U.S. refiners are cutting crude runs because of poor margins caused by slack demand and an oversupplied market.
Tosco will cut output at its Avon refinery at Martinez, Calif., and its Bayway, N.J., refinery until yearend. Company-wide gasoline output will fall 25%, or about 60,000 b/d. Tosco is conducting minor maintenance at Bayway and preparing for a major upgrade and turnaround of Avon's 70,000 b/d FCC unit.
The Avon work, originally slated for end of January, has been moved up to early January. Gasoline output there will be halved to 50,000 b/d during the upgrade, expected to last through mid-February. Tosco expects Bayway's cat cracker to be fully on line again early January, depending on market conditions.
Conoco cut crude runs at its Ponca City, Okla., refinery to 121,000 b/d from 150,000 b/d during a 16 day turnaround that began Dec. 2 to carry out work on a 70,000 b/d crude unit, coker, gas oil hydrotreater, and reformer.
Total trimmed runs at its Ardmore, Okla., and Arkansas City, Kan., refineries by about 10% until market conditions improve. Total's Midcontinent refineries have respective capacities of 68,000 b/d and 56,000 b/d.
According to Merrill Lynch, wholesale refinery margins for the 2 weeks ended Dec. 7 averaged only $1.96/bbl on the East Coast, down almost 25% from the same time a year ago and about 50% less than they were a month ago.
Purvin & Gertz notes U.S. gasoline prices have fallen "to lows not seen since the big liquidation following the Nigerian strike ... U.S. margins on spot crudes have shown strong losses for several weeks."
The flabby market conditions aren't helping the outlook for refining as an investment. Big independent refiner Clark U.S.A. Inc., St. Louis, is withdrawing its proposed initial public offering of about 7.5 million shares of common stock and the related offering of $100 million of senior notes, citing recently weakened industry and capital market conditions.
U.S. environmental rules-and especially Washington's irregular approach to enforcing them-continue to contribute to turmoil in oil markets.
API complains EPA has reneged on a promise to give refiners enough time to sell reformulated gasoline (RFG) stocks in areas that decide to opt out of the program (OGJ, Dec. 12, p. 29). EPA last week said it would not enforce the Jan. I deadline for RFG use in one New York county and 28 Pennsylvania counties.
Reports of EPA backpedaling on RFG opt-outs sent Nymex crude and products prices sliding. January crude closed Dec. 12 at $16.91/bbl, down 220 from the Dec. 9 close. Initial reports that the counties wanted to opt out sliced prices the week before (OGJ, Dec. 12, Newsletter). Nymex crude was unchanged Dec. 13.
On the other hand, concerns over possible disruptions of U.S. tanker borne imports of oil caused by new federal rules on oil spill financial responsibility for tanker owners have some analysts predicting a boost in oil and products prices.
Shipping companies have worried about being able to obtain certificates of financial responsibility (COFR) required under the Oil Pollution Act of 1990 by the Dec. 28 deadline, and the Coast Guard won't allow a tanker to trade at a U.S. port without a COFR.
At presstime, Coast Guard officials expressed confidence enough tankers would have COFRs in time, while shipping insurance executives were warning that too few vessels will have the needed coverage by the deadline. A little more than half the tankers involved in U.S. trade had COFRs as of presstime last week. At the very least, the 5% increase the new requirements add to tanker operating costs could hike gasoline and heating oil costs a few cents per gallon, analysts say.
Republican leaders of Congress have asked the Clinton administration not to issue any federal rules in the first 100 days of 1995.
Sen. Robert Dole (Kan.) and Newt Gingrich (Ga.) explained they want regulations put on hold until Congress passes a hill requiring agencies to conduct cost/benefit assessments of new rules.
The new Republican House majority has decided on some major changes for standing committees.
Three committees, including merchant marine and fisheries, are being abolished. Merchant marine has jurisdiction over offshore leasing, and those functions are likely to be transferred to the public lands and resources committee. The House energy and commerce committee will drop the name "energy" from its title but still will originate most energy legislation.
EPA, 12 gas utilities, and eight states have launched a program to cut emissions of so-called greenhouse gases by drilling for landfill methane.
EPA says only 120 of 750 landfills with methane resources have installed methane recovery systems. It contends methane from the landfills could generate enough electricity to meet the annual needs of 3 million U.S. homes.
Environmental group crusades against natural gas are hurting U.S. air quality, North American gas producers complain.
"There is a basic disconnect between the stated objectives of many environmental groups and the strategies they pursue to achieve them," Natural Gas Supply Association Chairman Ray Galvin told a New York press briefing NGSA held this month with Canadian Association of Petroleum Producers.
"On the one hand, many in the environmental movement recognize that increased gas use is one of the most efficient ways to achieve pollution prevention," Galvin said.
"On the other hand, environmentalists continue to attack natural gas, not only through publications like those of Greenpeace, which has stated that 'natural gas has emerged as the primary obstacle to the implementation of clean energy, but also through actions that convinced Congress to maintain drilling moratoria off the vast majority of the U.S. coastline, thus placing many of the nation's most promising gas prospects off limits to exploration and production.
"Ironically, offshore drilling moratoria have damaged the nation's environment by restricting the availability of a fuel that could have displaced dirtier energy options."
Demand for North Sea drilling rigs is recovering from a 10 year low, with demand for high spec units likely to exceed supply in spring 1995.
This is the forecast of Petrodata Ltd., Aberdeen, which says the recovery may take rig demand beyond its peak in 1991, from which it has since fallen 30%. Ian Mitchell, rigs market manager at Petrodata, said total North Sea rig demand was 70 rig years in 1993, from which it has fallen to about 56.7 rig years for 1994. Demand is set to reach 68.7 rig years in 1995. There are expected to he only 41 semis in the North Sea in early 1995, down from a peak of 67 in 1992. And there will be only 34 jack ups then, down from a peak of 47 in 1990.
"The shortfall will result in attempts to reshuffle timing of drilling programs and an influx of rigs to the North Sea," said Mitchell. "High specification rig demand is recovering worldwide, so fourth generation units are already booked to mid-1995. There will also be a tighter market for third generation rigs."
Petrodata's survey of oil company drilling plans shows that work held back the last few years as oil prices were falling is now moving back up priority lists.
"This, combined with the push to develop reserves in the Atlantic West of Shetland is enough to turn demand around," said Petrodata.
Germany's Wintershall, which has played David to the Goliath of Ruhrgas in recent market share struggles, has launched a joint venture to sell Russian gas in Romania.
Last week, Wintershall and Romania's state owned Romgaz launched Wirom SRL, a 50-50 venture based in Bucharest. Wintershall says Wirom will increase dependability of Romania's gas supplies and coordinate cooperation in E&P, transportation, and storage. Wintershall has agreements to use 472.5 bcf/year of Gazprom gas starting in 2000. This coup has enabled the company to carve a niche in the previously rigid German gas sector. Earlier this year, Wintershall and Ruhrgas reached a truce over a mutually beneficial deal to supply Russian gas to former East Germany (OGJ, Feb. 14, p. 36).
Russia's Lukoil is conducting a feasibility study for a 190,000 b/d refinery to be built at Novorossiisk on the Black Sea's eastern seaboard.
Lukoil Vice Pres. Vladislav Bazhenov says much of the new plant's products will be consumed locally and the rest exported. Products demand in the region is pegged at 60,000-80,000 b/d. The plant will be built in partnership with ABB Lummus Crest, while firm offers to join the project have been made by Chevron and Russian and Italian companies.
A group of Taiwanese companies has proposed taking over South Africa's Mossgas oil project at Mossel Bay. The proposal, involving outlays of $8 billion, calls for added investment in a refinery, an aromatics plant, and downstream plastics, fiber, and textile production facilities.
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