OGJ Newsletter

• U.S. Industry Scoreboard 3/16 [44,340 bytes]

Kogas is the only firm that has signed a contract to take LNG from Rasgas when the plant starts up in 1999. Despite concerns over reduced South Korean LNG demand, however, S&P believes the country's financial problems will not prevent start-up of the Rasgas liquefaction plant and LNG terminal.

S&P said South Korea is making progress in building the necessary infrastructure to receive LNG imports from Rasgas. The country's second LNG terminal at Inchon was completed last year and is operational. And new storage tanks being built at Pyongtaek should be completed this year. Seven LNG carriers are also being built.

"No evidence indicates that construction progress is at risk," said S&P. But if Kogas is not able to meet its contractual obligations, Rasgas will have a hard time finding customers for the LNG, S&P contends.

Meanwhile, U.S. energy giant Enron is talking to Qatar about setting up another mammoth LNG project in the country, reports Dubai's Gulf News. The talks concern production of 4 million tons/year of LNG. QGPC will hold a 65% interest in the project, and Enron 35%. Enron confirmed that negotiations on Qatar's third LNG project are under way. Enron plans to use 2 million metric tons/year of the output for electric power generation in India.

Japan will extend emergency dollar-denominated loans this month to domestic oil companies via the Ex-Im Bank of Japan.

Some oil companies are running short of dollars to pay for imports because of the credit squeeze at private banks, government sources said.

The 3-month loans will cover some import contracts due Mar. 31. Some of the money will come from a ¥300 billion package that the bank received from Japan on Feb. 20 to aid Southeast Asian nations. The government may let Ex-Im Bank use about ¥100 billion for oil imports. Private financial institutions are expected to contribute 30% of the total planned loan package, sources say.

The Philippines oil industry received a much-needed boost when the IMF approved the country's new oil deregulation law, the last reform needed for it to withdraw from the IMF's conditional lending program.

The new law allows oil companies to set their own prices and opens the industry to new entrants. The IMF did, however, oppose a $72.5 million buffer fund that would continue to subsidize oil prices within a 5-month period.

Meanwhile, the Philippines' Energy Regulatory Board has ordered an average 8.8% reduction in the prices of various oil products. The mandatory reductions include gasoline, diesel, aviation fuel, bunker fuel, kerosine, and LPG. The board said it ordered the reduction because of a stabilization in the local currency and a decline in world crude prices.

Chevron and Caspian TransCo signed an accord with Georgia giving the firms the right to operate and use additional Georgian oil transportation facilities from Khashuri, Georgia, to the Black Sea port of Batumi.

Richard Matzke, president of Chevron Overseas Petroleum, said, "Georgia benefits from the use of its transportation facilities, and the increase in exports supports the rapid development of the Tengiz field in Kazakhstan. Upon completion of the Caspian Pipeline Consortium project through Kazakhstan and Russia, Tengizchevroil will have the optimum capacity available for transport, thereby greatly enhancing Tengiz's production level and economic value."

Chevron and Caspian TransCo are currently transporting Tengiz crude from Kazakhstan to Georgia via Azerbaijan's port of Baku.

Lukoil and Conoco have signed a memorandum of understanding to develop oil and gas in the 1.2 million acre northern territories of the Timan-Pechora region, which could hold more than 1 billion bbl of crude oil and 2 tcf of natural gas. The plan next goes to the Russian Ministry of Fuel and Energy for approval, expected by December. Total economic benefit of the development could reach $25 billion. Lukoil will hold a 60% share and Conoco 40%.

The U.S. is asking Persian Gulf nations to help it prevent smuggling of Iraqi crude oil and refined products. The Pentagon says Iraq is skirting sanctions by exporting oil through Iranian territorial waters-about $20 million/month, according to a Pentagon spokesman.

U.N.-member warships on patrol in the Persian Gulf have intercepted some smugglers. Apparently, which port the warships can force the smugglers into is still an open question. A suspected smuggler's barge sank and spilled about 30,000 bbl of crude or diesel off Ajman, U.A.E., in January, after which the U.A.E. banned all oil-related barge traffic. The spill forced the closure of desalination plants, which provide drinking water to the region.

The European Parliament and European Council have failed to agree on a proposed tightening of fuel specifications, and refiners will have to wait at least another month before they know what's coming. Having already agreed on new specs that will require Europe's refiners to invest $9 billion by 2000, the European Commission tried to introduce even tighter rules, expected by refiners to cost a further $49.5 billion (OGJ, Jan. 12, 1998, p. 21).

Wood Mackenzie said that, coming in a climate of poor refining margins, overcapacity, and misalignment of the supply barrel, the proposed super-tight specs would put yet more pressure on a hard-pressed industry.

"The European Parliament may, in effect, be punishing the industry for its habit of crying wolf when faced with the prospect of tightening product quality specifications," said WoodMac. "European downstream profitability may not be sufficient to fund the required investment, but major oil companies have reported record profits in recent times. Experience from the U.S. also suggests that the actual cost of the reformulated gasoline program has been significantly lower than the original claims.

"When it comes to the crunch, refiners find ways of innovating and reducing costs, and this is likely to be the case in Europe also."

The analyst reckons that meeting the council's first proposals would cost a total of $20 billion, while meeting the parliament's tougher proposals could cost as much as $60 billion.

"With sales of gasoline and diesel within the EU totaling around 240 million metric tons/year, an increase in the end-user price of between 1.5¢/l., for a compliance cost of $20 billion, and 4¢/l., for a compliance cost of $60 billion, would pay back costs over 5 years. Of course, we know that price rises of this nature may not stick, as refiners who are already able to produce products to the new specifications try to gain an advantage."

Norway's state firm Statoil anticipates keeping production from Norne field off central Norway shut in for several weeks, following problems with oil spill equipment. This comes at a time when Norway is putting on hold 12 potential petroleum development projects (see story, p. 34).

The operator decided to cease production aboard the Norne floater when an independent study showed on-board oil spill cleanup gear would not be able to handle the field's high-viscosity crude if a spill occurred (OGJ, Feb. 16, 1998, p. 30). Originally, Statoil expected to lose 2 weeks' production, but now the company is unhappy with two types of skimmers that had been earmarked as suitable for Norne.

A Statoil official said, "We're conducting further tests on these models. The problem is that they don't collect enough oil. We've asked a Norwegian and a Swedish company to submit plans to increase recovery capacity for the skimmers." The length of shutdown will depend on the suppliers' ability to provide modified skimmers. To meet Norwegian Pollution Control Authority requirements, each skimmer must be able to remove 3,125 bbl/hr of oil.

Outsourcing of energy management continues to draw converts from industry and academic institutions.

PG&E and Ultramar Diamond Shamrock (UDS) agreed to form an energy alliance believed to be the largest of its kind. PG&E will manage more than $2 billion in energy purchases for UDS and provide energy services for UDS sites in the U.S. and Canada. Energy costs at UDS's refineries, pipeline, terminal, and retail facilities will be reduced about 15-25% during the alliance's 7-year term.

PG&E also will build a 750 MW cogeneration power plant at UDS's refinery at Three Rivers, Tex. Power not used by the refinery will be sold by PG&E to wholesale customers in the area.

Meanwhile, Enron Energy Services will provide electricity to all the campuses of California State University and the University of California-31 sites, in all. The deal, thought to be the largest direct-access power contract in the country, will save the institutions about $15.7 million in 4 years.

The agreement is worth $300-500 million in electricity sales.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.