OGJ NEWSLETTER

U.S. Industry Scoreboard 1/16 (11455 bytes)

Jan. 16, 1995

8 min read

U.S. Industry Scoreboard 1/16 (11455 bytes)

In spite of shaky confidence in the North American natural gas market, there are some bright spots. One of the biggest gas plays in North America will continue to be active in spite of temporary dips in prices, says Michael E.J. Phelps, chairman of Westcoast Energy. More than 250 gas wells were drilled during 1994 in Northeast British Columbia vs. 130 in 1993. Costs are high, but so are reserves/well, notes Phelps. He says activity will continue because the reserves are needed to offset declining production in Alberta and elsewhere. "These are long term supplies," he notes.

Exploration of deeper horizons is just beginning in the Grizzly Valley area. Farther north, activity is growing in the Fort Nelson area and into Northwest Territories, a play that "will be the story for the next 2 years," Phelps says. Westcoast will spend more than $1.5 billion (Canadian) the next 4 years in the region, more than $1.1 billion of that the next 2 years. Hearings will be held this month on the company's proposed $700 million Grizzly Valley gas processing plant.

However, PaineWebber predicts even if U.S. gas prices see strong recovery this winter, North American natural gas drilling is likely to fall 10-15% in 1995. Cash flow pressures for independent producers and increased mergers and acquisitions, which tend to lower E&P spending, are to blame.

Gas drilling in North America experienced a 2 year recovery after gas prices bottomed at $1.09/Mcf in early 1992, increasing 25% in 1994. The analyst predicts the Gulf of Mexico rig count, which jumped 83% since first quarter 1992 to 141 early this year, is likely to fall 10-20% in 1995.

U.S. Energy Sec. Hazel O'Leary has asked the National Petroleum Council, her oil industry advisory group, to prepare a report on the future of the U.S. oil industry (see editorial, p. 13). Nicknamed "The Big Study," the survey will identify issues and policies that will most likely shape the industry during the next 25 years and advise methods to keep the industry viable.

Completion is expected in 1996. O'Leary told NPC, "Your report will be most useful if it includes a candid review of the oil and gas industry's role in the nation's economy and is specific about the issues and policies that may alter the industry's vitality in the next century."

The North American air pollution control equipment industry is poised for big growth. Enhancements to the U.S. Clean Air Act and new environmental regulation in Canada and Mexico will drive equipment sales to a projected $2.7 billion in 2000 from $1.5 billion in 1993, says a study by Frost & Sullivan, Mountain View, Calif. Nitrogen oxide control equipment will increase its share of total market revenues to 28% in 2000 from 20% in 1993 while scrubber equipment dips to 20% from 26% during the same period. Oxidation systems' share is to remain steady at 23%, the study says.

The battle over the oxygenates market rages on. The ethanol industry is seeking further breaks for its ethyl tertiary butyl ether (ETBE) oxygenate in the form of an excise tax exemption, says American Methanol Institute (AMI) Pres. Raymond A. Lewis.

"Congress clearly intended the excise tax exemption to be applied only to alcohol fuels, not to chemical ethers such as ETBE," says Lewis. "The proposed regulations simply pile on another unwarranted subsidy for ethanol, further disrupting the market and burdening taxpayers." AMI says current tax expenditures for ethanol total about $500 million/year and are to increase to $1-2 billion/year by 2000.

Methanol receives no federal subsidies or tax breaks, AMI notes.

Meantime, Honda has unveiled the first car to meet California's megalow emissions standards, a car that cuts emissions by 90%.

It is similar to Honda's Accord, runs on gasoline, and will go on sale late in 1997. California has ordered automakers to market low emission vehicles and zero emission vehicles, requiring that 2% of automakers' sales in California be electric starting in 1998 (OGJ, Dec. 26, 1994, p. 23).

LPG fueled taxis and passenger cars will begin operating in Taiwan in April after several years of debate. Officials of Taiwan's Environmental Protection Administration (EPA), which is promoting use of LPG as a fuel, say vehicles powered by LPG have emission levels that are 60-70% lower than those fueled by gasoline. The goal of EPA is to convert all of Taipei's taxis to LPG within 2 years. If the plan is only 80% effective, officials say, the volume of carbon monoxide emission will be reduced by 24,000 metric tons/year and that of hydrocarbons by 1,100 tons/year. For owners who agree to convert their taxis to LPG, EPA will pay half the cost of conversion.

At the same time, EPA announced the government has agreed to implement a new air pollution control tax on gasoline. The tax, expected to go into effect in July, will add about 40/1. to the cost of gasoline at the pump.

Prices for Malaysian Tapis crude have surged to their highest levels in 5 months as Asian refiners scramble to meet strong kerosine and diesel fuel demand. Malaysia's Petronas sold a carge of Tapis at $18.40/bbl to Japan early this month and was a week later trying to make another available at $18.7018.80/bbl. Robust demand for low sulphur crude like Tapis has spurred interest and prices for similar crude types from Australia, Papua New Guinea, and Indonesia. Asia production of light sweet crude is limited, and some refiners in Japan and Korea have been buying cargoes from Africa to meet the shortfall. At least 3 million ]Dbl of oil from Nigeria and cargoes from other West African countries are to load this month for Asia.

A rare exploration license covering onshore northern Trinidad has been awarded to a group led by Anderman-Smith Caroni, Denver. The license covers about 440 sq miles, including the onshore Caroni basin.

The group plans to begin a $2 million, 275 km seismic program immediately, followed by a basin study. Two wells, expected to cost about $8 million, may be drilled. Most of the country's E&P is in onshore southern Trinidad and offshore. Anderman-Smith holds 32.5% interest in the block with partners Shell Exploration & Production Co. Trinidad 32.5%, Petroleum Co. of Trinidad & Tobago 25%, and Krishna Persad & Assoc. 10%.

Shell Petroleum Co. Ltd. is inviting offers for purchase of two of its units that own extensive exploration and producing assets in Colombia's Upper Magdalena Valley and Central Llanos area, as well as stakes in two oil pipelines. Shell says its Hocol SA and Homcol Inc. units no longer form a strategic fit with its worldwide E&P portfolio. Shell will retain Cia. Shell de Colombia, with an interest in Cano Limon field, and Shell Colombia SA. Investment banker Salomon Bros., London, is in charge of the sale.

A modernization project is planned for Yemen's main refinery damaged during the 2 month civil war last year. Ahmed Hassan Jifri, the Aden plant's acting director general, told Reuters modernization of 16 storage tanks is to -be complete in early August, giving the 170,000 b/d refinery crude and products storage capacity of 1.8 million bbl. Jifri says the refinery is producing 85,000 b/d so far this year vs. 70,000 b/d late last year. It resumed operations last July (OGJ, Aug. 15, 1994, p. 44) after repairs that included replacing pipelines and the mc[in pump station and restoring distillation units.

Russia has removed a burden from the back of its hamstrung oil industry. Prime Minister Victor Chernomyrdin signed the resolution lifting oil export ceilings, and it does not include a requirement obliging producers to sell 65% of their output to the state. Key lenders to Russia IMF and World Bank were much opposed to the domestic requirement, saying it undermined Russia's creditworthiness (OGJ, Jan. 9, Newsletter). The new rules are to apply from Jan. 1, but the resolution has to be approved by relevant ministries, notes John Lindquist, senior vice-president of Boston Consulting Group, London.

Even then, Lindquist expects progress in Russia's oil industry to be a case of two steps forward and one step back. And Julian Lee, oil analyst at London's Centre for Global Energy Studies, says the immediate effect of the reforms is the type of chaos that typifies Russia's start to each new year.

Besides the annual license changes, there is a 2 week holiday in Russia, says Lee, which means nothing really happens until the third week of January. Lee says even if domestic quotas are applied later, they will not affect joint ventures, so many operations with foreign partners will still be able to export oil. The resolution includes a reduction in the oil export tariff to about $5.20/bbl (Canadian) from $6.80/bbl effective Jan. 1. Canadian Fracmaster applied for full exemption from export tariffs for three of its four operating joint ventures under a Russian decree issued last October (OGJ, Oct. 24, 1994, p. 27). Fracmaster says its one non-qualifying enterprise will benefit from this tax reduction to the tune of about $9 million in 1995.