Are current conditions in the U.S. natural gas market signs of an industry turnaround?
A joint study by Arthur Andersen & Co. and Cambridge Energy Research Associates points to that prospect as market and regulatory changes drive industry toward greater price volatility and competitive realignment the next few years.
Demand growth has been the most important factor in tightening the market balance, with consumption jumping almost 20% the past 5 years, the study found. It also notes the future of gas supplies has come into question because of retrenchment in the upstream U.S. gas industry, where the top 40 reserve holders replaced less than 72% of production last year.
Further, it points to financial constraints combined with cautious strategy spurring a sharp decline in gas supply development, which may lead to near term declines in gas reserves and productive capacity.
Other factors affecting the market include strengthening demand with new market development, new transmission capacity, increased role of storage and gas futures in affecting prices, and FERC Order 636 treating natural gas supplies and transmission capacity as separate commodities.
Meantime, U.S. spot gas prices have risen across the board.
Natural Gas Clearinghouse reports in its survey of August spot market prices an average price of $1.79/MMBTU compared with $1.42/MMBTU last month and $1.14/MMBTU same time last year.
And the pressure to refill gas storage will continue to exert upward pressure on prices, Salomon Bros. predicts. It expects to see near-winter peak demand for wellhead gas the next 4 months. Salomon Bros. recently raised its 1992 natural gas price forecast to $1.65/MMBTU from $1.50/MMBTU and its 1993 forecast to $1.75/MMBTU from $1.60/MMBTU. It notes working gas inventories were 23% below 1991 levels at April's end and strong demand or flagging deliverability have slowed refill rates.
Chevron plans to spend $750 million to produce reformulated gasoline and diesel and boost operating efficiency and reliability at its Richmond, Calif., refinery. Reformulating fuels to match federal and state standards in 1995-96 will account for about $450 million, and operating improvements the remainder. The project is a scaled down version of a $2 billion revamp Chevron had planned earlier that included a flexicoker, now shelved.
Non-U.S. companies give a mixed report on second quarter and first half earnings, with improvements generally resulting from rationalization.
Exxon unit Imperial, Canada's biggest petroleum company, logged a jump in second quarter profits to $58 million (Canadian) from $5 million in 1991's second quarter. Imperial notes the improvement but contends earnings of less than $100 million/quarter are unacceptable.
Imperial earlier this year said it will trim payroll by 1,700 jobs and close about 1,000 service stations. The company also is evaluating refinery operations and says some units may close if they don't meet performance targets. It cut operating expenses by 15% in the first half.
Among other Canadian companies reporting first half results were Petro-Canada, up 126% to $38 million largely as a result of cost-cutting measures, Bow Valley down 8% to $6.6 million because of increased expenses and decreasing production volumes from international operations, and Norcen Energy down 39% to $21 million. Gulf Canada cites charges from discontinued minerals operations in its first half loss of $39 million vs. a $47 million profit in 1991. BP Canada posted net earnings of $6 million in the first half vs. a $500,000 loss in first half 1991, citing hikes of 34% in gas production and 150/Mcf in gas prices to an average $1.35/Mcf.
Meantime, parent BP's rationalization drive is gutting profits. It recorded a $1.284 billion loss on a replacement cost basis after taking $1.645 billion in charges related to the company's push, begun in 1990, to slash costs by about $1 billion/year. That compares with a profit of $361 million before exceptional items and a $1.5 billion profit in first half 1991.
Another U.K. firm, Lasmo, boosted after tax profit to 26 million ($49.66 million) in first half 1992 compared with a 2 million loss same time last year, benefiting from its sale of Ultramar's downstream assets and integration of upstream interests from the acquisition.
Ghana has resumed hydrocarbon production after a 7 year hiatus.
Ghana National Petroleum Corp. tested a horizontal oil well in South Tano field off Ghana it completed in June (OGJ, June 22, p. 39). Using a novel drillship-based floating production system (OGJ, June 17, 1991, p. 28), GNPC tested the well at a rate of 6,912 b/d of oil through a 1 in. choke.
Currently, the well is flowing 2,200 b/d through a 1/2 in. choke with 760 psi wellhead pressure. Plans call for hiking flow to more than 6,000 b/d.
Fifty-three foreign companies, including Royal Dutch/Shell, Oxy, Mobil, Texaco, Exxon, and Chevron, have applied for oil exploration rights in the East China Sea, says China's state owned Cnooc. Contracts are expected to be awarded to successful bidders in October for acreage in two areas covering a combined 72,800 sq km (see map, OGJ, July 20, p. 128).
Russian geologists recently found promising oil/gas deposits in the republic's far eastern Khabarovsk Territory, reports Moscow business weekly Ekonomicheskaya Gazeta. The discoveries reportedly may lead to a joint development venture by Russia and South Korea.
Directors of large South Korean companies and representatives of South Korea's ministries of power and resources discussed the project during a recent visit to the Russian Far East, the weekly said. Khabarovsk Territory has no commercial oil or gas production. Last winter it suffered a fuel shortage caused in part by Sakhalin Island's failure to deliver promised volumes of oil and gas (OGJ, July 20, p. 127).
North of Khabarovsk Territory, Magadan Province and Chukotsk Autonomous District are experiencing such a drastic fuel shortage that production of gold, silver, tungsten, and tin has halted. Deliveries of refined products to the two regions fell to 18% of plan in June and 7% in July.
Global Natural Resources has received a copy of a resolution from the Russian government granting an exemption from the export tax on oil and gas to joint ventures registered prior to Jan. 1, 1992, until compensated for spending related to increased production volumes. Global believes its current joint venture in Tartarstan, where it is installing vapor recovery units in Romashkino field (OGJ, Aug. 12, 1991, p. 31), is subject to the exemption and is evaluating its effect on operations. Global says Moscow plans to establish a committee to deal with specific matters about the decree, including determining the exemption term (see related story, p. 19).
Hungary has chosen N.M. Rothschild & Sons Ltd. to advise it on proposed privatization of its five state owned gas distribution companies.
The government plans to sell a substantial minority stake in each to strategic investors while initially retaining a 51% share in each company. it also plans to expand and modernize the distribution network to support economic development while protecting gas consumers' interests.
The privatization move has attracted interest from a large number of investors, Rothschild said, including most of the major western European gas distribution companies.
Privatization faces continuing challenges in Latin America (OGJ, July 6, p. 43).
Right on the heels of two international concerns signing operating agreements related to the reactivation of oil fields in Venezuela, Pdvsa has come under fire from ruling Democratic party officials who contend the contracts might be voided if they violate the 1976 nationalization law.
In a surprisingly bitter attack, Venezuelan congressmen said they were not informed of the contracts and suggested they could be illegal.
Late last month, Teikoku Oil and a combine of Benton Oil/Vinccler signed separate accords covering reactivation of old fields in Guarico and Monagas states. Together, their plans call for spending $280 million, drilling 300 delineation and development wells, and performing 70 workovers in 10 years. Two other such pacts are still to be signed (OGJ, Aug. 3, p. 22).
Congressional critics later backed down, admitting the contracts were in fact legal, after Venezuelan President Perez and Pdvsa Pres. Gustavo Roosen pointed out copies of the agreements had been supplied congressmen well ahead of the signings. The spat comes just when Pdvsa is scrambling to boost foreign investment in its upstream sector.
Said a U.S. oil company executive, "You get the feeling that the politicians are capable of anything in this country, and investors may not be safe ... In Colombia, the guerrillas may shoot at me, but at least I know where I stand."
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