OGJ Newsletter

June 26, 2006
General Interest - Quick Takes

E&P spending to reach $261 billion in 2006

Spending for worldwide exploration and production is expected to increase 21.3% to $261 billion this year, up from a 14.7% projected rise in December among 308 companies surveyed by Lehman Bros. Inc., New York.

That increase is the “result of adding $21 billion to 2006 budgets, partially offset by overspending 2005 budgets by $7 billion,” Lehman Bros. reported June 21. The growth is driven both by increased investments in the US and outside North America.

E&P spending in the US now is expected to grow 27.7% this year, up from a 14.9% rise forecast in December, as a result of high commodity prices and inflationary pressure on the costs of rigs and services, the survey said.

Growth in international spending is projected to rise 20.1% vs. a 14.9% increase projected in December. “Spending increases are coming from significant European companies, US independents and majors, and several national oil companies or state-sponsored enterprises in many regions such as Latin America, Asia-Pacific, and Russia,” the survey said.

Capital spending in Canada is expected to increase by 14.6%, up modestly from a 13.3% projected rise in December. E&P spending in that country is “dampened by limited rig availability, strong Canadian exchange rates, and project timing,” said Lehman Bros. The surveyed companies are now using an average price of $55.70/bbl of crude, up from $49.90/bbl previously, as the basis for their 2006 budgets. However, their price assumptions for natural gas have declined to $6.95/Mcf from $7.65/Mcf in December.

“On average, companies said they would reduce spending if oil prices fell to $42/bbl and natural gas prices declined to $5/Mcf,” said Lehman Bros. “Some 67% of the companies in our survey are indicating higher E&P spending in 2007, and almost 72% of those companies are planning double-digit increases.”

Indonesia urged to simplify equipment imports

The Indonesian Petroleum Procurement Association (APPI) has urged the government to simplify procedures for importing equipment needed for exploration and production.

APPI Sec.-Gen. M.H. Thamrin said the government needed to act quickly by issuing a joint ministerial decree since several different ministries are involved.

Imported oil and gas equipment currently has to be verified by oil and gas upstream regulatory agency BP Migas, customs and excise, and the trade ministry. A single regulation and inspecting agency would reduce delays and lower importers’ costs, he said.

Indonesian Oil & Gas Drilling Contractors Association Chairman Bambang Purwohadi agreed with Thamrin and urged quick action by the government. Under current regulations, Purwohadi said, a company might have to wait a month or more before taking delivery of imported equipment.

Chevron unit enters fuels research alliance

Chevron Technology Ventures has formed a strategic research alliance with Georgia Institute of Technology’s Strategic Energy Institute to develop cellulosic biofuels and hydrogen transportation fuels.

Research will focus on understanding the characteristics of renewable resources such as forest and agricultural waste (wood or switchgrass) and identification of equipment and procedures for commercial production. Researchers also will work to develop regenerative sorbents, which could be reused repeatedly for removing carbon monoxide, carbon dioxide, and nitrogen to reduce the cost of producing hydrogen from natural gas.

Chevron will contribute up to $12 million over 5 years toward the venture. The project is in addition to $400 million Chevron is dedicating this year to the development of alternative and renewable energy technologies.

Chevron recently formed a biofuels business unit to advance commercial opportunities related to the US production and distribution of agricultural biofuels (OGJ Online, June 2, 2006). Since 2000, Chevron has spent more than $1.5 billion on renewable energy projects such as geothermal, hydrogen, biofuels, advanced batteries, and wind and solar technologies.

Industry Scoreboard
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Exploration & Development - Quick Takes

Husky has deepwater gas find off China

Husky Oil China Ltd. reported a “significant” discovery with its Liwan 3-1-1 well on Block 29/26 off China, confirming what it calls “a new hydrocarbon province” in the South China Sea.

“Based on our current interpretation of the 2D seismic [data] and the Liwan 3-1-1 well results, the discovery could contain a potential recoverable resource of 4-6 tcf of natural gas,” said Husky, making Liwan 3-1-1 one of the largest gas discoveries off China.

Liwan 3-1-1, also the first deepwater discovery and the deepest well off China, according to Husky, was drilled to 3,843 m TD in 1,500 m of water in the Pearl River Mouth basin. Block 29/26 is 250 km south of Hong Kong, 330 km east of Hainan Island, and 195 km east of Husky’s Wenchang oil development (see map, OGJ, Dec. 17, 2001, p. 62).

The nearest gas pipeline, which passes on the Hainan Island side of Wenchang, is the 440-mile, 28-in. line from Yacheng gas-condensate field to Hong Kong, Husky said.

Liwan 3-1-1, drilled on a large structure with 60 sq km of closure, encountered 56 m of net gas pay on logs over two zones. Interpretation of existing 2D seismic data prior to drilling “indicated a direct hydrocarbon response at the Liwan 3-1-1 location, which Husky’s analysis indicates is present over a majority of the 60 sq km closure currently mapped,” reported the company. Porosity in the pay zones averaged 20%.

Husky soon plans to drill a sidetrack to further evaluate the pay zone and will conduct a 3D seismic survey to assess similar structures identified in the 2D seismic data. Further drilling on the 3,965 sq km block will follow the 3D evaluation.

Statoil confirms Morvin, Valemon discoveries

Statoil ASA has confirmed the Valemon gas and condensate discovery near Kvitebjørn field in the Norwegian North Sea and the Morvin oil discovery on Halten Bank north of Kristin field in the Norwegian Sea.

Statoil spudded the appraisal wells earlier this year (OGJ, Apr. 3, 2006, Newsletter). It didn’t say whether the wells had been tested. Tim Dodson, a Statoil senior vice-president for exploration, said it’s too early to determine the reserves.

Statoil drilled the Valemon appraisal well, 34/11-5S, to 7,380 m TD from its Kvitebjørn platform, calling it the longest high pressure-high temperature well it has drilled. It will complete the well for Kvitebjørn production.

The Smedvig ASA West Alpha semisubmersible drilled the Morvin appraisal, 6506/11-8. Dodson said Morvin probably would be developed as a satellite to Kristin or Aasgard field.

BG Group enters Madagascar with Vanco

BG Group has acquired a 30% interest in the Majunga Offshore Profond exploration block in Madagascar under an agreement with Vanco Madagascar Ltd., marking BG’s entry into that country.

The area’s work program includes the drilling of an exploration well planned for early 2007. The block, which covers about 15,840 sq km, lies in 200-3,000 m of water off northwestern Madagascar, about 100 km from Mahajanga.

“The Majunga Block forms part of a largely unexplored frontier basin with significant potential,” said BG Group Executive Vice-Pres., Mediterranean Basin and Africa, Stuart Fysh.

Drilling & Production - Quick Takes

US drilling hits new 20-year high

The US set a new 20-year high with 1,672 rotary rigs working in the week ended June 16, up by 11 from the previous week and from 1,358 during this same period a year ago, Baker Hughes Inc. reported June 16.

That inched pass the previous high of 1,671 rigs drilling in the week ended Jan. 24, 1986, which had plunged from 1,773 rigs the previous week and was destined to continue falling to a low of 663 in the week ended July 11, 1986.

The gain was all in land operations, up by 14 rigs to 1,553 drilling.

CNOOC gas project off Indonesia starts flow

CNOOC Ltd. and partners have begun production in the first phase of their Southeast Sumatra Gas Project off Indonesia.

The contractual gas delivery rate for Phase I is 55 MMcfd via four wells.

The gas project is 120 km off West Java in 30 m of water. Development facilities include one processing platform, three subsea pipelines, and one subsea cable.

Phase II of the project is expected to start gas delivery in early 2007. CNOOC Ltd., operator, holds 65.5% interest in the production-sharing agreement.

Petrobras P-52 semi topsides mated to hull

Brazil’s Petroleo Brasileiro SA (Petrobras) reported that its P-52 semisubmersible production platform topsides and hull have been mated at the Keppel Fels Brazil (Brasfels) yard.

The platform will be installed in deepwater Roncador oil field in the Campos basin off Brazil.

Kepel Fels built the hull in Singapore and moved in March it to the Brazilian yard, where it built the topsides.

The $895 million unit will remain at Brasfels for several months for completion. It will have production capacities of about 180,000 b/d of oil and 328 MMcfd of natural gas.

Processing - Quick Takes

Fire, explosion hit idle Canadian refinery

Ultramar Ltd., Montreal, is investigating the cause of a fire and resulting explosion June 14 at its 215,000 b/d Jean Gaulin refinery at Lévis (Saint-Romuald), near Quebec City.

The fire occurred when crews restarted a unit that had been closed during a major maintenance shutdown. The affected unit was not identified. Work on the refinery, one of Canada’s largest, had been under way for the past 2 months.

No injuries were reported, and employees returned to the site after the fire was extinguished and facilities inspected thoroughly.

Ultramar, the Canadian unit of Valero Energy Corp., San Antonio, said tank-truck loading racks are now operational. At presstime last week, the cause of the fire and explosion remained undetermined.

Contract let for Lithuanian refinery upgrade

AB Mazeikiu Nafta, Mazeikiai District, Lithuania, let a contract to Foster Wheeler Italiana SPA, Milan, for a comprehensive modernization of its 263,000 b/d Mazeikiai refinery in northwest Lithuania. The only refinery in the Baltic states, it is being upgraded to meet the European Union’s “Auto-Oils V” specifications for the sulfur content of gasoline required by 2009.

Foster Wheeler will perform basic design, front-end engineering, detailed design, and procurement services. The project will boost capacity of the fluid catalytic cracking unit to 60,000 b/sd from 45,000 b/sd and revamp other facilities, including vacuum, vacuum gas oil hydrotreating, diesel-kerosine hydrodesulfurization, and amine and sulfur recovery units and all related utilities.

The project also includes installation of a vacuum flasher, refinery instrumentation, and modernization of all of the refinery’s heaters.

Mazeikiu Nafta expects to complete the project in the fourth quarter.

Alkylation unit planned for Indian refinery

Reliance Petroleum Ltd. plans to add an 83,000 b/d alkylation unit at its 580,000 b/d export refinery under construction in Jamnagar, India.

ExxonMobil Research & Engineering Co. will provide its sulfuric acid alkylation technology, which combines propylene, butylenes, and pentylenes with isobutane to form alkylate having high octane and low vapor pressure for gasoline blending.

The plant will include several large reactor trains utilizing mixed butylenes and isobutane feedstocks.

Reliance is a Reliance Industries Ltd. subsidiary formed to own and operate the refinery, which is expected to begin operations in December 2008. Chevron Corp. holds a 5% equity ownership in Reliance Petroleum, with an option to increase it to 29% (OGJ, Apr. 13, 2006, p. 38).

Reliance operates an existing 660,000-b/cd refinery-the world’s third largest-at Jamnagar. The new refinery will enable the company to process heavier crude oil.

Ineos to expand Köln ethylene capacity

Ineos Group Holdings Inc., Grangemouth, Scotland, plans to begin construction early next year on a €40 million expansion of the ethylene capacity at its olefins complex at Köln, Germany.

It will add a furnace to feed crack gas into separation parts of two naphtha crackers. Total ethylene capacity will increase to about 1.2 million tonnes/year from 1.1 million tonnes/year at present.

Total olefins capacity of the complex is 2.3 million tonnes/year.

The new ethylene will feed polyethylene production at Köln or move to other Ineos sites via the 495-km Aethylen Rohrleitungs Gesellschaft pipeline system in northwestern Europe.

Motiva refinery expansion contracts due

Dresser-Rand Co. said it is completing contracts with Motiva Enterprises LLC to supply compression equipment and start-up services for the planned 325,000 b/d expansion of Motiva’s 285,000 b/cd Port Arthur, Tex., refinery (OGJ, May 15, 2006, Newsletter).

The contracts would commit Dresser-Rand to supply various equipment, including turbocompressor trains, reciprocating compressor units, and start-up services. Dresser-Rand said the contracts, estimated at a combined $100 million, may be released sequentially during the next 6-9 months, enabling delivery in the fourth quarter of 2007 and the first quarter of 2008.

Qatar starts commercial-scale Oryx GTL plant

Oryx GTL Ltd. has inaugurated the $950 million Oryx gas-to-liquids (GTL) plant at Ras Laffan Industrial City, Qatar.

Oryx GTL is a joint venture of state-owned Qatar Petroleum Co., 51%, and Sasol Ltd. of Johannesburg, 49%.

The reactors at the $950 million Oryx GTL plant in Qatar-the “first of a kind” operational GTL plant. Photo courtesy of Foster Wheeler Ltd.
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The plant will convert 330 MMcfd of lean gas from Qatar’s vast North gas field into 34,000 b/d of ultralow-sulfur diesel, 24,000 b/d of diesel, 9,000 b/d of naphtha, and 1,000 b/d of LPG.

The Oryx GTL plant is the first to convert gas to liquid fuel on a commercial scale, said the plant’s designer, Foster Wheeler Ltd. of the UK. The plant uses the proprietary, low-temperature Sasol slurry phase distillate process based on Fischer-Tropsch technology (OGJ, Mar. 14, 2005, p. 18).

Syntroleum, Sustec to build CTL plant

Syntroleum Corp. and private firm Sustec Industries AG of Switzerland, through a recent 50-50 joint venture, have agreed to develop a 3,000 b/d Syntroleum Fischer-Tropsch (FT) and Synfining unit as the first phase of a planned 20,000 b/d coal-to-liquid (CTL) plant at Sustec’s Schwarze Pumpe industrial facility at Spreetal, Germany.

The project includes expanding Sustec’s gasification capacity using its Future Energy gas-subcooled process (GSP) technology, which was recently acquired by Siemens Co. Siemens will install the 1,000 Mw GSP gasification units at Schwarze Pumpe. Sustec also plans to expand its methanol production and power plant there.

The Syntroleum FT unit, a slurry reactor using cobalt catalyst, will produce ultraclean diesel and specialty chemicals from synthesis gas made from lignite coal, municipal waste, and biomass, all gasified at the Schwarze Pumpe facility.

The existing Rectisol syngas and carbon adsorption units used for syngas clean-up processing also will be expanded as part of this initial FT project.

The preliminary front-end engineering and design work and the feasibility study for the Spreetal CTL project are scheduled to start by midsummer, with completion expected by yearend. Final project sanction is to be decided by first quarter 2007.

Transportation - Quick Takes

ConocoPhillips withdraws LNG application

ConocoPhillips has withdrawn its application for a deepwater port license for the proposed Compass Port LNG project 11 miles off Dauphin Island, Ala., citing Gov. Bob Riley’s concerns about the project’s open-loop vaporization technology.

“It is clear that Gov. Riley still has environmental concerns despite the independent scientific studies predicting minimal impact,” said Sig Cornelius, president of ConocoPhillips Global Gas.

The company said it will begin evaluating the economics of a closed-loop warming system.

“The decision on whether or not to proceed with refiling an application will be made after consideration of all the economic factors,” ConocoPhillips said.

ConocoPhillips will complete the current work program with the Dauphin Island Sea Lab and the Mississippi Gulf Coast Research Lab to establish a comprehensive environmental baseline at the project site.

The company’s action follows a decision by McMoRan Exploration Co. to seek changes to its deepwater port license for its offshore LNG receiving terminal, which includes open-rack vaporization technology, at Main Pass Energy Hub off Venice, La., after state Gov. Kathleen Blanco voiced environmental concerns (OGJ Online, May 9, 2006).

Iraq’s northern oil exports await report

Iraq has temporarily suspended shipments of crude oil to the Turkish port of Ceyhan from its northern fields around Kirkuk pending a report on the condition of the country’s export pipeline system.

Iraq’s North Oil Co. began the test-pumping of 250,000 b/d from Kirkuk on June 10 to check the pipeline system after months of no activity due to militant attacks.

A company spokesman said there was no immediate problem. The company is awaiting further reports before it resumes pumping through the system, he said. Some 4.5 million bbl of Iraqi crude have collected at the Ceyhan terminal from intermittent shipments.

Oil Minister Hussein al-Shahristani said Iraq is targeting sustainable exports from the north of 50,000-100,000 b/d and has plans to increase that to 1 million b/d in the next 4 years.

The target is achievable, Shahristani said, if a second, 26-in. pipeline is repaired and security boosted.

Insurgent attacks have shut the northern export pipeline system for the better part of 2 years. The pipeline system carried 700,000-800,000 b/d of oil from the north prior to the US-led invasion of Iraq in 2003.

Iraq has relied for its export revenues on supplies of Basra Light from southern fields, now estimated at 1.5 million b/d.

Kazakhstan to ship oil through BTC line

Kazakhstan will begin transporting oil through the Baku-Tbilisi-Ceyhan pipeline following an agreement signed June 16 by Kazakh President Nursultan Nazarbayev and Azeribaijan President Ilham Aliev.

Kazakhstan will supply as much as 25 million tonnes/year of oil for the 1,800-km line, which passes through Azerbaijan (443 km), Georgia (248 km), and Turkey (1,076 km).

Kazakh oil will be shipped by tanker from the northern Caspian port of Aktau to Baku. The project envisions the eventual construction of subsea pipelines between Kazakhstan and Azerbaijan.

The Kazakh decision came with substantial international support. US Sec. of Energy Samuel W. Bodman had urged the central Asian nation to accelerate talks on joining the project (OGJ Online, Mar. 14, 2006).

The Turkish Foreign Ministry welcomed Kazakhstan’s decision to join BTC, saying it would “strengthen the East-West energy corridor,” help diversify energy sources, and decrease the number of tankers passing through the narrow Bosporus and Dardanelles.

Turkish Deputy Prime Minister Abdullah Gul said line fill will be complete on July 13. The first cargo of oil transported through the BTC pipeline left Ceyhan in early June.

Kazakhstan produces about 1.3 million b/d of oil, but it expects output to reach 3 million b/d by 2015 largely on the strength of Kashagan offshore field, which is likely to start commercial production by 2009.

Regulatory review starts for LNG terminal

WestPac LNG Corp. has begun regulatory review for its proposed $350 million LNG terminal on Ridley Island near Prince Rupert, BC.

WestPac, Calgary, has filed a project description with the Prince Rupert Port Authority. If approved, the Prince Rupert LNG terminal could be operational in 2011.

The project would have a total receiving capacity of 1 bcfd gas equivalent of LNG, a liquids extraction facility, and storage.

Regasification facilities would have a capacity of 130 MMcfd and connections to existing pipelines.

The port authority has signed a memorandum of understanding with WestPac for a 30-year lease with a provision for three 10-year extensions.

Kinder Morgan to expand Texas gas storage

Kinder Morgan Energy Partners LP plans to add 5.5 bcf of incremental working storage capacity at its Dayton, Tex., natural gas facility with construction of a third storage cavern.

The two existing storage caverns provide 4.2 bcf of working gas capacity.

The expansion is oriented to gas from the Barnett shale and Bossier plays in East Texas and LNG from the Texas coast.

The additional capacity is expected to be available in 2009. The $76 million project involves water injection, additional compression, dehydration, and pipeline enhancements.

The Dayton facility is connected to the Kinder Morgan’s Texas Intrastate Pipeline system, which includes more than 5,800 miles of pipeline with a peak transport capacity of 5 bcfd and 120 bcf of gas storage capacity.