OGJ Newsletter

Due to a Holiday in the U.S., data for this week's Industry Scoreboard are not available.

Oil ministers were expected to roll over production quotas during the OPEC meeting in Vienna that got under way at presstime last week.

Recent high oil prices have brought an unexpected revenue windfall to OPEC countries, so ministers were expected to do nothing to undermine market confidence.

OPEC's group ceiling is 25.033 million b/d, although some members have been able to exceed quota without affecting prices, because of shortfalls in non-OPEC output and delays in the Iraq/U.N. oil-for-aid plan (OGJ, Sept. 9, p. 34).

Middle East Economic Survey reports that Venezuela and Nigeria continued as chief quota violators in October, although a plunge in Iran's output trimmed total OPEC production 260,000 b/d on the month to 25.64 million b/d.

Indonesia is denying press reports that the Natuna gas megaproject has lost its luster because of a large gas find elsewhere in the archipelago.

Officials of state-owned Pertamina say the field is on track to begin first gas deliveries in 2002 despite reports indicating that ARCO's Wiriagar gas find off Irian Jaya might compete with Natuna development.

"There is no conflict," Pertamina's G.A.S. Nayoan said. Nayoan, a senior Natuna project executive, said Pertamina was thankful for the ARCO find but that the find "has not been certified" and reserves have not been confirmed.

Pertamina maintains a continuing cost-cutting program will result in Natuna gas being marketed at competitive prices.

Involvement of Exxon and Mobil in Natuna will ensure project efficiency and price competitiveness, Nayoan added. He said 16 platforms are now planned, instead of 18 originally, to produce 2.4 bcfd of gas. Plans call for a total of 216 producers and 84 waste-gas reinjection wells.

Officials said 29 tcf of Natuna reserves have been certified.

Mobil estimates Natuna's ultimate gas reserves at a minimum 46 tcf. Talks on a future Natuna-Thailand pipeline are in progress, officials said. Pertamina has also offered the gas to South Korea and Japan in the form of LNG.

A Natuna gas development and LNG project could cost $15-20 billion, according to industry estimates.

Venezuela may resume supplying oil to Cuba.

The Ministry of Energy and Mines is studying a proposal to renew an old triangular agreement with Russia and Cuba by which state-owned Pdvsa would ship 20,000 b/d of heavy crude to Cuba, while Russia would supply an equal volume of crude to some of Pdvsa's customers in western Europe.

The ministry estimates the arrangement would save Venezuela about $2/bbl on freight costs.

For several years, Venezuela and the former Soviet Union had a similar arrangement, which saved on freight costs for both countries' national oil companies. It was eliminated after the collapse of the Soviet Union in 1989. Cupet, Cuba's national oil company, says the island currently obtains oil from international traders.

Cuba expects this year to import more than 117,800 b/d of crude and products out of total demand pegged at 150,000 b/d. Cuban officials project 1996 crude output at about 30,000 b/d, about the same as last year.

Mobil says key problems remain to be ironed out on a $1.5 billion Caspian Pipeline Consortium (CPC) crude export plan to move Tengiz field oil production from Kazakhstan to western markets via Russia (see related story, p. 40).

A Dec. 6 meeting is planned in Moscow to try to move the deal forward. Carl Burnett, president of Mobil's Kazakhstan unit, a CPC participant, told Reuters news service that one of the items to be worked out is the role of pipeline operator Transneft, Russia's state pipeline firm, which has demanded equity participation in the project, something that current shareholders say would vastly complicate the deal.

Burnett says he does not anticipate an exchange of shares or acquisition of shares Dec. 6, even if there is a meeting on that date.

Earlier press reports said a settlement had been reached between the companies and three governments involved in the project. Companies include pipeline operator Transneft and stakeholders Chevron, Mobil, Oryx, Russia's Lukoil and Rosneft, Oman Oil Co., Agip, and Kazakhstan's Munaigaz. Governments of Russia, Kazakhstan, and Oman hold a combined 50% stake.

A rhetorical bloodbath started last week, even before the U.S. EPA had officially released what may be its most controversial rule yet.

About 500 companies and associations, including API, have banded together to form the Air Quality Standards Coalition.

The group began denouncing a plan by EPA to raise National Ambient Air Quality Standards (Naaqs) for ozone and particulates (PM10) before the proposal, due by Nov. 29 but not yet published at presstime, had emerged.

The coalition blasted EPA for not heeding scientific findings in deciding to make the Naaqs more stringent.

It notes that ozone levels are declining nationwide under existing standards and that an EPA-appointed advisory panel urged more study to determine whether a revision of the PM10 standard was even needed. "EPA has decided to take draconian actions without that research," the coalition said.

Why is EPA planning to revise the standards? It's under court order to issue a proposed rule Nov. 29 and have it final by June 1997. Several previous administrations deferred reviewing Naaqs, and when the American Lung Association sued, EPA lost. However, some contend EPA has the option to keep existing standards in place-if it could prove no adverse health effects result-or use the rulemaking process to call for a public review.

Information on the plan has been widely circulated for months. One new limit is expected to set the standard for ozone at 0.07-0.09 ppm, averaged over 8 hr vs. the existing standard of 0.12 ppm/1 hr.

Bottom line: The plan could significantly increase the number of "nonattainment" areas that can't comply with standards today, to 200-400, according to preliminary estimates, from about 75 today. The PM10 standard, meanwhile, would crack down for the first time on extremely small particulates of 2.5 microns or less vs. 10 microns under today's standards.

Implications for the petroleum industry are far-reaching, including more stringent controls on stationary sources and new cleaner-burning fuels, even going beyond what federal law mandates. California has long been grappling with such tougher-than-federal measures, a process far from complete. The Los Angeles Times Nov. 25 cautioned that meeting the new particulates standard "might entail phasing out diesel fuel and replacing it with cleaner fuels such as natural gas" in the Los Angeles basin. The area already has the world's cleanest diesel fuel and gasoline, well beyond federal requirements. So, under new standards for ozone and particulates, areas that are the most out-of-compliance will have to scramble to find new compliance measures as well.

It isn't only industry that's up in arms. At least 15 governors and other officials from 26 states have asked EPA to keep existing standards in place, the coalition notes. EPA also has heard from at least 60 lawmakers of both parties urging the same.

Ottawa plans to ram through legislation to ban use of the gasoline additive MMT.

The measure, Bill C-29, has touched off a battle between refiners who want to retain the additive and automakers who claim it causes problems with emissions control systems.

A legislative process known in Canada as closure, similar to cloture in the U.S., would allow Ottawa to put the bill through Parliament with minimum debate.

The Canadian Petroleum Products Institute commissioned a study that found cars work well with MMT in gasoline.

It also estimates that converting refineries to eliminate MMT and to use other octane-enhancers would cost the industry $165 million. Eight provincial governments support the use of MMT, but Ontario and British Columbia want it banned. MMT used in Canada is imported and produced by Ethyl Corp.

The $3.6 billion (Canadian) Alliance pipeline project to ship gas from Alberta to U.S. markets has successfully completed an open season for shippers (see related story, p. 36).

Calgary-based Alliance met with more than 120 potential shippers during the 8-week open season. The 1,900-mile line is being developed by limited partnerships consisting of gas producing, marketing, and pipeline companies. It is scheduled for start-up at yearend 1999.

Meanwhile, Palliser Pipeline Ltd., Calgary, which has filed an application with Canada's National Energy Board for a major gas line also aimed at export markets, has proposed a rate plan that challenges the government's existing pipeline toll policy.

The Palliser line would run through Southeast Alberta to Empress on the Saskatchewan border. Project backer PanCanadian Petroleum says the line would move 1 bcfd at lower rates than now charged by NOVA in Alberta and TransGas in Saskatchewan.

Alberta currently has a postage stamp policy on pipeline tolls; shippers are charged the same rate regardless of distance. PanCanadian says Palliser would save shippers about $40 million/year. It would charge tolls of 14¢/Mcf on 20-year contracts and 22¢/Mcf on 5-year contracts. NOVA charges 26¢/Mcf under the postage stamp toll. TransGas charges 22¢/Mcf.

The Alberta government has not commented on the potential rate policy challenge.

NOVA claims it can build facilities at much lower cost than Palliser and expand them as needed.

In another pipeline development, Mobil Canada will use an Internet website to seek supply and service contract bids for the proposed $2 billion (Canadian) Sable Island gas development project off Nova Scotia.

Contracts will be posted on the site as they are tendered, and companies considering bids will be asked to register electronically with a New Brunswick company called Bids.

Information includes a description of the Sable Island project, employment listings, environmental reports, and news releases. Actual bids will not be accepted over the Internet due to security concerns, however.

A Garland, Tex., independent was rigging up to drill a rank wildcat in Georgia last week. Georgia, void of oil or gas production, offers $250,000 for the first successful well.

Surface Exploration Services planned to drill the 1 McNair et al., near Ashburn, in Turner County, 160 miles south-southeast of Atlanta. Well is targeted to 16,000 ft, Petroleum Information reports.

The state's deepest try TD'd at 11,470 ft in Jefferson Davis County in mid-1981. The drillsite is 200 miles northeast of Jurassic Smackover oil fields in Santa Rosa County, Florida Panhandle.