OGJ Newsletter
OPEC ministers meeting last week in Vienna agreed to adhere to current production quotas for another 6 months in an effort to boost sagging oil prices.
OPEC's ceiling is officially 25.033 million b/d, although most members ignore quotas, and actual output is nearer 27 million b/d (OGJ, June 23, 1997, p. 24).
Brent crude peaked at $25/bbl last year but since has fallen to around $17.50/bbl, where it's expected to hover for the rest of the year.
In the U.S., stepped-up merger activity has resulted in a legal fight ensuing over a tender offer by Union Pacific Resources for Pennzoil (see related story, p. 30).
At OGJ presstime, Pennzoil had filed suit in federal court in Delaware in response to actions filed earlier by UPR in Delaware, Texas, and Louisiana courts. Pennzoil is challenging the accuracy and completeness of UPR's purchase offer, totaling $4.2 billion in cash and stock, and it claims the offer and subsequent merger plans could jeopardize the IRS tax ruling on the tax-free status of UPR's 1996 spin-off from former parent Union Pacific Corp.
Issues involving environmental stewardship continue to be debated as compliance costs mount.
The Ozone Transport Assessment Group (OTAG), representing 37 eastern U.S. states and the District of Columbia, has presented findings from its 2-year ozone study to EPA (see story, p. 32).
Meanwhile, the World Bank is urging all nations to phase out leaded gasoline use in 5 years.
The recommendation is part of its "Green Top 10" plan, disclosed prior to last week's start of a U.N. Earth Summit in New York City (see story, p. 38). World Bank says 18 nations, including the U.S. and Canada, have phased out leaded gasoline.
World Bank also is urging nations to make deep cuts in energy-related subsidies to save as much as $800 billion/year worldwide.
A rapid reduction of subsidies would aid resource conservation, it says. It estimates fossil fuel subsidies alone total $58 billion/year, down 50% from 1992, but are still at a level the bank considers high.
In the U.K., environmental protection is now estimated to constitute 3.2-4.9% of capital expenditures and 4% of operating costs for any U.K. offshore oil and gas development. That's the finding of Smith Rea Energy Analysts, Canterbury, which reports environmental protection measures cost U.K. offshore operators a total of about $640 million in 1996.
The consultant says Norwegian operators spent about as much as the British on environmental measures in 1996, while Northwest Europe's offshore sector as a whole spent $1.2-1.44 billion.
In Washington, the bitter political battle over the ethanol tax credit continues on Capitol Hill.
Rep. Bill Archer (R-Tex.), chairman of the tax-writing House ways and means committee, apparently has lost his bid to scale back the 54¢/gal credit by 3¢ (OGJ, June 23, 1997, p. 32).
Archer insists the credit must expire in 2000, as scheduled.
The Senate finance committee recently voted to continue the credit to 2007 but cut it to 51¢/gal by then.
Archer said the bill "sent a clear message to the ethanol community there will be no extension beyond the year 2000, so they should not build new facilities."
U.S. Supreme Court has ruled that the U.S., not Alaska, owns tidal waters off the North Slope. The decision stems from a 1979 lawsuit and a long federal-state legal dispute over offshore lands ownership.
It prevents Alaska from leasing those waters, including areas off the Arctic National Wildlife Refuge, for oil exploration.
Most of the area in contention was off the National Petroleum Reserve-Alaska to the west of the Prudhoe Bay area.
In the majority opinion, Justice Sandra Day O'Connor wrote that the federal government clearly intended to retain the submerged lands, as well as the rest of ANWR, when Alaska became a state.
About $1.4 billion from a joint state/federal lease sale, held in escrow while the case was pending, will now go to the federal government.
A June 22 explosion and fire in the OP-2 olefins unit at Shell Chemical's Deer Park, Tex., complex near Houston could lead to higher monomer and polymer prices.
About 30 workers were treated for minor injuries. The fire was allowed to burn itself out. Bonner & Moore Associates, Houston, says it's certain most of the 2.3 billion lb/year capacity will be out of action for the rest of the month.
"The supply disruption will cause a spike in spot ethylene and propylene prices," Bonner & Moore said. "It will also likely cause contract prices for these two products to remain at previous levels."
On the polymers side, the consultant said the plant explosion is not sufficient by itself to cause polyethylene and polypropylene prices to rise, but producers are seeking increases for the month of August.
"Another incident of this magnitude could limit raw materials enough that resin prices would rise," the analyst said.
The global petrochemical industry faces 5 years or more of declining profits beginning in 1998, Patrick Baggett, president of Chemical Market Associates, Houston, told a recent Calgary petrochemical conference sponsored by the Canadian Energy Research Institute.
Demand for petrochemical products is expected to grow by 4.6%/year during the next 5 years. But Baggett says plant additions in North America, Asia, and Europe in the medium term will add 69 million metric tons of supply.
As a result, Baggett expects a period of severe overcapacity by the end of the decade, totaling more than 26 million tons by 1999.
That assessment is borne out in part in forecasts by Probe Economics, Millwood, N.Y., which says fundamentals of petrochemical prices have been softening and will be affected by additional capacity coming on stream, especially in 1998-99.
"There has already been steep price and margin erosion in the paraxylene-to-polyester chain, but the price structure of all-important ethylene and its derivatives has held on," said Probe Pres. Fred Peterson.
Probe says with declines in energy prices, more spikes can be expected, and the general pricing trend will be downward in the next few years.
Despite low oil prices, oilsands and oil shale projects mark progress.
Australia's BHP joined Shell Canada in a $1 billion (Canadian) oilsands mining project in Northeast Alberta. BHP will pay 25% of a prefeasibility study on Shell's Lease 13, about 44 miles north of Fort McMurray, which could yield 120,000-150,000 b/d of bitumen by 2002.
Calgary's Suncor Energy, which operates a major oilsands plant in Alberta, says funding should be in place soon for its share of a $275 million (Canadian) oil shale pilot in Queensland.
Suncor has a 50% interest; Australia's Southern Pacific Petroleum and Central Pacific Minerals share the remainder. Suncor will pay $242 million as its share of phase one of the Stuart shale project and will receive 90% of initial cash flow. The pilot aims to produce 4,500 b/d in 1999.
The partners could proceed with two other phases at a cost of about $2.5 billion, targeting 85,000 b/d by 2005.
Esso and Petronas have agreed to a 50-50 gas deal covered by a production-sharing contract to develop 15 fields off Malaysia's northeastern coast at a cost of about $4.7 billion.
The fields have estimated reserves of almost 13 tcf of gas, which will be used to supply residential, commercial, and industrial users in the so-called Peninsular Malaysia Gas Utilization Project.
Denise Bode, IPAA president since 1991, will resign about Aug. 1 to accept a seat on the Oklahoma Corporation Commission.
A rank wildcat in nonproducing Georgia has been repermitted to 20,000 ft and might be drilled even deeper.
Surface Exploration Services, Garland, Tex., drilled the 1 McNair et al. in Turner County to 18,000 ft and has indicated it might continue to 25,000 ft, within the rig's capability, the state geological survey reports.
In Dooly County, Atlantic Oil & Gas, Jesup, Ga., plugged 1 Royal wildcat at about 3,800 ft. The state says an offset is planned to the original 4,500 ft permitted depth later this year (OGJ, Dec. 30, 1996, p. 92).
Copyright 1997 Oil & Gas Journal. All Rights Reserved.