OGJ NEWSLETTER
The U.S. natural gas bubble has popped. Or so say some analysts that back their claims with sharply higher gas price forecasts for 1993-94.
Salomon Bros. even contends a natural gas deliverability "crisis" has arrived that will be "solved" by fuel switching. The analyst thinks U.S. gas deliverability has fallen to the point where supply may fall short of demand as soon as this year, a shortfall that will increase dramatically in 1994-95 and won't be met by imports. It estimates gas drilling activity must increase by 40-70% from 1991-92 levels to meet growing gas demand.
That works out to industry completing 8,900-11,200 gas wells/year to maintain current productive capacity and reserves and 10,900-13,200 wells/year to maintain recent growth rates in production and consumption and compares to less than 8,000 wells/year in 1991-92. However, resid competition places a cap on natural gas prices that should average $2.25-2.30/MMBTU at current crude prices. Resid prices are at unusually high off-season levels and are expected to slide soon, with the U.S. 4 week average demand up only 1% vs. last year. So Salomon Bros. is bumping its natural gas price forecast 25 cents to $2.25 in 1993 and $2.40 in 1994.
Merrill Lynch has hiked its forecast for the average gas price for the U.S. companies it tracks by 200 to $2.05/Mcf vs. $1.66 in 1992 and $1.38 in 1991. The most important new medium term spur to higher prices, says the analyst, is the emerging industrial market interest in securing longer term gas supply contracts at $2.40-2.50/Mcf. That will sustain 'the recent gas price rally caused by localized demand spurts and low storage levels. Natural Gas Clearinghouse pegs May spot prices at $2.30-2.70/MMBTU. And Nymex natural gas futures hit a record closing of $2.758/Mcf Apr. 25.
It's worth noting the recent softness in resid demand growth, which had been a bright spot in an overall weak U.S. oil demand picture that points to continuing economic sluggishness. Total U.S. oil demand for the 4 weeks ended Apr. 30 was down 0.3% from the same period in 1992, led by a steep 6.2% slide in distillate demand.
The long term outlook for oil is bright, however, at least for key OPEC producers. IEA's new world energy outlook sees OECD oil consumption rising 20% to more than 45 million b/d by 2010 from less than 38 million b/d in 1990, leaving those countries' reliance on oil imports at the 70% level of the 1970s.
OECD oil imports could jump by 40% to more than 31.4 million b/d with an average crude import price rising to $30/bbl in constant dollars by 2005. With real oil prices remaining flat, OECD import dependence would be higher. With oil exports from the former U.S.S.R. dropping to 500,000 b/d by 2000 and remaining there another decade and developing nations' demand soaring, the call on oil from the Middle East and Venezuela will climb to 45.4 million b/d by 2010 from 36.9 million b/d in 2005 and 31.1 million b/d in 2000.
IEA's newest outlook includes a new wrinkle: an analysis of the effect of carbon taxes on OECD energy demand. IEA sees little chance carbon taxes will rein CO2 emissions to 1990 levels by 2000. Even a phased tax of $300/metric ton of emissions would leave CO2 emissions higher in 2000 and 2010 than in 1990. The reason, says IEA Executive Director Helga Steig, is the relatively modest effect of taxes on energy prices. To sharply cut CO2 emissions, more regulations and conservation measures and new technologies also will have to come into play. "It becomes clearer and clearer that governments are contemplating mixtures of measures," Steig said.
The U.S. Senate approved and sent to the House a bill to make EPA a cabinet level department. It also would abolish the White House Council on Environmental Quality and require EPA to evaluate new regulations to ensure they are not unreasonably restrictive or expensive.
The bill's future in the House is uncertain. Rep. John Dingell (D-Mich.), chairman of the energy and commerce committee, will oppose the legislation until EPA improves its management practices.
Canadian petroleum firms generally are faring as well as their U.S counterparts (OGJ, May 3, Newsletter) in first quarter earnings, also citing benefits of cost cutting and strong natural gas markets. Nova says two thirds of the $170 million (Canadian) gain in its 1992 pretax earnings came from reduced costs and improved productivity in chemicals. Combination of increased productivity and greater volumes helped keep Nova's Alberta Gas Transmission unit gas transport costs at 25-26 cents/Mcf 3 years in a row. Canadian first quarter earnings follow, with 1992 listed first in millions of Canadian dollars and losses in parentheses: Imperial 73 vs. 40, Nova 50 vs. 27, Petro-Canada 40 vs. 32, Shell Canada 15 vs. 5, Talisman 7.9 vs. 2, Total Canada 5.3 vs. 1.9, Inverness 1.6 vs. (0.4), and Gulf Canada (14) vs. (3).
An independent review of a proposed heavy oil upgrader at Regina, Sask., finds the project will not make enough money to pay start-up costs. The review by retired Supreme Court Justice Willard Estey found Federated Co-operatives Ltd.'s Newgrade plant would incur $874 million (Canadian) in start-up costs and could barely pay debt interest. It recommends Saskatchewan provide cash of $25 million and loans of $30 million, Ottawa $150 million plus $30 million in loans, and Federated $50 million.
Lasmo Nova Scotia is laying off more than one third of its headquarters staff, and remaining workers face salary cuts of as much as 10%.
The layoffs will involve 38 people to he cut by October. Thirty-two workers on the Rowan Gorilla III drilling rig will not be affected.
Lasmo Nova Scotia, owned 50-50 by the Nova Scotia government and Lasmo plc, operates Cohasset-Panuke oil fields off Nova Scotia, where it has experienced cost overruns and delays. The project has produced about 3.6 million bbl of oil vs. projections of 8-9 million bbl expected by now. The company won't ask for provincial financial aid but wants its paperwork burden reduced.
U.K. Department of Trade & Industry has signed a treaty covering regulation of a gas pipeline to take supplies from the British grid to Ireland.
The pipeline will extend from Moffat, West Scotland, to Ballough, north of Dublin on Ireland's east coast. Irish state utility Bord Gas Eireann (BGE) is owner and operator of the line, due for completion this fall.
The treaty also guarantees access for links to Northern Ireland and the Isle of Man if required. Northern Ireland can take as much as 280 MMcfd and Isle of Man 25 MMcfd. Last September U.K. utility National Power plc secured an innovative 5 year pact, starting this fall, to provide BGE with standby supplies in the event of a shortfall.
Western Australia is preparing an incentive program designed to encourage oil and gas sector investment in the state, notably in frontier regions. Proposals under study include doubling the size of exploration permits, extending terms on exploration permits to 6 from 5 years, increasing flexibility on royalties, and allowing exploration within Ningaloo Marine Park.
The state government also invited expressions of interest for building, owning, and operating a gas pipeline from the state's northwest to gold fields in the east and northeast. Deadline for outline plans submitted to Department of Resources Development in Perth is May 31.
Solutions to help Russia's ailing oil industry focus increasingly on restoring idle wells to production. Rebuilding Russia's oil productive capacity must begin by getting 13,000 idle wells back on stream, says Russia's Deputy Minister of Fuel and Energy Andrei Konoplyanik. About 31,000 wells-21% of Russia's total-are idle, says Konoplyanik. If producing, the 13,000 "commercial" wells could average 58.4 b/d/well. At last week's OTC (see story, p. 19), Konoplyanik said the highest priority the next 3-5 years is to develop 450 discovered oil fields that could boost production by 1.8 million b/d by 2000. To reverse Russia's dramatic production decline, however, the search for "elephants" in new areas will have to be stepped up the next 8-10 years. Konoplyanik said tenders being prepared for blocks in Khanty-Mansiisk, Komi, and other regions are part of this long term strategy.
Halliburton Pres. Dale Jones says $20 billion will be needed to halt Russia's production decline. Prematurely shutin wells currently offer one of the best opportunities for investment, he told OTC. Other needs include environmentally safe drilling and production services and integrated E&D technology. A recent study points to idle wells as a low cost way of quickly adding more than 600,000 b/d to Russian production (OGJ, May 3, Newsletter).
Meantime, Russia plans to accelerate privatization and extension of credits to fund its oil sector. In a speech to the second congress of Russian oil producers last month, Prime Minister Viktor Chernomyrdin asked, "Will there be oil?" Producers replied, "First you pay," reported Moscow daily Commersant. The government, Supreme Soviet, and central bank agreed to open hefty credit lines to fund oil extraction and avoid a repeat of the 1992 crisis in payments to producers, Chernomyrdin said.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.