OGJ NEWSLETTER

Jan. 17, 1994
Natural gas is doing more to earn its title of "fuel of the future." Offshore Europe's E&D revival continues as gas sets the pace. The Netherlands has agreed to let Shell, Esso, and Mobil resume drilling for gas in the Wadden Zee. The 5 year agreement, now being ratified by the Dutch government, entails not reinstating a 10 year ban, which expired last week, on all E&D in the environmentally sensitive area. The government estimates the Wadden Zee contains 5.25 7 tcf of gas in place and

Natural gas is doing more to earn its title of "fuel of the future."

Offshore Europe's E&D revival continues as gas sets the pace.

The Netherlands has agreed to let Shell, Esso, and Mobil resume drilling for gas in the Wadden Zee. The 5 year agreement, now being ratified by the Dutch government, entails not reinstating a 10 year ban, which expired last week, on all E&D in the environmentally sensitive area.

The government estimates the Wadden Zee contains 5.25 7 tcf of gas in place and could produce 2.8 tcf.

Meantime, BP predicts its North Sea output will rise 6% by 1996, with gas production rising the fastest. North Sea growth will underpin BP's overall production growth estimated at 2%/year to 2000.

Nigeria's beleaguered $4.402 billion LNG export project has been formally relaunched with project stakeholders beginning to post funds to a $1.5 billion escrow account in Switzerland (OGJ, Watching the World, Dec. 6, 1993, p. 31). Nigeria advanced $500 million to the fund to show its commitment to the project, with Nigerian National Petroleum Corp. taking a reduced 49% equity stake in the project. Other new equity interests under a new memorandum of agreement are Shell 24%, Elf 15%, Agip 10%, and IFC 2%, with their respective investments pegged at $1.6 billion, $660 million, $440 million, and $88 million. Costs break out as $3.434 billion for the LNG plant and carriers, interest $360 million, shipping less revenues $338 million, and financing charges $270 million. The new government also issued two decrees in support of the project. The LNG export plant, planned at Finiman, Rivers State, will produce about 103.5 million metric tons of LNG during its 22 1/2 year life, earning about $12 billion in exports.

The $6.66 billion agreement between Italy's Snam and Qatar General Petroleum Corp. covering purchase of half of Qatar's LNG output may be in jeopardy over a price dispute. Signed in fall 1992, the pact provides for initial deliveries of 6 million tons/year of Qatari LNG to Italy, with some volumes feeding the Montalto power plant in Central Italy and the rest distributed to Europe's gas grid via Snam lines. Italy's electric utility ENEL, which operates Montalto, is considering falling back on Nigerian LNG supplies, when and if that project gets anywhere. The contract was to have been finalized and managed by Eurogas, a group of QGPC 65%, Snam 30%, and Texas oilman Nelson Bunker Hunt 5%. Last month, Snam offered QGPC $2.50/MMBTU, a price indexed to Brent crude and comparable to the price Italy pays for Algerian pipeline gas. The slump in Brent's price has Qatar dissatisfied with the contract and seeking to renegotiate or void the contract.

Meantime, natural gas consumption is on the rise in Italy. It totaled 1.76 tcf in 1993, up from 1.68 tcf in 1992. That's due mostly to increased residential consumption, up 798 bcf from 740 bcf. Gas use rose in the transportation sector to 275 bcf from 273 bcf, was flat in the industrial sector at 618.5 bcf, and fell as a chemical feedstock to 35 bcf from 60 bcf.

Mobil has begun the first 3D seismic survey in Papua New Guinea to assess natural gas prospects underpinning a possible world scale LNG export project in the Gulf of Papua getting under way in 2 3 years.

Mobil, operator of PPL 82 and PPL 152 in the gulf, completed a 2D survey Dec. 29, acquiring 1,834 line km, and commenced the 3D survey on PPL 152 Jan. 1. The program features real time, onboard seismic data processing and interpretation, allowing adjustment of line locations while the survey is in progress. As of late last week, Mobil had acquired 2,674 sq km toward a planned total of 11,700 sq km.

International Petroleum Corp., which later turned over operatorship to Mobil, gauged flow rates from carbonate reef buildups of 57 MMcfd and 43 MMcfd in Pandora AIX and BIX wells, respectively. Interests in PPL 82/PPL 152 are Mobil 40/45%, Japex Nissho Iwai 30/45%, IPC 10/6%, and Oil Search Ltd. 5/4%, and PPL 82 Ampolex 10% and Monument 5%.

AGA reports about 2.203 tcf of U.S. working gas in storage the week ended Jan. 8, down a net 165 bcf from yearend 1993 and well below historical gas storage volumes compiled monthly by EIA.

While not directly comparable to AGA's tally, EIA estimates of U.S. working gas in storage at yearend 1990 92 averaged about 2.830 tcf.

AGA's count of U.S. working gas storage volumes is more in line with EIA's average of 2.207 tcf at the end of January 1991 93.

AGA's weekly storage survey involves more than 35 U.S. gas distribution and pipeline companies, representing two thirds of U.S. working gas storage capacity. Survey data will be aggregated and extrapolated on a regional and national basis but exclude company specific data.

Ingaa is cosponsoring the survey, available through AGA's GasNet electronic information network every Wednesday evening. Reduced working gas in storage is not necessarily a sign of impending U.S. supply problems, because U.S. gas storage activity is evolving to reflect increasing flexibility and competition in U.S. markets (see related story, p. 26).

Meantime, Natural Gas Clearinghouse at yearend 1993 reported January 1994 U.S. gas spot prices in the U.S. averaged $1.98/Mcf. 35/Mcf less than in December 1993, mainly because of mild weather and adequate gas storage levels.

Industry activity in western Canada last year was at its highest level since 1985, spurred by strong natural gas demand and favorable currency exchange rates. Alberta Energy Resources Conservation Board reports 8,337 drilling licenses were issued in 1993, up from 4,202 in 1992.

Canadian Association of Oilwell Drilling Contractors said the weekly average active rig count jumped to 233 in 1993 from 123 in 1992.

Drilling industry employment increased by 8,000 jobs. Alberta land sales revenues in 1993 totaled more than $500 million, British Columbia $140 million, and Saskatchewan more than $80 million. Industry officials see activity in western Canada staying strong, at least in the first quarter.

Brazil's cash strapped Petrobras is scrambling to find more funds for projects as privatization momentum gathers speed there (see related story, p. 31). Petrobras Distribuidora, the subsidiary that is Brazil's main refined products marketer, will offer 26% of its shares in a public offering designed to raise as much as $180 million in fresh capital. Meantime, the U.S. Export-Import Bank agreed in principle to extend Petrobras a $100 million credit line to purchase U.S. oil drilling and refining equipment.

France's government has decided the 10 15% golden share it will take in Elf before privatization, scheduled this quarter, will be for an indefinite period. Also, Paris will limit shareholders, including groups, to a maximum of 33% of voting rights or capital. The government also will appoint two nonvoting representatives to Elf's board in addition to a state representative. And it will retain a veto over transfer of control of Elf Aquitaine Production and Elf Antar France, as well as Elf's Congo and Gabon affiliates.

Shares in Russia's largest oil production company, Surgutneftegaz, are being offered by Moscow to the people.

More than 3.6 million shares valued at 1,000 rubles each are being offered in a nationwide auction that closes Jan. 24. The shares, representing about 18.25% of the company's capital, can he acquired using privatization vouchers. A selling price for shares will be set when the auction closes.

Demand for shares reportedly was not very strong the first day.

There are more signs of Russia curtailing exports to meet a demand surge sparked by a brutal winter.

Moscow says another 50 million metric tons of coal equivalent are needed beyond historic levels this winter, forecast at 5 colder than normal.

As of Dec. 1, electric power plant supplies were down 20% for resid and 5.2% for coal from 1992 levels. Some power plants in the Far East and Siberia have exhausted reserves, and the situation is worsening with fuel customers' insolvency.

The Fuel and Energy Ministry wants exports of crude oil and resid cut by 120,000 b/d and 30,000 b/d, respectively, to meet the shortfall.

Europe's petrochemical doldrums linger on.

BP will close its ethylene cracker at Baglan Bay, South Wales, at the end of March, citing industry overcapacity and recession in Europe.

The 335,000 metric ton/year plant had been producing at only 185,000 metric tons/year since October 1993. Closure will also end production of propylene, butadiene, butane, butenes, gasoline, ethyl benzene, and benzene concentrate at the site. Styrene, vinyl acetate monomer, isopropanol, and ethanol production will continue. The shutdown involves job losses of 350 for BP and 250 for contractors the next 12 months, leaving 350 BP staff and 160 contractor employees. BP will take a charge of 200 million ($300 million) against fourth quarter results related to the shutdown.

BP says the closure is consistent with its support for APPE's initiative to close uneconomic European ethylene capacity (OGJ, Jan. 3, Newsletter).

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