OGJ NEWSLETTER

More environmental woes loom on the horizon for the U.S. petroleum industry.

With the continuing push by other states to adopt California air pollution control standards (OGJ, Feb. 14, Newsletter), California will once again be the litmus test for a major new environmental regulatory judgement.

California vehicles and petroleum operations especially refining/marketing and petrochemicals are among sectors targeted for more stringent air pollution controls under a new EPA court ordered plan that will take effectifa local pollution strategy due later this year isn't tough enough.

Under the 1990 Clean Air Act amendments, California must develop by Nov. 15 a plan to cut target emissions by 30 90% during 1999 2010.

The EPA's federal implementation plan (FIP) for California, unveiled last month, is designed to bring the Los Angeles, Ventura, and Sacramento areas into compliance for ozone and Los Angeles into attainment for carbon monoxide. EPA has until February 1995 to have a final FIP in place.

It was forced to develop the F[P because of lawsuits brought by environmental groups in 1982 and settled in 1993. The FIP would require far more severe limits on mobile source, fugitive, and stationary source emissions. Specifically targeted are refineries, chemical plants, gasoline stations, pesticides, house paints, industrial coatings, virtually all on and off road vehicles, pleasure boats, lawn and garden equipment, civil airports and military bases, ships in ports and passing the Ventura coast, and locomotives, among others. It's uncertain whether EPA will have to implement the FIP because it is working to ensure state plans achieve the same results.

Even so, it serves as a warning to industry that future air pollution control steps may have to be extremely stringent to avoid new legal challenges.

And how is California's most recent environmental regulatory experiment faring? Not well, judging from the continuing outcry over the introduction last fall of low sulfur, low aromatic diesel in the state.

A task force appointed by Gov. Pete Wilson to study the wave of mechanical breakdowns that hit truck fleets after the new fuel was introduced backed off from concluding that eliminating the new spec fuel would eliminate the mechanical problems. That's despite its finding that an average 29% of vehicles in 74 truck fleets experienced problems and its conclusion that severe hydrotreating needed to make the new spec fuel also is removing components needed for fuel lubricity.

The task force simply recommended California refiners maintain former lubricity levels or use additives to improve lubricity.

California Independent Oil Marketers Association called the task force report "a whitewash." Before the report was unveiled, California Trucking Association accused California Air Resources Board of continuing "its cover up of the diesel crisis caused by the low aromatics fuel mandated by the agency." It cited research published prior to the fuel's introduction that showed evidence of its tendency to damage rubber 0 rings. CARB recently denied prior knowledge of such research. Class action lawsuits are likely.

The 10th Circuit Court of Appeals in Denver last week dismissed a lawsuit challenging FERC's jurisdiction over gathering line transfers (see related story, p. 23). Williams Gas Processing sued FERC, claiming that when affiliate Northwest Pipeline transferred certain gathering facilities to Williams, they then became exempt from FERC regulation. But the appeals court said FERC did not place rate or reporting restrictions on Williams and could consider doing so only if Williams acted in a discriminatory manner. The court said since FERC had not assumed jurisdiction yet, there is no case.

U.S. DOE is seeking projects to demonstrate near and long term improved recovery methods for slope and basin clastic reservoirs. DOE said such fields in California, New Mexico, Texas, Louisiana, Mississippi, Illinois, West Virginia, and Pennsylvania contain nearly 44 billion bbl of light and heavy crude in place. DOE contends new technology could help extract another 1.7 billion bbl from these reservoirs in the near term and 5.2 billion bbl longer term. Project sponsors must provide 50% of funding, and DOE has allocated $37 million for its share. It will select 10 15 projects this summer.

Venezuela has its first contract to sell Orimulsion, a boiler fuel made from Orinoco belt bitumen, water, and a surfactant to compete with coal, to a Far East customer. MC Bitor, a venture of Pdvsa's Bitor unit and Mitsubishi, will sell 200,000 metric tons/year to Japan's Kansai Electric Power Co. under a 5 year agreement. Kansai will use the fuel to fire a generator at its Osaka electric power plant. First shipment is slated for June.

Earlier supply deals have been arranged with customers in the U.S. and Europe, where use of the fuel has raised some environmental concerns.

British Gas will incur charges of El.65 billion ($2.45 billion) against 1993 earnings for restructuring spurred by introduction of competition in the U.K. gas supply market. Almost 80% of this sum will he for severance and pension costs involved in laying off the next 3 years 25,000 employees, or about one third of BG's work force and 5,000 more than projected earlier (OGJ, Aug. 23, 1993, Newsletter). Layoffs are to affect all areas of the U.K. and every department. CEO Cedric Brown attributed the extra job losses to government's decision to end BG's monopoly in the U.K. supply market in 1996, earlier than expected. Part of the restructuring costs will cover separation of transportation and storage divisions from BG's other businesses.

A major Russian oil producer is inviting foreign participation in a special status project that involves increasing production from Volga Urals fields with combined reserves of more than 730 million bbl.

Kuibyshevneft, Samara, says the proposed project offers an excellent opportunity for interested western parties to invest in a medium sized, low risk venture that is guaranteed by Kremlin decree the right to export as much as 60% of the incremental crude produced in the first 5 years of the venture, exempt from export and excise taxes. Kuibyshevneft said the project could he "negotiated, approved, and financed within a fairly short timeframe."

Kuibyshevneft, with production of 200,000 b/d, is being transformed into a joint stock company with state owned Rosneft holding controlling interest. It appointed Vega International Capital, London, financial adviser.

Operators planning to drill in the Waddenzee region off Netherlands expect to spend the rest of this year preparing drilling programs.

Shell/Esso combine NAM and Elf plan to drill six and five wells, respectively, in one of the few relatively unexplored areas of the Dutch continental shelf. NAM said drilling plans will have to abide by strict environmental conditions to gain approval (OGJ, Feb. 21, p. 36). Drilling will be allowed only in winter, making winter 1995 or 1996 the most likely time for the first well. Although the Dutch Ministry of Economic Affairs has approved plans to drill under strict conditions, parliament is expected to debate the issue during March, before any exploration can be sanctioned.

Esso has another big oil strike off Malaysia. A wildcat drilled on Block PM 8 in the South China Sea about 250 km off Terengganu state flowed 9,545 b/d of 42 560 gravity crude from the Yong formation, 5 km from the North Raya oil discovery Esso made in October 1993. Esso is operator with an 80% interest in the block, with state owned Petronas holding 20%.

Unocal will seek to replace Texaco as developer of China's Pinghu natural gas field in the East China Sea. Texaco withdrew from contract talks with state owned Shanghai Petroleum Corp. (SPC) after about a year of negotiations on the development project 400 km east of Shanghai because it didn't find the financial terms attractive enough (OGJ, Feb. 28, p. 24). At the time, SPC indicated it will develop the field on its own.

The delayed multibillion dollar expansion of Singapore's Pulau Ayer Merbau petrochemical complex is back on track. Petrochemical Corp. of Singapore, complex operator and a 50 50 venture of Shell and a Japanese group led by Sumitomo, plans to have a $2.15 billion expansion complete by second quarter 1997. Involved are construction of a second naphtha cracker at Pulau Ayer Merbau to produce 428,000 metric tons/year of ethylene and 214,000 tons/year of propylene, double current capacities, as well as expansions of capacities for linear polyethylene, low density polyethylene (LDPE), linear LDPE, polypropylene, and acetylene black. The project includes construction by Mitsubishi/Shell of a styrene monomer/propylene oxide plant at nearby Pulau Seraya (OGJ, Feb. 21, p. 30). Other partners are Phillips, Denka, and Polyolefin Co. The project earlier had been scheduled for completion in 1995, but permit delays snarled Phillips' polyethylene expansion, a key to the project (OGJ, Sept. 20, 1993, Newsletter).