www.theage.com.au Saturday 11 January 2003, 12:05PM

Oil-rich Venezuela again ran out of petrol, further stoking tension as bank employees walked off the job for a second day in support of a 40-day-old strike that has throttled the petroleum sector.

The potentially explosive crisis has caused international concern, notably on oil markets, and US authorities said they were considering new initiatives aimed at breaking the deadlock between the government and the opposition.

The strike has mainly targeted the vital oil sector, crippling crude output, processing and shipments, and forced the world's fifth-largest petroleum exporter to import petrol.

The imports helped ease critical shortages for about a week, but huge lines again formed outside Caracas service stations, even though many ran out of petrol and new deliveries were uncertain.

Banks and supermarkets also shut down for a second day running, in a move that mainly affected the eastern areas of Caracas, considered a stronghold of the opposition that is seeking to force President Hugo Chavez from office.   Numerous schools also were closed, which the United Nations Children's Fund (UNICEF) denounced as a violation of children's right to education.

The crisis has also been marked by a series of violent incidents, including the use of firearms during clashes between supporters and foes of the leftist-populist president that left two people dead and dozens injured so far this year.

A fragmentation grenade was reportedly hurled at the residence of the Algerian ambassador after the North African country agreed to help Chavez restart the crippled oil industry.

The attack coincided with reports that Algerian technicians had arrived in the Paraguana refinery complex, the world's largest and among the installations severely affected by the strike.

Because it cut petroleum exports to a trickle, the strike has sent oil prices soaring in recent weeks, causing serious concern in the United States, which prepared for possible war with Iraq.

ogj.pennnet.com Maureen Lorenzetti Washington Editor

WASHINGTON, DC, Jan. 10 -- New York state is expected to formally ask the US Environmental Protection Agency to waive a federal clean air rule that requires fuel suppliers to sell reformulated gasoline (RFG) with an oxygenate, typically ethanol or methyl tertiary butyl ether (MTBE), sources familiar with the request said.

In June 2001, EPA rejected California's petition to obtain a waiver of the 2 wt % oxygen requirement for reformulated gasoline. A source familiar with the waiver request said that New York's argument this week will be that an oxygen-free clean fuel is a better way to stop smog than using a fuel that contains ethanol. Both New York and California are banning MTBE because of groundwater contamination concerns next year. Connecticut, meanwhile, has a ban on MTBE that takes effect this October. Washington state's ban is also scheduled for this year. An earlier MTBE ban in Arizona expired in 2001. Five other states, including Colorado, Nebraska, South Dakota, Minnesota, and Iowa already have bans on MTBE. Meanwhile, Kansas, Illinois, and Indiana have bans that take place in 2004 like California and New York. And by 2006, a total of 16 states plan to have bans in place, according to American Petroleum Institute data.

EPA rejection Shortly after EPA rejected California's request, the state filed a lawsuit against the agency. The National Petrochemical & Refiners Association also filed an amicus brief in support of California.

NPRA's brief says that the "real-world impact" of EPA's decision to deny the California waiver request "is to establish an ethanol mandate for RFG within California. NPRA officials also reminded the court of the decision in API and NPRA v. EPA, which struck down EPA's 1994 attempt to impose a nationwide ethanol mandate in reformulated gasoline.

New York state officials did not respond to a request for comment on the waiver request.

Fuel suppliers in both the Northeast and California have told EPA they are worried about the impact of MTBE bans on fuel supply if they must use ethanol to comply with current clean fuel rules.

MTBE bans effect A recent API analysis shows that current and anticipated state MTBE bans could put undue pressures on fuel delivery systems in the coming years, creating temporary fuel shortages and price spikes. Barring a legislative fix by Congress or a change of heart by EPA, over half of the estimated 159,000 b/d of ethanol production (2.7 billion gal/year) will have to be shipped to either coast later this year.

Currently, the Midwest uses nearly all of that capacity, according to API. Without that ethanol volume, Midwest refiners will have to replace missing barrels in a market that could be facing other supply pressures because of disruptions in Venezuela and Iraq.

Suppliers are hoping that, given the unsettled short-term nature of world oil markets these days, the White House may step in and encourage EPA to reverse itself on California and allow Northeast states the same flexibility. California fuel marketers recently urged the agency to consider allowing them to use both MTBE and ethanol in fuel for an unspecified period while the state makes the transition to all ethanol-blended RFG.

ogj.pennnet.com Sam Fletcher OGJ Senior Writer

HOUSTON, Jan.10 -- A panel of former executive and technical employees of Petroleos de Venezuela SA (PDVSA) said Friday they are struggling to prevent Venezuelan President Hugo Chávez from taking over the state-owned oil company to "gain control of Venezuela's economy."

PDVSA generates more than 50% of the revenue received by the Venezuelan government and accounts for 20% of the Venezuela's gross national product, said Luis Pacheco, an engineer and planning director at PDVSA before being named president of PDVSA's US operations late last year (OGJ Online, Sept. 23, 2002).

In a US telephone conference call Friday, he and other former PDVSA officials claimed Chávez's administration faces a severe financial crunch over the next few months as the cash flow from foreign sales of Venezuelan oil and petroleum products dries up.

PDVSA's oil production has fallen to 340,000 b/d from 3.2 million b/d since the Dec. 2 start of a general strike in that country, aimed at forcing Chávez from power.

"Half of that is produced by third-party licensees and half by our own effort," said another panel member who was among some 800 PDVSA employees fired for participating in the strike. PDVSA workers still on the job also are producing 880 MMcfd of natural gas to supply electric power generators in Venzuela, but the company's refining and petrochemical operations remain virtually paralyzed, panel members said.

They disputed claims by Chávez and members of his administration that PDVSA will return to full production within 30-45 days.

It would take at least 2 months for PDVSA to regain 50% of its November production level and 3 months to reach 90%, based on the "fundamental premise of the right people (remaining) in the right places, and that we can restore the normality of our situation," panel members said.

Ciro Izarra, former manager of downstream international commerce for PDVSA, said "all but one" of the company's refineries are closed, while the domestic "distribution system for gasoline and diesel has virtually collapsed." Recovery of PDVSA's refining operations "depends on experienced people," he said. "With no (interim) maintenance, it could take awhile to restore."

Cut off from access to PDVSA facilities, panel members could not say if Chávez has succeeded in recruiting foreign specialists to replace any PDVSA workers, nor could they confirm reports of increased accidents at PDVSA facilities.

However, one said, "I'm sure the number of incidents has increased 1,000% in the last month" as the government has brought in unskilled workers and military personnel to reactivate PDVSA facilities.

However, Petroleumworld.com published on the internet a photograph of smoke billowing from a 130,000 b/d, reportedly resulting from damage to a seal in a vacuum unit as unskilled workers tried to bring that unit on stream. It also reported Rafael Ramirez, Venezuela's energy minister, denied claims by dissident workers that 31 accidents had occurred in the past 6 weeks as a result of operational failures.

Petroleumworld.com said local television stations reported 13 oil spills at Lake Maracaibo in Western Venezuela as unskilled workers tried to increase oil production.

Meanwhile, the panel of former PDVSA employees said there is no merit to new government plans to split the state oil company into two operational divisions, one controlling oil and gas activities in the eastern part of Venezuela and the other handling operations in the western part of the country.

"It's a back-of-the-envelope plan for political expediency. There's no rationale whatsoever for such a move," Pacheco said.

Since his election as president of Venezuela in 1998, Chávez has focused attacks on PDVSA and its employees, Pacheco said. As a result, he said, five boards of directors and six company presidents have rotated through PDVSA executive offices in the last few years.

Pushed to "a breaking point" in April 2002 when Chávez attempted to replace the company's professional executives with political allies, PDVSA employees "took to the streets," where they were joined by other opponents.

Chávez briefly was ousted as a result and promised on his return to office to work with PDVSA executives in the future.

Pacheco and other panel members said they are willing to abide by any democratic decision reflecting the will of Venezuelans in the current crisis. But they rejected a suggestion that other South American countries might align with the Chávez administration to press for an end to the strike.

"This is an internal issue to be decided by Venezuelans," Pacheco said.

Contact Sam Fletcher at samf@ogjonline.com

www.forbes.com Reuters, 01.10.03, 5:57 PM ET By Erwin Seba

HOUSTON, Jan 10 (Reuters) - Lyondell-Citgo Refining LP is laying off contract workers at its Houston plant and preparing further cuts as it operates at 50 percent of capacity because of a shortage of crude supplies from strike torn Venezuela, sources familiar with refinery operations said on Friday.

Lyondell-Citgo executives and officials of the union representing workers at the plant are scheduled to meet on Monday to discuss effects of the 40-day-old strike in Venezuela on plant operations, the sources said. Venezuela normally supplies about 13 percent of the United States' crude imports.

The cuts were directly related to the lack of supplies from Venezuela, the world's No. 5 crude exporter, the sources said. A Lyondell-Citgo spokeswoman did not return calls from Reuters. It is unlikely layoffs of union workers will be discussed at Monday's meeting between refinery executives and leaders from Local 4-227 of the Paper, Allied-Industrial, Chemical and Energy Workers International Union, one source said, but cancellation of bonus pay and other financial benefits may be discussed.

Officials of PACE Local 4-227 declined to comment on operations at the plant.

The national agreement between PACE and refining companies carries assurances of job security for union members while a refinery is operating.

The refinery, which has a crude oil processing capacity of 270,000 barrels per day (bpd), halved its production late last month because the supply of sour crude oil from Venezuela has been cut off by the general strike in that country.

The refinery has crude oil supplies to run at 50 percent capacity through the end of February, the sources said.

Late February may be a critical time for the refinery if the flow of sour crude from Venezuela does not resume, the sources said. They declined to say what options refinery executives have to cut costs after releasing 300 to 400 contract workers from the plant. They specifically would not comment on a possible shutdown of the plant or layoffs of union workers.

One source did say late February would at time for "hard decisions" if the flow of oil from Venezuela has not resumed. The refinery, located in the industrial section of east Houston along the Houston Ship Channel, is the hardest hit in the United States by the ongoing pollical crisis in Venezuela because one of its crude units is specifically configured to handle the sour crude oil produced from Venezuelan fields. That crude unit accounts for half the plant's crude oil throughput.

No replacement crude has been found that can successfully run in that unit, sources have told Reuters.

That crude unit has been idled and is undergoing minor overhaul work, sources said. It can be restarted in about five days, they said. Lyondell-Citgo Refining LP is a joint venture between Lyondell Chemical Co. (nyse: LYO - news - people) and Citgo Petroleum Corp. Citgo is an indirect, wholly owned subsidiary of the Venezuelan state oil company, Petroleos de Venezuela SA (PDVSA).

english.eastday.com

OPEC is poised to approve a plan for a Saudi Arabia-led increase in oil production to end shortages caused by a strike in Venezuela and to lower prices from around US$30 a barrel, analysts said.

OPEC probably will add between 1 million and 1.5 million barrels a day to its output quota of 23 million to get prices back to its target of US$22 to US$28, analysts said. That move won't fill the loss of 2.3 million barrels a day from Venezuela.

Just a month after agreeing to cut supply, the Organization of Petroleum Exporting Countries is changing course. Concern for Venezuela's crippled oil industry and a possible U.S. war with Iraq sent oil prices up 44 percent in London last year, the second-largest gain of the past two decades.

"Current prices are seen as a problem, and Saudi Arabia is prepared to throw oil at that problem," said Paul Horsnell, head of energy research at J.P. Morgan Chase & Co. in London, who expects OPEC to raise quotas by 1.2 million barrels. OPEC holds almost 80 percent of oil reserves and pumps only a third of global supply.

Tomorrow's meeting will be OPEC's second in a month. In phone calls between the group's representatives, Saudi Arabia, the world's largest producer, failed to convince other members to agree to boost quotas by 1.5 million to 2 million barrels a day.

Oil importers from the U.S. to India, Asia's fourth-largest consumer, are lobbying OPEC to pump more oil. Rising energy prices lead to higher costs for airlines such as AMR Corp.'s American Airlines and increase gasoline and heating bills, which may undermine growth in the world economy.

Concerned rising oil costs may spur development of competing forms of energy, OPEC has agreed to consider increasing output when oil prices stay above the target for 20 consecutive days, based on a benchmark index of seven types of crude oil. OPEC's benchmark price was US$29.51 yesterday, the 17th trading day above the range, meaning the accord may be triggered on January 14.

In Vienna on December 12, the 11-nation OPEC set a two-pronged strategy to curb overproduction and avoid a price decline later this year. To bring members closer to the quota, the group raised the daily output target to 23 million barrels while pledging to cut supplies by as much as 1.7 million barrels a day.

Because members other than Venezuela are cheating on quotas, tomorrow's expected announcement may not result in as much supply as promised. Also, some members, such as Indonesia and Kuwait, already are pumping as much as they can, analysts said.

"It's not going to result in many more barrels than in December," said Lawrence Eagles, head of commodities research at GNI Ltd.

"It will depend on how much more Saudi Arabia is prepared to supply."

OPEC will distribute any production increase on a pro-rata basis, based on members' current quotas, even though Venezuela can't meet its share, said OPEC President Abdullah bin Hamad al- Attiyah, who is also Qatar's oil minister, in New Delhi.

Saudi economist Ihsan Buhulaiga, a member of a council that advises the kingdom's government, said he expects an increase of 1.5 million barrels a day.

"My biggest worry is that an increase of this size could cause a glut and a price crash later in the year," Buhulaiga said. The move "will most likely push prices down to close to US$25 a barrel," he said.