OGJ NEWSLETTER

U.S. companies are marking long-sought progress on joint ventures in the C.I.S.

That comes as details emerge of the U.S. aid package for Russia - with its heavy emphasis on oil and gas - resulting from the recent Clinton-Yelt-sin Vancouver summit.

Chevron finally has a green light on its Caspian coast megaproject in Kazakhstan. Chevron and the Kazakh government last week signed an agreement establishing Tengizchevroil (TCO) as a 40 year, 50-50 venture to develop Tengiz and Korolev oil fields and export the production, expected to reach 700,000 b/d by 2010. TCO, to contribute $50 million in 5 years for local civil infrastructure in Atyrau oblast, expects to spend more than $1.5 billion on development the next 3-5 years alone.

Pending completion of a pipeline, Tengiz crude will be transported and exchanged to ensure hard currency exports. Development will be phased to coincide with pipeline capacity to ensure continuous exports equal to full field productive capacity. Ultimately, partners could spend as much $20 billion to develop 6-9 billion bbl of oil.

The $1.6 billion U.S. aid package for Russia includes $38 million for projects to enhance energy production efficiency and reduce pollution from pipeline systems. That latter point was underscored as Russia last week reported two major oil pipeline leaks in Siberia in March alone.

A crude line from Reshoty to Taishet burst and caught fire, leaking about 44,000 bbl that halted traffic for 12 hr on the nearby trans-Siberian railroad. A week earlier, the Omsk-Irkutsk line ruptured near the eastern Siberian village of Tret, spilling 146,000 bbl of crude.

Polar Lights, a 50-50 venture of Conoco and Russia's Arkhangelskgeologia production association, is to receive $150 million of financial assistance included in the aid package for Russia.

Overseas Private Investment Corp. (OPIC) granted Polar Lights a $50 million loan guarantee and $100 million of political risk insurance to help with its plans to develop oil reserves in the Ardalin complex of Russia's Timan-Pechora basin near the Arctic Circle. The loan guarantee is OPIC's first in Russia, and the insurance coverage is the biggest OPIC has issued in Russia. several U.S. companies are to manufacture about $100 million of equipment and components for Polar Lights facilities.

In addition, U.S. Export-Import Bank approved an $82 million loan to finance the sale of Caterpillar pipeline construction machinery for use on a Gazprom line from the Yamal Peninsula (OGJ, Mar. 15, Newsletter).

Benton Oil & Gas has completed its Russian oil pipeline and expects Geoilbent - its JV with Russian oil and gas agencies - to start production from North Gubinskoye oil and gas field in western Siberia in the third quarter. Capacity of the 37 mile line from North Gubinskoye to the main east-west Russian trunk line is 70,000 b/d. The field, with an estimated 340 million bbl of liquids reserves, has been delineated with 60 wells.

Dresser has new projects in Russia and Uzbekistan. In Russia, Dresser agreed to a joint venture with Gazprom to develop the Kivorsky Zavod manufacturing plant in St. Petersburg. The plant, which formerly produced equipment for the Soviet military, will be converted to manufacture turbine compressor sets for use in gas pipeline transmission. Dresser will supply technical assistance and critical components. In Uzbekistan, the company signed a letter of intent with Uzbekneftegas Corp. to design and build a gas injection/condensate recovery project at a cost of $200 million for equipment and services. Dresser unit M.W. Kellogg will provide engineering and construction services for the project, planned for Kokdumalak field. A final agreement is subject to suitable financing.

Pakistan and Uzbekistan have signed a trade and economic cooperation agreement that includes a feasibility study of laying a pipeline from the former Soviet republic to supply Pakistan with Uzbek gas.

Russia's Gazprom will float a capital share issue with the state retaining a 40% interest. A new joint stock company will be capitalized at 89.3 billion rubles with a nominal par value of 1,000 rubles and 28.7% of shares sold mostly to industry employees or residents in gas producing regions.

The U.S. Commerce Department's U.S.-Russia Business Development Committee, working with other groups, will bring about 50 high level oil and gas officials from the Russian government and oil industry to Houston Apr. 28. The delegation will outline trade and investment opportunities in the Russian oil and gas sector.

The C.I.S. has a 13-15 year oil reserve life at current production for explored (proved plus probable) reserves, mostly in Russia, reports Moscow business daily Delovoi Mir. It notes C.I.S. gas reserves comprise half to three fourths of the world total and could suffice for hundreds of years at current production. C.I.S. coal reserves of 7 trillion metric tons can support current supply levels for 10,000. years, Delovoi Mir said.

However, it noted, "The real state of affairs in our fuel and energy sector is such that because of pollution and the need to conserve hydrocarbons for petrochemical manufacture, coal extraction will fluctuate, crude production will continue to decline, and gas flow will stop growing the next century." Conversion of hard fuels into liquids and gas will be a great challenge for Russian technology, Delovoi Mir said.

Foreign investment in India's petroleum sector is on the rise. Occidental has offered undisclosed technology to boost production from India's offshore Bombay High area under a production sharing agreement with state owned Oil & Natural Gas Commission. India's Petroleum Ministry asked Oxy for a detailed proposal, and Oxy wants technical data on Bombay High.

Elf Congo let contract to Technip Geoproduction and Technip for detailed engineering to develop N'kossa, Congo's biggest offshore oil field. The field is expected to provide 30-40% of the nation's production by 1997. Total development cost is pegged at 8.6 billion francs ($1.5 billion). Plans call for two drilling platforms, a production barge, oil and NGL storage units, and subsea and flexible pipelines. The barge will support modules for oil processing, gas dehydration, NGL recovery and separation, gas compression/reinjection, water treatment/reinjection, production utilities, and living quarters. The 40,000 ton production system will have capacities of 120,000 b/d crude processing, 455 MMcfd gas reinjection, 9,500 b/d NGL recovery, and 116,550 b/d water reinjection. Start-up is slated for first half 1996.

Phillips and Sumitomo may combine their North American polypropylene businesses by Jan. 1, 1994.

Phillips and Sumitomo unit Sumika Polymers America Inc. are conducting a feasibility study of a new 270 million lb/year polypropylene plant in Houston. The study is to be complete by the end of the third quarter, and construction could begin in 1994 and be complete in 1995. Phillips' existing 480 million lb/year Houston plant, now being revamped, will be contributed to their partnership, Phillips Sumika Polypropylene Co. The two also are assessing compounding operations and a technical services center.

Have U.S. natural gas prices attained a new plateau?

Salomon Bros. thinks so and is hiking its price forecasts by 20 cts/MMBTU to $2 in 1993 and $2.15 in 1994. Driving the market now is interfuel competition vs. the gas on gas competition that has helped depress prices in recent years. If fuel switching cuts gas demand by only 10-15% vs. the historical one third level, gas prices are likely to substantially exceed their traditional level of 1/10 of spot WTI, which Salomon Bros. pegs at $20.50/bbl in 1993 and rising at less than the rate of inflation the next several years. The analyst also cites a big drop in storage levels vs. last year and a 12% slide in gas deliverability. And it contends U.S. industry will need 500-600 rigs drilling for gas to meet expected demand.

U.S. April spot gas prices averaged $2.09/Mcf, up from $1.84/Mcf in March, says Natural Gas Clearinghouse, Houston. NGC attributes the increase to severe winter weather in March, which caused a heavy draw from storage. It was the second straight average monthly increase of 25 cts/Mcf. Heavy draws on gas storage in February, caused by cold weather in the West, Midwest, and Northeast and increased demand because of nuclear power plant shutdowns, boosted spot prices in March 1993 to $1.84/Mcf from $1.59/Mcf the prior month. By NGC's estimate, monthly spot prices in 1993 through April averaged $1.86/Mcf, up from $1.28/Mcf the first 4 months of 1992 and the highest 4 month average since it began reporting price survey results in 1990. U.S. spot prices the past 9 months beginning in August 1992 have averaged slightly more than $2/Mcf.

U.S. propane stocks are at their lowest level since EIA began tracking them weekly in 1990. U.S. propane stocks the week ended Mar. 26 fell to 20.4 million bbl, continuing a 2 month slide. Gas Processors Report says weekly estimates of U.S. propane stocks before 1986 rarely fell below 40 million bbl and before this winter dipped below 30 million bbl only twice, reaching 29.8 million bbl in March 1989 and 1991. But those modem record lows were bested eight times in February and March, beginning with 29.6 million bbl of propane in inventory the week ended Feb. 5.

Soundings in Washington point to regulatory delays and intervention in international oil markets.

Elizabeth Moler, acting FERC chairman, says this year FERC will focus strictly on implementing the pipeline rate unbundling rule, Order 636, before the winter heating season begins. Other issues, such as a revised pipeline construction rule and incentive ratemaking for long lines, will be delayed until 1994, Moler says. A major reason for the postponement is that four of the five FERC commissioners will be new appointees. President Clinton is expected to name the four at any time.

Environmental groups have asked a U.S. House of Representatives subcommittee to deny Interior funds to plan oil and gas lease sales off Alaska.

The groups contend a year's delay would enable- Interior to review a National Academy of Sciences report due this fall on the adequacy of environmental data for arctic offshore leasing.

The U.S. Senate has approved a resolution urging Clinton to seek U.N. approval for an international oil embargo against Libya (OGJ, Apr. 5, Newsletter). The resolution charges Libya has sponsored international terrorism and has refused to provide information on the bombing of a Pan Am aircraft over Scotland in 1988.