OGJ NEWSLETTER

Turmoil in the former Soviet Union's petroleum industry seems to have no end, and there is no shortage of proposed solutions, including new approaches to foreign investment (see related story, p. 25).

The best hope for recovery of the troubled energy industry in the former U.S.S.R. is to tough it out internally without depending on outside aid, contends East-West Center in a new study.

The study suggests an economic shock scenario, involving increases in the consumer price of petroleum products and a rapid move to a free market and world prices, would he more productive.

"Under slow marketization, exports would not rise above 1991 levels, and the former Soviet region could eventually become a net oil importer," EWC said. "By contrast, under the economic shock scenario, exports could rise to more than 3 million b/d by the late 1990s."

Meantime, the Russian Far East is involved in a tug of war with Moscow over ownership and management of its undeveloped oil, gas, and coal deposits, notes EWC's Fereidun Fesharaki. "One alternative would he to cut the umbilical cord of its dependence on Moscow and throw open its doors to foreign investment," he said. He notes the region's oil resources, when developed, could provide all of its fuel needs, but proved and probable reserves in 40 known oil and gas fields account for only one seventh of the region's potential recoverable liquid hydrocarbons. He points to the Vostock project (OGJ, Mar. 23, p. 121), which includes laying 4,200 miles of pipelines, as the biggest hope for development of the region.

"It is possible in the near future that regional and federal authorities will form a single front in their efforts to attract more foreign companies capable of accepting the serious technological, financial, and marketing challenges of the Sakhalin frontier," Fesharaki said.

Four thousand workers at Ukraine's 480,000 b/d Lisichansk refinery have appealed to Russian President Yeltsin and Ukraine President Kravchuk to use their influence to prevent the "disastrous consequences" following a jump in Russian crude prices to world levels. The Lisichansk refinery faced shutdown in early October because of soaring prices for crude supplied by western Siberian production associations (OGJ, Oct. 12, Newsletter). The plant has laid off many workers and operated some units at a third of capacity the past 2 years because of reduced crude deliveries.

Meantime, sharply higher prices decreed by Russia for crude and petroleum products haven't shortened waiting lines at the federation's filling stations. At Rostov-on-Don, motorists complain they must wait at least 15 hr to buy premium Ai-93 gasoline. Ambulances have had to refuel with low octane gasoline because Ai-93 was unavailable and as a result often are inoperable. Because of A-76 gasoline shortages, Rostov's police cars are unable to begin patrols on schedule.

Crude price hikes spurred a 70% jump in Russian retail gasoline prices last month to an average 13.4 rubles/l. In the northern Caucasus, and Volga-Ural regions, gasoline prices were double to triple the Russian average, reaching 30 rubles/l. but as low as 6-9 rubles/l. in Siberia.

And some regions in Russia fear winter fuel shortages despite re- cent reassurances by Prime Minister Yegor Gaidar that stocks are larger than at the same time in 1991. Tartarstan has been able to store only 14.8% of the liquid fuel and 29.6% of the solid fuel needed for winter. Russia's cabinet notes the gravity of the situation, citing predictions of unusually low temperatures this winter.

Oil supplies have been resumed to Lithuania after a 3 month break following a meeting between Gaidar and Lithuanian Prime Minister Alexandras Abisala. Itar-Tass reports although resuming oil supplies holds out hope some energy sector problems will be solved, crude supplies received at the Mazeikjai refinery were barely enough for the plant to operate.

China's Inner Mongolia autonomous region will offer sweetened terms directly to foreign investors in upstream E&D there, without interference from Beijing. At the moment, the Inner Mongolia government is considering extending tax exempt status to foreign companies developing resources in the region. Interest in the remote region is escalating because of multinationals attracted to oil and gas development in neighboring former Soviet republics. In addition to having at 187.4 billion metric tons the second largest coal reserves of any region or province in China, Inner Mongolia produces about 20,000 b/d of oil from Erenhot field.

Philippine National Oil Co. has dusted off plans for a petrochemical complex near Manila and is promoting the project to companies from the U.S., Taiwan, Japan, and France. Included in the talks is USI-Far East, which had committed to a 70% stake in the Luzon Petrochemical Corp. project proposed in 1989 (OGJ, Dec. 18, 1989, p. 23) and killed in 1990. The project was to save $1.4 billion in chemical imports in 10 years. PNOC wants as many firms as possible involved in the project this time and plans to invest only in a naphtha cracker, leaving downstream units to private investors.

Buyers are lining up for associated gas from BHP's $600 million Griffin oil development off Western Australia (OGJ, Aug. 17, p. 29).

Gas will move into the Dampier-Perth trunk line via onshore Tubridgi gas field facilities near Onslow. Tubridgi partners have agreed to take an initial 38 MMcfd for resale in Western Australia when Griffin goes on stream in early 1994 . Alcoa has committed to 24 MMcfd of the 38 MMcfd available from BHP. Griffin gas will come ashore via a 150 km, 95 MMcfd line to Tubridgi facilities, of which Tubridgi partners will fund a 90 km, $15 million (Australian) section. Gas project portion of Griffin development is pegged at $60 million and reserves at 200 bcf.

Italy's electric utility ENEL agreed to buy 140 bcf/year of gas via the Transmed pipeline from Algeria for 20 years at a price of $330 million/ year. ENEL says it's only the first step, noting it earlier planned to buy as much as 210 bcf/year. Snam, operator of the Transmed pipeline, will have to operate it at capacity 2.4 bcfd to accommodate the added supplies.

Federal and state officials last week signed a multiyear research agreement with U.S. automakers to help develop technology to monitor and enforce future emissions standards. Researchers from Chrysler, Ford, GM, Navistar, U.S. EPA, and California Air Resources Board will develop technology to identify vehicular evaporative and low level exhaust emissions of nonmethane organic gas, carbon monoxide, and nitrogen oxides.

Detection of specific hydrocarbons and oxygenates emitted from conventional and alternate fueled vehicles also will be studied. Researchers also want to improve and standardize tests for evaporative emissions. Industry participants will work under auspices of the U.S. Council for Automotive Research and its Environmental Research Consortium.

U.S. gas processors continue to garner unusually robust NGL prices despite the highest inventory levels in more than a decade, says Gas Processors Association. NGL prices at Mont Belvieu, Tex., and Conway, Kan., last month maintained surprising strength, while NGL inventories at the end of August totaled 143.8 million bbl, surpassing 140 million bbl the first time since 1981. The inventory peak was led by propane with 60.6 million bbl and n-butane with 40.9 million bbl.

GPA says prices softened slightly with growing awareness of bloated inventories, but didn't plunge by several cents per gallon as expected.

Canada's gas exports to the U.S. will leap by 24% to 2.015 tcf in the 1992 contract year ending Oct. 31 vs. the previous year, says Canada's Energy Department. The projection points to the trend of gas gaining in importance as a commodity relative to oil, with the 1992 gas export volumes equivalent to about 200 million bbl of oil, compared with current Canadian crude exports of about 312 million bbl/year. The greatest area of gas export growth is in the U.S. Northeast as Canadian gas replaces coal and oil there with increasing use of cogeneration. Ottawa forecasts continued export growth with expansions planned for the Iroquois system and Alberta-California pipeline expansion projects in the works.

Alberta's cabinet soon will decide on proposed changes to the province's oil and gas royalty structure, Energy Minister Rick Orman predicts.

Orman contends a contest under way to replace Alberta Premier Don Getty, leader of the governing Conservative party, will not delay a decision. Orman is one of several candidates campaigning to replace Getty, who is stepping down. Orman says proposed changes would reduce by 60% government and industry costs of administering the royalty system. Orman favors a royalty system sensitive to prices. The cabinet has not yet agreed on the size of potential royalty cuts. An announcement on royalties is expected before companies finish outlining budgets and winter drilling plans.