OGJ Newsletter

Aug. 14, 1995
Privatization efforts dominate petroleum industry news of the week. Amoco is taking the plunge in Mexican retail marketing. Amoco and Femsa -- holding company for Oxxo, Mexico's biggest conven-ience store chain -- will spend more than $250 million the next 10 years in a venture to operate and build convenience stores in Mexico. The venture will offer in conjunction with Pemex's gasoline franchises convenience stores that also offer car washes, quick lubes, fast foods, and other services

Privatization efforts dominate petroleum industry news of the week.

Amoco is taking the plunge in Mexican retail marketing.

Amoco and Femsa -- holding company for Oxxo, Mexico's biggest conven-ience store chain -- will spend more than $250 million the next 10 years in a venture to operate and build convenience stores in Mexico. The venture will offer in conjunction with Pemex's gasoline franchises convenience stores that also offer car washes, quick lubes, fast foods, and other services under the name Oxxo Express. Oxxo operates 700 convenience stores in Mexico.

Investors in Mexico's privatizing petrochemical sector are a bit less sanguine about opportunities there. Although Mexico's government expects to garner $1.5-2 billion from the sale of secondary petrochemical plants, U.S. trade officials have received no queries about the privatization effort. A major concern is environmental liability associated with the plants that could run into hundreds of millions of dollars. Other concerns are major capital investments needed to upgrade the plants and a likely retained equity stake by Pemex.

Taiwan's state oil company Chinese Petroleum Corp. (CPC) plans to place at least 50% of its stock in private hands by 2000, the same year the company hopes to list its shares on the Taiwan Stock Exchange.

The privatization process is to begin in 1997 when 10% of outstanding shares are made available to company employees. Another 20% of outstanding shares will be offered to foreign investors. CPC, owned 100% by Taiwan's Ministry of Economic Affairs, has assets of $13.97 billion and is capitalized at $1.95 billion.

Hungarian petroleum privatization is getting off high center (OGJ, July 4, 1994, p. 21). Hungary's State Privatization & Holding Co. (APV) will invite a tender by the end of September to purchase a 75% interest -- less one voting share -- in oil trader Mineralimpex. APV in May set the stage for the Mineralimpex sale by transferring its assets to Hungary's major petroleum concern MOL.

Competition to develop pipeline projects to move Argentine gas to Chile is intensifying. The Tenneco-British Gas group backing the Gasoducto Transandino line approved funds to expedite right of way acquisition for its proposed 750 mile Argentina-Chile main line and related distribution system.

Meantime, the NOVA led sponsors of the proposed GasAndes project let $220 million in contracts for procurement and construction of a 290 mile main line to deliver gas from La Mora, Argentina, across the Andes to Santiago.

Construction of a planned pipeline to export Caspian region crude via the Black Sea could begin in January under a plan approved by the Caspian Pipeline Consortium Ltd. (CPC). If CPC can by yearend negotiate a turnkey construction contract, Phase I facilities could be ready to begin handling oil from Russia, Kazakhstan, and Azerbaijan by January 1997. CPC in late July agreed to exclusive, detailed talks with a venture of Willbros and Saipem. Phase I of the Caspian pipeline would include construction of 250 km of 40 in. line between Kropotkin, Russia, and a Black Sea port planned north of Novorossiisk. An existing 50 km, 28 in. pipeline will move oil from Tikhoretsk to Kropotkin.

Petroleum personnel shuffling continues in key OPEC nations.

Abdulla Jumaa, Aramco senior vice-president, was named acting president and CEO of Saudi Aramco. He replaces Ali al-Naimi, named oil minister in a surprise Saudi cabinet shakeup that saw the ouster of long time Oil Minister Hisham Nazer (OGJ, Aug. 7, Newsletter).

Meantime, heads continue to roll in Nigeria. The country's ruler Gen. Sani Abacha sacked Nigerian National Petroleum Corp. Group Managing Director Chamberlain Oyibo, the fourth NNPC head fired in 6 years and one of 50 senior managers fired or retired in a bid to reorganize the troubled state company.

Abacha appointed Dalhatu Bayero to replace Oyibo and named 10 new senior directors to NNPC.

Shell Australia is pushing for a $5 billion (Australian) cooperative expansion of the Northwest Shelf LNG export project to target an expected boom in Southeast Asian gas demand early next century.

Key to Shell's plan is a cooperative link between Woodside group's $12 billion North Rankin/Goodwyn development and rival undeveloped reserves in Wapet group's Gorgon fields to the north. Shell has interests in both groups and sees itself as a link in future cooperative deals. The company's first aim is to provide gas from two new 3 million metric ton/year LNG trains by 2002. The Northwest Shelf's three trains produce 7.5 million tons/year. However, Shell admits Gorgon development requires a substantial amount of technical work still to be done.

The value of acquisitions and mergers among Canadian companies in first half 1995 increased 13% to $2.9 billion (Canadian) from $2.5 billion in second half 1994, reports Sayer Securities Ltd., Calgary.

Sayer says takeovers of gas companies by major oil and gas corporations accounted for most activity. It contends corporate takeovers of companies of more than $100 million in size could increase, assisted by low interest rates, control of a number of large companies now resting in the stock market, and many willing buyers, some ready to launch hostile takeovers. The major takeover currently in the offing is Amoco Canada's $757 million bid for Home Oil.

The World Bank has toughened its environmental guidelines for new energy projects. The new rules, effective Aug. 1, replace guidelines issued in 1988. Limits on air, water, and waste emissions and monitoring requirements are significantly tighter. Guidelines for thermal power projects note a general preference for gas burning combined cycle plants.

For the first time, the guidelines endorse sustainable development, defined as "economic development that is protective of the environment."

U.S. EPA soon will issue a rule requiring sharply lower emissions of benzene, toluene, xylene, and hexane from marine tank vessels during loading and unloading. The agency says the rule will slash air emissions of toxics and volatile organic compounds each by 75% from current levels from new and existing ship and barge terminals that load bulk liquids. It will require addition of control equipment at about 30 of the larger U.S. marine tank vessel loading and unloading facilities and any future facilities. EPA claims the rule will incur a one time capital cost for industry of $270-440 million and operating costs of $60-100 million/year, thus hiking product prices less than 1%.

Auto fuels remain at the center of much environmental and energy use debate in Washington, D.C. The Clinton administration has expanded the 5.4/gal ethanol tax subsidy to include derivative ETBE and enabled wider use of it by moving the taxation point from the terminal to the refinery. Farm interests are fighting a Senate bill to phase out the tax credit the next 3 years.

Meanwhile, an Agriculture Department report maintains ethanol will help reduce U.S. dependence on foreign oil. It claims ethanol production yields 25% more energy than is used in growing and harvesting corn and distilling the ethanol.

Raising auto fuel efficiency standards is an expensive way to cut U.S. energy consumption and could increase pollution, says Charles River Associates, Cambridge, Mass. Its study found that raising corporate average fuel economy standards above the current 27.5 mpg would cost the U.S. economy $3.8-9.9 billion/year by 2005, depending on how high they were raised.

U.S. propane supplies are a concern again.

EIA is worried about propane inventories, noting winter stocks are usually rebuilt over the summer, and 60 million bbl is regarded as the minimum needed at the start of the heating season. EIA said stocks were 42.4 million bbl at the end of June, the lowest level at that point since 1970, and firms will need to add about 6 million bbl/month the next 3 months. "There is real concern about the industry's ability to replenish stocks at this rate, especially because of unprecedented petrochemical demand for propane as a feedstock and diminishing prospects for a large infusion of waterborne imports." Meantime, the Propane Consumer Coalition wants Congress to repeal favored treatment of propane as an alternative motor fuel under the Energy Policy Act. It says propane supplies are limited and needed for heating, so use as a motor fuel should not be encouraged.

MMS' new advisory committee on royalty policy will meet in Denver in mid-September. The panel's first meeting will focus on procedures MMS could use to streamline and simplify its collection and disbursement of federal and Indian royalties. Interior recently dropped its proposal to delegate MMS royalty collection functions to states and tribes (OGJ, Aug. 7, p. 21).

Nymex and EnerSoft have started up Channel 4, an electronic marketplace that will enable users to buy and sell natural gas and pipeline capacity rights. The system channels data feeds from various pipeline electronic bulletin boards into a single system, allowing producers, local distribution companies, end users, marketers, pipeline, and gas hub operators to make instant contracts.

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