OGJ Newsletter

U.S. Industry Scoreboard 8/5 [38396 bytes]

Much is at stake for the petroleum industry in the contentious debate over how best to discourage international terrorism.

In Paris, officials from Britain, Canada, France, Germany, Italy, Japan, Russia, and the U.S. adopted a 25 point cooperative plan intended to halt terrorist acts by tracking down and imprisoning perpetrators.

Meanwhile, in Brussels, European Union commissioners took dead aim at U.S. proposals to impose economic sanctions against firms doing business with nations suspected of bankrolling terrorist organizations.

The U.S. Senate late last month approved a bill imposing economic sanctions on foreign firms investing more than $40 million/year in the energy sectors of Iran and Libya (OGJ, July 29, Newsletter).

Countries attending the Paris meeting agreed to ease extradition laws, tighten controls on forged passports, and curb access to arms and explosives.

Officials pledged to intensify oversight of suspected terrorists' bank accounts and bank transactions and called on all countries to investigate "organizations, groups, or associations, including those with charitable, social, or cultural goals" that could be used as covers to hide terrorist activities.

Attendees agreed to continue studying the problem and meet again in November to assess progress on dealing with the issues.

But in Brussels, the European Commission is drafting retaliatory measures that could lay a foundation for international economic and legal warfare.

Guidelines to be released last week reportedly say European companies can ignore threats of U.S. economic sanctions and that any EU firm losing money because of U.S. actions can claim compensation "through tit-for-tat asset confiscation in Europe."

The EC reportedly was waiting to see whether Washington formally adopts the Senate bill sanctions before issuing a definitive statement.

Total, which includes among its foreign ventures deals in Libya and Iran, late last month also was forced to defend its role in a joint $1.2 billion gas project in Myanmar (formerly Burma) with state-owned Myanmar Oil & Gas Enterprise (MOGE), Thailand's PTT Exploration & Production, and Unocal.

Opposition leader Aung San Suu Kyi reportedly said Total had become "the principal support of the Burmese military system." Total's Daniel Valot said MOGE's interest in the venture requires the government to pay its share of expenses, and the project won't start generating income until 2001.

But following allegations the Myanmar military provided forced labor for the gas project's Myanmar-Thailand pipeline, Danish pension fund Kommunernes Pensionsforsikring sold its $10.45 billion holding in Total, citing threats of a boycott of Total products by the Danish Burma Committee. Valot said Total realized going in that Myanmar might not be the easiest country in which to work but didn't expect to be dealing with so much disinformation.

As western nations wrestle over economic penalties related to energy investment, Malaysian Prime Minister Mahathir Mohamad touts a bright future for Asian oil and gas resulting from the spread of free market economies in the region.

In a keynote talk last week at the Asia Oil & Gas Conference in Kuala Lumpur, Mahathir said more liberal economic principles are attracting more investment across Asia, boosting incomes, raising standards of living, and increasing demand for sophisticated goods and services.

Energy demand in Asia will grow proportionately with economic growth, especially for gas and liquid fuels in the transportation, power generation, and industrial and commercial sectors. Consumers in Asia's developing countries will switch from firewood for cooking to kerosine, LPG, or natural gas.

Yet Mahathir warns increasing tightness in Asia's oil and gas supply/demand balances could be complicated by increasing demand for cleaner fuels, as a growing environmental awareness takes root.

No country in Asia will remain independent for long of oil supplies from outside the region, especially the Middle East. Noting the high costs of finding, producing, and transporting oil and gas, he called on countries endowed with oil and gas resources to be flexible in setting terms for foreign companies.

To forestall greater dependence on foreign supplies, Mahathir says Asian upstream activity should focus on keeping exploration costs down with better tools, improving recovery with marginal field development and EOR, and adding reserves through deepwater exploration.

Given slow progress of pipeline projects in the region and high costs of developing an integrated Asian gas pipeline grid, Mahathir predicts LNG will remain in most instances the only feasible way of transporting gas to market in Asia for at least the next 10 years. But again, the huge capital outlays involved will require partnerships between producers and consumers.

Prospects for Asian gas and the Indonesia-Australia Zone of Cooperation in the Timor Sea have brightened again with results from the latest appraisal well (OGJ, July 29, p. 112).

A Phillips group reportedly is studying plans for a $1 billion (Australian) development of ZOC Undan-Bayu gas/condensate field and expects to reach a decision by yearend 1997. Estimates before tests of 4 Bayu put reserves at 3 tcf of gas, 240 million bbl of condensate, and as much as 200 million bbl of NGL. Plans call for the 5 Bayu appraisal to spud in the fourth quarter.

Qatar continues to turn heads with disclosures of ambitious oil and gas plans. Although one of the Middle East's lesser producers, Qatar expects to spend about $18 billion by 2000 to boost oil capacity, exploit North gas field, and expand its refining and petrochemical industries. Much of the money will come from foreign investors.

Qatar's energy and industry ministry says the country aims to ramp up oil production capacity to 700,000 b/d by 2000, perhaps more, given levels of exploration in the country. Qatar's OPEC oil production quota is 378,000 b/d.

Occidental Petroleum of Qatar since 1994 has increased oil production in Idd al Sharqi North Dome field (ISND) to 85,000 b/d from 20,000 b/d.

Oxy also has hiked gas output there to 125 MMcfd after upgrading compression and treatment facilities. Since signing a production sharing agreement with Qatar General Petroleum Corp., Oxy has drilled 15 wells into Shuaiba reservoir. ISND output is expected to reach 100,000 b/d by 2000.

Meantime, a report by the Organization of Arab Petroleum Exporting States says Qatar's spending could include more than $8.5 billion for Ras Laffan and Qatargas LNG ventures and $3.9 billion for an LNG deal being discussed with Enron, all based on massive North gas field.

Iran is proceeding with a $103 million program to develop gas fields in the Sarakhs region bordering Turkmenistan.

NIOC reportedly has drilled 30 wells in the area and carried out preliminary groundwork. Other phases of the development are to be completed by 1997. Officials reckon Sarakhs gas reserves are sufficient to fuel power plants and meet industrial and petrochemical demand in Iran's Mazandaran and Khorasan provinces.

Financing has closed for Peru's first integrated gas and power project, a feat that also marks one of the region's first privately developed merchant power plants supported by long term financing.

Funding for the $250 million Aguaytia Energy del Peru (AEP) project includes $78 million of 12 year, nonrecourse debt financing by Trust Co. of the West and TCW Asset Management Co. Partners in the project-El Paso Energy, Maple Gas Corp., PanEnergy, Illinova Generating Co., Scudder Latin America Power Fund, and Power Markets Development Co.-formed AEP in November 1995 to finance, develop, and operate the project.

AEP plans to start constructing facilities in August and expects to begin commercial operations in first quarter 1997.

Units of Asea Brown Boveri under three turnkey contracts are to help construct gas production and processing facilities, a 140 mile gas pipeline, a 65 mile NGL line, a 155,000 kw gas-fired power plant, and 250 miles of high voltage electric transmission lines. Maple started the project through a March 1994 license contract with the government of Peru (OGJ, May 9, 1994, p. 27).

U.S. DOE has revised the timetable for sale of the government's stake in California's Elk Hills Naval Petroleum Reserve with an eye to maximizing the field's value to bidders.

Officials left in place the February 1998 deadline set by Congress for completing the auction, but moved to April 1997 from December 1996 the deadline for a completing an independent analysis of the field's remaining reserves.

In addition, the deadline for when consultants must benchmark the field's value based on that reserves estimate was moved to September 1997 from January 1997. The new schedule reflects advice of several consultants that Congress required DOE to hire for the studies.