OGJ Newsletter

• U.S. Industry Scoreboard 7/13 [44,473 bytes]

Royal Dutch/Shell withdrew from a group bidding to buy more than 75% of oil producer Rosneft, due to be fully privatized. Shell cited a glum outlook for oil prices and "the present difficult financial circumstances in Russia."

Citing the same problems, BP confirmed it's also pulling out of the bidding for Rosneft, another blow to the cash-strapped Russian government. BP also was looking at a 75% stake in Rosneft.

Gazprom and Lukoil officials said that, without Shell's and BP's participation, they too are withdrawing.

There has been a new development in Gazprom's recent tax problems. Prime Minister Sergei Kiriyenko recently ordered officials to seize the assets of Gazprom (OGJ, July 6, 1998, Newsletter). But after OGJ went to press last week, an uproar in parliament forced President Boris Yeltsin to intervene, reinstating the Gazprom board, which Kiriyenko had fired. The gas giant owes an estimated $400 million in taxes.

Meanwhile, Omsk-based Russian oil producer Sibneft has cut its tax bill by re-registering its holding company in the Omsk region, but outside the tax jurisdiction of the city.

Sibneft said the move is expected to reduce its taxes by $50 million in 1999 and will not involve any significant relocation costs, as the company's main administrative offices are outside the city's boundary.

Sakhalin's regional government plans an open tender for a feasibility study of a refinery on Sakhalin Island. A government official said the tender is part of oil and gas field development project planned off the island's northeastern coast (OGJ, July 6, 1998, p. 27).

Construction of refineries and gas liquefaction plants on Sakhalin has become one of the government's top priorities.

China is going ahead with a major realignment of its downstream industry as a result of a depressed domestic market and large inventories.

The State Petrochemical Industry Bureau recommended the closure of refineries smaller than 500,000 metric tons/year (with some exceptions in poverty-stricken areas) to remove 5 million tons/year of capacity. Some larger refineries are being encouraged to merge with the country's two petroleum giants, China National Petroleum Corp. and Sinopec.

China's downstream industry suffered a 2.7 billion yuan loss in the first 4 months of 1998 vs. a 7.5 billion yuan profit for the same period in 1997. China officially deregulated its oil pricing system in June in line with international practice. This has been tough on domestic refiners, which must now compete with cheaper imported oil products.

Australia's oil refining and marketing sector has taken hard economic hits in 1997, and prospects for 1998 look no better, according to Jim Starkey, executive director of the Australian Institute of Petroleum.

Sector profits fell to $81 million (Australian) in 1997, compared with $358 million in 1996-a mere 2% return on shareholder equity. An Ernst & Young survey blamed the sector's current troubles on falling crude oil prices and competition from Singapore and Thai exports to Australia.

Capital investment in the sector also declined to $433 million from $632 million in 1996. Total assets dropped to $10.2 billion in 1997 from $10.7 billion in 1996.

Chevron has furthered plans for a $4 billion (Australian), 2,400-km pipeline from Papua New Guinea (PNG) to Australia by signing a conditional agreement to supply PNG gas to a proposed power plant in Queensland (OGJ, June 1, 1998, p. 35). The supply contract, with Australia's Stanwell Corp. and the U.S.'s Dynegy (formerly NGC), was the key to Chevron's decision.

Stanwell's Peter Schmidt said the agreement covers the proposed power station's fuel needs, about 38 bcf/year. Schmidt said Stanwell remains concerned that a gas-fired power station may not be profitable if the state goes ahead with proposals to build coal-fired power plants in addition to previously announced plans for new generation capacity: "We are continuing to assess the impact of these other projects on the Pinnacles power station and will complete a full review before we make a final decision to proceed." The review will be completed at the end of July.

Nigeria's political and economic woes continue.

The government appointed four multinational firms to import petroleum products into the country to combat a 19-month long scarcity. Although Nigeria has not named the companies, Shell, Mobil, Agip, Elf, and Texaco have marketing outlets in the country.

Nigerian officials say the move to import gasoline, aviation fuel, and diesel will end when maintenance work is completed on the country's refineries.

Nymex crude oil futures rose last week on fears that civil unrest in Nigeria could halt oil exports just as U.S. inventories are showing some declines, according to the Associated Press.

Light, sweet crude for August delivery rose 23¢ to $13.85/bbl.

Civil war could stop Nigerian exports just as world oil producer cuts appear to be having an effect on the market.

API reported last week that inventories had grown by a smaller-than-expected 684,000 bbl, while the U.S. Energy Department said stockpiles actually fell a sharp 2.9 million bbl. Gasoline inventories decreased in both weeks, while U.S. refineries were operating at the same utilization as a week earlier, indicating that the volume of crude imports could be weakening.

Petroleos de Venezuela is claiming a strike at its petrochemical plants is illegal. Negotiators from Pedepetrol, the umbrella union of the country's oil and petrochemical industries, ended talks with management late last month.

Pdvsa petrochemical unit Pequiven has been negotiating since late April with the union, which has demanded a 100% increase in their daily wages-about $9-while management has offered a $5.80 increase.

Pedepetrol white collar workers and technicians are continuing to work and apparently are maintaining plant production. Pequiven claims the walkout jeopardizes public health because the company is the only source of chlorine used to purify drinking water and of fertilizers for the country's agricultural industry.

EVC International and Norsk Hydro signed a non-binding letter of intent to merge the major part of Hydro's petrochemicals division with EVC to form the world's fourth largest polyvinyl chloride producer.

The merged company will have a total European capacity of 1.8 million metric tons/year of PVC and 1.9 million tons/year of vinyl chloride monomer. EVC and Hydro expect to achieve combined annual sales of 80 million guilders (300 million kroner).

Norsk Hydro will hold 45% of the shares in the merged company. EVC will issue new ordinary shares in exchange for the agreed assets of Hydro's petrochemicals division. These assets exclude Hydro's interests in an ethylene plant at Rafnes, Norway, and its fabrication facilities.

The companies will undertake a study of the future ethylene needs of the combined entity, including clarification of the future relationship between the company and Hydro's 51% share in the Rafnes cracker.

London's International Petroleum Exchange (IPE) and Oslo's Norwegian Futures & Options Clearing House (NOS) signed a letter of intent to cooperate in trading and clearing in new energy markets.

IPE-a major center for oil trading-is building a natural gas trading market and recently signed a deal with Oslo's Nord Pool electricity futures exchange to enable trading in contracts on both exchanges.

IPE said the NOS deal will combine the clearing technology developed by NOS with electronic trading facilities developed by IPE. NOS expects electricity to become the largest traded energy commodity in Europe.

Azerbaijan's most recent oil exploration project could set the nature of the Caspian Sea oil industry for years to come.

Julian Lee of London's Centre for Global Energy Studies said that success or failure of the Shah Deniz offshore oil prospect could determine the level of interest in the region: "Failure won't lead to a full-scale walkout by oil companies, but it won't do the region any good, especially with oil prices low."

Lee said the Shah Deniz project-Azerbaijan's second largest in terms of total projected expenditures-was being regarded as a bellwether for the region's potential, after another offshore wildcat failed to strike oil (OGJ, July 6, 1998, Newsletter).

"After the failure of finding oil at Karabak, Shah Deniz has become more of a marker of the reserves in the Caspian," said Lee.

Copyright 1998 Oil & Gas Journal. All Rights Reserved.