OGJ Newsletter

Energy demand in Asia continues to accelerate.

China expects heavy investment in its energy infrastructure.

Officials, meeting recently in Paris with IEA, say they believe investments will total $150 billion in the 1996-2001 planning period.

Expenditures would cover developing oil and gas resources, as well as electric power generation projects using coal, hydro, nuclear, wind, and solar.

Minister Ye Qing, state planning commission chairman in charge of energy and industrial policy, expressed concerns that China, a net importer of oil since 1993, may become overly dependent on oil imports.

Officials expect domestic oil output of 3.7-4.5 million b/d in 2010 vs. 3 million b/d in 1995. IEA estimates China's oil imports will be 1 million b/d in 2000, rising to 2.3-3 million b/d by 2010.

China's recently commissioned 100,000 b/d Dalian refinery, which uses sour Middle East crudes, will earmark 85% of its output for domestic use vs. exporting 70% of output as originally planned.

Full capacity is expected to be on line by yearend. Currently, the plant is running at 60,000 b/d.

Sinopec was brought in as a last resort in mid-1996 after the project, now pegged at a cost of $1 billion, was halted for 2 years.

Construction began in 1993. It's the only operating refinery in China with a foreign partner.

Total, with a 20% stake, at one time deemed construction work unsatisfactory and refused to finance its share until the project could get back on track.

Middle East crudes account for 57% of Total's overall oil production, one reason for its Dalian participation. Total also sees growing opportunities in China's retail market. It has two service stations in Beijing and would like to expand its retail base in the Dalian area.

By 2010, China's electricity demand is expected to more than double.

In an effort to keep pace, China aims to produce 300,000 MW by 2000 vs. 215,000 MW in 1995.

The World Bank just approved a $400 million loan to China for the $1.2 billion Inner Mongolia (Tuoketuo) thermal power project, aimed at creating an independent power company and power-generation plant to boost supply and trading of electricity in northern China.

Tuoketuo power station, a mine-mouth coal-burning plant, will be built as part of the project.

The Tuoketuo area has abundant coal reserves and is well-suited to becoming a power-generation hub, says World Bank.

Meantime, China may build the world's longest coal slurry pipeline, linking coal mines in Shanxi Province in northern China with the Yellow Sea port of Qinqdao by 2000.

Feasibility studies will wrap up in September.

The 450-mile line is expected to cost about $450 million and will be built by a venture of undisclosed foreign concerns.

The pipeline would transport 7 million metric tons/year of clean coal to provide fuel for two 600-MW power plants at Weifang and Qingdao.

China's offshore output could jump more than one third from current levels in less than 3 years as exploitation steps up in northeastern waters.

Officials expect offshore oil and gas output to increase to 500,000 b/d from last year's 360,000 b/d.

China National Offshore Oil officials say expanded Bohai area operations will account for much of the increase.

In India, officials are pulling out the stops to boost that country's production of oil to offset declines.

Oil production dropped 5% and imports jumped 21% during the last fiscal year.

But private oil and gas companies say India's Oil & Natural Gas Commission and Oil India Ltd. are keeping the best acreage to themselves, as that country's first round of open-acreage system licensing approaches this summer (see related story, p. 25).

In July, India plans to offer acreage that is left over from its nine bid rounds, and officials are in process of completing a model contract expected to be ready by November. Officials are dividing the country's 16 unexplored basins into a grid to be used in the offering (see map, p. 28).

Meanwhile, ONGC by yearend is expected to begin drilling in deep water for the first time. So far, drilling off India has been confined to depths of 200 m or less. ONGC, which has identified four prospective areas off India's east and west coasts with seismic, could drill in as much as 800 m of water.

Italy's ENEL and ENI will create a 50-50 joint venture to become that country's largest independent power producer.

The JV, covered by a memorandum of understanding, will be listed on the main international stock exchanges.

Each will contribute assets to the new company, which aims to be competitive on new open markets created by the European Union's electricity directive. Start-up capacity will be about 5,000 MW, equal to a third of the initial open market requirement. Power will be produced by cogeneration plants at ENI's refining and petrochemical sites and by ENEL power-generation plants. New plants to be built will use combined-cycle technology.

Last-minute negotiations in Colombia have averted a strike by that country's oil workers.

Ecopetrol and Union Sindical Obrera agreed to salary increases of 21.65% for 1997-98, a housing subsidy increase of 24% during the same period for 5,000 workers who serve Ecopetrol, and a continuation of present arrangements so workers employed by Ocensa-which operates the Cusiana-Cupiagua field pipeline-will continue to be on Ecopetrol's payroll.

The agreement also exonerated union members found guilty of illegal work stoppages and who had attended protests before the agreement was hammered out.

In the U.S., consolidation continues in energy company ranks.

On the E&P side, Statoil, through its Eastern Group unit, plans to buy Ashland's Blazer Energy for $566 million cash. At one point, Ashland officials considered selling a portion of Houston-based Blazer, formerly Ashland Exploration, via an initial public stock offering (OGJ, Mar. 17, 1997, p. 44).

The deal, covered by a definitive agreement and involving essentially all of the company's U.S. oil and gas upstream assets, is expected to close by July 1. Eastern Group will operate Blazer's Appalachian properties, while Statoil Exploration (U.S.) Inc. will be operator of record for Gulf of Mexico assets.

In the wake of plans by USX and Ashland to combine certain U.S. refining and marketing assets (OGJ, May 26, 1997, p. 27), Mobil says it held talks with several companies on what was termed "future cooperation."

"We have had talks with several companies, but none has reached a final stage or a stage which would justify our commenting on them," an official was quoted as saying, after reports surfaced in London about a possible Mobil- Amoco R&M deal outside of Europe (OGJ, May 26, 1997, Newsletter).

On the power side, FERC approved the megamerger of PanEnergy and Duke Power, clearing the way for the $7.7 billion deal to proceed (OGJ, May 5, 1997, p. 52).

Closing is expected in mid-June.

The soon-to-be-combined company, Duke Energy, will be based in Charlotte, N.C. PanEnergy's pipeline and marketing operations will remain in Houston.

Output from the world's first production spar is exceeding expectations.

CNG Producing, a 50-50 partner with operator Oryx Energy in the Neptune spar in the Gulf of Mexico, says the spar's 25,000 b/d peak oil rate is fast approaching. Output from two wells totals more than 14,600 b/d, and a third well, expected to come on stream soon, is expected to yield 10,000 b/d.

Neptune has a peak gas capacity of 30 MMcfd.

"We are very, very pleased with the progress...of Neptune," said Pat Riley, CNG Producing president.

First production was announced in mid-March.

At the time, officials said they planned to have six predrilled wells on stream by late summer. The unit was installed late in 1996 in more than 1,900 ft of water on Viosca Knoll Block 856 (OGJ, Sept. 23, 1996, p. 35).

Stronger oil and gas prices are enabling smaller E&P companies to expand and accelerate their drilling plans.

Fort Worth's Cross Timbers Oil plans to make $260-280 million in strategic acquisitions by yearend 1999, and it plans $70-90 million/year of E&D spending in 1998-99, depending on drilling results, property acquisitions, and the strength of oil and gas prices.

Cross Timbers recently closed a $39.5 million acquisition of producing properties and undeveloped acreage in Oklahoma, Kansas, and Texas from Houston's Burlington Resources Oil & Gas.

Another Fort Worth company, Lomak Petroleum, is accelerating its 1997 development activities. Its most significant operations are in West Texas, where it plans to drill 65 development wells and recomplete 12 others this year.

Lomak has 148 development wells and 32 recompletions slated in 1997, of which 118 wells are in the Midcontinent region.

Its first quarter revenues were up 119% from 1996, and cash flow increased 146%. Net income more than doubled in 1997's first quarter.

Washington continues to be a hodgepodge of activity on various energy fronts.

The U.S. Supreme Court let stand an appeals court ruling that upheld most of FERC Order 636, which injected more competition into interstate natural gas markets.

Four appeals were filed with the high court after a lower court held FERC had authority to regulate exchange of interstate transportation capacity and require pipeline tariff unbundling.

After Congress reconvenes from its current recess, House Republicans are expected to renew their efforts to abolish DOE.

A recently filed bill calls for an end to DOE and disbursement of its programs to other agencies.

As with similar bills filed last year, observers say the measure has slim chance of passage because of strong White House opposition.

Reps. Todd Tiahrt (R-Kan.) and Ed Royce (R-Calif.) hope to set committee hearings on their bill this summer. Sen. Rod Grams (R-Minn.) also filed a similar bill and will be seeking hearings.

More than half of the Senate is calling for an international oil embargo against Libya because of its alleged sponsorship of terrorism.

Fifty-three senators wrote Bill Richardson, U.S. ambassador to the U.N., saying current limited sanctions are ineffective.