OGJ NEWSLETTER

Currently high prices for ethylene will slip in the second half, but the outlook still is for market growth, says Trichem Consultants Ltd., London.

"First and second quarter prices will he very good," said Trichem's Paul Ray, "but the third and fourth quarters will be tamer."

He sees debottlenecking in Europe, new capacity in the Far East, and lower demand from China among factors behind the expected slowdown.

Trichem projects first quarter prices for ethylene in Europe at $1,280-1,350/metric ton and third and fourth quarter prices at $1,050-1,150/ton.

"We are projecting a gradual decline," said Ray, "though we are conscious that the petrochemicals sector rarely does anything gradually. This will not be a price collapse to early 1994 levels, since the underlying market is growing. There will he a fallback in prices to a still profitable level. The market will be healthy but will not offer reinvestment economics."

Among planned European debottlenecking projects Ray cites are a new 60,000 ton/year furnace at the Borealis cracker at Porvoo, Finland; a BP debottlenecking at Grangemouth, Scotland, adding 25,000-30,000 tons/year of capacity in the third quarter; work by Exxon at Mossmorran, Scotland; and Dow's expansion at Tarragona, Spain. New Far East ethylene plants include Thai Olefins Co.'s 350,000 ton/year Mob Ta Phud, Thailand, plant, which started up at yearend 1994; Keiyo Ethylene's 377,000 ton/year Chiba, Japan, plant, which also came on line near yearend; and Chandra Asri's 550,000 ton/year plant at Merak, Indonesia, due on stream in April. Ray sees China as a sporadic buyer. China generally follows an acquisitive year or two with a quiet period, he said, so there is a question as to whether it will he as big a buyer this year as in 1994.

Mexico expects to complete privatization of its petrochemical industry by the end of first quarter 1996. Pemex's new Director Gen. Adrian Lajous made the politically controversial disclosure on the 57th anniversary of the nationalization of Mexico's oil industry. Involved are 61 petrochemical plants in nine complexes.

The move is prompted by Mexico's urgent need for hard currency to rebuild reserves depleted by the peso's collapse. A similar program was unveiled in 1992 but shelved because of weak petrochemical markets.

Pemex is key to Mexico's economy, accounting for more than 6% of GDP and 28% of federal revenues in 1994. Lajous pledged a radical overhaul of Pemex, changing its mission "to one that establishes as the central objective the maximization of economic value." One recent step toward that end was the government hiking gasoline prices 35%. The government and Pemex still insist, however, that foreign investment in Mexico's oil and gas sector remains off limits.

Refiners generally are driving the direction of oil prices now that OPEC has frozen its quota for the year, so a spate of turnarounds scheduled this spring in key refining centers means near term crude price weakness.

So says London's Centre for Global Energy Studies (CGES), which contends unchanging marginal oil supplies are allowing seasonal fluctuations in refinery demand for crude oil to drive prices. CGES sees the average OPEC price falling the next few weeks from a first quarter average of $16.50-17/bbl before rebounding to about $18 in the summer after refineries have come back on stream and oil demand begins its second half surge.

As of last week, however, a flurry of market supply developments dictated the direction of crude futures prices. The continuing specter of striking Kuwaiti oil workers helped underpin a rally in crude futures prices that continued late last week, despite official claims that supply would not be disrupted. Kuwaiti oil workers' threat to carry their strike into a sixth day Mar. 23 helped IPE Brent break $17/bbl for the first time in 3-weeks. Brent for May closed Mar. 22 at $17.21, up 46 on the day, while Nymex crude shot up 55 on the day to close at $18.96/bbl. Other bullish factors were an API report showing lower than expected crude stocks, reports of a Venezuelan refinery outage that sparked a gasoline buying spree, and word that Iran is moving weapons and troops to the area of disputed islands near the Strait of Hormuz, actions U.S. officials describe as a threat to shipping in the area.

Ecopetrol plans to export ultimately 500,000 b/d of crude from Colombia's supergiant Cusiana oil field to the U.S. The state petroleum concern expects the BP group developing Cusiana and nearby Cupiagua field to complete first phase development by yearend, when output rises to 200,000 b/d from 100,000 b/d, Ecopetrol Pres. Juan Maria Rendon told the National Petroleum Refiners Association (NPRA) meeting last week in San Francisco.

Cusiana crude, with 36 gravity and 0.25 wt % sulfur, will be available for marketing in second half 1995. Ecopetrol and partners have no committed outlet for Cusiana crude but are targeting refiners on the U.S. Gulf Coast and eastern seaboard. Second phase development calls for jumping Cusiana output to 500,000 b/d by yearend 1997. Apart from Cusiana, Colombia currently produces 455,000 h/d of oil and exports about 200,000 b/d, mostly to the U.S.

NPRA has asked EPA to withdraw its proposed rule on refinery maximum achievable control technology (MACT).

NPRA's goal is no new requirements from refinery MACT, said NPRA Pres. Urvan Sternfels. Although EPA is legally bound to promulgate a refinery MACT rule, NPRA believes measures refiners have taken to date to comply with environmental regulations suffice to constitute MACT status. NPRA contends the proposed rule achieves little benefit at extremely high cost to refiners.

"The refining industry is the most overregulated industry in this country," Sternfels said. "Our objective is to make sure all the regulations imposed on our industry have a reasonable cost/benefit ratio."

Countering a Republican plan in Congress to cut regulations, President Clinton has unveiled a series of administrative reforms aimed at easing the burden of federal rules. Clinton said EPA will cut the amount of paperwork companies must submit by one fourth and consolidate federal air pollution requirements into a single rule. He also said federal agencies should not fine small companies for failing to comply with regulations if they are first time offenders and act to correct the violations.

DOE is proposing formation of a federal corporation to take control of Elk Hills and other naval petroleum reserves until they can be offered for sale in 1997-98. Chevron, which owns 22% of Elk Hills field, said the government currently is wasting about $1 million/week at the California field. The company contends a federal corporation could not enhance the field's value and would just be an unnecessary and costly step.

MMS has abandoned an initiative to study new ways to lease tracts in the Gulf of Mexico.

MMS was concerned whether it was receiving maximum value for tracts and considered dropping area-wide leasing in favor of more frequent, smaller sales (OGJ, Dec. 13, 1993, p. 64). Cynthia Quarterman, sworn in last week as MMS director, disclosed the decision at an oil industry meeting in Washington, D.C. Bob Stewart, National Ocean Industries Association president, said, "We believe the decision by MMS will reinforce the consistency, predictability, and stability of the OCS leasing program in the Central and western Gulf of Mexico that have played a central role in its orderly development.

"Area-wide leasing has promoted increased competition on the OCS and created the opportunity to pursue high risk ventures. To balance the financial risks associated with deepwater production with the anticipated rewards, the blocks of acreage assembled for exploration need to be large enough to justify development. Area-wide leasing has allowed that need to be met."

MMS also has disclosed a schedule for developing the next 5 year offshore leasing plan, to cover 1997-2002. It plans to issue a draft proposed leasing program in July and receive comments. A proposed program would follow in January 1996 and the proposed final program in August 1996. If Congress doesn't object, the final program would take effect October 1996.

Philippines has formed a government task force to develop a market for giant Camago-Malampaya offshore natural gas field, the country's energy department says. Units of Royal Dutch/Shell and Oxy 50-50 plan to begin developing the 2.5 tcf field by 2000. The multiagency task force, to be headed by Energy Sec. Francisco Viray, would formulate action plans and work programs aimed at developing a long term market for the gas.

Camago-Malampaya is expected to supply 400 MMcfd of gas, enough to fuel 3 million kw of gas fired power plant capacity The task force would oversee field development, construction of production facilities, gas separation and treatment processing facilities, and gas pipeline systems from the field to onshore power plants and other target markets. The department earlier said it would tender for a contract to lay a 500 km pipeline to land the gas from Palawan to the southern tip of Luzon by 2000. A build/operate/transfer contract for a 1.2 million kw gas fired power plant also will be tendered next month.