OGJ Newsletter

U.S. Industry Score Board 11/25 [70382 bytes]

OPEC ministers were slated to meet Nov. 27 in Vienna, but observers expect the meeting won't last long. OPEC is enjoying a continuing windfall from generally robust oil prices this year. But with downstream supply concerns easing, together with the prospect of a big jump in non-OPEC output early next year and the specter of Iraqi exports resuming at some point, there is little basis for OPEC ministers to seek increases in the 25.03 million b/d production ceiling, which likely will be maintained for first half 1997 (OGJ, Nov. 11, Newsletter).

OECD oil demand rose 1.4% in 1995 to 39 million b/d, says IEA.

However, the share of oil in total OECD energy supply dropped to 41.9% last year from 42.9% in 1994 and 54.9% in 1973, IEA reports. The market share drop reflects a shift from oil used to generate power and heat, industrial process efficiency improvements, and residential/commercial gas demand growth.

OECD oil production rose 0.9% last year, with the largest increase, 4.2%, coming in OECD Europe, mainly reflecting gains in North Sea output.

The hike in North sea output was the primary factor in reducing OECD import dependence to 50% in 1995 from 54% in 1990, IEA notes.

"On a regional basis, European oil dependency declined significantly in the last few years, while net imports into North America and the Pacific have been growing almost continuously during the last 4 years," the agency said.

In North America, there was a significant shift to shorter-haul imports from Canada and Latin America in 1995, but imports from the Middle East fell 10%.

Natural gas futures prices have set records. Nymex and Kansas City Board of Trade December contracts topped $3.62/Mcf last week, the highest ever for both, amid concerns over an earlier-than-normal onset of cold weather and lower inventories than last year.

Gas in storage in the U.S. was about 2.617 tcf the week ended Nov. 15, says American Gas Association, down from 2.798 tcf a year ago.

However, AGA Pres. Michael Baly says potential peak-month supplies this year should be sufficient to meet demand. Total volume available at peak this year is estimated at 2.659 tcf, which exceeds by 117 bcf the historic peak-month consumption level set in January 1994, Baly said.

Even so, predictions of continued cold weather have triggered a scramble for extra supplies, as companies seek to cushion themselves just in case.

Electricity prices also surged on the Nymex contract for December delivery at the California-Oregon border to a record high $29.73/MW-hr.

Natural gas supplies about 15% of the nation's power generation needs.

Traders say gas and electric futures prices are increasingly tracking one another as deregulation of power moves the market toward greater competition.

Underscoring the convergence of gas and power markets, consolidations between the two industries continue.

Pacific Gas Transmission Co. (PGT) and owners of Texas-based Teco Pipeline Co. signed a definitive agreement and merger plan involving PGT's acquisition of Teco for $380 million.

PGT says Teco is attractive because it has virtually all of the elements PGT seeks to expand midstream-gathering, processing, transmission, and gas marketing. Among its assets, Teco is an owner in the 500-mile Waha-Katy gas system, stretching from West Texas to Southeast Texas, near Houston.

Plans call for Teco to remain a separate PGT unit.

PGT says it will continue to look for strategic opportunities in North America, Australia, and other regions. It owns a 612-mile pipeline in the Pacific Northwest that delivers Canadian gas to markets in the western U.S.

And, as BTU markets converge, one of the industry's largest long-term power deals was struck. Oglethorpe Power Corp. let a 15-year contract valued at $4.5-5 billion to LG&E Power Marketing Inc. (LPM) to supply about half of Oglethorpe's system-wide power needs in Georgia.

LPM, a unit of LG&E Energy Corp., will provide more than 200 million MW-hr of electricity during the contract period and help Oglethorpe optimize its generation assets and market surplus power. The agreement, pending approval by Rural Utilities Service, will take effect Jan. 1.

Oglethorpe, Atlanta, provides wholesale electricity to 39 of Georgia's 42 customer-owned Electric Membership Corporations. They serve about 2.6 million Georgians. Oglethorpe is the nation's largest power supply cooperative in terms of assets, kilowatt-hour sales, and customers served.

LG&E Energy, Louisville, is an energy services holding company with retail utility operations and power generation projects throughout the U.S. and in two foreign countries. As well as marketing gas, it gathers and processes gas for third-parties.

The U.S. trade deficit increased sharply for September, the latest reporting period, with crude oil import costs a major contributor. Imports of all types of petroleum products rose more than 9% for September to $5.97 billion. Overall, the deficit climbed 10.1% to $11.34 billion from a revised August figure of $10.3 billion. Some economists had expected the trade gap to narrow, to $9.5 billion.

The Commerce Department reports the price of a barrel of imported crude was $20.02 vs. $18.65 in August-the highest since $22.98/bbl in January 1991.

Commerce says the monthly deficit with OPEC countries soared 27.8% to $2.2 billion in September, the biggest since November 1990.

Strong worldwide offshore drilling activity is a key motivation for Noble Drilling's decision to sell its land rig fleet (see related story, p. 24).

Nabors Industries Inc. agreed to buy Noble's 19 currently marketed land rigs and 28 mothballed units for $60 million cash.

Noble says the sale is consistent with its business strategy and continuing asset rationalization, which focuses on offshore.

Rep. Bill Richardson (D-N.M.) still is considered the front runner to succeed Energy Sec. Hazel O'Leary, who submitted her resignation, effective Jan. 20.

Others rumored to be on the list to replace O'Leary are White House adviser Mack McLarty, Deputy Energy Sec. Charles Curtis, and former Deputy Energy Sec. Bill White.

Nicholas Bush, Natural Gas Supply Association president, praised O'Leary for "taking positive steps to adapt the department's programs to the realities of today's energy marketplace" and for trying to "reorder the department's fossil fuel R&D priorities, in the process enhancing the federal government's view of natural gas."

Texaco continues to take strong measures in response to a barrage of criticism stemming from a racial discrimination class-action lawsuit, Roberts v. Texaco.

Texaco last week agreed in principle to settle the suit, brought in 1994 on behalf of about 1,400 current and former black employees (OGJ, Nov. 18, Newsletter). Chairman Peter I. Bijur, commenting on the $176 million settlement plan presented to the court, says Texaco will work to achieve "zero tolerance of bigotry and scrupulously fair treatment for every individual.

"Texaco has been presented with a unique opportunity. What we have experienced as the weight of public criticism may in fact be the mantle of leadership being placed upon our shoulders."

Among proposed settlement actions to be taken (for more settlement details, see editorial, p. 23), Texaco will implement company-wide diversity and sensitivity, mentoring, and ombudsman programs; consider increasing nationwide job posting of senior positions; and monitor performance on the programs and initiatives provided for under the settlement agreement.

Meanwhile, former Texaco executive Richard Lundwall, a central figure in the case, was arraigned before a federal magistrate Nov. 19 on a criminal charge of obstruction of justice.

The former senior coordinator of personnel services in Texaco's finance department lost his job in August in a company restructuring. He is one of four current or former employees disciplined by the company in the matter. Lundwall is charged with destroying documents crucial to the 1994 lawsuit that accused Texaco of discriminating against blacks and denying them promotions. If convicted of the federal charge, Lundwall faces a possible sentence of 10 years in prison and $250,000 fine. Texaco has suspended two other employees with pay and taken away benefits of two retirees, including Lundwall's. If documents were destroyed, it was a violation of company policy and internal directives to preserve all documents pertaining to the lawsuit, according to Texaco.

Texaco has created a position, assistant to the chairman, responsible for corporate-wide minority business plans and interaction with key national civil rights and business leaders.

The executive named to the post immediately, Willie Stanfield, will coordinate all activities involved with planning and implementation of Texaco's diversity efforts, including serving as liaison to the leadership of the black community and working with all minority constituency groups.