On the eve of a close vote in the House, President Clinton's proposal for a BTU tax seemed destined for change in the Senate.
House Democrats appeared to be wavering on the bill after Sens. David Boren (D-Okla.) and John Breaux (D-La.) pledged they would oppose a BTU tax in the Senate finance committee and in the face of intense lobbying by business groups against the tax. Boren introduced a bill to scrap the BTU tax in favor of additional spending cuts, a measure that appeared to lack votes for Senate passage but doomed the BTU tax in the finance committee. The House was expected to vote May 27 on the deficit reduction package, which includes $496 billion in tax increases or spending cuts in 5 years. The BTU tax amounts to $71 billion of that.
Clinton late last week was lobbying House members, telling them he is not abandoning the BTU tax proposal and wants it ratified by the House. A number of House Democrats complained they don't want to vote for a BTU tax when it appears the Senate finance committee will kill it anyway. All 176 House Republicans were expected to vote against the bill, so a loss of only 41 of the 256 Democrats and one independent would kill the bill. When debate opened, about 45 Democrats were believed to oppose the BTU tax. That prompted Breaux, also on the finance committee, to postpone a hill boosting gasoline taxes and spending cuts as an alternative.
Clinton said Boren's proposal would help the oil industry but increase taxes on working people and retirees. Boren said his bill would achieve $2 in spending cuts for every $1 in tax increases, and additional taxes would total $150 billion vs. $272 billion in Clinton's plan. Boren's bill would achieve its additional spending cuts largely through capping benefits from some welfare programs, reducing the earned income tax credit, and limiting cost of living increases for retirees. Boren later said he might consider some form of gasoline tax increase.
California's petroleum industry will be hit disproportionately hard by the proposed BTU tax. That's the finding of an analysis by Foster Associates Inc., San Francisco. The consultant estimates more than half the $2.74/bbl tax on refined products in California will be absorbed by refiners and producers there. Because of higher average product barrel demand elasticity in California, plus disparities in exemptions for petrochemical feedstocks and home heating oil, the industry tax bite will be '15% higher there than on the Gulf Coast. That works out to California industry's share of the BTU tax burden at $2.73 million/day, Foster estimates.
It's now strictly up to Point Arguello partners whether interim tankering of crude oil from the biggest producing oil field in U.S. federal waters begins as planned next month. A last ditch roadblock effort by an environmentalist coalition failed earlier this month when California Coastal Commission refused to revoke a permit it granted earlier to the Chevron led project (OGJ, May 3, Newsletter). Point Arguello partners still must accept the permit, which carries tough conditions that require the group to halt tankering by 1996 and switch to pipeline transport, with Chevron required to sign a pipeline contract by Feb. 1, 1994.
The price spread between West Texas intermediate and Alaskan North Slope crudes on the U.S. Gulf Coast continues to fall because of declining supplies of ANS to the Gulf Coast, says Pace Consultants. The spread, an average $2.40/bbl in 1992, fell to $1.85/bbl in early May. U.S. West Coast supplies of ANS also are declining, spurring increased movement of Dubai and Omani crudes into that region and boosting West Coast crude prices, says Pace. The tight ANS supply recently prompted Nymex to consider West Texas sour as a possible benchmark sour crude on the Gulf Coast. Pace says the current ANS supply situation, however, may be short lived.
A May 19 fire at Saudi Arabia's 250,000 b/d design capacity Jubail refinery resulted in closure of the 45,000 b/d hydrocracker, although the refiner-y was said to be running at near capacity May 26. Owners Petromin and Shell International had been running the plant at 300,000 b/d after recent debottlenecking. At presstime there was no projection of when the cracker could be brought back on stream. Damaged equipment is being removed to assess whether it needs to be replaced or repaired.
Saudi Aramco expects to complete by the end of May an expansion of its 1,200 km Petroline pipeline, which carries oil from Abqaiq and Ghawar fields in the east to Yanbu on the Red Sea. Capacity was raised to 5 million b/d from 3.2 million b/d by installation of two pumps at each of the pipelines' 11 pump stations, reports Middle East Economic Survey.
A feasibility study of a pipeline to export gas from U.K. to continental Europe has found that a link from Bacton, Norfolk, to Zeebrugge, Belgium, would be the best route. A combine of British Gas, BP, Conoco, Elf, Norsk Hydro, Statoil, and Distrigaz plans a L290 million ($440 million), 1.45 bcfd line. The group will approach potential users in June-July to assess the market for the line. If there is enough interest, a L1 million ($1.5 million) front end engineering design project could begin Oct. 1, says U.K. Department of Trade & Industry. Construction could begin late 1994 for first gas delivery in 1997. U.K. Energy Minister Tim Eggar told parliament May 25 that agreement had been reached with Belgium to negotiate a pipeline crossing treaty, once a decision to build is reached.
There are encouraging signs of movement for petroleum industry joint ventures in the C.I.S.
First crude oil has been shipped to market by the JV long seen as the litmus test for foreign/domestic partnerships in the former U.S.S.R.
Tengizchevroil, the JV of Chevron and Kazakhstan, shipped its first crude into the world market from Novorossiisk on the Black Sea. The Russian flag vessel Aleksandr Pokryshkin left port May 25 carrying about 440,000 bbl of Urals blend oil the JV received in exchange for a comparable volume of Tengiz oil produced since it took over Tengiz field in April. Tengiz crude is being distributed in the C.I.S. until an export pipeline can be built.
Russia's oil sector has received a big boost with financing from U.S. and European agencies. Polar Lights, the Russia-Conoco TV targeting development of the Ardalin complex of Russia's Timan-Pechora basin north of the Arctic Circle, received $50 million in funds from Overseas Private Investment Corp. for its $300 million project (OGJ, Apr. 12, Newsletter). The first of 24 wells is to he drilled later this year with production start-up slated for late next year. Meantime, Purneftegas Oil Producing Association of Gubkinsky, western Siberia, is to receive a $174 million loan from European Bank for Reconstruction & Development, London. This will help fund a $211 million rehabilitation of 300 wells in oil fields throughout the region, which lies about 3,000 km northeast of Moscow. Purneftegas is the most northerly of Siberia's oil production associations. The project will include investment to reduce gas flaring as well as training in reservoir management, oil production techniques, and environmental protection and monitoring.
A survey among executives of private Russian investment enterprises and banks has put domestic oil production and refining at the top of the list of industrial sectors providing the best prospects for profits. Among enterprise directors, optimism regarding financing oil production and refining was expressed by 56 of the executives, while only two indicated pessimism. The survey showed 90 Moscow commercial banking specialists optimistic about oil production and refining investment and none pessimistic. Meanwhile, Yuri Shafranik, Russian minister of fuel and energy, reportedly said foreign investors, including those from other C.I.S. republics, earned a profit of $450 million in 1992 from JVs in Russia's fuel and energy complex.
As always, however, there remains a downside in the C.I.S. petroleum sector.
Total is withdrawing from its 1991 production sharing contract to develop an oil field in the Timan-Pechora basin of Russia's Komi republic.
Tests didn't bear out expectations of 300 million bbl recovery. Tests are under way on another field in the same basin in Nenets region, and production has begun from a third project, near Romashkino in Tatarstan.
Russia anticipates a continued steep slide in petrochemical production this year. Fertilizer output is expected to plummet 26% from the 1992 level, chemical fibers 20%, and synthetic ammonia 11%. An acute shortage of polyethylene and polystyrene is predicted.
Azerbaijan, previously a natural gas exporter, reports a growing shortage of the fuel as production continues to fall onshore and offshore from Caspian Sea area fields. Officials expect Azerbaijan's gas deficit to reach 212 bcf this year. Gas prices to consumers have jumped to 16,000 rubles/1,000 cu m from 34 rubles/1,000 cu m. Consumers owe state owned gas firm Azerigaz 6 billion rubles, and the government has been forced to impose strict limits on domestic gas use.
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