading, the company has partnered with TradeCapture.com to trade energy commodities globally. At first the trading will include only crude oil, refined product, and natural gas. But power will be added soon, Texaco says.

Through its 28% ownership of Houston's Dynegy Inc., Chevron has an indirect stake in an electric utility, one of the few oil companies with a position in a US regulated power company. Chevron reinforced its commitment to electricity and power via Dynegy by plowing in an additional $200 million into the company last year to maintain its level of ownership when Chevron acquired Illinova, an Illinois electric utility and independent power producer.

Chevron also surprised energy industry observers when it announced its intentions to acquire PG&E Energy Services from PG&E Corp.

�We�re picking this up from PG&E to do energy monitoring, conservation, cost management audits, reliability, and distributed generation,� says Bonnie Chaikind, spokeswoman for Chevron.

Experts suggest this new acquisition by Chevron could be incorporated into Dynegy in some kind of deal.

�Chevron might park that [PG&E Energy Services] with Dynegy,� says Robert Beck, vice-president of the Lukens Consulting Group Inc. �Dynegy is trying to get its own energy services company started.�

Dynegy had no comment.

Conoco and Marathon
Conoco Inc., much like the supermajors, has recognized that power is the route to adding value to the company�s natural gas capacity. Power is also recognized in its own right as a way to get access to a new, high-growth business, according to company documents.

In fact, the company reports it is currently evaluating several possibilities for investment in power plants or green-field development in the southwestern US. Conoco has traditionally built only cogeneration facilities for its refineries. But the company is moving beyond the cogen plants.

�If we are in gas, we have to be in power. Gas and power are so intertwined,� says Mike Stice, president, Conoco Gas & Power Marketing.

Stice notes that, in California, Arizona, and New Mexico, gas prices are relatively depressed compared with the price of power. But Conoco is a major natural gas producer in the region.

�We are very interested in anything [any aspect of electricity] that will make the most out of our gas resources�acquisitions or green-field development,� he says.

However, Stice cautions that Conoco is not interested in taking huge risks in power generation facilities and will only tolerate very targeted strategic investments. In addition to Conoco Global Power�defined by the company as a �developing� business�Conoco also has its own marketing company Conoco Gas & Power Marketing.

Five years ago, Marathon Oil started a power group to develop power projects worldwide. Today, Marathon is in the midst of reevaluating that strategy.

�We are looking at how power could contribute to our upstream business,� says Roger Holliday, spokesman. �We are moving away from the build-and-operate strategy worldwide to developing specific relationships with country partners for power plants to be located where we have equity gas.�

Marathon now has six power projects with up to 800 Mw in various stages of acquisition and development, including US independent power plants for the first time. Marathon recognizes the opportunities to maximize the value of its gas through power, but, despite the opportunities, power is not a huge piece of the pie, says Holliday.

�We will be looking at it [power] very closely. It makes obvious sense, and there is potential there,� says Holliday. �Marathon Power is far from withering. In fact, it�s got a fresh lease on life.�

While other energy companies such Enron Corp., Dynegy, and El Paso Energy Corp. are charging ahead and profiting from the deregulation of electricity markets and the short supply of electricity in North America, experts say it would be a mistake to rule out the relatively cautious oil companies.

Unprecedented growth in gas-fired generation fed by environmental problems with coal, unpopularity of nuclear power, and technological advances and cost reductions in turbine generation all have contributed to the increased demand for natural gas. Major oil companies have begun to recognize these changes and are taking steps to maximize the value of their gas in the ground through power.

Related Articles

Canada Briefs


Chevron, ONGC among companies awarded 15 exploration permits by New Zealand

12/09/2014 New Zealand’s government has awarded six onshore permits across the Taranaki, West Coast, and East Coast basins, and nine offshore permits across t...

CSB releases final report on Chevron Richmond refinery fire

11/17/2014 The US Chemical Safety Board (CSB) has issued the final regulatory report on its investigation of the August 2012 pipe rupture and ensuing fire at ...

Hess to develop deepwater gulf oil field

10/29/2014 Production is to begin in 2018 from deepwater Stampede oil field in the Gulf of Mexico under a development plan approved by operator Hess Corp. and...

NGSA forecasts lower winter gas prices on a combined analysis

10/13/2014 In its 14th annual Winter Outlook assessment of the natural gas market, the Natural Gas Supply Association (NGSA) expects downward price pressure o...

Chevron Canada to sell 30% in Duvernay shale to Kufpec Canada for $1.5 billion

10/06/2014 Chevron Corp. said its Chevron Canada Ltd. unit plans to sell a 30% interest in its Duvernay shale play to Kuwait Foreign Petroleum Exploration Co....

Bahamas: Gravity data suggest existence of Triassic-Jurassic syn-rift

10/06/2014 Recent analyses of gravity, magnetic, and seismic data in the southeastern region of the Bahamas provide clear evidence for the presence of a salt ...

EnLink Midstream to purchase Gulf Coast gas pipeline systems

09/29/2014 A subsidiary of EnLink Midstream Partners LP and EnLink Midstream LLC has agreed to acquire Gulf Coast natural gas pipeline assets, including the B...

Western gulf lease sale attracts $110 million in high bids

08/20/2014 Gulf of Mexico western planning area Lease Sale 238 drew 93 bids from 14 companies over 81 blocks covering 433,823 acres, totaling $109,951,644 in ...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts

On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.



Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected