OGJ Newsletter

• U.S. Industry Scoreboard 4/13 [44,325 bytes]

As Clinton administration officials ponder whether to impose sanctions on France's Total, Russia's Gazprom, and Malaysia's Petronas for participating in a $2 billion gas development project in Iran (see related story, p. 32), Elf is jockeying for new E&D contracts in Iran before other firms can take advantage of a possible waning of Washington's resolve on sanctions.

Clinton administration officials have conducted a shuttle diplomacy of sorts since November, trying to persuade Petronas to pull out of the deal, but Petronas Pres. Hassan Marian said his firm would not change its plans.

Meanwhile, Elf is moving ahead, possibly in partnership with Agip, with a $600 million buy-back contract to redevelop Iran's offshore Dorood oil field, on stream since 1964. The plan is to double output to 200,000 b/d with advanced EOR technology. Talks are under way; all that remains is final contract terms.

Mobil's Lucio A. Noto has commended the U.S. State Department for its efforts to develop rational standards for the use of sanctions by the U.S. But, he added, speaking at the Center for Contemporary Arab Studies at Georgetown University last week, it is time to reevaluate how and why the U.S. imposes sanctions and assess their effects.

Noto offered three policy options for the U.S. to consider concerning U.S. energy companies: Grant licenses to swap Kazakh, Turkmen, and Azeri crude oil with Iran, pending completion of pipelines out of the Caspian region; allow limited waivers for U.S. companies to use Iranian drilling equipment in the Caspian region; and develop guidelines for companies to negotiate with Iran, with actual investment contingent on sanctions being lifted. He said, "I believe these options would send a limited positive signal of encouragement to Khatami supporters but not compromise U.S. opposition to any of Iran's policies."

Asia's financial crisis lingers, but opportunities aren't being ignored.

Mobil's proposed multi-billion dollar petrochemical complex in Singapore appears closer to reality, as representatives from Mobil and Singapore's government continue to work out contract details, sources say. In February, Singapore's Economic Development Board reportedly offered its last investment incentive and was expecting final word from Mobil early this month.

Mobil's plans stalled in mid-1997 as the region's economic crisis worsened.

Japanese gas utilities are expressing strong interest in a new LNG project in Indonesia that could export 16 tcf/year of gas from Irian Jaya. ARCO's giant Wiriagar and Vorwata gas finds are ideally placed for the Japanese to capitalize on a new LNG supply.

The new LNG plant could be operational by 2005.

Japanese utilities already purchase about 18 million tons/year of Indonesia's 26 million tons/year of LNG output from plants in Bontang and Arun.

BHP and Phillips appear unable to reach agreement on a joint LNG project involving Bayu-Undan field in the Australia-Indonesia Zone of Cooperation in the Timor Sea. Work on development of the field's condensate reserves is under way (OGJ, Nov. 10, 1997, p. 47), but gas liquefaction plans have yet to be finalized. BHP is proposing an offshore plant using its technology, while Phillips wants to build the plant at Darwin (OGJ, Apr. 21, 1997, p. 78).

The dispute has sparked rumors that BHP is seeking a buyer for its 23.5% stake in the field. Local press reports suggest that BHP released confidential information on the field to prospective buyers.

BHP's interest in the field is said to be worth $300-460 million (Australian).

The U.K.'s confusion over energy policy seems to have grown, with news of promised reductions in coal imports to protect its coal industry.

Newspapers report Prime Minister Tony Blair will guarantee a substantial slice of the power market to the U.K. coal industry, decimated in the '70s and '80s when the government backed gas-fired generation. Decisions on coal's place in the country's energy industry are expected in May. Further reports say the government may block imports of subsidized coal from Europe.

This is unwelcome news for Britain's gas producers, already puzzled by changes in direction as the government completes a review of fuels for power generation (OGJ, Jan. 12, 1998, p. 28). A report by the all-party parliamentary trade and industry committee is critical of the government's moratorium on gas-fired plants. The report censures RJB Mining, the U.K.'s largest coal producer, for failing to drive down costs and for anticipating "...all along that it would be rescued by some package of government assistance."

During the 6 months when the price of Brent fell from around $20/bbl to under $11/bbl, then rebounded to about $14/bbl, some governments responded by taking steps to alleviate the tax burden on upstream operations, according to Petroconsultants.

Petroleum-specific taxes have been reduced in Italy, South Africa, Malaysia, and Kazakhstan, and new incentives for exploration have been introduced in Pakistan, India, Gabon, and Colombia.

Although not all governments have responded to lower oil prices by significantly reducing taxes, where they have, it may be a case of "too little, too late," said Petroconsultants. Many petroleum fiscal regimes are inflexible and, as operating profit margins decrease because of lower prices, taxes become a burden. The firm's analysis shows that the average tax burden on "marginal" fields in the 20 largest producing countries exceeds 75% of gross project cash flow.

In its 1998 budget, the U.K. government went against the current trend by announcing its intention to either impose a supplementary corporate tax on the profits of U.K. oil and gas production or broaden the scope of the petroleum revenue tax to include new fields next year. The reception from producers has, not surprisingly, been hostile. The Offshore Contractors Association warned that, if the tax rate is increased, as many as 120 potential developments might be abandoned, and many operators have suggested that the lure of more profitable alternatives in other parts of the world would prove too great.

In trade talks with the U.S., the Mexican Commerce Department has offered to immediately eliminate its 5% import duty on natural gas. U.S. gas producers have urged immediate elimination of the duty, which is being phased out at 1%/year under the North American Free Trade Agreement.

George Baker, Baker & Associates, said, "Pemex's open-access policy on pipelines has been null and void because of this import duty, aside from Mexicali. Where Pemex has pipelines, private industry has not bought a single Mcf of U.S. natural gas because of this duty. All imports of U.S. gas have been by Pemex, and Pemex doesn't pass the duty on to its customers.

"The elimination of this import dutyellipsecould change the whole gas picture in Mexico. If this can be negotiated, it will then release Mexican private industry from a policy constraint," said Baker.

Mexico unofficially has suggested a quid pro quo: it will drop its natural gas import duty in exchange for elimination of the U.S. import duty on PTA, a raw material for making PET for plastic bottles. Baker says the U.S. and Canada will consider Mexico's entire proposal on duties, which involves natural gas, PTA, and hundreds of other products.

In other U.S.-Mexico relations, there is no end in sight to the seemingly perpetual negotiations between the U.S. and Mexico over the so-called "doughnut holes" beyond the 200-mile limit in the Gulf of Mexico. Another meeting is slated this spring, with a technical review to start in September.

The National Petroleum Refiners Association has changed its name to National Petrochemical & Refiners Association.

Robert H. Campbell, chairman of Sun Co. and current NPRA chairman, said at the organization's international petrochemical conference in San Antonio last week that the name change recognizes the large number of refiners involved in petrochemicals and the number of pure petrochemical companies that are members of NPRA. The new NPRA will seek contact and cooperation with non-U.S. petrochemical associations.

Campbell also said that this "joint industry" needs much more of a lobbying effort in Washington-not to be confused with "television P.R." To date, the results of such efforts have been poor, he avers.

Regarding the oil industry's misunderstood image and public relations problems, API Pres. Red Cavaney said during last week's API Pipeline Conference in Dallas, that there is a need for better communication between the public and the industry.

"They want to hear how we're measuring up in safety, the environment, the quality of our products, and in being honest and forthcoming."

Reluctant to describe just how oil companies could better manage their image, Cavaney said that API will develop messages in response to the public's needs, "telling opinion leaders and the public what we're doing in the areas they care about."

Copyright 1998 Oil & Gas Journal. All Rights Reserved.