OGJ NEWSLETTER

U.S. INDUSTRY SCOREBOARD 5/22 (72026 bytes)

There is reason to cheer in several sectors of the petroleum industry.

Topping the news, the decades-old ban on exports of Alaskan North Slope (ANS) crude may finally be lifted soon, and deepwater Gulf of Mexico production soon may get royalty relief (see story, p. 28).

Elsewhere on the U.S. regulatory front, Interior's OCS policy committee has recommended the department ask Congress for legislation to relax the 1990 Oil Pollution Act's requirement that offshore facilities carry $150 million of oil spill insurance. The panel said the bill should make the insurance level proportional to the spill risk posed by the facility and exempt inland facilities. It also said Interior should issue rules to exempt offshore facilities that pose no oil spill risk and explore options under which companies could self-insure.

The fundamentals of the natural gas business are much stronger than how it is perceived, says PaineWebber, claiming the recent warm winter has sent misleading signals. The analyst insists rebounding prices in the past few weeks offer a strong indication that the trough in the market has passed.

Another concern, the role of storage in natural gas supply, is easing now that storage levels are settling in closer to the average seen since 1990-save for the aberrant 1993-94 winter. PaineWebber sees U.S. gas prices averaging $1.70/Mcf this year, $2.05/Mcf in 1996, and $2.25/Mcf in 1997.

Surprisingly strong gasoline demand in the U.S. is keeping a prop under crude oil prices and bolstering refining margins. Nymex June crude topped $20/bbl last week, and gasoline futures hit a 3 year high.

With OPEC hanging tight on quotas and North Sea output down because of seasonal maintenance as oil demand climbs throughout the year, Salomon Bros. predicts WTI will average $19.50/bbl in the second quarter, $19.75 in the third, $20.25 in the fourth, $19.50 for all of 1995, and $20.50 in 1996.

Meantime, crude and gasoline stocks continue to fall, while U.S. gasoline demand in the 4 weeks ended Apr. 14 jumped 2%, helping to firm refiners' margins, the analyst notes. U.S. Gulf Coast gross refining margins the first week of May jumped to $5.38/bbl from $3.34/bbl.

U.S. gasoline prices will average $1.24/gal this summer, 5 more than last year, EIA predicts. The agency said the added cost of making reformulated gasoline, which affects nearly 30% of U.S. demand, accounts for 1-2 of the hike. Motor gasoline demand will average a record 7.9 million b/d this summer, an increase of 140,000 b/d, or 1.8%, from last summer, it said.

EIA expects U.S. travel to increase 2.8% but notes auto fuel efficiency also is rising and is likely to be 1% better than last summer. EIA also predicts the average world oil price will not rise much beyond $17.50/bbl through 1996.

U.S. gasoline prices last year, adjusted for inflation, were the lowest in the 75 year history of recorded gasoline pump prices, API says. The nominal average pump price in 1994 was $1.174/gal, compared with $1.207/gal in 1988, the next lowest inflation adjusted price. It attributed the low prices to low crude oil and manufacturing costs, which offset increases in excise taxes.

Unocal is pressing cost effective measures to bolster hydrocarbon production in the U.S. while it pursues petroleum business opportunities in new areas outside the U.S.

Unocal's first horizontal wells in the Gulf of Mexico more than doubled oil production from South Timbalier Block 53 field off Louisiana to a record 9,000 b/d while adding 3.8 MMcfd of gas output. Discovered in 1979, South Timbalier 53 had been producing 3,400 b/d prior to the horizontal drilling program. Buoyed by the success of one horizontal well and two horizontal sidetracks at South Timbalier, Unocal is considering horizontal drilling programs in the Gulf of Mexico region, including Ship Shoal Block 308, Eugene Island 276 and 297, and Miocene gas reservoirs in shallow Mobile area sands.

Unocal has opened business development offices in Venezuela and Pakistan, targeting areas of significant growth potential.

It opened a Caracas office to focus on Venezuela's proposed first offering of new exploration acreage since nationalization in 1976. Venezuela's congress is debating contract terms related to the offer of 10 blocks in three areas. Unocal also has a U.S. downstream venture with Pdvsa. Unocal's opening of an Islamabad office follows its accord to explore three blocks on Central Pakistan's Middle Indus trend. Seismic work is to begin this year. Longer term, Unocal is mulling other opportunities in Pakistan, notably gas fired power projects.

Russia is targeting a major increase in gas production and exports.

The Ministry of Energy projects Russian gas output will jump to 25.9-30.1 tcf by 2010 from more than 21.7 tcf this year. The ministry also forecasts Russian gas exports will climb to at least 9.1 tcf by 2010 from 6.3 tcf in 1995. Russia is the world's biggest gas exporter, accounting for 35% of all gas exports.

Companies involved in the $15 billion Sakhalin I project have signed an agreement setting up a group to develop the oil and gas fields off Sakhalin Island. Exxon, Japanese group Sodeco, and Russian oil and gas firms Rosneft and Sakhalinmorneftegaz (SMOG) signed the accord in Moscow May 12 and will sign a separate agreement on production sharing June 29 in Moscow. Japanese sources say the split will be Exxon/Sodeco 60% and Rosneft/SMOG 40%, which will roughly even out in revenue terms after Exxon and Sodeco pay royalties. First phase of the project will result in peak production in 4 years of 200,000 b/d of oil and 1.4 bcfd of gas.

Another multibillion dollar Middle East oil development project is in the offing, reports Agence France Presse.

Saudi Aramco this month is expected to award a contract to one of eight engineering/construction firms bidding to develop Shayba field, thought to hold more than 6 billion bbl of light crude, at a cost of $2-3 billion. In the running are Bechtel, John Brown, Hyundai, and undisclosed French and Japanese companies.

Shayba, discovered in the 1970s, is in a remote desert area 1,000 km south of Riyadh near the U.A.E. border. Work is to include constructing production facilities, laying a 700 km pipeline to a marine terminal at Dahran on the Persian Gulf, and building roads and living quarters for workers. The project is needed to keep Saudi productive capacity at 10 million b/d.

Taiwan's growing shortfall of electric power capacity is spurring a scramble to develop oil or gas fired independent power projects there, especially within the country's large petrochemical sector.

The Council of Economic Planning and Development warns the country's petrochemical producers they can expect increasingly tight supplies of electric power the next 3 years with the growing likelihood of rationing until new power plants begin contributing to the domestic power supply in late 1998. Local monopoly Taiwan Power can supply 20 million kw plus another 2.5 million kw during peak consumption hours. Taipei recently approved legislation permitting private companies to invest in power production, leading 22 firms or groups to apply to build private power plants that are for the most part fueled by gas or oil.

Nigeria soon will approve guidelines for foreign companies leasing and managing the country's four refineries.

The Ministry of Petroleum Resources has forwarded a draft of the guidelines to the presidency for approval, which is essentially moot because the initiative came from Gen. Sani Abacha, head of the ruling military junta. Elf Nigeria recently expressed interest in leasing a refinery.

Outside consultants recommended the plan, citing improved efficiencies, and valued the old Port Harcourt refinery at $710 million and the new Port Harcourt refinery at $1.3 billion. Leasing probably would entail terms of 10 years, with lessee-managers paying a share of profits to the government.

French refiners complain they are increasingly hamstrung in competing with other European refineries by domestic inequities that added 2.5 billion francs to their costs in 1994.

These competitive disadvantages include 1 billion francs for extra costs generated by wage requirements, taxes, domestic flag tanker obligations, and port fees. The balance is imposed by France's lopsided products market structure involving high diesel consumption, cutthroat retail pricing by competing hypermarkets, and especially high and discriminatory taxes, claims trade group UFIP. French refiners posted a combined loss of 239 million francs in 1994 vs. a 2.2 billion franc profit in 1993. Margins plummeted to 64 francs/metric ton last year from 92 francs/ton in 1993, still well below breakeven. In first quarter 1995, those margins plunged to an average of less than 20 francs/ton.

UFIP says the extra burden on French refiners is forcing them to fall behind European competitors in environmental and modernization spending. A government-industry round table was to get under way May 20 to search for solutions. Industry Ministry Energy Director Pierre Mandil voiced sympathy, adding his concern over European products exports to the U.S. drying up as Clean Air Act rules change fuel formulas there. "The Clean Air Act is an extraordinary protectionist machine," he said.