OGJ Newsletter

• U.S. Industry Scoreboard 9/20 [382,979 bytes]

Even as former independent presidential candidate Ross Perot, environmentalist groups led by Greenpeace, and labor groups led by the AFL-CIO last week fired media broadsides at Nafta, the Clinton administration began marshaling its forces to defeat rising opposition to Nafta. Clinton sent several cabinet secretaries to Capitol Hill to testify for the pact and held a pro-Nafta press conference with former Presidents Bush, Carter, and Ford.

Meantime, in a joint statement Sierra Club and AFL-CIO claimed the pact, intended to lower trade barriers among the U.S., Canada, and Mexico, would hurt workers in all three countries while weakening environmental standards in the U.S. "Hundreds of thousands of U.S. jobs would be lost to benefit multinational corporations, which would exploit poor Mexican workers and lax environmental standards," it said.

Because Mexico's constitution forbids it, Nafta officially excludes foreign equity ownership of Mexican oil and gas, which was deemed necessary for political survival at the time the treaty was being debated in Mexico. However, some analysts speculate Pemex's shrinking status in Mexico (OGJ, Aug. 16, p. 55) will pave the way for some kind of foreign upstream participation via government edict while still preserving constitutional language.

Now there is official confirmation of earlier reports the government plans to open Mexico's pipeline industry to private participation over Pemex's objections. Two Mexican government officials at an energy seminar in Mexico City earlier this month said the government is considering letting private investors build and operate natural gas pipelines, Reuters reported.

Details are to be published when Mexico's new law on foreign investment goes to congress, probably in November. Reuters quoted energy ministry official Mauricio Toussaint as saying the government is talking to Mexican and international financial consultants about the new policy.

Citing leaked government documents, OGJ last month reported such a government policy shift was under consideration, with deeper privatization of the oil sector than had been thought feasible (OGJ, Aug. 16, p. 26).

President Clinton last week relaxed the ban on trade with Viet Nam, giving U.S. firms access to financing from the World Bank and other international agencies for Vietnamese projects. Clinton did not lift the embargo against most commercial dealings, so large petroleum projects still will he blocked. The White House says Viet Nam must do more to account for missing American POWs before all sanctions are lifted.

The U.S. petrochemical industry is facing tougher requirements at the hands of EPA. Effective Aug. 31, EPA requires the synthetic organic chemical manufacturing industry to control emissions from new, modified, and reconstructed reactor processes to levels achievable by the best demonstrated system of continuous emission reduction or best demonstrated technology.

AGA reports 61,000-79,000 vehicles/year could be converted to operate on natural gas in the U.S. Its figures show manufacturers made 17,000 conversion systems last year, will produce 41,000 this year, and more than 94,000 next year. About 7,000 vehicles were converted to gas last year.

Drilling for gas is up sharply in Texas, notes Texas Railroad Commissioner Barry Williamson. TRC counted 1,553 gas completions through August, up 40% from 925 in the some 8 months of 1992, TRC issued 1,457 drilling permits in the same period, compared with 1,278 in 1992.

He attributes the trend to improving gas markets and state severance tax relief for marginal gas wells and new field discoveries.

Texas legislators have passed state severance tax incentives intended to spur oil and gas activity and boost the state's economy.

One allows transferable credits to operators against the state's 4.6% severance tax to operators who discover oil or gas fields in Texas in 1994: $10,000/discovery well if discoveries reach 521/year, $25,000/discovery if 721 or more fields are discovered, and $25,000/discovery plus $25,000/well drilled in the new field the next 10 years if 842 or more new fields are discovered.

To qualify as a discovery, a well must fall under a TRC definition that excludes field extensions. Texas field discoveries fell to about 1,000/year by 1988 from more than 2,000 in 1982.

The other new law allows a 100% severance tax exemption for 10 years on oil and gas produced by wells returned to service during Sept. 1, 1993-Aug. 31, 1995, after 3 or more years of inactivity.

In addition, Texas legislators extended through 1997 a 50% severance tax cut set to expire at yearend for FOR production.

"Absent a national energy policy, the states will have to lead the effort to reduce U.S. dependence on foreign oil imports, said TRC Chairman Jim Nugent. "That is exactly what we're doing here in Texas."

Alberta gas producers have turned down new contract proposals for the next heating season beginning Nov. I with three major gas utilities in Ontario and Manitoba. In I year contracts covering about 75 bcf for the 1993-94 season, Westcoast Energy units Centra Gas Ontario, Centra Gas Manitoba, and Union Gas offered $1.70-1.90/Mcf, compared with current spot prices averaging about $2.40/Mcf. TransCanada unit Western Gas Marketing says there will be additional negotiations, and contracts will go to arbitration if necessary. The contracts are seen as yardsticks for other settlements in the domestic market. Producers in a 730 member supply pool are seeking a pricing formula indexed monthly, likely to New York Mercantile Exchange gas futures. Western Gas is also negotiating new contracts with other gas distributors in Ontario and Quebec for the Nov. I heating season.

Singapore's $4 billion project to expand the Pulau Ayer Merbau petrochemical complex has been postponed. The delay stems from Phillips Petroleum Singapore Chemicals' inability to get timely approval from its parent for its second high density polyethylene plant in Singapore. The $175-200 million plant is key to the complex, consuming about half the ethylene output from a plant planned by Petrochemical Corp. of Singapore. Under the original schedule, construction was to begin this year, with completion set for 1995. About half the project outlay would go for an upstream cracker producing 400,000 metric tons/year of ethylene and 200,000 tons/year of propylene. Other partners include Shell, Sumitomo, and Polyolefin Co.

Norway's latest push to attract interest in the Barents Sea is an apparent bust. Gunnar Myrvang, state secretary for industry and energy, says Oslo is disappointed by interest shown by oil companies in Barents Sea exploration during the recent 14th licensing round awards. Myrvang said the ministry plans to approach oil companies to discuss incentives to boost exploration of the area. Only two Barents production licenses were awarded.

Russia's Gazprom reportedly is forming a new committee to take up negotiations with Marathon-McDermott-Mitsubishi-Mitsui-Shell (4MS) over plans to develop oil and gas reserves in Lunskoye and Piltun-Astokh fields off Sakhalin Island. Prime Minister Viktor Chernomyrdin on the eve of his trip to the U.S. in early September assigned Russia's state gas company exclusive rights to develop the two fields, termed Sakhalin II to distinguish it from other pending deals. Talks between Gazprom and 4MS to decide what roles the latter will play in the megaproject are to start as early as possible this month, Marathon said. Preliminary estimates put Sakhalin II development costs at about $10 billion, the Russian press has reported.

Chernomyrdin at a Houston press conference said development plans will be finalized by yearend. Key points for negotiators include development timing and how production will be used.

China plans to build a crude oil pipeline from the Tarim basin in Xinjiang autonomous region to its eastern industrial heartland at a cost of $1.75 billion, reported Beijing's Business Weekly. The project, currently in design phase, would be complete by 1995 and include a double track railway.

China says it can finance the project alone but welcomes foreign investment. Xinjiang crude production from fields in the Tarim, Turpan-Hami, and Junggar basins is expected to climb to 200,000 b/d this year from 164,000 b/d in 1992.

With economic growth of about 13% this year, China could be a net importer of crude by next summer, with imports rising to about 1.3 million b/d by 2000, predicts East-West Center's Fereidun Fesharaki.

China's crude imports are expected to climb to 250,000 b/d this year from 227,000 b/d in 1992 and 15,000 b/d in 1990. Fesharaki warns of a new Beijing-Middle East connection wherein China barters nuclear reactors, missiles, and other military technology for crude.

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