OGJ Newsletter

More countries are revealing the schemes for which they will fight at the Kyoto conference on global climate change, starting Dec. 1.

Following revelations by the EU, U.S., and Canada (see related story, p. 29), Australia has unveiled its greenhouse gas emissions-cutting plan.

Prime Minister John Howard said Australia opposes the EU proposal of across-the-board 15% cuts from 1990 levels by 2010. Such a system would unfairly burden major fossil fuel producers such as Australia, he contends.

"The EU's uniform target proposals based on a 1990 base year would impose a disproportionate burden on Australia," said Howard. Instead, Australia wants individual targets to be set for industrialized countries based on national circumstances, including expected changes in population, employment, and the economy.

Australia's 5-year, $180 million (Australian) plan includes programs designed to encourage more efficient use of energy, conversion to renewable sources, and "revegetation." The program is expected to reduce net growth in greenhouse gas emissions to 18% during 1990-2010 from 28% projected in the absence of any action.

Opposition leader Kim Beazley called the strategy "a modest, frightened little effort" and "a domestic fig leaf" that barely covers the cost of government emissions-reductions programs during the past 18 months.

Elf is the first major oil company to pledge its support for the EU proposal that Australia opposes.

Despite what it calls "prevailing uncertainties," Elf has promised 15% cuts in its emissions of greenhouse gases, thought by many to promote catastrophic global warming.

Venezuela has struck two more joint venture agreements to help it exploit extra-heavy crude from the Orinoco belt.

On the heels of its most recent deal with Coastal (OGJ, Nov. 24, 1997, p. 46), Pdvsa unit Maraven signed a $4.4 billion accord with Total, Norsk Hydro, and Statoil to jointly produce, upgrade, and market Orinoco crude. The companies will form a venture called Sincor to produce 8.5? gravity oil from the Zuata area. The crude will be upgraded to a 30? gravity synthetic crude at Jos?, then marketed in the U.S. and Europe. Production is scheduled to start in third quarter 2000 and reach 170,000 b/d by yearend 2001.

Sincor will be owned by Total 40%, Maraven 30%, and Norsk Hydro and Statoil 15% each.

Just a few days later, Pdvsa unit Corpoven and Exxon signed a memorandum of understanding for a strategic association to produce, upgrade, and market extra-heavy crude from the Orinoco's Hamaca area.

If approved by Venezuela's Congress, the project could entail investment of $4.9 billion. The 9° Hamaca crude will be upgraded at Jos? to a syncrude for processing at Exxon's Baton Rouge, La., and Baytown, Tex., refineries.

There is no end in sight to the spate of industry mergers and acquisitions. Chesapeake Energy and Hugoton Energy have agreed to merge in a stock-for-stock swap valued at $380 million.

Hugoton will merge into a Chesapeake unit, giving Chesapeake total reserves of 880 bcfe, 34% of which are attributable to Hugoton. Other important mergers disclosed recently were Williams/Mapco and Sonat/Zilkha (see story, p. 36).

OCAW and Shell have agreed to extend for 3 years the U.S. oil collective bargaining agreements. The deal sets the pattern on which other oil union contracts will be based.

The proposal includes, for refineries and petrochemical plants, a successorship agreement that requires any subsequent plant owners to honor existing labor agreements.

OCAW says the successorship clause and wage increases make this extension "a breakthrough agreement."

The extension comes only 1 year after the last agreement was struck. OCAW's Lynne Baker said, "It is highly unusual for this to occur. It did because of all the mergers, buyouts, and joint ventures that have occurred in the industry."

EIA's annual energy outlook reveals improvements in most industry indicators.

EIA expects total U.S. energy consumption to increase 27% by 2020. Its latest energy outlook raises 2015 consumption 4% from last year's estimate.

Natural gas wellhead prices will be $2.54/Mcf in 2020, adjusted for inflation, up from $2.24/Mcf in 1996. Gas prices would be about 9% higher in 2015 than last year's projection because of a lower assessment of the expansion of the resource base, higher drilling costs (as indicated by more recent data), and higher projected demand.

The average world price of crude oil, adjusted for inflation, is projected to rise from $20.48/bbl in 1996 to $22.32/bbl in 2020. Those projections are higher than a year ago due to higher assumed economic growth.

Net oil imports are expected to provide 66% of U.S. oil consumption in 2020, compared with 46% in 1996, as a result of increasing oil consumption and declining U.S. production. It said U.S. oil output will decline from 6.5 million b/d in 1996 to 4.9 million b/d in 2020.

The E&P industry has surmounted many challenges in recent years, but fresh ones loom as it faces another growth cycle, says Enterprise CEO Pierre Jungels.

The industry has demonstrated its ability to expand into areas previously thought impractical or uneconomic, such as the Atlantic Margin. But it now faces the task of managing rapid changes in technology while meeting high ethical and environmental standards.

Jungels wonders whether industry can meet expected growth rates given these challenges, flat oil prices, and a shortage of equipment and skilled employees. "If we factor in these shortages, there will be delays both in new production and in the maintenance of production in mature fields," said Jungels at the Advanced Petroleum Industry Conference in Norway. "This is especially evident in those North Sea fields where FPSO technology is being deployed."

Europe's refiners face a paradox: their financial performance is not good enough to satisfy shareholders, yet too good to encourage restructuring.

This is the view of Mathieu Zajdela, head of studies at Paris's Enerfinance Consulting Services. Zajdela says this no-win situation could result in a new and brutal crisis affecting margins in several years' time.

"As further tightening of European Union product specifications is announced for 2000 and 2005," said Zajdela, "industry will face the challenge of trying to avoid over-investing and finding itself with surplus products, as was the case for the move to unleaded gasoline and low-sulfur gas oil."

Zajdela says the only way to avoid a crisis is acceleration of regrouping on a regional basis, as demonstrated recently by Veba, Mobil, BP, and Agip in Bavaria, and earlier by BP and Texaco in Rotterdam.

"It is evident that European refiners do not share the same strategic interests," said Zajdela. "Some-mainly the more powerful-may consider they will come out of a refining crisis with renewed strength. Others, for which alliances could be envisaged on an industrial level, are coming up against political reticence on a national basis."

Deregulation measures are mounting in Asia.

India has at last decided on a mechanism for decontrolling crude oil and product prices and tariffs.

The tottering Gujral government in New Delhi will phase out government-administered prices over 4 years and reduce import duties. As a result, oil prices should reach import market levels by 2001-02.

The long-awaited decision is likely to boost foreign investment in the country's oil sector.

The system of "retention," or cost-plus, pricing for refineries will be abolished immediately, and refinery-gate prices for kerosine, diesel, jet fuel, and LPG will be set using a tariff adjustment to mimic import prices. All other products will be sold at market prices. Refineries will pay import-parity prices for crude oil in 1998-99 and adjusted prices for products.

Customs duties will be reduced gradually over the next 5 years: crude oil import duties will fall to 0-5% from 27%; diesel, gasoline, and jet to 15% from 32%; and furnace oil to 10% from 32%. Kerosine will remain duty-free.

Other measures taken include decentralizing importation of crude oil. At present, Indian Oil Corp. is the sole importing agency for petroleum products.

As a key feature in its deregulation plan, Japan will lift its ban on self-serve gasoline stations starting next April. Approval for self-serve stations will likely help push down retail gasoline prices by trimming labor costs.

The new regulations are unlikely to limit operating hours or areas of operation but will require that each self-serve station employ one specialist, qualified to handle dangerous materials, during all shifts.

Industry analysts estimate that current station operators will require ?20 million/station to modify their facilities to full-time self-serve stations, or they can opt to operate in self-serve mode only part of the time.

Saudi Arabia has ruled out gas exports but invited foreign participation in downstream operations to boost gas production for domestic use.

At a conference in Yanbu, Saudi Arabia's Minister of Petroleum and Mineral Resources, A* Al-Naimi, said, "For the foreseeable future, we have no plans to export gas while demand continues to rise and we pursue domestic development. Gas is as essential to our continued economic growth as oil."

Fourteen independent power producers-five of them oil companies-have won bid tenders to supply electricity to Japan's top power companies (OGJ, Sept. 22, 1997, Newsletter). The 14 companies, which have a total power capacity of 3,100 MW, will start selling electricity during fiscal 2000-04.

The oil industry had the most winners: Idemitsu won bids to supply Hokkaido Electric Power and Chubu Electric Power, and Nippon Petroleum Refining won contracts to supply Hokkaido Electric Power and Tokyo Electric Power. Cosmo, Toa, and Koa each won one power supply contract.

Australia and Indonesia have finalized an agreement to share financial benefits of the proposed Undan/Bayu gas/condensate field development in the Timor Sea zone of cooperation between the countries.

A key outcome is that the project partners-led by BHP and Phillips-are now free to develop the field based solely on economics and without political pressure from either of the two governments.

Indonesia has expressed its preference to build the gas plant on Timor, while Phillips wants it near Darwin. BHP proposes a floating condensate production center and floating LNG plant.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.