OGJ Newsletter

April 9, 2007
General Interest - Quick Takes

Treasury asked to implement tax exemption

US Sen. Kay Bailey Hutchinson (R-Tex.) urged US Sec. of the Treasury Henry M. Paulson to promptly implement a provision of the 2005 Energy Policy Act (EPACT) allowing refiners to deduct 50% of plant expansion costs if such an expansion increases capacity by at least 5%.

Noting that US President George W. Bush signed EPACT into law on Aug. 8, 2005, Hutchinson said some companies have not yet received regulations from the Internal Revenue Service to implement the decision some 20 months later. “Companies are prepared to invest billions in projects that take years to plan, engineer, and design, but without this guidance, refineries are unable to determine future investments in additional capacity. The lack of a final regulation for this provision is hampering company decisions to proceed in expanding capacity to provide needed products to our US market,” she wrote Paulson in an Apr. 2 letter.

Federal judge suspends forest management rules

A federal judge in San Francisco has ruled the US Forest Service failed to conduct mandatory environmental impact reviews or take public comment on plans by the Bush administration to change rules governing forest land management.

US Northern District Judge Phyllis Hamilton ruled Mar. 30 that the forest service’s new policies should be invalidated. Opponents said the rule changes would expedite oil and gas exploration on forest land while weakening wildlife protection and preventing public comment regarding forest management.

The agency must conduct environmental reviews before implementing the “clear controversial” changes, she said.

The rules were changed in 2005 in what forest officials called a move to streamline paperwork and respond faster to evolving forest conditions and scientific research. The rule changes invalidated 1982 federal forest agency rules.

Hydro, Anadarko to invest $2.5 billion in Brazil

Norway’s Norsk Hydro ASA and Anadarko Petroleum Corp. reported they will invest $2.5 billion to 2010 to develop Peregrino heavy crude oil field on BM-C-7 block in the Campos basin off Brazil. Hydro’s joint venture with Anadarko is 50-50.

The partners will lease a floating production, storage, and offloading vessel from Norway’s AP Møller-Maersk. They will also lease two drilling platforms. Peregrino field, a shallow-water field with reserves pegged at 300-600 million bbl, is Hydro’s first oil and gas commitment in Brazil.

Hydro has submitted development plans for the field to Brazil’s National Petroleum and Biofuels Agency. Plans include the drilling of 30 horizontal wells and seven water-injection wells. The aim is to produce 100,000 b/d of oil by 2010.

The company plans to expand in Brazil and will invest in three Santos basin exploration blocks, in which it acquired working interest during the eighth ANP licensing round in November 2006.

Norsk Hydro is operator in one block and holds non-operating interest in the other two blocks, which are operated by Spain’s Repsol-YPF SA and Brazil’s state-owned Petroleo Brasileiro SA. In addition, Norsk Hydro will continue to look for farm-in opportunities.

UK project to assess CO2 storage in coal

Composite Energy (CE), a Scottish company developing coalbed methane production in the UK, commissioned a 2-year study to evaluate carbon dioxide storage in coal. The £300,000 project is being financed by BG Group, Scottish Power, and Royal Bank of Scotland. It will focus on the potential of enhancing methane recovery through storing CO2 in coal. CE, which is in the process of developing methane production from deep coal beds in Scotland, will provide horizontal drilling expertise required for the long extended-reach boreholes required for the storage project.

CE believes CBM trapped in deep coal seams will provide an untapped long-term source of UK gas.

Strathclyde University in Glasgow will assess the coal’s gas adsorption and desorption properties. Imperial College of London will assess the coal’s mechanical properties to model and predict the performance of a pilot scheme. The project will evaluate the ability of CO2 to bond to coal. CE said the study will evaluate the potential of CO2 storage in the interest of increasing methane recovery and also in reducing CO2 emissions.

“Coal can typically absorb five times more CO2 than the methane it releases,” CE said. “This may be a very real solution for reducing greenhouse gases.” The program will involve the direct injection of flue gas from the 2,400 Mw Longannet power station into unminable coal seams in the central belt of Scotland. Scottish Power owns and operates Longannet station.

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Exploration & Development - Quick Takes

Total finds more oil off Congo (Brazzaville)

Total E&P Congo announced two oil discoveries in the Moho-Bilondo permit in 1,000 m of water about 80 km off Congo (Brazzaville). The Moho Nord Marine 1 discovery well, drilled to 2,645 m TD, encountered a 140-m column of oil in the Upper Miocene.

The Moho Nord Marine 2, drilled to 2,340 m TD, encountered a different set of two Upper Miocene reservoirs overlying the other. One contains a 78-m oil column, and the other contains a 22-m oil column.

Previously, Total discovered oil in about 600-900 m of water with the Mobi Marine 2 well (OGJ Online, July 26, 2006).

Total E&P is the field operator and holds 53.5% interest. Chevron Overseas Congo Ltd. has a 31.5% interest, and Société Nationale des Pétroles du Congo, 15%.

RWE Dea makes another oil strike in Libya

Germany’s RWE Dea AG has made its second oil discovery in the Sirte basin in Libya.

The B1-NC193 exploration well, drilled with Arab Drilling & Workover Co. Adwoc Rig 2, encountered two oil-bearing reservoirs of Paleocene age. On test the well flowed 933 b/d of oil from the Upper Satal formation at 1,115 m and the Dahra formation at 905 m. Flow was restricted by a 32/64-in. choke.

RWE Dea said further appraisal work is required to delineate the field and determine commerciality.

The third well in the NC193 concession-C1-NC193-is due to spud this month, and the drilling rig is being moved to location.

RWE Dea, which previously completed an extensive seismic program consisting of 2,400 sq km of 3D data and 3,000 km of 2D data, said it plans to boost drilling in the basin over the upcoming months.

The company intends to use three drilling rigs to drill at least eight exploration wells in the NC193, NC194, NC195, NC197, and NC198 concessions.

RWE Dea is the sole interest owner of six concessions covering 30,000 sq km in the Sirte basin, which were awarded by the Libyan authorities in May 2003.

Apache finds gas in Egypt’s Western Desert

Apache Corp. has made a gas discovery on the Matruh Concession in Egypt’s Western Desert with the Jade-1X well, which extends the known productive limits of the Jurassic gas fairway almost 12 miles southwest of existing Jurassic production.

Apache plans to drill five additional Jurassic and two AEB exploratory wells on the concession this year.

The Jade-1X well encountered a total of 65 ft of net pay in the Jurassic Upper Safa member of the Khatatba formation. On a test to evaluate 32 ft of the net pay, the well flowed at 25.6 MMcfd from perforations at 13,850-82 ft through a 1-in. choke with 1,382 psi of flowing wellhead pressure.

The remaining 33 ft of Upper Safa net pay in three sands between 13,480 ft and 13,750 ft will be perforated shortly, and gas from those zones will be commingled with that of the lower zone when the well comes on production around midyear.

Jade-1X also logged 217 ft of pay in the AEB 3D, 3G, and 6 sands. Apache plans to move the rig about 2 miles north of the Jade-1X discovery to appraise the AEB reservoirs. The AEB is a prolific producer throughout the 3.8-million-acre Greater Khalda complex, which includes Matruh. The company operates the Matruh Concession and holds a 100% contractor interest. The concession comprises more than a quarter-million acres.

Meanwhile, Apache is currently constructing two additional trains in the Khalda Concession to increase takeaway capacity by 200 MMcfd of gas to about 750 MMcfd. Construction is expected to be completed by yearend 2008.

PTTEP’s second Gulf of Martaban well shows gas

Thailand’s PTT Exploration & Production PCL (PTTEP) said an additional exploration well drilled on Block M9 in Myanmar’s Gulf of Martaban has tested natural gas.

Zawtika 2, drilled to 3,500 m TD, encountered six zones of gas-bearing formation with a total thickness of 101.5 m, the company said.

A tubing stem test was conducted on three zones, indicating maximum gas flows of 38.9 MMcfd, 32.4 MMcfd, and 38.2 MMcfd, giving a combined flow rate of 109.5 MMcfd.

The result followed on the success made earlier this year (OGJ Online, Mar. 6, 2007).

PTTEP said the company will prepare a development plan and will drill 4-5 appraisal wells in July to establish the reserves required for development of the eastern area of Block M9.

Turkey plans launch of licensing round

Turkey plans to launch tenders in April for oil and natural gas exploration licenses off its Mediterranean coast, according to state media.

The Anatolia news agency quoted Ahmet Faruk Oner, a senior official at Turkish Petroleum Corp., as saying the country would launch this month the farmout process for licenses it has for areas off Antalya, Mersin, and the Gulf of Iskenderun.

“We are now preparing the technical groundwork,” Ahmet said, adding, “We will start looking for partners for the licenses.” The licenses cover areas within Turkey’s 12-mile territorial waters as well as some areas “a little beyond,” Ahmet said.

Turkey’s decision follows recent developments in nearby Cyprus which signed an agreement with Lebanon in January for the demarcation of a subsea border to facilitate future oil and gas exploration. Cyprus signed a similar subsea maritime agreement with Egypt last year.

Drilling & Production - Quick Takes

Madagascar steam pilot to start in late ‘07

Madagascar could be producing its first volumes of oil within the year from a pilot steam injection project to be attempted in Tsimiroro heavy oil field in the northern Morondava basin 160 miles west of Antananarivo.

Madagascar Oil, a private Bermuda company that is opening a headquarters in Houston, has drilled more than 60 wells on the 6,670 sq km Tsimiroro block. Consulting engineers dubbed 611 million bbl of “contingent recoverable resource” out of 1.028 billion bbl of oil in place in the deposit.

Four steam generators and other equipment arrived at Maintirano for transport to Tsimiroro after the rainy season and road repairs. Madagascar Oil closed in late March on an $85 million equity-linked development capital facility in support of its operations.

Pertamina to buy Jabung LPG from PetroChina

PetroChina Co. Ltd. has agreed to sell 30,000 tonnes of LPG extracted in Jambi, Sumatra, to Indonesia’s state-owned PT Pertamina at a market price, according to PetroChina Director Budi Setiadi.

He said PetroChina has so far sold LPG from Jabung gas field on Singapore’s spot market.

Jabung gas yields 25,000-35,000 tonnes/month of LPG, according to state media.

Last month, Pertamina said it would import 50% more LPG in April than in March to overcome a domestic shortage (OGJ Online, Mar. 29, 2007).

COSL to upgrade rigs for deeper water drilling

China Oilfield Services Ltd. plans a $10 million overhaul of one of its drilling rigs to extend its operating water depth and capture growth opportunities for deepwater oil drilling.

COSL is in talks with parent China National Offshore Oil Corp. to find a window from the latter’s drilling schedule to carry out the upgrade. A 50:50 joint venture of COSL and Norway’s Atlantic Deepwater Technology will test the upgrades.

COSL Chief Executive Yuan Guangyu said strong demand is making the drilling schedule for rigs very tight. Yuan added that the overhaul would see the operating water depth of one of COSL’s three semisubmersible rigs increase to 1,500 m from less than 500 m.

COSL’s semisubmersible rigs, which are capable of operating in 300-500 m of water, had an average rental rate of $118,483/day in 2006, up 107.5% over 2005. According to COSL figures, the day rate of semisubmersible rigs capable of working in 1,500 m of water could rise to $500,000/day.

Processing - Quick Takes

Shipments resume after French strike ends

The strike that crippled the ports of Fos and Lavéra since Mar. 14 ended when 62 tankers and LPG and chemical carriers waiting outside the harbors began unloading operations Mar. 31.

The immediate deliveries have enabled Esso to return to almost-normal production at its Fos-sur-Mer refinery and Total at its La Mède and Feyzin refineries, the refiners told OGJ Apr. 2. They had slowed production last week by one third and would have gradually been forced to shut down had the strike continued.

The oil companies trade group Union Française des Industries Pétrolières believed it would take at least 2 weeks for business to return to normal. It is engaged in working out the full cost of the strike to industry, so far estimated at €25 million.

The 18-day strike had seemed deadlocked by Gaz de France’s refusal to allow CGT port agents to handle branching and unbranching of the LNG carriers due to dock at its Fos-Cavaou LNG terminal when it comes on stream at yearend.

Chinese agency okays petrochemical project

China’s National Development and Reform Commission (NDRC) has granted permission to China Petroleum & Chemical Corp. (Sinopec) for the construction of an 800,000-tonne/year ethylene plant and downstream petrochemical facilities in Wuhan, Hebei Province (OGJ, July 10, 2006, Newsletter).

The NDRC, which regulates China’s industries and approves projects, said capacities of the downstream plants will include 300,000 tpy of linear low density polyethylene, 300,000 tpy of high-density polyethylene, and 400,000 tpy of polypropylene.

In 2005, China produced 7.55 million tonnes of ethylene. By 2010 the government plans to raise the country’s ethylene capacity by 4.38 million tpy through expansion and upgrading of existing plants and by a further 6.2 million tpy through the construction of new facilities.

A Sinopec spokesman said Wuhan’s new petrochemical project will be integrated with a 3 million-tpy refinery being expanded to 8 million tpy.

JV formed to expand Chinese refining, retail

ExxonMobil Corp., Saudi Aramco, and Sinopec Mar. 30 announced two joint ventures aimed at expanding a Chinese petrochemical refinery and operating a chain of 750 retail outlets in China’s Fujian Province.

The Fujian Refining & Ethylene JV Project and the Fujian Fuels Marketing JV, valued at a total $5 billion in investment, represent the first fully integrated refining, petrochemicals, and fuels marketing project with foreign participation in China.

The Fujian Refining JV, which will be headquartered in Quanzhou, will triple the existing refinery’s capacity to 240,000 b/d from 80,000 b/d when it starts up in early 2009. The upgraded refinery will primarily refine and process sour Arabian crude.

In addition, the project will cover construction of an 800,000 tonne/year ethylene steam cracker, an 800,000 tpy polyethylene unit, a 400,000 tpy polypropylene unit, and an aromatics complex to produce 700,000 tpy of paraxylene.

Support facilities including a 300,000-tonne crude berth and power cogeneration also will be built.

The venture, to be called Fujian Refining & Petrochemical Co. Ltd., will be owned by Fujian Petrochemical Co. Ltd. 50%, ExxonMobil China Petroleum & Petrochemical Co. Ltd. 25%, and Saudi Aramco Sino Co. Ltd. 25%. The project is expected to start up in early 2009.

The Fujian Fuels JV, formally registered as Sinopec SenMei (Fujian) Petroleum Co. Ltd., will manage and operate 750 retail outlets and a network of terminals in Fujian Province under the ownership of Sinopec 55%, ExxonMobil 22.5%, and Aramco 22.5%.

Transportation - Quick Takes

Shell drops plans for Gulf Landing LNG terminal

Shell US Gas & Power LLC has decided to drop plans for its proposed gravity-based Gulf Landing LNG receiving and regasification terminal off Louisiana.

“Shell has determined that the development of LNG regasification facilities currently under construction or planned in the Gulf Coast region can meet regional LNG requirements,” Shell said in an Apr. 1 statement to OGJ. “For this reason, Shell has discontinued its plans to develop the Gulf Landing LNG terminal project,” the company said.

Shell had gained approval of the US Maritime Administration for its Gulf Landing LNG terminal in the Gulf of Mexico (OGJ, Aug. 15, 2005, Newsletter). The proposed Gulf Landing facility would have had capacity to deliver 1 bcfd of natural gas to the US interstate pipeline network (OGJ Online, Nov. 14, 2003). Plans called for a gravity-based structure in 55 ft of water 38 miles off Louisiana on West Cameron Block 213.

Chevron halts permitting for LNG terminal

Chevron Corp. has discontinued permitting activities for a proposed LNG terminal off Baja California, a spokeswoman in Houston confirmed to OGJ on Apr. 3.

“Chevron recently requested that our permits be canceled with three Mexican federal permitting agencies: Regulatory Energy Commission, Communication and Transport Secretariat, and Secretariat of Environment and Natural Resources,” said Margaret Cooper, Chevron corporate media advisor, global gas.

“The decision to cease work on this project is solely based on our business needs,” Cooper said. “The project was developed with the intent that it could receive supply from Chevron’s share of LNG output from the proposed Gorgon project. However, Chevron has successfully signed heads of agreements for the majority of that share to its customers in Asia, and the remaining share will go into Chevron’s internal marketing system.”

She referred to the Greater Gorgon gas fields off northwest Australia. The fields are linked with the $11 billion (Aus.) Greater Gorgon LNG project (OGJ Online, July 1, 2005, Newsletter).

Neptune LNG project gets deepwater port license

Neptune LNG LLC, a subsidiary of Suez Energy North America Inc., has received a deepwater port license from the US Maritime Administration for its Neptune offshore LNG facility in Massachusetts Bay.

Demand for natural gas in New England is expected to increase by 1-2%/year over the next 2 decades, with Massachusetts alone accounting for half of the region’s gas consumption. At this rate of growth, without new capacity, the region could face a shortage of gas approaching 14.1 million cu m/day in 2010.

The Neptune project is expected to provide 11.3-21.2 million cu m/day of gas, enough to serve 1.5-3 million homes/day in the Massachusetts and New England area, Suez said.

Neptune LNG estimates that the facility will be fully operational by 2009. Also at that time, the company anticipates completing construction of a lateral pipeline connection to HubLine.

Suez has received firm commitment from Hoegh LNG AS, Mitsui OSK Lines Ltd., and Samsung Heavy Industries that two specially designed LNG regasification vessels will be delivered by the project’s targeted start-up date.

Draft study okays Elba Island LNG expansion

El Paso Corp.’s proposed expansion of the Elba Island LNG terminal and associated facilities near Savannah, Ga., would do minimal environmental harm, the Federal Energy Regulatory Commission’s staff said in a draft environmental impact statement.

The project includes expansion of the existing LNG terminal, about 187 miles of new pipeline in Georgia and South Carolina, a 10,000-hp compressor station in Georgia, and associated facilities (OGJ, Oct. 23, 2006, Newsletter). El Paso subsidiaries Southern LNG Inc., Elba Express Co. LLC, and Southern Natural Gas Co. are the sponsors.

SNG will add 8.4 bcf of storage capacity and 900 MMcfd of sendout capacity to the installation, effectively doubling both elements there. It also will modify docking facilities to accommodate larger vessels.

Petrobras, Sonatrach eye LNG accord

Brazil’s state-run Petroleo Brasileiro SA (Petrobras) and Algeria’s Sonatrach have reached agreement on a memorandum of understanding to study an LNG partnership.

The partnership is aimed in part at supplying planned regasification terminals at Pacém and Guanabara Bay where, by 2008, Petrobras plans to have two LNG vessels in place to regasify 20 million cu m/day of LNG.

The draft agreement also foresees exploration and production cooperation studies for onshore and offshore blocks in Brazil, Algeria, and other countries of mutual interest, Petrobras said.

It said the agreement is scheduled to be signed in Algeria in April, when the firms also plan to sign an LNG supply agreement.

Pan-European oil pipeline gains support

Energy ministers from five southern European countries signed an agreement to cooperate and support the proposed construction of a 1,300-1,400 km oil pipeline linking the Black Sea port of Constanta, Romania, to Trieste, Italy. The Apr. 3 signing ceremony was in Croatia’s capital of Sabreb for the proposed Pan-European oil pipeline, which would transport Caspian Sea oil.

Officials from Italy, Croatia, Slovenia, Serbia, and Romania signed the agreement. European Union Energy Commissioner Andris Piebalgs also signed the agreement, saying he believes the Caspian Sea region will supply more oil to the world market in the future. Piebalgs said Europe needs new infrastructure to fulfill rising oil demand.

“A lot of work still stands before us,” Piebalgs said of the pipeline. Oil from the proposed pipeline eventually could be transported to western European markets. The energy ministers agreed to promote public support and attract financial backers to the project. Construction of the proposed $2.6 billion pipeline is expected to begin during 2011-13.