OGJ Newsletter

U.S. Industry Scoreboard 3/10 [70362 bytes]

Washington is currently a hotbed of legislative, regulatory, and judicial activity involving oil and gas.

The U.S. Senate was expected last week to quickly confirm the nomination of Federico Pe?a to be Energy Secretary, now that Sen. Frank Murkowski (R-Alas.) has resolved a dispute with the Clinton administration.

Murkowski had been holding up Pe?a's nomination, hoping to get the White House to drop its opposition to a bill Murkowski wants to pass requiring construction of a temporary spent nuclear fuel depository.

The White House didn't retreat from its position but pledged to give Pe?a authority to work with Congress on the issue.

Initially, the confirmation vote was stalled while federal investigators examined a complaint that Pe?a improperly intervened in a U.S. Coast Guard contract while serving as Transportation Secretary in the first Clinton administration. Pe?a was later cleared of that allegation.

FERC scheduled a major gas pipeline conference May 29-30 in Washington to determine what else it should do to open the industry to competition (see related story, p. 28).

FERC said despite its decontrol efforts, "The industry now faces new issues," such as unbundled retail access in state markets, the exercise of market power behind the city gate, and the lack of an "intra-day" market to allow the immediate trading of transportation capacity and gas.

Meanwhile, the U.S. Supreme Court declined to hear an appeal by Amoco and other gas producers challenging FERC's 1993 decision not to regulate independent intrastate gathering affiliates of interstate pipelines.

Producers said the decision allows pipelines to "evade regulation simply by restructuring operations," and they maintain the dispute could affect 29% of gas gathered in the U.S.

In another case, the nation's highest court recently heard arguments in a case disputing whether or not the U.S. or Alaska owns submerged lands between the mainland and a series of barrier islands 1-7 miles offshore in the Arctic Ocean. Environmental groups fear Alaska will lease the submerged lands off the Arctic National Wildlife Refuge for oil exploration.

And the U.S. Justice Department decided not to appeal a federal court ruling blocking MMS from collecting royalties on gas contract settlements until royalties are credited toward the purchase of makeup gas (OGJ, Sept. 9, 1996, p. 32).

A big fight is on in California involving the use of MTBE in reformulated gasoline (RFG).

California is considering banning use of MTBE, even though most gasoline sold in the state contains MTBE.

State Sen. Richard L. Mountjoy has introduced a bill (S.B. 521) that seeks to make it a misdemeanor to sell gasoline containing MTBE and prohibit the California Air Resources Board (CARB) from permitting or requiring the use of MTBE in gasoline. Phase II RFG, which can contain MTBE, is used throughout the state as part of California's air quality program administered by CARB (OGJ, Jan. 6, 1997, p. 18). Use is not mandated, and MTBE replaces benzene as an octane component.

The bill, which seeks to modify the state's health and safety code, was introduced Feb. 24. Next step is a hearing in the Senate transportation committee and, subsequently, another hearing in the Senate environmental quality committee. No dates have been set yet.

The bill is "short-sighted and doesn't account for the immense benefits being reported by the various air (quality) districts in California," said Western States Petroleum Association. "(The effect of)...asking the industry to eliminate something that the free market has chosen-and how that would skew the market-is anybody's guess."

If MTBE were banned, industry would have to substitute another oxygenate in gasoline, such as ethanol.

The legislative assault on MTBE in Sacramento comes amid word of an agreement between Mobil and the Los Angeles Regional Water Quality Board, which involves a broader issue of gasoline/MTBE contamination found in the Santa Monica drinking water supply from the city's Arcadia water well field and whether or not Mobil is responsible.

Mobil is investigating the source of the contamination, first discovered last fall by the city in its drinking water supply. About the same time, Mobil said it discovered that it had MTBE contamination at its service station in West Los Angeles. The Arcadia water well field is about 250 ft from the Mobil service station. Whether or not the two cases are linked remains a point of contention.

Mobil said it was aware of contamination at the service station site dating to 1987, initially caused by a leaking steel underground storage tank. The company has since been under a work plan with the regional water quality board involving remediation, fiberglass tank replacement, and tracking of contamination.

Among numerous provisions stemming from the latest incident, Mobil was required by Mar. 1 to finalize terms of an agreement with Santa Monica to make payments for the cost of replacement water, based on past and future increased costs, and establish a remediation plan.

The agreement covering water replacement cost was not reached by the deadline, but Mobil says it stands by its offer to reimburse the city for water from the well field in question. Next requirement is an interim remediation work plan, due Mar. 17, to address site contamination at the Mobil station specifically. Mobil's reports and submissions must also be sent to U.S. EPA.

Mobil has taken one underground storage tank out of service and has drilled additional monitoring wells and taken other measures to find the source of the service station site contamination.

Meanwhile, a state senate hearing chaired by State Sen. Tom Hayden has been scheduled for mid-March.

Originally called to discuss the broader issue of MTBE and its health effects, the hearing will now reportedly focus on the Mobil accord to evaluate its terms and conditions; the agreement is being questioned by some officials who claim it was done quickly and in an atmosphere of secrecy.

U.S. DOE, M-C Power, and San Diego Gas & Electric started a 1-year test run of the world's first cogeneration molten carbonate fuel cell power plant, which will provide electric power and steam at Miramar Naval Air Station, north of San Diego.

The 250-kw power plant will use natural gas to generate power through an electrochemical reaction, rather than combustion. DOE says fuel cell power plants should have overall electrical system efficiencies of 50-60%, and if they make use of the byproduct heat, as the Miramar unit does, efficiency can be boosted to more than 70%, double that typical for a conventional power plant.

Another significant gas find near giant Gorgon gas field off Western Australia is fueling efforts to establish new grassroots LNG projects on the North West Shelf based on Gorgon area reserves.

Chevron and Texaco disclosed 1 Dionysus, an appraisal of 1 Chrysaor discovery drilled from Rankin field platform, flowed gas at a combined rate of 127 MMcfd of gas from two zones over a 256-ft interval at 10,384-10,637 ft.

The operator is West Australian Petroleum (Wapet).

Nearby, Woodside Petroleum group has embarked on a project to double LNG capacity tied to North Rankin/Goodwyn fields to 15 million metric tons/year (OGJ, July 29, 1996, p. 34).

Last fall, Woodside disclosed a significant find in its 1-A Lynx wildcat, near North Rankin/Goodwyn fields (OGJ, Sept. 23, 1996, p. 46). Most recently, Woodside disclosed plans to spud the 2 Keast appraisal to follow up on its 1 Keast strike, about 20 km southwest of Goodwyn (OGJ, Feb. 17, 1997, p. 30).

Chevron and Texaco each have a 50% interest in the WA-253-P exploration permit, adjacent to Gorgon and Chrysaor. Wapet is owned by Chevron, Texaco, Shell, and Mobil.

The Japanese wholesale electric power market, created as part of deregulation measures last April, is set to expand strongly in fiscal 1997 beginning this month.

The number of tenders is expected to increase in fiscal 1997, especially from oil, steel, and chemical companies, with the ratio of successful to total applicants projected to more than quadruple from a year earlier, industry sources maintain.

Beginning in April, seven electric power companies will together invite tenders to provide a total of 2,755 MW in fiscal 1997.

Nippon Oil plans to generate 300-500 MW of power at its refinery at Yokohama and is considering producing electricity at its three other Japanese refineries. Mitsubishi Oil group companies will tender to use their refineries at Kawasaki and three other cities around the country.

Kobe Steel, which won a 700-MW contract from Kansai Electric Power in the current fiscal year, is expected to place tenders for a similar volume.