OGJ NEWSLETTER

Hurricane Andrew's fury has left more significant damage to oil and gas facilities in the Gulf of Mexico than first thought (see story, p. 24).

But the storm's fallout has a bright side for long beleaguered U.S. gas producers: maintaining an underpinning for natural gas prices that have already staged a remarkable comeback this year.

Fear of delayed production starts pushed gas futures prices for next month delivery to slightly more than $2.11/Mcf Sept. 1--briefly touching $2.50/Mcf the week of the storm--vs. $1.80/Mcf seen before the hurricane hit. Natural Gas Clearinghouse puts September spot prices at an average $1.89/MMBTU.

Some analysts contend higher prices could continue into winter.

Arvind Sanger, Johnson Rice & Co., says prices could increase 30-50%, but he expects them to flatten in 2-4 weeks, adding, "The result is that it is going to he very good for the natural gas industry. I expect gas prices in the winter months will be $2.50/Mcf or somewhat higher."

Meantime, Nymex light sweet crude for October delivery rose 58 cents on the week to close Sept. 2 at $21.69/bbl, as gulf damage reports mounted.

Interest in Nymex sour crude future contracts has deteriorated to the point very few transactions have been reported the past several weeks, says Pace Consultants Inc. The contracts, launched earlier this year, never attracted much enthusiasm from traders and have not proved to be as useful as Nymex anticipated. Traders prefer to deal with light, sweet crude.

Nymex will eventually delist the sour crude contract, says Pace.

Russia and Ukraine have reached agreement on transporting natural gas to Moldova and Europe via Ukraine, Itar-Tass reports (see related story, p. 17).

Gazprom and Ukrgazprom are to implement the agreements calling for Ukraine to transport Russian gas through its pipeline system for export to Europe. The intergovernmental agreement guarantees both concerns broad economic independence but specifies gas intended for transport is Russian property and is not to he distributed among Ukrainian consumers.

If Russia is unable to carry out its export commitments through some fault of Ukraine, the latter will have to compensate for the damages to Russia in a convertible currency.

Meantime, Russia has cut gas supplies to Lithuania by more than half because the state refused to pay world market prices. Lithuania normally receives as much as 247 MMcfd of gas from Russia. Itar-Tass reports supplies are cut off to enterprises that had run up large debts to suppliers, and while household users won't see supply cuts, prices might soar.

Russia continues to seek foreign government aid to secure desperately needed resuscitation of its ailing petroleum infrastructure.

A Japanese group and Gazprom have agreed on financial arrangements paving the way for $700 million in export insurance from Tokyo to repair gas production facilities in western Siberia.

OPEC News Agency (Opecna) reports the Japanese group is to supply Gazprom with transportation and production equipment. Japan has given priority to projects that help restore flagging oil and natural gas production and has allocated $700 million for each sector (OGJ, July 20, Newsletter).

Kyodo News Service reports Russian President Boris Yeltsin will seek $1.5-2 billion from Japan for oil and natural gas projects when he visits Japan this month. Russian Deputy Premier Alexander Shokhin said money shortages, old facilities, and poor management are aggravating an industry that has seen oil production fall by about 800,000 h/d to 8.1 million b/d in first half 1992. But MITI is cautious about extending new credit to Russia, saying it is still trying to digest a $1.8 billion export insurance credit it set aside for Russia last October.

U.S. Export-Import Bank hopes current negotiations on $2 billion in aid for the Russian oil and gas industry (OGJ, Apr. 27, Newsletter) will lead to a deal this fall. The loan would support export of U.S. oil and gas equipment to Russia.

Disputes continue to simmer over the Spratly Islands in the South China Sea (OGJ, July 13, p. 20).

Taiwan has reasserted its claim to the area, believed to be highly prospective for oil and gas. Taipei says while it will never abandon its claim of sovereignty, it remains willing to cooperate with other nations in exploring and developing the area's resources. Nevertheless, the Ministry of Interior late last month said it plans to step up naval patrols in the area.

Fiji's short-lived state oil company is defunct.

The government shut down Fiji National Petroleum Co. (Finapeco) after it decided to scrap plans to buy Malaysian crude, refined in Singapore, to back out declining supplies of Australian crude. Finapeco was to be sole supplier of products in Fiji and neighboring nations, with resident units of BP, Royal Dutch/Shell, and Mobil forced to buy products from the former to supply South Pacific area markets. The government set up Finapeco and gave it an exclusive oil import license last year but has decided to scrap the company, citing the scheme's lack of financial viability and better security of supply and prices from the competing majors.

The global juggernaut of petroleum privatization rolls on.

Philippines plans to partly privatize the state owned Petron refinery at Bataan, slated for a $1 billion expansion. Petron wants a partner in a joint venture to increase refinery capacity by 50,000 b/d to 100,000 b/d.

Reforms are likely to be forthcoming in Ecuador's oil policy with the new government there. Sixto Duran Ballen, Ecuador's new president, will propose legal reforms to give equal tax treatment to domestic and foreign investment in the petroleum sector as well as simplified new petroleum contracts. In his inaugural address, he said, "It is necessary to reform and discipline the state companies that presently control the production and marketing of hydrocarbons.

A final decision on investments in the $4 billion Nigeria LNG (NLNG) project is expected in December, Opecna reports.

NLNG Managing Director Godswill Ihetu said final commitment from the project's financiers is expected in November, and he sees "no doubt whatsoever as to the viability of the scheme." The company is evaluating tenders submitted for the main construction contract and expects to award it by yearend. The first LNG train is to start up in December 1996, with first cargo loading in first quarter 1997. Sales and purchase agreements covering 22-1/2 years have been signed for 5.7 billion cu m/year of gas with ENEL, Enegas, Gaz de France (OGJ, Apr. 27, Newsletter), and a unit of Cabot Corp. (OGJ, June 27, p. 46). NLNG has purchased four LNG tankers with total capacity of 510,000 cu m, and a fifth tanker is to be built by 1998.

Meantime, the Chevron-Nigerian National Petroleum Corp. joint venture has earmarked more than $3 billion for oil E&P in Nigeria the next 5 years, says Chevron Nigeria Managing Director Don Mahura.

Chevron aims to increase production from about 310,000 b/d to 400, 000 b/d (OGJ, Aug. 24, p. 28).

Five Persian Gulf states are expected to spend $68 billion the next 5-10 years to hike oil productive capacity to meet an expected increase in world demand. Abu Dhabi Investment Authority breaks that out as Saudi Arabia $25 billion, Iran $13 billion, Iraq $12 billion, United Arab Emirates $10 billion, and Kuwait $8 billion. Targeted capacities are Saudi Arabia 10 million b/d, Iran 5 million b/d, U.A.E. 3 million b/d, and Iraq and Kuwait together more than 7 million b/d.

The sale by Germany's Treuhandanstalt of two refineries in eastern Germany and a major service station network to a Franco-German group led by Elf Aquitaine (OGJ, Aug. 3, p. 31) is creating a major controversy in Germany as more details of the contract become clear, reports Hamburg oil industry newsletter Erdoel Informationsdienst (EID).

EID contends the Elf group will not be a buyer but only operate the Leuna and Zeitz refineries and Treuhandanstalt will remain owner and cover all losses--expected to be about $415 million--for 3 years as well as about $43 million in dismantling costs. Further, a new refinery to be built at Leuna will have a capacity "at most" of 200,000 b/d, not the 240,000 b/d previously mentioned, and the Zeitz refinery will eventually be closed. A prize in this deal is the service station network in eastern Germany Elf won under an exceptionally long lease and favorable conditions.

One business analyst, EID reports, says advantages of the Elf group deal vs. a competing BP group offer are no longer recognizable.