OGJ NEWSLETTER

Is another full fledged bust shaping up in the U.S. petroleum industry--this time because of depressed gas markets-?

Many of the signs are there: plummeting prices, slashed budgets, drilling languishing, shut-in wells, plunging profits, restructuring, and layoffs.

ARCO plans selected cuts of about 5-10% of its work force of about 20,000 in a move spurred by gas industry doldrums. That follows a restructuring at Shell, which posted a $68 million loss in the second quarter that included a $90 million charge connected with its round of layoffs. Depressed gas markets also figure in these company moves: Anadarko cutting its 1991 capital budget to $190 million from $218 million, American Exploration Co. selling properties and cutting its budget to trim debt the next several months, and Enserch cutting its 1991 budget the second time this year, by another $50 million, to $208 million.

Nerco, reporting a 66% plunge in second quarter profits, kept about 12%, of its production shut in during July because of low prices. Noble Drilling is keeping a lid on costs and chasing economic non-U.S. jobs, citing a dismal outlook for gas prices crimping U.S. drilling. Noble Affiliates is mulling how to respond to Columbia Gas Transmission's bankruptcy petition (see story, p. 19). Its Samedan unit has a gas sales contract to 1998 with CGT to sell gas at $3.09-6.22/MMBTU vs. an average second quarter Gulf Coast spot price of $1.36/MMBTU.

President Gorbachev's success at the Moscow summit conference last week in obtaining President Bush's support for granting U.S. most favored nation trade status to the U.S.S.R. will provide little near,term benefit to the Soviet Union even if the U.S. Congress quickly approves the proposal.

Last year, the U.S. accounted for only 2.1%, of Soviet foreign trade. That compares with 14.8% for Germany, 3% each for Finland and Italy, and 2.75% for Japan. Soviet 1990 exports to the U.S. totaled 556 million rubles. Imports of U.S. goods totaled 2.154 billion rubles.

Big investments by U.S. and other western firms in joint ventures (see story, p. 16) to revive the ailing Soviet oil industry probably would help the Soviets far more than MFN trade status, as would substantial credits to the Soviets specifically for purchase of badly needed oil field equipment and pipe.

Kuwait has resumed crude oil exports for the first time since the Iraqi invasion Aug. 2, 1990. The Norwegian owned 260,000 dwt Thorness tanker picked up a cargo of 1.9 million bbl of crude destined for either Europe or the U.S. last week.

Industry sources say Kuwait now offers a higher quality oil than its preinvasion export blend of 31 gravity, 2.5% sulfur content crude. The new blend of 33 gravity crude with 1.9%, sulfur from Ahmadi/Magwa fields is likely to be available in any quantity only until the Ahmadi refinery comes back on stream later this month. The 370,000 b/d unit will have initial throughput of about 140,000 b/d and will refine local crude for domestic use.

The Thorness cargo will be followed by a second VLCC, the 227,355 dwt Connecticut, which was due to start loading last week.

Kuwait Petroleum Co. told buyers once the feedstock supply to the refinery is secure, it will try to make one or two VLCC cargoes available each month. Meanwhile, production from Arabian Oil Co. fields off the Neutral Zone has reached 150,000 b/d. The oil is shared 50-50 by Kuwait and Saudi Arabia.

IEA says OPEC output in June rose to 22.6 million b/d from the revised figure of 22.4 million b/d for May, reflecting small hikes in Saudi Arabia and Iraq and resumption of Kuwaiti and Neutral Zone flow. Oil stocks afloat owned by producer government also are falling after a peak in late April-early May. But IEA notes erratic movement in floating storage held by refiners and traders outside the Atlantic basin in recent months may prevent a corresponding decline in worldwide floating storage.

FERC has given conditional approval to the $1.5 billion, 900 MMcfd PG&E-PGT expansion to move more Alberta gas into the Pacific Northwest and California. PG&E wants to start river crossing work in September but first must get regulatory agency intervention to settle a dispute over capacity between some of its interruptible and noninterruptible shippers.

FERC also approved El Paso's bid to expand its San Juan basin line, clearing the way for El Paso to begin working two of four planned spreads at the end of August.

El Paso last month warned FERC that without the 835 MMcfd expansion, a 500-600 MMcfd shortfall of pipeline capacity out of the San Juan basin could have reached 800 MMcfd-1 bcfd by next spring. El Paso projects an in service date of Apr. 1, 1992.

And FERC approved a rulemaking to set standards for comparable U.S. gas pipeline standards. The rulemaking, among other things, would permit pipelines to use the fixed variable rate design system Canada uses, thus answering independent producers' complaints that imported gas has a regulatory advantage (OGJ, July 29, p. 31). FERC may vote later this month on a comprehensive rule to streamline pipeline construction permitting.

The second draft of MMS' 5 year offshore leasing schedule contains no major changes. The schedule did delete 62 blocks off NASA's Wallops Island, Va., facility. The final version of the program is to be released next spring (OGJ, Mar. 4, p. 16).

Venezuela has prequalified 54 foreign and 43 Venezuelan companies out of 227 applicants to operate inactive, marginal oil fields in the country. When they go to work, it will be the first time private companies--especially foreign ones--have participated in Venezuela's upstream since nationalization of the industry in 1976. The fields hold 357 million bbl of proven oil reserves plus 1.169 billion bbl of probable and possible reserves and could support ultimate output of 200,000 b/d.

A civil war notwithstanding, six foreign companies have submitted bids to explore for oil and gas in Cambodia, says state owned SPK News Agency.

Thailand's state owned PTT wants to pursue joint offshore development in disputed waters with Cambodia and Viet Nam. Other companies likely on the short list are Total, Elf, and Royal Dutch/Shell. Results are to be announced in late September.

Royal Dutch/Shell has signed an agreement with five Chinese partners to conduct a feasibility study of a $2.5 billion refining/petrochemical complex in China's Guangdong province (OGJ, Apr. 1, p. 26). The complex at Aotou will entail a 100,000 b/d refinery and a 450,000 ton/year ethylene cracker.

The feasibility study is to take about 18 months. If the project proceeds, it will be the largest joint venture in China between local and foreign investors.

South Korea has approved a revised deal to allow Saudi Aramco to acquire a 35%, stake in Ssangyong Oil Refining Co. for $470.4 million.

The investment will allow addition of cracking and desulfurization units to a new 175,000 b/d hydroskimming refinery being commissioned next to Ssangyong's existing 90,000 b/d refinery.

Japanese shipbuilders Ishikawajima-Harima Heavy Industries and Sumitomo Heavy Industries will jointly build and market LNG tankers in response to improving prospects for LNG worldwide. The two will each build LNG carriers using common designs and IHI's design for rectangular gas tanks. The link is designed to lead to lower procurement and marketing costs. First target for the venture will be Chubu Electric, which will require 10 or more LNG carriers for its new Qatari supply contract.

Malaysia's government has not ruled out some form of privatization of Petronas. Following Fortune magazine's listing of Petronas as the second most profitable oil company in the world, a government minister said listing of the state company on the Kuala Lumpur stock exchange is a possibility.