OGJ NEWSLETTER

U.S. Industry Scorcard 6/26/95 (72790 bytes)

Oil demand growth the next 15 years will become increasingly reliant on supplies from a few countries, EIA predicts. It expects OPEC to supply 52% of the world's oil in 2010 vs. 40% in 1994. Eastern Europe and the former Soviet Union will supply 13% and the rest of the world 35%.

EIA contends that, barring any major event affecting markets, oil prices will remain stable the next few years and then rise gradually hut remain below $25/bbl in 1993 dollars through 2010. World oil demand is expected to grow to 88.7 million b/d by 2010. EIA says the largest gains in energy consumption are expected in Asia, led by countries such as China and India whose economies are rapidly expanding. Substantial improvements are projected for world energy intensity, a measure of energy consumption relative to economic output.

Electricity is to remain the fastest growing form of end use energy through 2010, accounting for about 42% of the increase in worldwide energy consumption in 1990-2010. Natural gas and renewable energy sources are expected to grow quickly as well at annual rates of 2% and 2.3%, respectively.

An independent task force chaired by Cambridge Energy Research Associates' Daniel Yergin argues against deep cuts in U.S. DOE R&D.

Yergin said, "DOE's R&D programs can be made more efficient, but the wholesale demolition of those programs could not only hurt America's energy position but also contribute to a brewing R&D crisis in the U.S." Yergin's task force claims energy R&D costs could be cut 15% through administrative changes without cutting funds for R&D work. It says DOE should develop an integrated strategy and use it to determine funding priorities and give responsibility for R&D to one person rather than to different departments. It also recommends Congress fund R&D projects on a 2 year vs. a I year budget appropriation cycle.

The day the task force released its findings, a House appropriations subcommittee proposed deep cuts in fusion and solar R&D.

AGA Pres. Mike Baly welcomes reevaluating R&D priorities, noting, "Fusion technology, which currently provides no energy to U.S. consumers and has very little near term potential, now receives almost 25% of federal R&D dollars. At the same time, natural gas, which provides about 25% of the nation's energy and has an excellent long term growth potential, receives only 13% of federal R&D funding."

U.S. Department of Justice has asked an appeals court to rehear a decision that voided EPAs renewable oxygenates standard, which would have required ethanol use. The District of Columbia Court of Appeals had ruled EPA exceeded its authority when it required refiners to use renewable fuels for 30% of the oxygenates in reformulated gasoline (OGJ, May 8, p. 32).

Justice claims the court failed to consider EPAs argument that the Clean Air Act expressly allows EPA to set RFG requirements.

In response to two extended reach development projects to tap offshore hydrocarbons from onshore, a coalition of Santa Barbara County environmentalists has started a petition drive to force final approval of oil and gas projects by voters instead of the county board of supervisors.

The campaign to gather more than 13,000 signatures for a ballot measure follows plans by Mobil and Molino Energy to slant drill from shore to develop offshore oil and gas reserves (OGJ, Oct. 17, 1994, p. 46). Meanwhile, Mobil is trying to assuage opposition to its Clearview project from University of California at Santa Barbara by purchasing a golf course as a buffer between planned faculty/student housing and its onshore drillsite. The board has scheduled a June 26 hearing on proposed zoning changes needed for the projects.

Are limited partnership (LP) pipelines threatened by FERC action disallowing part of an income tax allowance in determining a pipeline's cost of service?

Lakehead Pipe Line Partners LP, Duluth, subject of FERC's decision, says the action has broader industry and market implications and vows to appeal the decision at administrative and judicial levels. The FERC decision focused on income attributable to LP interests held by individuals. The income tax allowance still applies to partnership interests held by corporations.

LP pipelines that scrambled to assure unitholders their distributions would not be affected by the FERC ruling include those operated or held in general partnership by Enron, Northern Border, Kaneb, and Santa Fe Pacific.

In an unusual joint hearing June 29, the Senate committees on energy/natural resources and environment/public works will investigate the energy and environmental implications of the Komi pipeline oil spills in Russia.

Shell Expro's decision to dispose of the Brent spar onshore rather than dump it in deep water as first planned has pleased Greenpeace only to anger the U.K. government (see related story, p. 21). British Prime Minister John Major, nobody's idea of a macho man, said Shell behaved like "wimps."

Shell Transport & Trading Chairman John Jennings wrote to Major, expressing "regret at the position in which the outcome of this complex issue placed you and your ministerial colleagues." But Energy Minister Tim Eggar dealt a much harder blow, saying taxpayers will not help pay the extra cost of dismantling the buoy onshore. Shell estimates onshore disposal cost at $74 million and deepwater dumping at $19 million. The U.K. government was to give Shell a tax refund of more than 50% of the dumping cost under disposal license terms.

But Eggar says the government will not give a 50% tax rebate for onshore disposal, and Shell should look at the extra outlay as an "act of contrition."

Meantime, Shell is preparing an application for a license to dispose of the buoy onshore. The U.K. says Shell will have to be very persuasive to win this approval. Currently, two tugs are towing the spar back around northern Britain, and at presstime were north of the Shetland Islands.

The spar's destination has not been fixed, but Shell is looking for a temporary home. It has informally approached Norway to discuss mooring the 300 ft high buoy in a fjord until a decommissioning contract can he fixed.

In an ironic counterpoint to the Brent spar controversy, U.K. North Sea operations have marked a key milestone: The first U.K. offshore oil was landed 20 years ago June 18 at Isle of Grain refinery, Kent.

Since then, the U.K. offshore has produced more than 13.14 billion bbl of oil, surpassing the 1975 proved reserves estimate of 9.5 billion bbl. Department of Trade & Industry reckons U.K. offshore production to date represents one fifth of maximum estimated reserves.

Hamilton Oil, later BHP Petroleum Ltd., produced Britain's first offshore oil from North Sea Block 30/24 Argyll field. Argyll was developed using the world's first production semi and ceased production in 1993.

The Falkland Islands plans to offer large offshore tracts to oil and gas companies in early October and seek by mid-1996 applications to explore for oil and gas. John Martin, administrator of the Falklands licensing team, said a number of license areas will be offered, not all the same size.

Because the offering is virgin territory, Martin said, oil companies would like large areas to explore, so the blocks will be grouped in bunches. He notes licensing terms will be based on U.K. conditions but with longer license periods.

The Falklands government intends to invite oil companies to presentations on its licensing round to be held in London and Houston in October. Martin said two oil companies have expressed strong interest in exploring off the Falklands.

Royal Dutch/Shell and Total are negotiating with National Iranian Oil Co. (NIOC) to assume Conoco's role in developing two oil fields off Iran's Sirri Island. A NIOC official told OGJ four companies in all are talking to Iran over Sirri A and Sirri E developments. He did not reveal the other two but said NIOC hopes a deal will be made within a month. In March, the U.S. government stopped Conoco from forging a development deal with NIOC through a Dutch subsidiary. The Clinton administration decided Conoco's deal would contravene a U.S. embargo on oil trade with Iran (OGJ, Mar. 27, p. 25).

Look for Hungary to privatize national oil company MOL in the second half. Prime Minister Gyula Horn says 13 U.S. oil companies, including Coastal and Conoco, have expressed interest in acquiring a stake in MOL.

Four western firms have signed an agreement with the Czech government setting out principles for buying a 49% stake in the Kralupy and Litvinov refineries.

Royal Dutch/Shell, Total, Agip, and Conoco are negotiating to buy the interests for about $180 million. The group is expected to invest about $480 million in the refineries. Group representatives signed the latest accord in these complex negotiations and sent it to their boards and Czech authorities for approval.

If approvals are forthcoming, the group then will begin detailed talks toward final contracts, with a time frame still not set. The talks have been complicated by Prague's internal struggle over whether foreign or only Czech firms should be allowed to bid for the stake (OGJ, Oct. 10, 1994, Newsletter).