OGJ NEWSLETTER

Taxes aimed at energy--mainly oil--are confronting the petroleum industry across the globe.

Even as the U.S. Senate moves towards a transportation fuels tax to reduce the U.S. budget deficit (see story, P. 19) and the U.K. government backpedals somewhat on its PRT tax reforms (see story, p. 22), new taxes with an environmental slant emerge on the horizon.

Industry fears a tax--direct or hidden--might be part of government pledges to further cut emissions of gases thought to contribute to global warming. Reversing President Bush's policy, the Clinton administration pledged in April to cut CO2 emissions to 1990 levels by 2000. Last week, Vice Pres. Gore said the White House will unveil such a program by August. U. S. DOE Sec. Hazel O' Leary said at an IEA meeting this month the Clinton administration "intends to take a position of international leadership" in greenhouse gas abatement. IEA ministers recommended a mix of policies to deal with CO2 emissions that includes taxes as well as regulation, financial incentives, technology, and cooperation with non-IEA countries.

Australian Trade Minister Peter Cook blasted efforts in the U. S. Congress to impose a "trade distorting tax on energy intensive imports" via amendment to proposed energy tax legislation.

Meantime, Bonn plans to impose a tax on low mileage efficiency autos to Cut CO2 emissions 25-30%. Cars operating less efficiently than 7.7 1./100 km (31 mpg) would be subject to a special sales tax German Environment Minister Klaus Toepfer told German weekly Bild am Sonntag. Buyers of more fuel efficient cars would get a discount. He called for a European Community rule to reduce gasoline consumption to cut EC-wide CO2 emissions by 25-30% beginning in 1994.

Also at the IEA meeting, IEA Executive Director Helga Steeg, noting a new spirit of cooperation offered to IEA members by OPEC linchpins Saudi Arabia and Venezuela, surprised observers by suggesting Saudi Arabia be encouraged to invest in boosting Russian oil production.

Although Saudi Arabia has abandoned its experiment to create a major, independent downstream company, Samarec, in light of its merger into Aramco, sources in Saudi Arabia say the merger won't change the grand scheme of modernization but could quicken the construction tempo after the 4-6 month transition period (see story, p. 24).

The merger will create the world's largest integrated oil company and put Aramco among the top 10 refiners. Sources in Saudi Arabia say the action reflects dissatisfaction with the progress of the modernization program--the company's profitability and yeoman efforts supplying allied forces during the Persian Gulf war notwithstanding. Official reasons for the merger are operating advantages, development of the refining sector, and training opportunities for Samarec employees. Abdelaziz M. Al-Hokail, Saudi Aramco executive vice-president, will head the transition task force.

Tax and export confusion continues to bedevil foreign investors in Russia's petroleum sector.

Russia's oil transport agency Transneft has suspended shipments of oil exported from more than 40 foreign/domestic joint ventures, according to Russian press reports. Transneft cited an export volume of 23.36 million bbl this year by June 1 vs. a projected total for the period of 17.52 million bbl. Russian JVs are expected to produce 54.75 million bbl in 1993.

And Russian Vice Premier Alexandr Shokhin says Moscow may cancel some TV oil export rights, citing claims that some Russian enterprises have allegedly used JVs as a conduit for smuggling oil out of the country.

JV associations blasted Transneft's move--which they claim was a result of pressure from the Economics Ministry--as arbitrary, illegal, and undermining the 'Investment climate in Russia, especially for JVs that are marginally profitable because of the recent imposition of new customs tariffs.

Russia's unwillingness to issue specific tax guarantees to unformed JVs including foreign partners has prompted Tomsk oblast officials to change bid requirements for its July 30 competitive tender of exploration and development rights in a 70,000 sq km area in western Siberia (OGJ, Mar. 29, p. 28). Bidders need not include deposits of 20% of cash bonuses, nor will the remaining 80% be payable upon registration of winning JVs.

Now, winning bidders still must sign JV contracts when acreage is awarded. But Tomsk will require no bonuses to be paid or work commitments fulfilled until JV partners receive written guarantees specifying taxes for which they are liable in amounts set by their JV contracts. Meanwhile, Tomsk set June 30 as the registration deadline for bidders.

Reversing the trend of recent months, U.S. oil demand rose sharply in May, says API. Demand jumped 3.4% to 17,101,000 b/d from a year ago. U.S. crude output dropped again in May, to 6,858,000 b/d vs. 7,169,000 b/d a year ago. To date in 1993, U.S. oil production has fallen 5.5%, or 400,000 b/d, compared with the same period in 1992.

"Decline rates of this size have been experienced only twice previously in the past 20 years," API said. As a result, total crude and petroleum products imports were 8,390, 000 b/d, up 7.2% from May 1992.

Uncertainty over market shakeouts caused by FERC Order 636 has claimed a victim, at least temporarily. Oklahoma-Arkansas Pipeline Co. withdrew its application to transport gas from the Arkoma basin, citing the order. The withdrawal came in response to a FERC query as to whether the project would proceed. FERC had issued a preliminary determination on the project in 1990. The proposed 352 mile line would have linked Arkoma basin production with Texas Eastern and Trunkline interconnects. Ok-Ark is a partnership of units of Texas Eastern, Williams Cos., and others. Noting Ok-Ark dropped the application without prejudice to its right to refile, Williams said the pipeline had come to a standstill for 2 years because restructuring moves spawned by Order 636 had stymied the interconnecting projects to the south and east. Williams still considers the project viable.

A strong recovery is continuing in Canada's petroleum industry, with most companies reporting improved profits and a substantial increase in drilling activity as a result of stronger markets and prices for natural gas and heavy oil production. A survey of companies by Daily Oil Bulletin, Calgary, found 90% of oil companies surveyed reported higher profits in the first quarter vs. a year ago (see related story, p. 28). Profits for 98 companies totaled $349.8 million (Canadian) vs. $121.3 million in first quarter 1992. First quarter drilling activity, with 2,462 wells drilled, was the highest on an annualized basis since 1989's 8,000 wells.

Environmental concerns and rising demand are fueling a major marketing upgrade and expansion in Mexico.

Pemex hopes to double the number of service stations in Mexico to 6,000 by 2000, Eduardo Celorio, president of the Mexico Association of Service Station Suppliers (Ampes), told Mexico City daily The News. "Most of the stations have equipment that is at least 10 years old and is in dire need of renovation, " Celorio said. "Because there has been no real maintenance or renovation, at least 30% of the storage tanks are leaking gasoline into the subsoil. " Further, only a tiny fraction of Mexico's service stations have leak detection or vapor recovery systems. Refitting Mexican service stations with double walled storage tanks and vapor recovery systems would cost at least $2 billion, Ampes estimates. To encourage revamps, Pemex and Ampes have set up a credit union to provide station owners with long term soft loans. Once a station agrees to a revamp, it will receive a 60% commission boost on gasoline sales to offset the investment.

Colombia's giant Cusiana field continues its march to start-up. BP last week started construction of a $372 million oil production/processing facility in Cusiana. As many as three 40,000 b/d production units will be installed on a 1,680 acre site that lies between the Buenos Aires 1 and 2 drillpads near the town of Tauramena. First oil will be sent to the site in mid-1994, with Cusiana production ramping up to 150,000 h/d by late 1995 (OGJ, May 10, p. 30). BP is awaiting approval of its declaration of commercially by Ecopetrol, which the state company has said will be given by the end of June.

Statoil has halted work on a 500,000 metric ton/year MTBE plant under construction at Karsto, north of Stavanger. Statoil stopped field work 2 months ago and began a fruitless search for a partner in the $440 million plant. The company disclosed June 9 it had scrapped the project.

A spate of MTBE projects throughout Europe persuaded Statoil that 100% ownership of the Karsto plant was too risky. A 50,000 ton/year MTBE plant Statoil is building at Stenungsund, Sweden, is due on stream this summer. Statoil will buy most of its future MTBE supply needs.