OGJ Newsletter

U.S. Industry Scoreboard - due to an early deadline, data for this week's Industry Scoreboard are not available. A Colombian energy official has thrown down a gauntlet, proposing controls on crude oil exports to the U.S. by Colombia, Mexico, and Venezuela. This comes as Washington ponders that country's progress-or lack of it-in the war on drugs and possible U.S.-imposed commercial trade sanctions.

Feb. 10, 1997

9 min read

U.S. Industry Scoreboard - due to an early deadline, data for this week's Industry Scoreboard are not available.

A Colombian energy official has thrown down a gauntlet, proposing controls on crude oil exports to the U.S. by Colombia, Mexico, and Venezuela.

This comes as Washington ponders that country's progress-or lack of it-in the war on drugs and possible U.S.-imposed commercial trade sanctions.

Colombia's Mines and Energy Minister Rodrigo Villamizar, speaking before a Latin American energy conference in Houston recently, called for controls on oil exports to the U.S. His suggestions, however, were not well-received by Mexican and Venezuelan officials, whose countries continue to promote foreign participation in their petroleum sectors.

"That would not be the way to go, and we would not participate in that," said Pdvsa Pres. Luis Giusti. "The wording is not very fortunate," said Jesus Reyes Heroles, Mexico's energy minister.

The U.S. last year decertified Colombia from being able to receive certain U.S.-sponsored trade/finance benefits because it claims Bogota has not made progress in stemming the flow of drugs to the U.S.

A decision on renewing trade decertification for a second year is expected Mar. 1.

The U.N. Security Council is expected to renew Iraq's oil-for-aid deal for another 6-month increment in June.

"My sense is that it will be extended," U.N. Sec. Gen. Kofi Annan told a Geneva news conference late in January. Annan also said he expects Iraq to cooperate with U.N. inspectors overseeing scrapping of weapons of mass destruction. Under the U.N. deal, Iraq is allowed to sell $2 billion worth of oil in 6 months to buy food and medical supplies (OGJ, Dec. 16, 1996, p. 21).

Iran's efforts to open its oil and gas development to investment by foreign companies is being met with lackluster response.

"Foreign contractors are not much interested in engaging in petroleum projects in Iran," said Moshen Yahyavi, deputy chairman of the oil subcommittee of Iran's parliament. In August 1995, Iran tendered a dozen projects for bids.

Yahyavi's comments run counter to statements made last October by Oil Minister Gholamreza Aghazadeh, who said 130 companies from 19 countries had responded positively to Iran's tender.

The Iran and Libya Sanctions Act penalizes non-U.S. firms for making investments of more than $40 million in Iran's oil and gas sector (OGJ, Aug. 12, 1996, p. 36). Until now, Tehran has downplayed the effect of U.S. sanctions.

Skirmishing between the U.S. government and oil companies continues over alleged underpayment of federal oil royalties.

In the latest salvo, the government is pressing Chevron, Mobil, Occidental, ARCO, and Shell to hand over oil sales records from federal leases in California. Records sought by Interior and MMS cover oil sold during 1980-88 (OGJ, Oct. 26, 1996, p. 19). MMS claims the companies are refusing to hand over records and are fighting subpoenas.

"We expect them to begin court action soon," said Cynthia Quarterman, MMS director.

ARCO says it's cooperating with the October subpoena, and Chevron says it's working with Justice Department on the "scope" of the request.

Oxy refuses to reopen its books after being audited during 1977-82 and settling all royalty issues covered during the period.

Mobil says it's cooperating but challenges certain actions as beyond MMS authority, while Shell maintains MMS is asking for records that have "no relevance to the application of their regulations."

Exxon, Unocal, and Pennzoil have complied with MMS' request.

Higher U.S. natural gas prices are spurring onshore drilling.

Tulsa's Unit Drilling Co. has 19 of its 24-rig fleet under contract, representing a 90% increase from yearend 1995.

It has not had 19 rigs active since January 1986.

"Higher natural gas prices have helped spur demand," said Earle Lamborn, senior vice-president of drilling. "Our biggest constraint in terms of operating additional rigs is a shortage of personnel."

The company's average day rates have increased by 15% from the beginning of 1996.

Increased revenues from higher oil and gas prices and production were major factors in boosting 1996 petroleum company earnings.

Texaco reported net income of $2 billion for 1996 and fourth quarter net income of $509 million, the tenth time its fourth quarter scored a quarterly gain over prior fourth quarter reporting periods (before special items).

Chevron's net income jumped sharply to $2.6 billion.

Conoco earnings totaled $901 million for 1996, up 36% from 1995.

Coastal had record net earnings of almost $403 million vs. $270 million in 1995, and Fina's net income for the year was $153 million compared with $104 million last year.

A sampling of U.S. petroleum company 1996 vs. 1995 net income follows, in millions of dollars, with 1996 results listed first and losses in parentheses: Louisiana Land & Exploration 80.2 vs. 18.8, Anadarko 100.7 vs. 21.0, Union Pacific Resources 320.8 vs. 316.2, Santa Fe Energy Resources 36.4 vs. 26.6, Kerr-McGee 220 vs. (31.0), Seagull Energy 105.1 vs. (34.4), NGC 115.8 vs. 48.1, Pogo Producing 32.7 vs. 9.23, Apache 121.4 vs. 20.2, Valero 72.7 vs. 59.8, Total North America (5.4) vs. (8.6), Columbia Gas 252 vs. 153, Ashland 36 vs. 87, and Oryx 248 vs. 99.

Nova Gas Transmission is advancing previously disclosed plans for new load-retention service rates in a filing with Alberta's Energy and Utilities Board (OGJ, Dec. 23, 1996, Newsletter).

Nova seeks expedited consideration and approval of the new rate structure, which calls for a rate of 15.5¢ (Canadian)/Mcf effective January 1998 (see related story, p. 34). It will escalate by 2%/year for as much as 20 years. The new rate would provide shippers that had signed precedent agreements with Palliser Pipeline with a short-haul, restricted service with fewer options and a longer average contract term.

If approved, the new service will eliminate the need to build the alternative Palliser line, a competing system. Approval would raise the existing "postage stamp" rate to all other shippers on the Nova system by less than 1¢/Mcf of gas transported.

Convergence in gas and electric markets is growing between the U.S. and U.K.

U.K. electric utility Eastern Electricity agreed to take power from a new combined-cycle gas plant planned at Sutton Bridge, near Spalding, England, to be built by Enron Capital & Trade Resources for $480 million.

Enron has asked the U.K. Department of Trade and Industry to allow it to increase capacity of the plant to 790 MW. Enron took over the project late in 1995 from another group, which planned a 700-MW plant.

Work is to begin in March, with commercial start-up set for mid-1999.

Electricity will be fed into the national power grid. Eastern agreed to take the electric power equivalent of the output of Sutton Bridge from Enron. In return, Eastern will provide a related volume of gas to Enron.

Separately, Enron agreed to supply 475 bcf/year of gas for 15 years to Eastern Natural Gas, Eastern Electricity's gas supply unit, beginning in mid-1999.

Look for further "green taxes" in Europe now that the European Commission (EC) has set guidelines for members on how to use environmental taxes consistent with internal market rules.

Environmental taxes are used increasingly in member states as a step towards implementing the "polluter pays" principle by including environmental costs in the price of goods and services. But the commission fears these fiscal instruments are being used in a way that contravenes EC laws, and it has adopted a document that sets out ways to raise environmental taxes within the rules.

Japan plans to break up closely knit wholesaler-retailer groups in the country's oil products sector and increase transparency of wholesale pricing to boost competition and cut prices, Ministry of International Trade and Industry sources say.

MITI's Petroleum Council, now studying reforms, aims to submit a report to the trade minister this summer. Currently, anyone who applies to MITI to open a service station has to provide a document promising to use an established wholesaler as sole supplier. This tie restricts future business opportunities and prevents major supermarket operators from opening service stations.

In addition to breaking the link, MITI also wants to force oil product wholesalers to publicize prices so station operators can freely choose suppliers.

What's in the cards for Asian oil demand in coming years? Will it remain strong, accommodating planned increases in regional refining capacity, or tail off, leaving excess plant capacity by 1999?

London's Clarkson Research Studies says the pace of refinery expansion appears to be slowing.

In 1994, Clarkson says Asian refining capacity lagged behind oil demand growth of 600,000 b/d, with only 300,000 b/d of new capacity installed that year. The resulting shortage spurred a "minibubble" in refinery construction, with capacity growing by 980,000 b/d in 1995 vs. demand growth of 800,000 b/d and 940,000 b/d of new capacity in 1996 vs. about 900,000 b/d of demand growth.

Clarkson notes Asian refining margins have been under pressure, with capacity running ahead of demand.

If there is more Asian refining capacity built by 1999 than commensurate growth in demand, the pendulum could swing toward additional crude imports, renewing demand for products tankers.

"The question is whether these refineries will actually materialize," said Clarkson Research Associate Nicola Williams.

During 1997-99, Clarkson data indicate Asian new capacity growth is on the order of 1.2 million b/d. It expects new capacity growth of 500,000 b/d in 1997 and 400,000 b/d of new capacity growth in 1998.

Clarkson sees likely intra-regional trade growth for products tankers as a result of the potential for more exports, as well as from more specialized "niche" product markets. In the other potential market for products tankers, Latin America, Clarkson sees demand for oil remaining steady at 6-7%/year to 2000.

The number of tankers being used for floating production, storage, and offloading (FPSO) is expected to increase in 1997.

Drewry Shipping Consultants, London, said more aging supertankers will likely be converted to FPSO use instead of being sold for scrap due to lower scrap prices.

London's Jacob & Partners said worldwide floating storage last November showed a slight drop to 48 tankers, totaling 7.75 million dwt, from the previous month's 49, totaling 7.98 million dwt.