OGJ Newsletter

U.S. Industry Scoreboard 2/12 [72514 bytes]

Gas markets are buoyed by another arctic blast in North America, while oil markets shiver at the prospect of renewed Iraqi oil sales.

Consolidated Natural Gas says the cold wave sweeping the U.S. through early last week has pushed home heating needs to their highest level of the winter-in many cases double or triple their normal levels. CNG's measure of home heating needs was about 50% above normal for Feb. 1-5, with peaks expected in the Great Lakes, Great Plains, and Rocky Mountain states.

Meanwhile, the brutal winter weather again has created a strain on North American gas supply and transportation. Peoples Natural Gas, Michigan Gas Utilities, Northern Minnesota Utilities, Missouri Public Service, and Kansas Public Service urged customers to conserve gas use as they curtailed interruptible contracts.

Frigid weather that gripped the U.S. Gulf Coast through early last week shut in 10-20% of production as the freeze hit wellheads, gathering lines, and compressor stations. Freezeoffs slashed a combined 585 MMcfd of gas supplies to PanEnergy's Panhandle, Trunkline, and Texas Eastern pipeline systems. Louisiana producers cut about 500-600 MMcfd of output feeding into Tenneco's 4.1 bcfd system, and Gulf of Mexico producers shut in about 220 MMcfd dedicated to Williams Cos.' 1.25 bcfd offshore system. Columbia Gulf's 1.8 bcfd pipeline lost about 100 MMcfd of supplies. Natural Gas Pipeline Co. of America declared a "critical time" on its pipeline, forcing shippers to stick closely to nominations, and cut all interruptible supplies to Chicago.

With U.S. gas storage levels already low, it's small wonder spot gas prices rocketed to startling levels. TransTexas Feb. 1 sold 131 MMcf of natural gas on the spot market for delivery Feb. 2 at an average price of more than $6.75/Mcf. Some spot transactions reportedly occurred at more than $11/Mcf.

TransTexas cited the cold weather sweeping the Midwest and a 25% drop in U.S. natural gas in storage the last full week of January from the prior year. Storage on Feb. 1 was at 47% of capacity vs. 63% the same time in 1995.

Merrill Lynch expects storage levels to end the heating season at 622 bcf vs. 1.13 tcf in 1995 and 905 bcf in 1994. That will keep gas prices at about $1.80/Mcf during nonheating season months, Merrill Lynch predicts.

Arctic winds this winter also are boosting domestic and export gas demand for Canadian producers. Peter Linder, senior analyst with Research Capital Corp., Calgary, notes cold weather has made a dent in Canada's gas surplus and slashed storage volume. Canadian gas prices recently fluctuated at $1.52-1.90/Mcf. Spot prices hit $1.81/Mcf in late January at the AECO-C Hub, a major storage facility in Alberta. Gas aggregators were paying an average $1.70/Mcf in January, the highest price in a year.

As Iraqi officials began talks with the U.N. in New York Feb. 6 over limited oil sales to fund humanitarian supplies, oil markets stayed calm, but a possible price storm looms. Brent for March closed at $16.59/bbl Feb. 7, about flat with the two previous closes. Brent recently has hovered above $16.50/bbl, after an initial hiccup preceding word late in January of the Iraq/U.N. meeting (OGJ, Feb. 5, Newsletter). Producers fear a limited sales accord could lead to Iraq's full return to oil exports at a time when a supply glut threatens prices.

Iraqi envoy Abdul Amir Al Anbari has promised full cooperation with U.N. negotiators and said agreement is possible if there is no outside pressure on negotiators. However, there are doubts about Iraq's commitment to reaching an agreement. Julian Lee, oil analyst at London's Centre for Global Energy Studies, says Saddam Hussein appears to have been pressured into allowing talks to go ahead by French insistence that otherwise U.N. inspectors should travel to Iraq to check the effects of oil sanctions.

"Our feeling is that Saddam has nothing to gain by allowing limited oil exports to go ahead," said Lee. "His record shows that the Iraqi government doesn't care about the well being of the Iraqi people. However, there does seem to be a slightly changed aura over these talks. There is more of a mood of optimism than before that something will happen. But whatever the outcome, we are in for a drawn out series of meetings, which will not be straightforward even if the Iraqis are generally willing to accept the concept of limited oil supplies."

Lee predicts there will be no further major change in oil prices until the outcome of the Iraq/U.N. negotiations is known, and that will take weeks, not days. If sales begin, it could come at the end of the second quarter.

While OPEC's track record is poor on acting before oil prices fall, a positive sign is that Saudi Arabia says it's willing to accept limited Iraqi oil sales. That implies Riyadh is willing to maintain prices within that period, Lee said.

Gulf of Mexico deepwater development pioneers contend the economic threshold for such projects has fallen sharply. Shell Oil and Texaco panelists at the Energy Week conference in Houston said the threshold for developing Gulf of Mexico fields in more than 1,500 ft of water has fallen to 30-35 million bbl of oil equivalent (BOE), at least on paper. Just a few years ago, many companies thought 150 million BOE was the minimum. The main reason: Deepwater fields are much more prolific and less troublesome than fields on the shelf. The panelists contend "it is no longer ridiculous" to expect some deepwater wells to produce 30,000 b/d of oil or 100-300 MMcfd of gas. Cumulative oil production could reach 15-20 million bbl/well. This compares with wells on the shelf that produce an average 500 b/d and recover 2 million bbl/well.

It finally appears the U.S. government will sell its 78% interest in Elk Hills Naval Petroleum Reserve in Kern County, Calif. The Senate and House have approved a defense spending bill allowing sale of the field within 2 years. President Clinton is expected to sign the bill. The sale is expected to net more than $2 billion. Chevron, which owns the other 22% of the field, contends a number of issues are still to be resolved, including determining the government's final ownership percentage and an operating agreement when the field is sold.

National Petroleum Refiners Association, worried EPA is moving toward a national fuel standard, wants U.S. automakers to back off pushing for it. NPRA says automakers "escalated advocacy for further fuel control measures, thus compromising the delicate balance and certainty the domestic refining industry needs and relies upon in its capital investment and supply strategies.''

Russian Prime Minister Viktor Chernomyrdin promises his country's new production sharing law is not the last word on the subject.

He told a Washington, D.C., meeting of the Russian-American Petroleum Club, "It is not an ideal law. We know its weaknesses. The government could not ensure everyone could be pleased, but it addresses the most important goals. We need to work together, the government and producers, to improve the law.''

Chernomyrdin says a new tax code, introduced last week in the Russian Duma, or lower house, will resolve many other problems facing foreign oil operators.

Privatization of Hungary's integrated petroleum giant MOL may be hampered by persistent red ink.

Hungary's second state oil firm Mineralimpex, now a trading arm of MOL, is expected to report 1995 pretax profit of $123,000. But that is dwarfed by MOL losses on 1995 gas imports of $107 million. Stemming MOL losses will be difficult now that the government is struggling to justify austerity measures with skeptical voters irked over energy price rises taking effect in March.

European refiners are looking at possible cooperative action-albeit at a very preliminary stage-to cut regional refining overcapacity, says Total Pres. Thierry Desmarest. However, Jean-Paul Vettier, Total's general manager of refining and distribution, contends his company has no intention of shutting down any of its five European refineries. He cites a U.S. analyst's ranking that puts Total's plants behind 40 others in Europe as good candidates for closure.

Petroleum grade coke has become a hot commodity now that many refiners disdain it. Petroleum coke buyers have seen prices more than double the last 12 months, rising to $240-250/metric ton from $110/ton, as refineries increasingly change capacity to boost yield of more profitable products.

Metals industry newsletter Spector Report says world aluminum production is likely to be squeezed because of a shortage of calcined petroleum coke.

Conoco is Europe's only coke producer and recently sanctioned a new $45 million calciner at its Humber refinery (OGJ, Jan. 22, p. 25).

Oman has added LNG to the mix of its business ventures in India (see related story, p. 19). Oman is talking to Indian firms Essar Oil, Gujarat Gas Co., Williamson Magor Ltd., and Gas Authority of India about securing sales contracts tied to its $8 billion LNG project led by a unit of Royal Dutch/Shell. Enron is developing a massive, two phase power project in India that includes an LNG regasification terminal. First cargoes from the Oman LNG project are set for delivery early in 2000. Oman also is promoting a subsea gas pipeline from its territory to India-although it isn't certain whether it could sustain both gas supply projects at the same time-as well as refinery joint ventures in India.