U.S. natural gas prices continue to languish, and more shut-ins are on the way.
That in turn sets the stage for a steep price flyup when the winter heating season gets under way and demand spikes.
Spot prices plunged last week, with October delivery prices dropping to an average $1.32/MMBTU, down 100 from September prices, which were at a 2 year low. Some spot offers slipped below $1.20. Mild weather and brimming storage levels have slashed demand.
Some industry officials also blame what they see as questionable storage numbers, suggesting the figures might be overstated substantially. Texas Railroad Commission is considering investigating that possibility.
Salomon Bros. believes gas price weakness simply reflects strong growth in productive capacity resulting from industry's strong focus on gas E&P. It recently trimmed its forecast for spot prices for 1994 to $1.80/MMBTU from $1.90-1.95 (OGJ, Sept. 19, Newsletter) and says long term forecasts for gas prices could plunge during the next 45-60 days.
Joining the list of U.S. shut-ins are Cabot and Devon. Cabot shut in about 40 MMcfd, or about 20% of its productive capacity, indefinitely. Devon curtailed 55 MMcfd, or 19% of its output, at Northeast Blanco unit in New Mexico's San Juan basin. Shut-ins were disclosed in August and September by Enron, Seagull, Anadarko, Mitchell, Coastal, CNG, Vastar, and Noble.
Depressed gas prices take a toll on key producing states as well.
Oklahoma Independent Petroleum Association says the difference between $2/Mcf and current prices costs the state economy about $150 million/month. The wellhead value of gas in Oklahoma in 1993 totaled about $3.75 billion compared with $1.62 billion for oil.
The darkening outlook for gas isn't derailing the fourth quarter drilling surge so far. Baker Hughes' tally of active rigs is up by more than 50 in 2 weeks, and Smith's count is up by more than 60 in the same period. Baker Hughes' count jumped 32 units to 836 the week ended Sept. 23, down only 3% from a year ago. Smith's tally, using a different criteria, rose 42 on the week to 908. In the Baker Hughes rig count, the rigs drilling for gas accounted for more than half the week's increase.
Perhaps drillers are taking a longer view on gas (see related story, p. 25). An international panel sponsored by Gas Research Institute and University of Texas estimated the world gas resource base will increase by as much as 25% by 2025. In some parts of the world, using advanced technology, the gas resource base could rise by as much as 80%.
Southern California Gas Co. expects to begin supplying natural gas to Mexico soon. On Sept. 1, SoCalGas received final U.S. approval to lay a $3 million, 40 MMcfd, 16 in. spur from its Imperial Valley system to the border near Mexicali. In August, Pemex disclosed plans for a gas pipeline in Mexicali.
The next step is completing negotiation of a transportation contract with Pemex, which SoCalGas expects to happen in a few months. It is part of Project Vecinos, a joint venture with San Diego Gas & Electric to deliver gas to points along the California-Mexico border.
California's oil and gas leasing ban is now in place. Gov. Pete Wilson, up for reelection Nov. 8, signed an indefinite ban on all new oil and gas leasing in state waters (OGJ, Sept. 5, Newsletter). Taking effect Jan. 1, it exempts 37 existing leases, drainage tracts adjoining federal waters, and some boundary adjustments allowing unitization. Western States Petroleum Association calls the ban shortsighted and likely to discourage E&D on existing leases.
Before adjourning this week, the U.S. Congress plans to vote on a treaty expanding the General Agreement on Tariffs and Trade, thus creating a 123 nation World Trade Organization and slashing tariffs.
Congress will consider the pact under a fast track procedure that allows no amendments. One snag is that Sen. Ernest Hollings (D-S.D.), commerce committee chairman, insists on provisions to tighten textile imports, and he could hold the bill in committee 45 days, thus delaying congressional consideration until next session.
U.S. companies press more non-U.S. oil megaprojects.
ARCO has signed a letter of intent with Venezuela's Corpoven for joint development of a $3.5 billion heavy oil production/upgrading/export project using Orinoco belt heavy crude. The project, to be developed during 1995-2004, covers production of heavy crude from the Hamaca area, upgrading it, and blending the upgraded product with lighter crudes. Plans call for exporting 200,000 b/d of medium gravity, moderate sulfur content crude to mostly U.S. markets, for a total of about 2 billion bbl during the project's 30 year life.
The partners plan to complete engineering studies by yearend 1995, when a final decision is due. The upgrading project will use Intevep's HDH hydrocracking process, which involves low pressures and a recyclable catalyst.
Last year, Maraven set up two other heavy oil upgrading projects in partnership with Conoco and a combine of Total, Itochu, and Marubeni.
Oxy plans to spend $700 million on a project to boost oil recovery in Qatar's offshore Idd el Shargi North Dome field.
It's part of a production sharing agreement (PSA) Oxy signed with Qatar under which the company also will provide technical support and services to Qatar General Petroleum Corp. in all Qatari oil fields. Under the PSA, Oxy will be Idd El Shargi field operator and complete development of the main oil reservoirs using horizontal wells and pressure maintenance programs. Oxy expects to boost production to 90,000 b/d from the current 20,000 b/d and ultimately recover about 570 million bbl during the 25 year life of the project.
Nigeria has put up a new candidate for OPEC secretary general, the job Subroto relinquished in June.
Former Nigerian Oil Minister Rilwanu Lukman's candidacy is thought to be a bid to take advantage of a dispute between Iran and Venezuela over Subroto's successor. Serving in that role on an interim basis is Libyan Oil Minister Abdalla Salem el-Badri, who is touring Arab states ostensibly to muster support for an end to Libyan sanctions but has gotten embroiled in OPEC politics.
An OPEC official says that before Lukman's name was thrown into the ring, Iran hinted of a deadlock over the secretary general's role at the Nov. 21 OPEC meeting in Bali. Since then, there's been an interesting silence from Iran. One rumor within OPEC is that Iran and Nigeria are plotting a mutually beneficial stance over the issue.
"A behind the scenes deal could be messy and just the sort of thing OPEC does not need at the moment," the official said. "At the same time, another deadlock would sag members' morale."
While there is generally a consensus for rolling over quotas at the Bali meeting, Nigeria has been talking about production increases to make up for losses during the oil workers' strike there.
"The debate will not be about whether to roll over quotas again," said the official, "but whether the quotas should cover first and second quarter 1995 production or first quarter only."
Another strike is disrupting petroleum industry operations.
At least 50,000 Brazilian oil workers went on indefinite strike last week, paralyzing the country's major refineries. They are demanding wage hikes of more than 100%. Petrobras is offering a 13.4% increase. Brazil's Labor Tribunal rejected Petrobras' request to declare the strike illegal but warned unions not to let natural gas distribution be disrupted. Government stocks cover 10-30 days of refined products demand, depending on the type of fuel.
Brent crude traders now can deal 18 hr/day, thanks to an accord that will enable London and Singapore futures markets to be treated as one.
IPE and Simex last week disclosed plans to establish a mutual offset system for trading Brent crude contracts, thereby letting traders open in London and close in Singapore. Start-up date has not been set, but the system is expected to be on line in second quarter 1995.
Are Iraq and Iran planning secret, discounted oil sales to western companies? According to an unconfirmed report in London's Independent newspaper, the two nations are planning to sell oil at $2/bbl below market prices.
The paper claims a $360 million deal for about 44 million bbl of Iraqi crude is being touted by Iraqi sales agencies, Iranian businessmen, and eastern European traders. Such a deal would contravene the U.N. embargo on Iraqi oil exports.
The Independent said the sellers plan to claim the crude originated in Iran. About 120,000 b/d of production would be transported by tanker truck to the Iranian border town of Khanaqin, northeast of Baghdad. The newspaper said the prospective buyer is a Cyprus based group holding Iraqi debts.
