OGJ NEWSLETTER

Low U.S. natural gas storage levels bode well for continued higher natural gas prices. Merrill Lynch reports DOE cut its estimate of working gas in storage as of Mar. 31 to 1.207 tcf from a previous 1.362 tcf estimate. That compares with 1. 544 tcf same time last year and a 6 year average for the period of 1.778 tcf.

It implies storage injection demand of 1.7 bcfd during the 214 days until the heating season, 20% higher than normal, Merrill Lynch says.

Natural Gas Clearinghouse expects natural gas prices to average $2.05/Mcf in 1993 vs. $1.68/Mcf in 1992 and expects an average $2.15/Mcf in 1994. But higher prices have not boosted the number of U.S. drilling permits. The 29 states Salomon Bros. tracks saw April permits dip by an adjusted 0.7% from the month before to 1,628, a 12.4% decline from April 1992. The analyst notes the sluggish trend in permits indicates little increase in the rig count near term but expects sustained improvement before midyear.

EIA's short term outlook calls for an average U.S. natural gas price of $2.01/Mcf in 1993, up 15 cts/Mcf from 1992, and $2.20/Mcf in 1994. U.S. natural gas demand is to increase 3.4% in 1993 to 20.4 tcf and 3.3% in 1994 to 21.08 tcf, EIA says. Low natural gas drilling and increased demand will push U.S. natural gas imports to 2.06 tcf in 1993, a 13% increase, and in 1994 imports are to jump 17% to 2.4 tcf. EIA says world oil prices will remain weak through 1993 at $19/bbl but expects $20/bbl oil by mid-1994.

U.S. crude production is to continue its downward spiral, dropping nearly 500,000 b/d during 1992-94, while oil demand will increase to 17.3 million b/d in 1993 and 17.7 million b/d in 1994, the agency predicts.

Somat, an oil shale asphalt product, has shown promise during a market test program. New Paraho in February sold out its first production run of Somat for use in western Colorado during this summer's paving season. The company plans to triple Somat production at its Rifle, Colo., plant to allow market tests to expand to Texas, Utah, and Michigan.

The test marketing program started last September with the plant producing 15 b/d of Somat (OGJ, Dec. 14, 1992, Newsletter). New Paraho says when asphalt is mixed with 10% Somat it increases road life considerably, while increasing construction costs by just 10-15%.

Tenneco and British Gas have agreed to jointly develop gas transmission and gathering pipeline systems in South America.

The combine is interested in plans to lay gas pipelines from Argentina to Chile and from Bolivia to Brazil. Producers in Argentina's Neuquen basin and Chile's Chilectra utility have signed a supply contract and are seeking operators for a Santiago distribution grid and a pipeline from Neuquen basin to Santiago. Tenneco and BG may participate in building and operating either or both systems.

Three major Canadian natural gas pipeline systems will begin trial runs this summer for a one stop electronic shipping service.

TransCanada PipeLines, Nova, and Westcoast Energy are backing the Electronic Data Interchange (EDI) system, which would give companies instant access to trading information ranging from current pipeline capacity to trading in all markets of interest to Canadian dealers. TransCanada Chairman Gerald Maier says he hopes the system will help marketers achieve more sales and higher prices for gas. He says a major benefit of the system will be standardization of methods for measuring sales and making contracts that currently complicate gas marketing. Sponsoring companies hope to tie the entire Canadian gas trunkline system into EDI by 1994.

Foreign companies holding Norwegian gas field interests would be allowed a say in gas sales negotiations under proposals unveiled by Norway's Prime Minister Gro Harlem Brundtland. The Norwegian gas negotiating committee (GFU), including state company Statoil and private firms Norsk Hydro and Saga, has handled all of Norway's gas sales since 1986.

While praising GFU's work, Brundtland called for a "closer link between resource management and sales activities." Norway's parliament will study linking gas fields to sales contracts earlier in development.

Before a contract is concluded, the Ministry of Industry and Energy will decide which gas fields will supply the contracted gas, says Brundtland. GFU and the licensees will provide plans to the ministry, and licensees will have the opportunity to negotiate sales along with GFU.

India's fifth licensing round is generating interest, due partly to improved production sharing terms. Incentives include a provision for seismic options, allowing acreage to be relinquished without drilling if surveys fail to identify suitable prospects. No signature or production bonuses are required, there are no royalty payments due on production, and no customs duty on imported supplies and equipment. Applicable income tax has been set at 50% without surcharge, and there are no restrictions on repatriation of profits. The round offers 45 exploration blocks (OGJ, Mar. 22, p. 42), of which 29 are offshore and 16 onshore. Petroconsultants says some of the acreage was previously reserved for India's ONGC and Oil India Ltd. ONGC has set up data rooms in Houston, the first opened by ONGC outside India.

Chevron has boosted its reserves base by more than a third, booking 1.1 billion bbl of oil and 1.5 tcf of natural gas reserves from its share of Tengiz and Korolev oil and gas fields in Kazakhstan. The reserves are based on the 60 wells drilled in the area. Chevron recently got a green light on the 40 year project aimed at recovering about 6-9 billion bbl of crude (OGJ, Apr. 12, Newsletter).

Japan's Marubeni has struck a deal with Uzbekistan state oil company Uzbekneftegaz to build a refinery there, Kyodo News Service reports. The deal calls for construction of a $1 billion, 100,000 b/d refinery at a site to be chosen after completion of a feasibility study in August. Marubeni is looking to Japan's ExIm Bank to provide financing, and Chiyoda will be involved in the project. Part of the construction costs may be financed by proceeds from exports to Japan of oil, gas, and cotton. Uzbekistan's product demand is 300,000 b/d, while current refining capacity is just 170,000 b/d.

An advisory council to MITI has proposed that Japan reorganize its petrochemical industry and boost international competitiveness via mergers and joint ventures. MITI will study tax and financial measures that promote restructuring, Kyodo News Service reports. The proposal also urges Japanese petrochemical makers to strengthen ties with overseas competitors.

Plans to build a $1.4 billion pipeline to export crude from Azerbaijan to Ceyhan on Turkey's Mediterranean Sea coast snagged on western backers' opposition to a 60 km section passing through Iran. The optimum route traverses the Armenian enclave of Nagorno-Karabakh, the scene of fighting between Azerbaijan and Armenia. That route makes it vulnerable to attack, so the plan includes an optional detour into Iran (OGJ, Mar. 15, p. 32). Middle East Economic Survey (MEES) quotes Tehran radio saying western countries want a detour through Armenia rather than Iran. The Azeri government prefers the Iranian route. Turkey proposes splitting the pipeline at the Azerbaijani border, MEES reports, to form loops through Armenia and Iran. These would join at Nakhichevan to complete the journey to Turkey. Western participants are said to be more open to this proposal, while the Turks are said to hope the prospect of transit fees will appeal to the Armenians.

Kuwait Oil Minister Ali Ahmad al-Baghli will demand an increased production quota when OPEC meets in Geneva June 8. Al-Baghli told journalists he will ask for the 1. 6 million ID/d quota agreed at the February OPEC meeting to be raised to at least 2 million b/d, MEES reports. Kuwait can sustain 2.2 million b/d output, says al-Baghli, with 2 million b/d coming from Kuwait and 200,000 b/d from Neutral Zone fields shared 50-50 with Saudi Arabia. Kuwait capacity is predicted to hit 2.4 million b/d by the end of June, with an expected yearend level of 2.4-2.5 million b/d, in line with capacity prior to the 1990 Iraqi invasion.

To date Kuwait has spent more than $10 billion on oil industry reconstruction, MEES notes, and the government is said to be planning to restore productive capacity to the 3.7 million b/d peak of the early 1970s.

Iran, meantime, says it will boost productive capacity to 4.5 million b/d in the next few months, a claim made late last year with a target of March 1993 (OGJ, Dec. 28, 1992, Newsletter). Iran has current capacity of 4.3 million b/d. Oil Minister Gholamreza Aghazadeh said the projected hike in capacity does not mean Iran plans to break its OPEC quota of 3.34 million b/d. Aghazadeh urged OPEC countries to work closely to improve the "unsatisfactory" situation in the oil market.