OGJ NEWSLETTER

U.S. petroleum industry leaders continue to sound alarms about an industry on the verge of collapse.

Last week in Houston more than two dozen executives at Texas Railroad Commission's annual state of the industry hearing ticked off an array of woes bedeviling U.S. oil and gas companies. They blamed record low drilling levels, growing oil imports, depressed seismic activity, lost jobs, and majors' E&P capital flight overseas on low oil and gas prices, overly stringent environmental regulations, bans on access to the most promising U.S. exploration frontiers, and lack of a cohesive national energy strategy.

Mobil E&P U.S. Pres. Charlie Spruell warns of "death by regulation" of the U.S. petroleum industry. Spruell estimated spending by U.S. oil and gas companies to comply with environmental rules by 2000 could hit $23 billion/year vs. about $8 billion in 1989.

Plains Resources Pres. Patrick Collins, citing disarray in the U.S. gas industry and an independent sector "brought to its knees," said, "Energy is cheap for utilities and large industrial buyers in consuming states but not for residential customers, while here in Texas we continue to liquidate our industry, its talent, its machinery, and its reserves ... Only a fool cannot see that ultimately a heavy price will be paid."

Phillips Chairman Pete Silas predicted, "We're going to have soft prices on crude oil for the next 2-3 years." Silas, also API chairman, sees some potential for increased natural gas demand but said regulators should consider that "the price of gas at the wellhead hasn't changed all that much, hut the price of gas at the burnertip has."

Silas is skeptical about a gas prorationing push in key producing states, contending that will just cause producers in those states to lose markets to other suppliers with surplus gas.

The Baker Hughes rig count continues to mark new post-1942 lows. It fell 11 units last week to 649 vs. the previous modern low of 653 set Jan. 31 and 908 rigs a year earlier. Drilling permit applications rose 6.2% in February for 29 states Salomon Bros. tracks but was 30% below year ago levels, the sixth consecutive monthly drop of 30% or more vs. year ago levels.

U.S. crude production fell more than 250,000 b/d in February from a year ago to 7,299,000 b/d, API reports, with drops of 100,000 b/d in Alaska and 150,000 b/d in the Lower 48. U.S. oil and products imports were 6,888,000 b/d, the lowest in almost a year, but API said that "likely reflected reticence to hold excess supplies in the face of uncertainties in world oil markets," and pegged true underlying imports demand at 7.8 million b/d.

Industry weakness upstream and downstream is reflected in U.S. companies earnings reports as well. Salomon Bros. predicts first quarter income for 20 U.S. majors will drop by 44% from first quarter 1991 levels. That follows fourth quarter 1991 earnings that plunged 54% from the year earlier period, Salomon Bros. says. Eighteen of the firms reported fourth quarter nonoperating and/or nonrecurring gains or losses for a net loss of $802 million.

EPA will require Stage 2 vapor recovery systems installed at gasoline stations at a cost of about $20,000 for a typical station rather than require larger vapor canisters on new autos (OGJ, Mar. 16, p. 31). EPA cites concerns about onboard canister safety. President Bush announced the EPA action at a Detroit campaign stop a few days before the Michigan primary.

Sen. Tim Wirth (D-Colo.) predicts next year Congress will revisit the issue of setting Corporate Average Fuel Economy standards for new cars.

Wirth said there is too much emphasis on CAFE and not enough on the real issue: using less imported oil. He said CAFE should be restructured to encourage automakers to build more alternate fueled cars.

The Asia-Pacific downstream boom shows little sign of slowing.

BP and C. Itoh may take over a 120,000 b/d, $1.2 billion refinery project at Tanjung Uban in Central Sumatra.

Pertamina launched the project, but Indonesia's government shelved it last October as part of a push to reduce foreign borrowing for capital projects in the country. Three other refinery projects also were shelved at the time and offered by Pertamina to private enterprise. BP said a feasibility study is under way, and results won't be known for at least 2-3 months.

Royal Dutch/Shell will invest $75 million to restore Pulau Bukom refinery in Singapore to its position as the company's largest refinery. Shell will boost capacity by 40,000 b/d to 107,000 b/d at the plant's third crude distillation unit by 1993. Overall capacity will increase to 390,000 b/cd. Chiyoda has the revamp contract. Meanwhile, Singapore Refining Co. is adding 60,000 b/d to its plant, and Mobil and Esso plan to add 30,000 b/d each to their Singapore refineries, OPEC News Agency (Opecna) reported.

Developing countries in Asia will need to invest $500 billion in energy production in the next decade to offset consumption that has increased by half the last 10 years, says William Thomson, vice-president of Asian Development Bank. Thomson notes that while Asian developing countries have 40% of the world's population, they account for only 20% of primary energy consumption with potential for large per capita increases in the future.

Thomson says the huge financing required for that effort calls for re- thinking some lending practices and notes ADB encourages special financing schemes to offer the private sector a bigger role in energy projects.

Brunei Cold Gas, Royal Dutch/Shell and Mitsubishi's joint venture with Brunei's government, will spend about $62.5 million for added compression in Ampa-9 gas field to boost production for an expected increase in LNG deliveries after 1993 (OGJ, Feb. 3, p. 30). Last year Tokyo Electric, Tokyo Gas, and Osaka Gas took delivery of 158 cargoes of LNG, six more than the amount contracted. Negotiations on a new 20 year contract with the buyers are expected to continue most of the year.

Iran is pressing expansion of its gas industry.

National Iranian Gas Co. Managing Director Salehi Forouz said Iran plans to double its gas exports to 211 bcf/year and put Iran's proved reserves at about 600 tcf. Forouz said about $200 million is earmarked to purchase pipe and expand Iran's gas grid in the calendar year beginning Mar. 21.

Meantime, Seyyed Mostafa Khoei, managing director of Iran's Offshore Oil Co., told Opecna the first well has been spudded in the Khouf gas region, where reserves are estimated at 7 tcf, and with two more wells, the area could yield 800 MMcfd-1 bcfd.

Kuwait's production recovery is ahead of schedule.

Its oil output increased to 750,000 b/d in March from 630,000 b/d in February. About 610,000 b/d comes from Kuwait proper and 140,000 b/d from Kuwait's share of Neutral Zone output.

Kuwaiti Oil Minister Hamoud Abdullah al-Ruqbah earlier predicted production will average 710,000 b/d in March, 846,000 b/d in the second quarter, 1.07 million b/d in the third quarter, and 1.5 million b/d by yearend.

Just ahead of reports the U.S. might be planning air strikes against weapons manufacturing facilities in Iraq in expectation of continued Iraqi interference with U.N. inspection teams seeking the facilities' destruction, Deputy Prime Minister Tariq Aziz said Iraq will resume talks with the U.N. delegation in Vienna this week on the sale of $1.6 billion worth of Iraqi crude to purchase food and medicine and finance destruction of weapons.

The push to privatize petroleum sectors in Latin America marks setbacks amid the progress. With a continuing political crisis in the wake of last month's aborted military coup against the administration of Carlos Andres Perez, the embattled Venezuelan president announced a series of economic measures including a freeze on domestic retail gasoline prices and electric power rates as well as other price controls. The Perez government has since February 1989 tried to hike domestic gasoline prices to at least a breakeven point for Pdvsa, whose investment plans may be stymied by continuing heavy subsidies for refined products. Monthly increases of less than 1/l. in gasoline prices--still among the world's cheapest at only 8.5/l. at the pump--have stirred up enough anger to spur calls for Perez's resignation.

Peru's oil industry workers planned a 48 hr strike Mar. 17 to protest privatization. Notimex news service reports the strike was intended to halt drilling, crude transport through the northeast pipeline, and distribution of propane gas.

Argentina's YPF continues its privatization push, however, offering leases in its Northwest basin where proved and probable reserves are pegged at more than 95 million bbl of oil and condensate, 2.1 tcf of natural gas, and 2.9 metric tons of NGL.

Included are more than 8 million undeveloped acres, a 30,000 b/d refinery, two 600 MMcfd turboexpanders, and a 1,100 km products pipeline.