OGJ NEWSLETTER

Mexica President Carlos Salinas de Gortari has warned the U.S. the North American Free Trade Agreement must be in place as scheduled Jan. 1, or it's dead. Some U.S. congressmen want to change or delay the pact, but Salinas says, "Neither reopening negotiation of the treaty nor postponement of its implementation date are viable options at this stage. Both avenues would, in effect, represent a cancellation of the treaty, perhaps for many generations."

Gas industry groups have urged Congress to approve Nafta as drafted. The Natural Gas Supply Association, the American Gas Association, the Interstate Natural Gas Association of America, and the Independent Petroleum Association of America sent a letter to Congress saying under Nafta, "U. S. natural gas suppliers will he able to negotiate contracts directly with Mexican purchasers and Pemex. The agreement allows oil and gas field service providers to negotiate performance based contracts and incentives for superior performance, making service contracts more lucrative."

U.S. energy lawmakers are asking President Clinton to consider a long term strategy to reduce oil imports, since DOE officials are saying the forthcoming domestic energy initiative will not include an oil import fee or a floor price for oil.

Bennett Johnston (D-La.), Senate energy committee chairman, is asking other senators to endorse a letter saying the economic agenda should restrain oil imports, since they cost the economy $1 billion/week.

API reports U.S. demand for petroleum products the first 3 quarters of 1993 increased only slightly from the same period of 1992.

API says demand, as measured by deliveries from primary storage, averaged 17.035 million b/d vs. 16.94 million b/d a year ago. U.S. crude production for the first 3 quarters averaged 6.843 million b/d, down 5% from a year ago. Imports rose 7.2% during the same period.

"There is some hope the worst is behind us" in the U.S., says C.R. Palmer, chairman, Rowan Companies, Houston. Palmer told the Houston chapter of Nomads last week "there is profit now" in mobile rig rates in the U. S. Gulf of Mexico. But if industry is to avoid the mistakes of the early 1980s when the next boom comes, it must follow intelligent business and lending practices to avoid credit glut and shortage. Palmer says suppliers and service companies, for example, should require earnest money, progress payments, letters of credit, and penalties for canceling orders. "Do this during the next boom and you'll still be around during the slump, " Palmer said. When Rowan selects suppliers, Palmer says, quality and reliability are at the top of the list of criteria, and cost is at the bottom. "The worst mistakes we made occurred when we put price at the top of the list. " Rowan now makes most purchases without competitive bids, Palmer said.

Chevron resumed operations on its $700 million clean fuels project at the El Segundo, Calif., refinery. The company requested that a federal court in San Francisco block EPA's stop work order that shut down the project Oct. 8. The court granted Chevron's request the same day, blocking EPA's order indefinitely. EPA issued a notice to Chevron Sept. 22 saying the company's activities on the project were in violation of the Clean Air Act because Chevron had not obtained a construction permit from the South Coast Air Quality Management District (OGJ, Oct. 11, p. 27). Chevron says it began the permit process for the clean fuels project at El Segundo in .March 1992, but the nature of the project required they start preliminary work.

SoCalGas plans a multimillion-dollar plant in East Los Angeles for production of natural gas powered vehicles (NGVs). The Ecotrans project will produce new NGVS, convert vehicles to natural gas, and conduct research and development. The company expects to convert some 5,000 vehicles by yearend 1994 and has a production goal of 17,000 vehicles by yearend 1996. The R&D center will operate a certified emissions laboratory to evaluate performance and improve quality and safety standards in the industry.

SoCalGas and partners plan to invest more than $8 million in the operation, which will employ more than 100 workers by yearend 1994.

Alberta Natural Gas says the main California customer for a $150 million (Canadian) gas cogeneration plant is lost due to delays in government approval. ANG says as a result of delays approving the Elk Valley project in East Kootenay, Sacramento Municipal Utility District (SMUD) applied new conditions to electricity purchases that are unacceptable to ANG and Powerex Inc., B.C., Hydro's export unit. The B.C. government denies undue delay. ANG noted the project now must seek new markets for the power. It was scheduled to produce 130,000 kw for 30 years beginning in 1996.

Nova Scotia's provincial oil company has been ordered to improve its performance or be shut down. Natural Resources Minister Don Downe fired the nine member board of Nova Scotia Resources Ltd. (NSRL) and ordered development of a 5 year business plan. The company, in operation since 1981, is $450 million (Canadian) in debt and is expected to incur further losses in the Cohasset-Panuke joint venture offshore oil development project with Lasmo. NSRL Pres. Jim Livingstone says the project is expected to lose $104 million when it winds down in 1996, noting development and production costs for the 34 million bbl field increased to $915 million from 1989 estimates of $565 million. He blames poor planning and high costs.

The field is the first offshore oil development in Canada.

OPEC's September crude production averaged 24.79 million b/d, reports Middle East Economic Survey (MEES), more than 1 million b/d beyond the third quarter production ceiling and exceeding the 24.52 million b/d fourth quarter limit agreed to in late September (OGJ, Oct. 4, Newsletter).

September's increase of 500,000 b/d from August levels was blamed on a 385,000 b/d hike in Iran's production plus a 100,000 b/d increment from Kuwait. MEES warned Iran and Kuwait will have to cut about 100,000 b/d each in October to comply with the new quota. Reports say both plan to comply. London newspaper Independent reports OPEC's third quarter production was 2% higher than third quarter 1992, yet income fell to $31.9 billion, down $7.4 billion from third quarter 1992.

Pdvsa expects to finalize two joint venture agreements for heavy oil projects before the next government takes over in Caracas in February 1994. Pdvsa Pres. Gustavo Roosen says one of the ventures will include Pdvsa unit Corpoven and an unnamed foreign partner. The other is likely to include Pdvsa unit Lagoven and Germany's Veba Oel.

The Venezuelan congress last August gave approval to three joint venture projects in LNG and heavy oil, marking the first time international capital was allowed for equity investment in Venezuelan oil and gas since the 1976 nationalization (OGJ, Aug. 23, p. 22).

BP is to sell its half share of BP Bitor Ltd. to partner Pdvsa on Jan. 31, 1994. BP Bitor was set up in 1989 to market Orimulsion, a bitumen-in-water emulsion made from heavy Venezuelan crude oil, to British electricity generators. The company won sales of 1.3 million metric tons/year of Orimulsion to Powergen plc, to fuel stations at Ince, Cheshire, and Richborough, Kent (OGJ, Jan. 11, p. 22). BP says the sale is part of its strategy to focus on core businesses (OGJ, Mar. 22, p. 25). The deal is believed to be worth $5 million. Pdvsa has formed Bitor Europe Ltd., London, to take over Orimulsion business throughout Europe. Bitor Europe says U.K. sales of Orimulsion are expected to remain at about 1.3 million metric tons/year for 2-3 years and increase to 5 million metric tons/year by 2000.

Benton Oil & Gas received financing for its Benton-Vinccler Venezuelan venture to reactivate and develop South Monagas unit, which includes Uracoa, Bombal, and Tucipita oil fields in eastern Venezuela. Interunion Bank (Antilles) NY is sponsoring the $15 million commercial paper program.

About $7 million will he used to repay a bridge loan from Banco Latina. Most of the rest will fund completion of the 1993 development program, recently expanded to include a 10 well drilling program in Uracoa field. Benton-Vinccler has a service agreement with Lagoven. Pdvsa has awarded more contracts under its marginal field revival program (see story p. 31).

Russia's Fuel and Energy Ministry says it needs about $30 billion to carry out an ambitious long term development program for the troubled energy sector, Reuters reports. The ministry says more than 90% of that should be in the form of capital investment, mostly from domestic sources, noting, "Most of the necessary resources must be earned by the fuel and energy complex itself." Economics Ministry experts said in a report early this month the oil industry needs at least $8 billion in foreign investment to stabilize output, which has been falling steadily the last 5 years (OGJ, Sept. 13, p. 29). Crude output this year is officially forecast at 7.1-7.14 million b/d vs. 7.96 million b/d in 1992 and a high of 11.4 million b/d in 1988.