Have U.S. gas prices finally touched bottom?
While international trade in natural gas continues to grow (see story, p. 21), the U.S. gas industry continues to languish. Low gas prices and flat-demand are squeezing producers and pipelines alike. Nymex gas futures hit a record low of $1.118/Mcf at closing June 24, down more than 20 on the month and more than 40 from a year ago. Nymex gas rebounded slightly the next 2 days, settling at $1.142 June 26.
Natural gas is often referred to as "the fuel of the future," but that horizon seems to be perpetually receding.
National Economic Research Associates, White Plains, N.Y., sees the U.S. gas market not tightening until 1993, with real wellhead prices of $2.20/Mcf by 1995 and a resulting rebound in U.S. exploration in the mid-1990s keeping real gas prices well below $3/Mcf the rest of the decade.
Columbia Gas System, trying to stave off bankruptcy because of a huge take-or-pay crunch its transmission unit faces (OGJ, June 24, p. 31), is taking more steps to resolve liquidity woes. It froze salaries of all manual and clerical employees and out nonhourly employees' salaries by as much as 10% effective July 1. To affect more than 8,000 nonunion employees, the step will cut CGS operating costs by about $6 million the rest of the year.
Meantime, Columbia Gas Transmission says recent financial problems won't affect plans to reinstate its Cove Point, Md., LNG receiving terminal. Columbia and Shell plan to reopen the terminal, closed since 1980, in mid-1993 (OGJ, Oct. 15, 1990, p. 34). Columbia said, "The timetable is still on schedule," and it plans to file for FERC permits later this year. The Columbia-Shell deal would involve imports of Algerian LNG. Columbia also is negotiating supplemental supplies of Nigerian LNG.
Meantime, low gas prices and lagging refined products demand threaten to crimp U.S. oil company profits and spur the momentum to restructuring.
U.S. demand for refined products in May fell 5.9% to 15,844,000 b/d from the year ago period, says API, the ninth straight month of year to year declines. The declines were gasoline 2.5% kerojet 12%, distillate fuel oil 6.2%, and resid 9.3%. For the first 5 months, deliveries were down 2.2%, for gasoline, 2.6%, for kerojet, 4.8% for distillate fuel oil, and 11.7% for resid. U.S. refinery utilization slipped to 84.4% from 86.8% in a comparison of January-May periods.
Unocal cites depressed gas prices, among other things, in projecting a substantial drop in second quarter profits from the year ago period. It also cites lower downstream margins and soft crude prices on the West Coast. Unocal expects improvement longer term as a result of its continuing restructuring.
A volatile downstream market has Sun R&M mulling restructuring, with a focus on consolidating, simplifying, and streamlining operations. A study is to be complete in 90 days.
Times are tough for Canadian gas producers as well, and they may get tougher. A major buyer for California's market wants a cut of more than 20%, in prices it pays Alberta producers.
Alberta & Southern, the Calgary buying arm of Pacific Gas & Electric, is offering a pool of 190 producers an average $1.40 (U.S.)/Mcf vs. current prices of $1.80. Alberta sells as much as $1 billion/year of gas to California. A vote on the initial pricing proposal, seen as a trial balloon in negotiations, was to have occurred June 27. Current contracts expire July 31. Price agreements require approval of at least half the supply pool members producing at least 60%, of the gas involved. PG&E says price cuts are needed to comply with new rules set by California Public Utilities Commission. Alberta has introduced legislation to ensure current rules for producer agreements are continued, saying it's needed to protect small producers.
Many U.S. small producers might welcome an Interstate Oil and Gas Compact Commission resolution, approved at the Casper, Wyo., midyear meeting last month, calling for a $20/bbl WTI floor. Iogcc also wants E&P waste exempted from RCRA guidelines, ANWR Coastal Plain leasing, equity in North American free trade talks, and to promote gas--reflecting its new name.
A sluggish market notwithstanding, Mitchell Energy and Gas Research Institute may introduce horizontal drilling in the Fort Worth basin to boost gas output there. Target of the $1.7 million B-1 T.P. Sims experimental well in Wise county is naturally fractured Barnett shale. Horizontal displacement will be about 2,000 ft, TVD about 7,800 ft. If agreement is forthcoming, the well could spud in the next 2 months and take 4-6 weeks to drill. Plans call for formation tests and other research. Mitchell has drilled more than 100 Barnett shale wells--usually resorting to frac jobs for 1-2 MMcfd/well--and plans several hundred more.
Citing a recent South Carolina chemical plant explosion that killed six workers, Sen. Joseph Lieberman (D-Conn.) says the Bush administration should establish a chemical safety and hazards investigation board patterned after the National Transportation Safety Board. He said the 1990 Clean Air Act amendments required the administration to create the board 7 months ago.
More upgrading of South Africa's refining capacity is on the way. National Petroleum Refiners of South Africa is to spend $142.8 million to upgrade its 75,500 b/d refinery at Sasolburg. The project, to be complete in 1992, will enable the refinery to use heavier crudes. The announcement follows Gencor's decision to spend $240 million to upgrade and expand its 65,000 b/d Durban refinery and consideration of a further $535 million expansion. In addition, Caltex plans to spend $85 million to upgrade and expand its 90,000 b/d Capetown refinery.
Caltex has pulled out of a $1.3 billion new refinery project at Malacca, Malaysia, because of uncertainties over the final cost. Petronas says the project still will proceed with the two remaining foreign partners, South Korea's Samsung and Taiwan's Chinese Petroleum Corp. Caltex had planned to take a 25%, stake in the 100,000 b/d unit. Caltex says project costs are uncertain because reconstruction of Kuwait's refineries will place heavy demand on international construction companies, subcontractors, and refinery process equipment and related hardware manufacturers.
Another wild well control company has signed on to fight well fires in Kuwait (see story, p. 30). Cudd Pressure Control Inc., a unit of RPC Energy Services Inc., Atlanta, will provide services to Kuwait Oil Co. as requested for an undetermined duration. In addition to firefighting, Cudd has a contract to provide snubbing to stimulate wells after dousing and repairs.
Unesco is launching a 5 year research project to assess damage to the Persian Gulf ecosystem from the 6-8 million bbl oil spill in the gulf and burning wells in Kuwait (see story, p. 31).Cost is not disclosed.
Iraqi News Agency says oil output from southern Iraq was to jump to 400,000 b/d by the end of June with completed repairs to pumping stations. INA also reports the Dora refinery back at prewar capacity of 92,000 b/d and the 30,000 b/d Nasiriyah refinery running at 10,000 b/d.
U.N. Security Council approval was expected late last week of a resolution setting a 30%, ceiling on Iraqi revenues to be paid into a war reparations fund. Overcoming U.S. calls for a 50% ceiling, the council then debated U.S. calls for provision to bump the ceiling up in case oil prices rise sharply, pulling Iraqi oil revenues up with them.
Cambodia has invited foreign oil companies to bid for 26 of 32 onshore and offshore oil and gas tracts. Deadline for bids is Aug. 10, with results to be announced in second half September. Thirteen companies have expressed an interest, including Royal Dutch/Shell, BP, Total, Elf, and Hunt. Geological prospects are good, notably in gas prone waters of the Gulf of Thailand that Thailand has suggested be developed jointly with it and Viet Nam, but bidding may be tempered by war, a U.S. trade embargo, and conflicting territorial claims in the Gulf of Thailand. Only Elf has explored Cambodia, in the early 1970s.
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