OGJ Newsletter

The stage is set for rising Canadian hydrocarbon exports to the U.S.

A study by a group of 22 Canadian producers of a $3 billion (Canadian) gas pipeline from Alberta and British Columbia to Chicago found the project feasible and competitive with existing lines.

The group will meet in January to decide whether to seek regulatory approval for the project. The study estimates pipeline tolls at $1.15/Mcf based on throughput of 1 bcfd. The project would come on stream about 2000 after a planned expansion of the Northern Border pipeline to Chicago early in 1998. A bottleneck in export pipeline capacity has depressed Canadian gas prices.

There certainly will be plenty of Canadian gas available for export.

Canadas National Energy Board reports remaining total volumes of gas authorized for export to U.S. markets through 2014 total 18.3 tcf, not including licenses authorizing gas exports of 9.2 tcf from the Mackenzie Delta.

NEB estimates remaining reserves and undiscovered resources in conventional gas pools in western Canada as of Nov. 1, 1995, at 164 tcf. Of that total, about 63 tcf is remaining reserves and 101 tcf is undiscovered resources.

Authorized long term exports represent about 29% of remaining reserves and about 11% of total remaining reserves and undiscovered resources.

Canadian Gas Association (CGA) has cut its forecast of growth in domestic gas demand to 1.9%/year from 2%/year, reaching 3.3 tcf in 2010.

It estimates domestic demand at 3.3 tcf by 2010. A survey for CGA by Environics Research Group found 60% of Canadians would convert to gas for home heating from their existing fuel if gas service were extended to their area.

Currently, 44% of Canadas 10.2 million homes use gas, but service is unavailable to 3.2 million homes. CGA notes electricity deregulation will create more competition for gas.

Some Alberta oil producers have backed plans for a new pipeline from Alberta to Wyoming. Express Pipeline, a venture of AEC Energy and TransCanada, has 12 crude shippers willing to take 85% of capacity of its proposed line from Hardisty, Alta., to Casper, Wyo. The $530 million (Canadian), 784 mile line would have capacity of as much as 172,000 b/d.

After an open season to determine producer interest, shippers have committed to use 142,000 b/d for 5 years, 116,000 b/d for the second 5 years of operation, and 112,000 b/d in 2006-11. Scheduled for start-up late in 1996, the project would compete with Interprovincials crude line, which moves about 1.6 million b/d and is awaiting several expansions. Express also is negotiating to obtain shipping access on the Platte pipeline from Casper to Wood River, Ill.

Meantime, NEB has tightened rules for shipping crude oil to the U.S. Midwest in January and February and is seeking a permanent solution to space overbooking. Shippers will be granted the same space allocations they had last summer when there was no overbooking. NEB was responding to 13 shippers requests to find a solution to overbooking on the Interprovincial line to Chicago.

Interprovincial says the ruling will bring discipline to the nominating procedure for space as an interim measure pending a broad shippers agreement. Some shippers say NEBs policy is unfair and will distort the market.

Petro-Canada may farm out part of its 49.2% interest in Terra Nova oil field off Newfoundland in return for assets outside Offshore East Canada (see related story, p. 21). It has been approached by companies interested in a stake in the 400 million bbl field near Hibernia giant oil field now under development.

Terra Nova would begin production in 2001 or earlier. Petro-Canada has shortlisted Calgary firms Bantrel, Monenco AGRA, Fluor Daniel Canada, J. Ray McDermott, and SNC Lavalin as lead contractor on the $2 billion (Canadian) Terra Nova development. Project schedule calls for regulatory review to wrap up by mid-1997 and engineering and construction to begin early in 1998.

In the U.S., there are more signs of plans to integrate gas and electric power with other fuels into a single, competitive energy market.

Wisconsins public service commission has outlined a plan to open the states power markets to competition that would require utilities to unbundle generation, transmission, distribution, and related energy services.

The proposal aims to set up a fully competitive power generation market with a single, independently operated, open access transmission network, competitive energy services, and eventually retail competition for all customers.

Meantime, Panhandle Eastern and Williams Cos. are combining electronic gas trading and information management operations to form an independent, 50-50 owned firm they hope will become an energy information technology supermarket.

PanEnergy Information Services and Williams Information & Trading Systems beginning Jan. 1 will operate as Altra Energy Technologies, providing industry-wide communications, electronic cash market trading, access to electronic bulletin boards of 13 interstate pipeline firms, and an array of supply management services. Sponsors expect Altra to boost electronic communication and commerce across a full spectrum of energy industries.

Heres another sign of drastic changes in U.S. oil movements:

Longhorn Partners Pipeline LP, Dallas, has agreed to buy Exxon Pipelines 450 mile, 18 in. Texas line that ships crude oil from Crane to Baytown. Longhorn will convert the line to products service, reverse flow from southeast to northwest, and extend the system 252 miles west from Crane to El Paso.

The expanded system, to start up by early 1997, will be rated at 100,000-120,000 b/d and give Gulf Coast refiners direct pipeline access to markets in the Austin-San Antonio area, West Texas, New Mexico, and Arizona.

Longhorn partners are Williams Pipe Line, Tulsa, Axis Gas Corp., Dallas, and Beacon Group Energy Investment Fund LP, New York. Williams will operate the system. Among other similar projects, Trunkline Gas, Mobil, ARCO, and Phillips are involved in pipeline programs that respond to changing patterns in U.S. oil transportation (OGJ, May 1, p. 46; Oct. 9, p. 38).

Early signs continue to show a tight rein on petroleum industry capital spending in 1996 (see related story, p. 30). Pennzoil plans to spend $474 million on capital projects in 1996 vs. $472 million in 1995. Its 1996 budget breaks out as $233 million on oil and gas, $214 million on motor oil and refined products, and $27 million on franchise operations and other items. Pennzoil also recently hedged a large part of its 1996 oil and gas production.

Winter storms have spiked U.S. gas futures to a record high.

Nymex gas for January rocketed 36.4/Mcf Dec. 19 to close at $2.868/Mcf. That topped the previous high of $2.80 Apr. 23, 1993, but was surpassed the next day with a close of $3.071/Mcf.

The U.S. House has approved a Defense Department spending authorization bill allowing sale of the federal governments share of Elk Hills oil field in California. Senate passage is also expected. In addition, a provision to sell Elk Hills is in a budget reconciliation bill that is locked in a White House-Congress stalemate over a balanced budget bill.

Chevron owns 22% of Elk Hills and advocates a sale to operate the field more efficiently. A sale is expected to net as much as $2 billion.

The Czech Republics gas market is likely to be the next former Communist state gas industry to be privatized.

So predicts Wood Mackenzie, which said Prague seemed ready for a quick sale of gas assets in October. Then the government halted the sale in order to build a regulatory framework before proceeding with privatization.

The analyst reckons there will be no progress on privatization before a general election in June 1996. After the election, Wood Mackenzie expects eight regional gas companies will be opened to tender, with foreign companies able to take stakes of 20-34% in each.

Czech gas demand is expected to rise to 455 bcf by 2010 from 270 bcf today.

Taiwans Formosa Plastics Group may revive a $7 billion petrochemical complex in China.

FPG, angered by its inability to obtain land needed for a power plant at its Mailiao, Taiwan, petrochemical complex and frustrated by increasingly stringent environmental rules in Taiwan, is threatening to revive plans for the Haicang, China, complex it shelved in 1989. That plan fell victim to disputes with Beijing over tax incentives and technical issues and Taipeis pledge of major incentives to drop the China project in order to concentrate on the Taiwan project.

FPG Chairman Wang Yung-ching and younger brother and FPG General Manager Wang Yung-tsai are expected to discuss reviving the Haicang project at a meeting with China President Jiang Zemin this month. Previously, the younger Wang had argued against large scale investment in China. He since has become increasingly bitter over growing pressure on Taiwan industry by environmental activists and Taipeis inability to cut red tape. The Haicang project involves two naphtha crackers, a refinery, and more than 30 petrochemical units.