OGJ Newsletter

• U.S. Industry Scoreboard 6/24 [37719 bytes]

The global natural gas industry continues to come of age.

Energy ministers of European Union countries and 12 Asian and African countries bordering the Mediterranean have agreed to work toward integrating their gas and electricity distribution networks.

At a meeting in Trieste ministers created the Euro-Mediterranean Energy Forum, which will operate for 5 years as a means of exchanging information and identifying priority projects. Besides EU countries, the forum will involve government energy departments from Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, Palestine, Syria, Tunisia, and Turkey.

The first such Euro-Mediterranean network project, currently under construction, is the Maghreb-Europe pipeline between Algeria, Morocco, and Spain that is to be extended to Portugal and France. Among other proposed links are a gas pipeline from Algeria to Tunisia and on to Italy and electricity links from Spain to Morocco and Greece to Turkey. Within a few years, says EU, other gas projects could include upgrading pipelines, a new pipeline from Libya to Europe, and upgrading networks in Morocco and Algeria and between Egypt and its neighbors.

Norway expects to more than double gas exports to continental Europe by 2005. The prediction came at last week's inauguration of Norway's supergiant Troll gas field project. Energy Ministry officials predict Norwegian gas exports to the continent will jump to 2.17 tcf in 2005 from the current 1.05 tcf/year. Exports could climb to as much as 2.45-2.8 tcf/year.

Statoil's June 19 takeover of operatorship of Troll's massive offshore gas platform and onshore gas treating plant from development operator Norske Shell marks fruition of one of the most stunning North Sea development projects to date. Troll's gas reserves totaling 45.5 tcf-Europe's biggest offshore gas field-will meet 10% of Europe's total gas needs the next 50 years. First gas flowed May 28, to be used for commissioning offshore and onshore facilities until commercial production begins Oct. 1.

The Natural Gas Vehicle Coalition predicts more than 2 million natural gas vehicles will be on U.S. roads by 2010. The group estimates there are more than 1 million natural gas powered cars, vans, trucks, and buses in use now around the world, but only 40,000 operate in the U.S., mostly fleet vehicles.

Mexico will look to Canada for gas supplies when it encounters shortfalls as its natural gas industry evolves, says Mexican Energy Minister Jesus Reyes Heroles. Reyes and Mexican President Ernesto Zedillo met with industry officials at the National Petroleum Show in Calgary. Reyes predicts Mexico will have times of surplus and deficits as it develops its domestic supplies and contends Canada offers the most readily available supplies to fill gaps.

Reyes says his country is proceeding under the assumption of an unlimited supply of gas in an all out push to develop thermoelectric power capacity. During the next 6 years Mexico will need to spend about $9 billion to add 9 million kw of power capacity and $3 billion on gas pipelines. Canadian firms seeking participation in these projects include TransCanada, NOVA, and TransAlta.

Meanwhile, a Canadian trade official based in Mexico City says Canadian oil field equipment and service suppliers have a potential for $2.1 billion in sales to Mexico this year. Brian Hood contends these opportunities are opening as a result of government invitations, Nafta, and an overhaul of the Mexican bureaucracy. Hood sees Mexico as a long term market where the energy industry can only grow with a national industrialization strategy and a young population that will increase energy demand.

Pemex's Ernesto Lopez told Petroleum Show delegates there have been major changes in the way the state oil company operates. He said Pemex monitors contracts, but field production units are now in charge of procuring equipment and services. Lopez says the changes cover the entire Pemex E&P budget of $2.1 billion. Lopez notes the Nafta agreement ensures about one third of all requirements will be sought in Canada and the U.S.

Canadian industry officials have welcomed a revised royalty structure for East Coast offshore development unveiled by Newfoundland Premier Brian Tobin (OGJ, June 3, p. 27). Under a new structure, Newfoundland will take token royalty revenues until companies pay their development costs. Basic Newfoundland royalty will be 1% of offshore oil field gross sales until production reaches 50 million bbl, or 20% of total reserves. Rates rise to 2.5% on the next 50 million bbl and 5% on the subsequent 100 million bbl of production. Maximum rate is 7.5% on all production exceeding 200 million bbl.

A second revenue source, under a two tier net royalty, will be applied on top of the basic rate on developments that achieve very high revenues. That rate will be 20% of oil field revenues that exceed a profit of 5% plus interest rates on long term government bonds. Industry officials say the changes will stimulate industry activity and remove uncertainty about government policy on royalties.

MMS Director Cynthia Quarterman and the Justice Department are investigating whether oil companies have underpaid U.S. federal royalties nationwide.

MMS thinks posted prices may not have reflected the true market value of crude. The inquiry was spawned by an investigation that suggested oil firms might have underpaid royalties as much as $856 million the past 20 years in California (OGJ, May 27, p. 26).

Who will give a bigger sigh of relief over sliding U.S. gasoline prices, motorists or oil companies taking political heat over the issue (see Journally Speaking, p. 13, and Watching Government, p. 20)?

After 3 month to month increases, U.S. gasoline prices have fallen, says American Automobile Association. AAA's monthly survey shows the average U.S. price of self-serve regular fell to $1.303/gal this month from $1.307 in May. The price is still 7.5 higher than a year ago.

The National Resource Council reports oxygenates in gasoline do not appear to increase human health risks.

But the council's white paper for the White House office of Science and Technology Policy, which is working on its own report, urges more studies on the health issue and whether oxygenated fuels reduce carbon monoxide concentration in cold weather.

The Clinton administration's Council on Environmental Quality has brokered a compromise between FERC and EPA over FERC's electric industry restructuring rule. EPA fears the rule could lead to increased coal use and thus more nitrogen oxide pollution on the East Coast. Under the deal, EPA will work with states to develop an ozone cap and emissions trading program. If that fails, FERC will propose a rulemaking to mitigate the environmental problems.

U.S. efforts to maintain trade sanctions against key oil exporters continue to be a factor in petroleum industry operations.

The U.S. Senate is the next stop for a bill that would penalize foreign oil companies that invest in Iranian or Libyan projects.

The House approved the legislation unanimously last week after the ways and means committee made substantial changes to give President Clinton more options before imposing sanctions. The sanctions would block offending companies from exporting goods or services to the U.S. or selling them to the U.S. government, as long as the ban does not violate World Trade Organization rules.

There still may be a hitch in the Iraqi oil for food sales accord with the U.N. Security Council (OGJ, June 17, Newsletter).

At issue is the question of which side will have final approval of oil sales contracts. The U.N. sanctions committee has completed two thirds of the work required for the sales to proceed. U.N. sources say the U.S. has delayed submitting proposals on how the accord should be applied out of concern Iraq will use them to manipulate oil prices. Further delays may materialize on how Iraq distributes aid, another issue in which the U.S. will intervene.

World propylene demand will increase an average 5.7%/year through 2000, says Chem Systems, Tarrytown, N.Y. Demand also is expected to grow for ethylene 4.8%/year and butadiene demand 3%/year in that time. Growth in propylene demand means production will have to increase by 4.8 million metric tons/year.

"With propylene growing faster than ethylene and the olefin feedstock slate remaining essentially flat," said Chem Systems, "the additional supplies needed from refineries and/or dehydrogenation will tighten the market and increase the ratio of propylene to ethylene price."

Chem Systems also expects polyvinyl chloride demand to increase 4.8%/year to 33 million tons/year by 2005. Likewise, despite environmental controversy, chlorine demand growth will increase 2.5%/year to 51 million tons/year in the period.

"The PVC controversy has been diminished by life cycle analyses, which found that PVC contributes less global warming, volatile emissions, and ozone depletion burdens than alternative plastics, aluminum, and glass," Chem Systems said (OGJ, May 23, p. 25).

Copyright 1996 Oil & Gas Journal. All Rights Reserved.