OGJ NEWSLETTER

The lowest U.S. natural gas prices in 2 years are sparking more shut-ins.

Enron Oil & Gas expects to curtail 100 MMcfd of its production in September, about what it cut in August, or about 15% of its U.S. production.

Enron's cuts will he spread across its major producing regions, including Texas onshore and offshore, Permian basin, and parts of Wyoming.

Enron was joined by Seagull, which plans to continue curtailing 65 MMcfd it cut in August (OGJ, Aug. 22, Newsletter).

CNG will cut 100 MMcfd, or about one third of its output. Noble Affiliates will shut in about 80 MMcfd this month. It produced 262 MMcfd in first half 1994. Anadarko will slice flow by 70 MMcfd, or about 15% of its U.S. production. Kerr-McGee late last week said it would cut production but wouldn't disclose the volumes. It produces about 266 MMcfd. Alexander Energy has shut in some wells but did not disclose volumes.

Spot gas prices on the U.S. Gulf Coast last week fell to about $1.401.50/Mcf from about $2/Mcf in June and the lowest since July 1992.

Nymex gas for October delivery fell 6.60 on the day to $1.59/MMTBU Aug. 31. The September contract expired Aug. 24 at $1.48/MMBTU, compared with $1.78 at August contract expiration and a recent peak near month close of $2.21 July 1. Culprits include lower than expected demand owing to cool weather, brimming storage levels, and increased Canadian and Mexican gas imports. Industrial demand in parts of the U.S. Northeast was reported down about 20% from typical levels.

Even a bear market can mean heavy trading. Nymex gas futures reached a record volume of 60,548 contracts traded Aug. 25, topping the previous record of 59,981 contracts set Jan. 24.

Meantime, Coastal Gas Services Co. has completed arrangements for as much as $250 million in oil and gas production financing for independent producers. Under the deal, Santa Rita Capital Co., a partnership affiliated with University of Texas foundations, will use bank loans to provide crude and gas production payments to producers.

Coastal Gas Services unit Coastal Gas Marketing Co. will buy the crude and gas attributable to Santa Rita. Coastal set up the program to obtain long term gas supplies while providing capital to independents.

Natural gas share of the world's electric power market is growing.

IEA says world gas fired electricity production grew 4.3% in 1992, more than triple world electricity output growth. During 1989-92, gas fired electricity output growth outpaced that for coal fired electricity, and oil fired electricity output fell. Oil fired electricity's share of OECD installed electric power capacity fell to II% in 1992 from 21% in 1973. That compares with a 20% market share for OECD installed gas fired capacity in 1992.

BHP has proposed a gas pipeline grid for eastern Australia linking Melbourne, Sydney, Brisbane, and Adelaide. The proposal fills in gaps in the existing pipeline network and includes a link between Bass Strait and Sydney in New South Wales and perhaps farther north to Brisbane in southern Queensland. The link to Adelaide in South Australia could tie in supply from the 1993 Minerva gas strike in the Otway basin off western Victoria.

Impetus for the plan comes from efforts to deregulate Australian interstate gas trade after July 1996. BHP is negotiating with Pipeline Authority of South Australia and Australian Gas Light Co. of New South Wales.

Natural gas consumption in Mexico is expected to grow at twice the rate of U.S. gas consumption.

It is more economical for Mexico to import U.S. gas to serve its northern markets than to build and develop a domestic gas grid for that purpose. However, pipeline capacity to Mexico could become overbuilt. So says Kidder Peabody. The analyst sees Mexican gas demand climbing 5-6%/year through 2005 and cites a Chevron estimate of a $65 billion investment in E&P and infrastructure needed to meet that demand with domestic supplies. The risk for U.S. pipelines and suppliers involves delays in Mexican power plant conversions leaving pipeline capacity underutilized for a long time. Only 33% of existing U.S.-Mexico capacity is now utilized.

California may impose a permanent, comprehensive ban on new oil and gas work within state waters. The state's legislature last week passed an indefinite ban on all new oil and gas leasing within the 3 mile limit.

The measure goes to Gov. Pete Wilson, who has until end of September to approve or veto. Wilson has supported other oil moratoriums but faces pressure due to the state's moribund economy and a November reelection campaign promise to oppose measures unfriendly to business.

Built into the ban is an exemption for Mobil's Clearview project, involving slant drilling from the Santa Barbara County shore to tap about 155 million bbl of oil (OGJ, June 7, p. 17). The bill consolidates a patchwork of existing bans, some of which expire in 1995 and allows exceptions for existing leases, drainage and unitization tracts, war, and energy crises.

World oil prices continue to hover at about $17-18/bbl while markets keep an eye on Nigerian developments. Nymex crude closed at $17.56/bbl Aug. 31, about flat on the week but following several days of rollercoasting in line with conflicting reports from strife torn Nigeria.

Shell now says it is producing about 50% of its normal level of 940,000 b/d in Nigeria because of the oil workers' strike. It earlier estimated the cut at about a third (OGJ, Aug. 8, p. 25). Shell last week was loading normally from Forcados and Bonny terminals. In mid-August a gas supply line into Forcados terminal was sabotaged, cutting fuel supply to the terminal's power plant. Problems in restarting plant turbines prevented loadings. An Aug. 24 force majeure declaration delayed loadings by 1 week. Since then technical problems have been solved. With the return to normal terminal throughput, Shell said the terminals were catching up on loading schedules.

Shell noted there has been no significant return to work by union members as the strike drags on. Ironically, the strike's shutdown of Nigeria's refineries has diverted big volumes of crude to foreign markets. Oil union leaders, still in hiding last week, pressed legal challenges to their firings by the military government they seek to oust (OGJ, Aug. 29, Newsletter).

Could another key African producer be headed for oil supply disruptions because of civil strife? Angola's government and the rebel Unita movement, embroiled in a civil war during 1975-91--which resumed in 1992 after a brief peace--last week were engaged in fierce fighting in the northern oil producing enclave of Cabinda. The enclave accounts for about two thirds of Angola's 570,000 b/d of oil production.

Is another big development in the offing in Papua New Guinea?

Chevron Niugini group 6x Gobe well on PPL 161 flowed 3,111 b/d of 45 gravity oil and 2 MMcfd of gas through a 48/64 in. choke from Iagifu sandstone, raising hopes for a joint $250 million development of Gobe and Southeast Gobe oil fields. The 6x Gobe, second of two wells to appraise the Gobe Main accumulation, is about 4 km east-southeast of the Gobe 4x sidetrack that flowed 2,500 b/d of oil last year (see map, OGJ, Apr. 18, p. 24).

A central processing plant midway between the two fields would buoy development economics.

Japan's petrochemical industry is poised for restructuring after the Fair Trade Commission's (FTC) de facto lifting of rules against big mergers.

FTC recently revised guidelines for implementing the antimonopoly law, virtually eliminating a ban on mergers that would result in a market share of more than 25%. Japan Petrochemical Industry Association will commission a panel this month to study the issue with FTC and MITI.

Mitsui Toatsu Chemicals and Mitsui Petrochemical Industries have suspended their merger because of FTC opposition. However, a merger of Mitsubishi Kasei and Mitsubishi Petrochemical is to take effect Oct. 1.

Taiwan clears the way for more investment in mainland China.

Ministry of Economic Affairs will lift its ban on Taiwanese firms investing in acrylonitrile-butadiene-styrene (ABS) production in China. That gives a green light to Chi Mei Industrial Co. Ltd.'s plans to spend $100 million to set up two petrochemical plants at Taya Bay, Guangdong province. One would produce 300,000 metric tons/year of ABS, the other 150,000 tons/year of polystyrene.

Chi Mei, the world's biggest ABS producer, last year started a 3 year project to boost its Taiwanese output to 1.6 million tons/year. Its new $34 million thermoplastic elastomer plant under construction at Tainan is to start up in February with initial output of 30,000 tons/year.