ogj.pennnet.com By OGJ editors

WASHINGTON, DC, Jan. 10 -- Depending on the path of world oil prices, imports may supply 65-70% of total US petroleum demand by 2025, up from 55% in 2001, the Energy Information Administration said Thursday.

The agency noted that world oil prices are influenced by many factors, including the ability of members of the Organization of Petroleum Exporting Countries to control their own oil production. Other considerations include economic growth rates among countries and the economic viability of alternative energy sources such as natural gas-to-liquids and oil sands.

By 2025, world oil prices (adjusted to 2001 values) could be $19-33/bbl, a range leading to variations in US dependence on oil imports, EIA said. The agency's predictions were part of its annual snapshot of long-term energy trends.

Consumption Total US energy consumption could vary significantly, depending on the rate of economic growth. EIA projects that the US Gross Domestic Product (GDP) could grow 2.5-3.5%/year during 2001-25. By 2025, energy consumption may be 129-149 quadrillion btu, EIA said. Even with that growth, EIA forecasts that the US will continue to use energy more efficiently.

"This will help to hold the rate of growth in consumption to about 50% of the rate of growth in economic output," EIA officials said.

Gas picture Continued growth in natural gas demand and depletion of conventional natural gas resources in the lower 48 states will mean that future natural gas supplies would likely come from both new domestic and foreign supplies, EIA said. These projects include the Alaskan natural gas pipeline, the Mackenzie Delta pipeline in Canada, and new LNG facilities, both domestic and outside the country, to serve US markets (e.g., Baja California, Mexico or the Bahamas).

EIA assumes that the Alaskan natural gas pipeline will come online in 2021 (excluding consideration of any potential loan guarantees by the federal government that accelerates construction), and that the Mackenzie Delta pipeline will be operational in 2016. Total LNG imports are projected to grow to 1.6 tcf by 2020 and 2.3 tcf by 2025, with facilities online in the Gulf of Mexico region, serving Florida (via the Bahamas), and California (via Baja California, Mexico).

But EIA stressed that the timing and demand for these supplies vary, depending on the rate of technological improvement. If drilling costs, success rates, and finding rates improve at a slower rate than in the reference case, the Alaskan natural gas pipeline and Mackenzie Delta pipeline are projected to come online earlier in 2019 and 2015, respectively. In this scenario, total net LNG imports grow to 2.3 tcf by 2020 and 3.2 tcf by 2025. Conversely, if more-rapid technology improvements hold down natural gas prices longer, it will delay construction of these facilities.

In an EIA scenario with rapid technology improvement, the Alaskan natural gas pipeline would not be economically viable until 2024 and the Mackenzie Delta pipeline would be delayed due to economics until 2020. Net LNG imports would grow more slowly with greater domestic production, and LNG imports would reach 1.2 tcf by 2020 and 2.1 tcf by 2025.

Short-term predictions In a separate analysis, EIA noted that political situations in both Venezuela and Iraq might create price shocks in coming months.

"The combination of a sustained loss of most of Venezuela's exports, risk of increased tensions in the Middle East, and low (US) oil inventories could cause oil prices to spike, at least temporarily, above our base case," EIA said in its monthly short-term outlook published Jan. 8. "If the Venezuelan strike is prolonged and tensions in the Middle East continue, then the chance of a price spike is high. The magnitude of upward price pressure will depend on the duration of supply loss and on the willingness and ability of other suppliers to make up for the shortfall," EIA said.

Although risks remain high for price volatility and an oil price spike, EIA's forecasts for the next few months are more optimistic that the market will be relatively balanced, although the agency admitted its assumptions were "fragile," given the current state of international oil markets.

"We assume that the turmoil in Venezuela is resolved by the end of this month and that Iraq maintains recent export levels and that other producers step up production to keep markets stable, leaving the WTI price near current levels through February," EIA said. "Gradual movement toward full capacity output in Venezuela over the next 3-4 months, coupled with supplementary output from other OPEC countries, should result in a return to gradual price declines through the forecast horizon."

Gasoline predictions As events in Venezuela and Iraq continue to unfold, it appears that pump prices may rise even further in the near term, EIA suggested.

"We currently expect average regular motor gasoline prices to exceed $1.50/gal in February. These would represent year-to-year increases of about 40¢/gal. Our base case assumptions lead us to expect prices near $1.54/gal by mid-spring.

"Additional increases and possible regional price spikes before mid-year would be likely if the Venezuelan situation is not resolved this month, or if conflict arises in Iraq and disrupts oil flows there," EIA said.

The agency also said that refiner margins are expected to strengthen over the next 2 years, as demand for gasoline rises and the cost of producing gasoline increases. That is due in part to the likely substitution of the more costly ethanol for methyl tertiary butyl ether in California in 2004, EIA said.

"Given our base case crude oil price projections, 2003 pump prices for regular gasoline are expected to increase by 16¢/gal on an annual basis to $1.50/gal," Similarly, refiner margins are expected to rebound from their relatively weak levels of last year. In 2004, the annual average pump price is projected to decline by about 5¢/gal, falling in line with the expected decline in crude oil prices. However, because crude oil prices are assumed to decrease by 9¢/gal ($4.20/bbl in 2004), this forecast assumes a continued strengthening of refiner margins, EIA said.

www.fortwayne.com Posted on Fri, Jan. 10, 2003 BY TIM JOHNSON Miami Herald

WASHINGTON - The Bush administration, which came to office scoffing at the need to deploy special diplomatic envoys for world trouble spots, named Otto J. Reich on Thursday to become ``special envoy for Western Hemisphere initiatives.''

The selection of the controversial Cuban-born diplomat averted a new confirmation struggle over Reich in the Senate, and at the same time satisfies the key Cuban-American constituency in South Florida.

In another move that pleased conservative Republicans, President Bush said he would nominate Roger F. Noriega, 43, as the State Department's top diplomat in Latin America.

Two years ago, the Bush administration appeared allergic to the numerous ''special envoys'' that proliferated under President Bill Clinton.

''There are a very large number of envoys running around, and I have to make sure we really need them,'' Secretary of State Colin Powell said at his confirmation hearing.

The Bush administration recalled a number of envoys appointed by Clinton but later named special emissaries to the Middle East and Sudan before giving Reich his posting.

Reich, a former lobbyist, will begin work Monday in the Executive Office Building adjacent to the White House.

White House press secretary Ari Fleischer said Reich would coordinate U.S.-Mexico relations, the counter-drug Andean Regional Initiative, aspects of Cuba policy and homeland-security issues in the Caribbean. He will report to national security advisor Condoleezza Rice.

Reich served last year as assistant secretary of State until Nov. 22 but was unable to win Senate confirmation to the post, in part because of his peripheral role in the 1980s Iran-contra scandal, and also because of concerns that he welcomed a short-lived coup in Venezuela last April.

Noriega, the ambassador to the Organization of American States, is the grandson of Mexican immigrants to Kansas.

www.forbes.com Reuters, 01.10.03, 11:01 AM ET

NEW YORK, Jan 10 (Reuters) - NYMEX crude oil futures fell further Friday morning after the West's energy watchdog said it would consider releasing members' petroleum reserves if supplies were cut from both Iraq and Venezuela.

At 10:40 a.m. EST (1540 GMT), NYMEX February crude was down 54 cents at $31.45 a barrel, extending the morning low to $31.35.

The contract rallied nearly 5 percent on Thursday on renewed fears over a possible war with Iraq. U.N. arms inspectors presented an interim report showing they saw gaps in Iraq's arms declaration but as yet have found no 'smoking guns" in their search efforts.

In London, the February Brent crude contract was 34 cents lower at $29.30 a barrel.

The Paris-based International Energy Agency (IEA) said Friday that if supplies from both Iraq and Venezuela were cut, its member industrial nations would consider the emergency release of petroleum reserves.

The group also said it would not wait for a war in Iraq, the possibility of which has been looming large as U.N. arms inspectors search for banned weapons in that nation, before discussing a possible release of oil reserves.

The IEA board will meet next Friday to start determining whether to release reserves. The decision depends on OPEC's surplus and market fundamentals.

The IEA, with 26 members from industrialized nations, is an autonomous agency linked with the Organization for Economic Cooperation and Development (OECD).

The day's losses followed weakness overnight prompted by comments from British Prime Minister Tony Blair, who appeared to push back the deadline for a decision on military action against Iraq.

Blair told his cabinet that a Jan 27 formal progress report on inspections in Iraq should not be regarded as a deadline for a decision on military action.

U.S. Secretary of State Colin Powell also tried to deflect attention from Jan 27. "It is not necessarily a D-day for decision-making," Powell told the Washington Post.

Meanwhile, oil markets have to wait for the decision of an emergency meeting of the Organization of Petroleum Exporting Countries on Sunday to see if it agrees to boost output to help cover deep supply losses from the 40-day-old Venezuelan strike. The Latin American OPEC member is the fifth largest exporter of crude in the world.

OPEC officials have indicated the group is considering raising output by about 1.0 million to 1.5 million barrels per day.

NYMEX February heating oil was down 1.35 cents at 86.15 cents a gallon, moving 85.80 to 87.25 cents.

NYMEX February gasoline was 1.10 cents lower at 86.40 cents a gallon, trading 87.00 to 88.60 cents.

Reuters, 01.10.03, 11:14 AM ET By Robin Emmott

PANAMA CITY, Jan 10 (Reuters) - With major Latin American bond markets looking volatile in 2003 and markets hungry for higher yields, debt from the small nations of Central America could catch the eye of investors.

Panama, Costa Rica, El Salvador and Guatemala, whose small economies are dominated by coffee, bananas, sugar and tourism, plan to issue dollar-denominated sovereign debt on international markets this year, with Costa Rica and Guatemala leading off this month.

Costa Rica's Finance Ministry said it will launch a $450 million bond offer in January, led by Deutsche Bank, but declined to give an issue date.

Guatemala, the biggest economy in Central America with gross domestic product of $45 billion in 2001, said it aims to sell $500 million in new paper on Jan. 20, although it has yet to set to the terms of the offer.

Panama hopes to issue around $250 million later this year, according to Deputy Finance Ministry Domingo Latorraca, while El Salvador's Finance Ministry has set either June or July as the date for its bond sale.

Analysts put the El Salvador offer at some $300 million. There will be takers for debt, analysts say, despite rising fiscal deficits in the four countries, as investors look for higher yields and assume more risk.

Yields are around 7 percent to 9 percent on Central American bonds, seen as medium risk, compared with 3 percent to 4 percent on dependable U.S Treasuries.

"Central America looks good in the context of Latin America right now. The majority of countries in the region have a negative outlook," said Richard Francis, sovereign risk specialist at ratings agency Standard & Poor's.

A five-week-old general strike has brought Venezuela's economy to a halt, while Argentina appears hard pressed to prepare for elections in April amid economic malaise.

Uncertainty in Brazil over the direction of the new government makes the relative stability of Central America look attractive. This for a region that in the 1980s was known more for its civil wars and death squads than its credit ratings.

Mexico debt, however, remains in high demand. On Thursday Mexico milked market optimism, doubling a planned sovereign bond sale to $2 billion.

According to Rafael Barraza, former president of El Salvador's Central Bank, Central America should benefit from the pick-up of the U.S economy in 2003.

"Negotiations for a free trade pact between Central America and the U.S. will also give investors confidence," Barraza said. The United States and five Central American nations, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, launched free trade talks on Wednesday.

PAST SUCCESSES Central American issuers are also riding on the back of last year's success, analysts say.

In April, El Salvador sold $500 million in 30-year international bonds, the first Central American country to issue a 30-year bond. El Salvador again went to market in July, issuing $300 million in nine-year bonds.

El Salvador is one of Latin America's few investment grade issuers. Fitch and Moody's both rate it investment grade, but not Standard & Poor's, which rates it BB, giving the same rating to Costa Rica, Guatemala and Panama.

The popularity of Central American debt may not last beyond 2003, however.

Still seen as an exotic credit popular for its scarcity value, continued issues of the region's debt could damage that image and snap off demand, analysts say.

Typically the bonds make up around 1 percent of a fund manager's portfolio.

"The more that issuers sell, the more closely investors pay (attention) to economic fundamentals. Looking carefully at Central America could scare off some buyers," said Francis Rodilosso, who oversees $200 million for hedge fund Van Eck Capital.

Costa Rica is currently running a budget deficit of 4.4 percent of gross domestic product, while El Salvador has a fiscal gap of 3.3 percent.

Panama recently disappointed investors with a weak tax reform, bringing in only half of the $120 million initially projected. Guatemala is struggling with the three-year-old collapse in world coffee prices, dealing a severe blow to its export base.

Copyright 2003, Reuters News Service

www.austin360.com

WASHINGTON (AP)--The Bush administration on Friday called on the international community for help resolving the five-week strike in Venezuela which is crippling oil exports, promoting violence and threatening the stability of the government of President Hugo Chavez.

``The severe damage being caused to Venezuela's economy, as well as the increasing likelihood of violence and civil conflict, requires a solution,'' said White House press secretary Ari Fleischer.

``U.S. policy continues to support Secretary General Gaviria's efforts in Caracas to facilitate a dialogue between both sides that leads to a peaceful, democratic, constitutional and electoral solution to Venezuela's crisis,'' he said.

The administration is working with the Organization of American States and member nations to explore ways to peacefully end the standoff between the Chavez government and its opponents, he said, noting that OAS Secretary General Cesar Gaviria has been quietly discussing options with other OAS states, including formation of a Friends of Venezuela'' group to help the Venezuelans find a solution.''

The Washington Post reported in Friday editions that the United States was putting aside its reluctance to get involved in Venezuela's internal affairs and readying an initiative to form a group of nations to try to end the deadlock.

The initiative may be rolled out next week, the newspaper said. It said the proposal's immediate goal would be to end the opposition-organized strike. The group would seek to develop a compromise calling for early Venezuelan elections and building on OAS mediation efforts already under way, the newspaper said.

``Secretary General Gaviria has been quietly consulting with OAS members on other possible initiatives, including the idea of Friends of Venezuela group, which might serve to strengthen his central efforts to help Venezuela to find a solution to this problem,'' Fleischer said.

``We have been and are working closely with Secretary General Gaviria and hemispheric partners to engage diplomatically under the OAS umbrella in support of Gaviria,'' he said. .

Earlier he stressed that the diplomatic effort is in the early stages'' and that an electoral solution is the direction the United States sees.''

The strike has paralyzed the Venezuelan economy and brought its vital oil industry--a top U.S. supplier and once the world's fifth-largest exporter--to a virtual halt.