OGJ Newsletter

U.S. Industry Scoreboard 12/11 (72266 bytes)

The outlook remains mixed for petroleum industry investment in former and currently Communist nations.

Russias Duma, or lower house, has approved a new oil production sharing law.

However, as is often the case in that country, not everything is as it seems. Analysts contend the revised law, compared with an earlier draft, fails to provide foreign investors guarantees needed to proceed with outlays in Russias upstream petroleum sector some estimate at $50 billion. The new law gives Moscow more control over investments and wiggle room to renegotiate contracts if world oil markets change. Russian nationalists struck tax breaks and other provisions from the law they deemed a giveaway to foreign investors. The Federation Council, or upper house, probably will vote on the law this week, ahead of the Dec. 17 parliamentary election, and President Yeltsin still must sign it. Early word from the Kremlin is that the law is absurd and hostile to western oil firms.

In China, BP has disclosed plans for its largest investment to date in that countrys petrochemical industry while nearing completion of onshore exploration and LPG projects. BP signed an agreement with Sinopec to build a 150,000 metric ton/year, $200 million acetic acid plantChinas biggestnear Chongqing in Sichuan province. It is to start up in 1998 and join BPs 100,000 ton/year Shanghai acetic acid plant, expected to start up in 1996. BP also is in preliminary talks for an acetic acid plant at Daqing. BP Chemicals has 15 licensing agreements in China for use of processes in core BP areas of acetic acid, polyethylene, and acrylonitrile. Elsewhere in China, BP recently completed a seismic survey on Tarim basin Block 4 and is near completion of a $17 million LPG bottling project in Fuijan province. BP also sells lubricants in 22 Chinese cities and is involved in a joint venture to provide jet fuel to Shenzhen airport.

Meanwhile, Edinburghs Cairn Energy has signed an agreement with state owned Cnooc to explore Block 23/10 north of Hainan Island off South China.

Cairns license agreement covers 2,945 sq km of the Beibu Gulf in 10-20 m of water. Block 23/10 lies in the oil producing Beibuwan basin, which Cairn described as well detailed in seismic surveys but lightly drilled. One discovery in the area flowed more than 3,000 b/d of good quality oil.

Cairn has identified a number of prospects on the block and intends next year to acquire additional seismic ahead of drilling in first quarter 1997.

Look for further political sniping at the oil industry from the no-mans land where oil and politics mix, as sanctions against Nigeria and Iran return to the discussion table.

In Nigeria the regime of Gen. Sani Abacha is lining up for trial 19 more Ogoni people accused of the same crimes for which Ken Saro-Wiwa and other activists were hanged in Lagos last month (OGJ, Nov. 20, p. 37).

London based Ogoni Community Association (OCA) is concerned the 19 will suffer the same fate as Saro-Wiwa and his colleagues: death by hanging after a deeply flawed and corrupt trial. OCA official Terry Ndee said, It is clear that the Nigerian military are using all means to silence the Ogoni people for speaking out against Shell. The world must not allow the government to slaughter more innocent Ogonis for the sake of oil revenue.

Royal Dutch/Shell maintains that sabotage of oil installations in its Ogoni area fields and attacks against staff there forced it to cease operations there in 1993.

Now it appears U.S. Vice President Al Gore has not ruled out oil sanctions against Nigeria, according to press reports of talks between Gore and South Africas President Nelson Mandela in Pretoria last week. Mandela reportedly told Gore of the need for more effective action against Nigerias military regime. While not dismissing sanctions, Gore said any sanctions must be multilateral, and I do not think there is any disagreement on that score between our two countries. Germany also has joined the sanctions bandwagon, with the parliament calling on the goverment to ban imports of Nigerian crude.

Reports from Tehran suggest the trade embargo against Iran may be expanded. The Iranian government reportedly poured scorn on U.S. plans to tighten pressure on Iran by imposing a secondary boycott on the countrys petrochemical sector. Ahmad Rahgozar, Irans deputy oil minister and president of state owned National Petrochemical Co., was quoted as saying third parties from outside the U.S. were devising ways to trade with Iran without being penalized by Washington.

This comes at a time when the U.S. Congress is expected to begin debate soon on a bill by Sen. Alfonse DAmato (R.-N.Y.) that would block non-U.S. companies that do petroleum business with Iran from bidding on U.S. government contracts, importing products into the U.S., or conducting business with U.S. firms.

U.S. upstream oil and gas issues are at the forefront of Washington, D.C., action.

Last week, a provision to allow DOE to sell the federal majority interest in Elk Hills field in California was attached to a Defense Department spending bill.

Supporters claim the measure would raise $2-3 billion for the government. It was stricken from the deficit reduction bill after the Congressional Budget Office said it would raise only $1.5 billion while costing $2.6 billion in future production revenues.

As promised, President Clinton has vetoed a budget reconciliation bill that contained a provision for leasing the ANWR Coastal Plain in Northeast Alaska. The bill now goes back to Congress, which lacks votes to override the veto. White House and congressional negotiators earlier had begun talks aimed at getting a new bill, but they have stalled due to differences over revenue projections. Negotiators have until Dec. 15 to work out an agreement and avoid another partial shutdown of the government.

Meantime, supporters of ANWR exploration have released a poll that contradicts an earlier poll, ordered by environmental groups, claiming the U.S. public opposes exploration. Gordon S. Black Corp. surveyed 1,004 Americans and reported they support limited exploration 56-37%. The rest were undecided.

FERC is reviewing policies under which it regulates 18 gas pipelines on the Outer Continental Shelf.

FERC has jurisdiction over OCS transmission but not gathering lines. It wants to ensure its policies continue to foster development of the vast OCS gas supply and invited industry comment on a range of questions.

Canadian crude oil producers expect a price ripple benefit from the lifting of a 22 year U.S. ban on the export of Alaskan North Slope (ANS) oil (OGJ, Dec. 4, p. 40). TransMountain ships about 85,000 b/d of western Canada crude from Alberta into U.S. West Coast markets thats discounted to compete with cheaper Alaskan oil. Most western Canadian crude is marketed to the U.S. Midwest, but some is sold on the West Coast due to pipeline capacity constraints to the Midwest. Large shippers to the West Coast such as Gulf Canada and Amoco Canada are expected to benefit from the ANS export approval.

The bidding has begun in Mexicos petrochemical privatization (OGJ, Nov. 27, Newsletter). Two big U.S. ammonia producers have signed a letter of intent to evaluate and jointly bid for five ammonia plants at Pemexs Cosoleacaque complex at Veracruz.

Missouri firms Farmland Industries and Terra Industries, producing 2.8 million tons/year and 2.7 million tons/year of ammonia, respectively, would form a new entity to buy the Mexican plants, which produce 2.1 million tons/year

The worldwide total of floating production/storage vessels has risen by one third the last 12 months, says Smith Rea Energy Analysts, Canterbury, U.K.

Norman Smith, managing director of Smith Rea, said 78 floaters were identified around the word at yearend 1994, including those being converted and under construction. This year there are 25 to 30 new ones, said Smith. There has been general growth in use of floaters everywhere, but there has been spectacular growth in their application in the North Sea. Behind the boom is the breakthrough in floating production technology in Northwest Europe. A huge number of floater projects, with firm completion dates, has come forward in the last year. These include Visund and Aasgard off Norway and U.K.s Schiehallion.

In a sign of likely punitive measures ahead, U.K. Chancellor of the Exchequer Kenneth Clarke has set in motion plans to raise the tax on superunleaded gasoline gradeswhich have their octane boosted by addition of aromaticshigher than other fuels. Clarke hiked the tax on all gasoline and diesel by 3.5 pence/l. effective immediately and on superunleaded by a further 4 pence/l. as of May 1996. Clarke said, This reflects its higher emission of pollutants such as benzene and the dangers to the revenue of switching from leaded petrol.

Leaded gasoline is taxed at a higher rate in U.K. than unleaded to encourage users to buy green fuel. Britains petroleum industry recently sought to disprove claims of links between benzene and leukemia made by the medical profession (OGJ, May 23, 1994, p. 41). Clarke also cut by 15% the duty on vehicular LPG and CNG, citing them as relatively clean fuels.