OGJ Newsletter

• U.S. Industry Scoreboard 12/15 [44,522 bytes]

After the agreement was hammered out, no nation claimed victory and none ended up completely happy with their emissions targets or obligations. But, while all parties appear glad a consensus was reached, all are saying the final deal is extremely complex and will take some studying before everyone knows exactly what has been agreed.

Ritt Bjerregaard, European Commissioner for the Environment, said she was, on balance, satisfied with the outcome and that time will prove this deal to be the point of no return in the fight against greenhouse gas emissions.

But, despite the Kyoto agreement and Bjerregaard's approval, many industry and political observers remain skeptical.

A World Energy Council official in London told OGJ the agreement appears to be very much a compromise but that any useful agreement seemed unlikely at the outset of the conference. U.K. Deputy PM John Prescott said the agreed-to targets were not what the U.K. had hoped, "but we have to remember that, 10 days ago, the Americans came here offering only stabilization by 2012, and Japan cuts of 2.5%."

Global Climate Coalition Chairman William O'Keefe said, "Mr. Clinton said he would walk away from a bad deal. This is worse than a bad deal. It is totally unacceptable, from the standpoint of the U.S. consumer and taxpayer...The President will not sign this agreement when he gets time to reflect on itellipseBut if he does sign it, labor, agriculture, and business will be urging him to submit it rapidly to the Senate so they can exercise their right to accept or reject it, and I'm confident it will be rejected."

But Sen. Joseph Lieberman (D-Conn.) believes it can be passed: "Of course it will be difficult. In the nature of our democratic process, there will be one hell of a fight. Frankly, I think the people of the U.S. are ahead of a lot of the politicians. It's not perfect, but it is a significant beginnning."

Just what the deal will mean for industry is hotly contested. One study, commissioned by U.S. car makers, suggested that economic growth in the U.S., Europe, and Japan might fall by as much as 1.6%/year in 2010.

At the Interstate Oil & Gas Compact Commission annual meeting last week, Gas Research Institute CEO Stephen Ban said reaching an acceptable solution for both developed and developing countries is "a daunting challenge" at Kyoto: "The U.S. and other industrial powers cannot do it all alone, but curtailing the development of emerging countries is not acceptable."

The timing of the Kyoto agreement is far from fortuitous, as fears of a worldwide economic downturn loom amid steadily worsening economic problems in East Asia.

There is evidence that greenhouse gas emissions rise during recessions. Companies spend less on repairs and maintenance and won't invest in new, less-polluting equipment when they're gloomy about prospects for business.

Meanwhile, the Asian economic crisis is already causing problems for the petroleum industry.

Indonesian state oil firm Pertamina says it may be possible to reduce by 30% the $40 billion development cost it estimated for the monster Natuna gas project. Fewer platforms, larger LNG trains, deferral of less-important components, and better coordination among contractors are options being considered by the project partners. The marketing of natural gas from the project was already an uphill battle for Pertamina, but the economic woes of Asian countries are exacerbating the problem.

Already, Thailand has delayed its Natuna gas purchases by 4 years. Thailand also has deferred an option to take an 11% equity stake in the project.

Meanwhile, CalEnergy's geothermal power projects in West Java and Ba* are on hold as a result of market upheavals. The company is optimistic that it will be allowed to continue its projects in the region, however. CalEnergy has asked the Indonesian government for permission to resume activities.

On the other side of the globe, widespread success and optimism are causing a spate of capital spending hikes for the coming year.

In Canada, Ranger Oil revealed a $285 million (Canadian) capital program for 1998-the largest in its history. Field developments in the North Sea, Angola, and Canada are expected to account for two thirds of the outlay. The remainder will go towards exploration in those areas and in Ecuador.

U.S. companies are planning big hikes in spending despite shortages of drilling rigs and skilled personnel, says Arthur Andersen.

According to the company's 1997 outlook survey, "The optimism reflects executives' belief that demand for oil and natural gas will continue to grow at least modestly and that current price levels will hold through 1990 and rise slightly in the following years."

"Most companies are increasing their exploration and development spending and adding to their work forces because their managements believe current opportunities are better than at any time during the past 15 years," said Managing Director Victor Burk. He also thinks that growth in capital spending will peak next year.

Just as these results were released, U.S. petroleum companies began announcing their preliminary 1998 spending plans.

Nuevo Energy will spend $196 million to achieve its highest level of drilling activity ever. This includes $150 million in development spending to drill about 250 wells and $46 million for exploration. "This budget capitalizes on the growing pool of exploratory and developmental drilling opportunities, which will fuel our production growth in 1998," said Chairman Doug Foshee.

Costilla Energy has increased its capital spending to $70 million in 1998 from $48 million this year. And Phillips approved a $1.789 billion capital budget for 1998, down from $2.098 billion this year.

Convergence of natural gas and electricity markets is going to leave no one in the energy industry untouched before it is finished.

So said Chuck Watson, chairman and CEO of NGC Corp, at last week's Arthur Andersen Energy Symposium in Houston.

Watson said energy generators and marketers will have to meet three criteria in order to be successful. They must be: very proficient in all commodities, creative enough to provide all of the related products and services, and willing to take a risk and able to manage it.

PG&E CEO Robert Glynn is confident that many will be up to the task: "Oil companies are pretty astute at becoming involved with every step of their product as it moves up the value chain. The question is the degree to which oil companies will make growth in that business one of their major platform planks."

Convergence giant Enron plans to invest $3.2 million in a Panamanian mining operation linked to a power project.

Enron International acquired 8.5% of the common shares of Adrian Resources, which is exploring and developing Panama's Cerro Petaquilla concession-one of the world's largest undeveloped resources of copper and gold. Perhaps aided by its injection of capital into Panama, Enron International is negotiating with the government to provide gas-fired power to the region.

Chevron is calling for the elimination of oxygenate mandates for U.S. and California reformulated gasolines.

"Oxygenates in gasoline do little to reduce smog, but they have raised legitimate environmental concerns about MTBE in groundwater and are causing our customers to question the benefits of an important, cleaner-burning gasoline," said Chevron Products Co. Pres. Dave O'Reilly.

Chevron says it may be possible to achieve the same emissions reductions without oxygenates. And, while it believes MTBE is safe if handled properly, it recognizes growing public concern over use of the additive.

"We're asking Congress to eliminate a mandate for oxygenates," said O'Reilly. "We are also asking the California Air Resources Board to create the regulatory flexibility to allow oxygenate-free gasoline to be sold state-wide."

Mikhail Khodorkovsky, CEO of Russia's Yukos and Rozprom, is bullish on Russia's oil industry. He told the Arthur Andersen symposium that, in the next 10 years, Russia hopes to increase oil production by 2 million b/d and refining capacity by 1 million b/d.

"The ruble is stable, and industry is beginning to show certain signs of life," said Khodorkovsky. "We hope industry will be the engine that pulls Russia into the 20th century.

"The risks associated with doing business in Russia continue to decrease and to become more and more controllable," he added, noting that Russia seeks alliances with companies especially adept at marketing and technology.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.