www.voanews.com VOA News 12 Jan 2003, 12:51 UTC

Leading oil producer Saudi Arabia says there is no oil shortage on world markets because of the ongoing labor unrest in Venezuela.

Speaking after an emergency meeting of OPEC ministers in Vienna, Saudi Oil Minister Ali al-Naimi said the 11-nation cartel would not allow a global shortage to occur.

OPEC officials say the cartel already has taken steps to offset the production shortfall of two million barrels a day by Venezuela, which is the world's fifth largest oil producer, where a six-week-old strike has crippled oil exports.

However, Mr. al-Naimi ruled out raising the carter's overall production limit of 23 million barrels a day, saying an increase would flood the world oil market.

The Organization of Petroleum Exporting Countries convened Sunday's meeting, saying it wants to prevent disruptions in global oil supplies because of the strike in Venezuela and the possibility of war in Iraq, which also is an OPEC member.

Global oil prices last week shot up to a two-year high of $33 per barrel, well above OPEC's target range of $22-28 per barrel.

The United States has been urging the cartel to boost production to offset disruptions in Venezuela's oil exports.

Before its labor troubles, the South American nation was supplying 13 percent of U.S. oil imports. Oil production in Venezuela has fallen to virtually nothing since a general strike against the country's president, Hugo Chavez, began six weeks ago.

Algeria, Indonesia, Saudi Arabia, Nigeria, Libya, Iraq, Iran, Kuwait, United Arab Emirates, Venezuela and Qatar make up OPEC.

Some information for this report provided by AP, AFP and Reuters.

santafenewmexican.com Associated Press 01/12/2003

VIENNA, Austria—OPEC representatives arriving for an emergency meeting on oil production sought to reassure markets Saturday that the producers' cartel would supply enough crude to offset a shortfall in exports from Venezuela.

Delegates of the Organization of Petroleum Exporting Countries will consider increasing their official output of 23 million barrels a day by up to 6.5 percent when they meet today at group headquarters here.

OPEC called the meeting last week hoping to calm fears of a supply crunch caused by the ongoing strike in Venezuela. The strike, launched Dec. 2 by political opponents seeking to oust President Hugo Chávez, has slashed the country's exports by about 2 million barrels a day. Venezuela is the world's fifth-largest exporter and a major oil supplier to the United States.

Concerns about a possible U.S.-led war against Iraq have added pressure to world oil prices. Iraq has the second-biggest oil reserves after Saudi Arabia and there has been a steady buildup of American troops in the Persian Gulf.

Crude prices surged in recent weeks but fell sharply in anticipation of OPEC boosting production by up to 1.5 million barrels a day. OPEC pumps about a third of the world's crude supplies, which total about 79 million barrels a day.

"There will be no shortage of oil in the market. There will be no missing barrels," Saudi Arabian Oil Minister Ali Naimi said while arriving at his Vienna hotel.

Saudi Arabia is OPEC's most influential member and accounts for the bulk of the group's spare-production capacity.

An OPEC source said recently the Saudis were proposing to increase the group's daily output by 1.5 million barrels. Other members, including Algeria and Libya, favor a smaller increase of 1 million barrels.

"We have to see what quantity is required," said Obaid bin Saif Al-Nasseri, oil minister for the United Arab Emirates, speaking to reporters.

OPEC President Abdullah bin Hamad Al Attiyah acknowledged that the six-week strike that has crippled Venezuela's state-run oil monopoly has caused "a little bit of a shortage," but he refused to predict how much oil OPEC might add to the market to compensate.

"I've heard a lot of scenarios, a lot of numbers, but still we haven't reached the magic number," he said.

Naimi said he wanted to see the price of crude "less than what it is today."

Any increase would take effect Feb. 1, Al Attiyah said. That means American importers would not see any fresh crude until at least mid-March since Saudi shipments take at least 40 days to reach U.S. ports.

Some analysts argue that OPEC already is overshooting its new output target, set in December, and that any official increase would simply legitimize this overproduction.

A decision to increase output would mark an abrupt reversal of OPEC policy. The cartel's members decided just a month ago in Vienna to trim output by as much as 1.7 million barrels a day. The suddenness of OPEC's decision to call this meeting reflects its surprise at the deterioration in market conditions.

Saudi Arabia stands to gain the most from any production increase. Some OPEC members, including Indonesia, already are producing at or near capacity.

"This is an opportunity for Saudi (Arabia) to show that it is still a very valuable friend of the (United States)," said Raad Alkadiri, an analyst with The Petroleum Finance Co. in Washington.

www.sfgate.com David Armstrong, Chronicle Staff Writer Sunday, January 12, 2003

When Hewlett-Packard's wholly owned subsidiary in Chile imports office equipment from the parent company, such as HP printers, it must pay a 6 percent Chilean import duty.

That fee will disappear if a proposed free-trade agreement between the United States and Chile becomes law, as expected.

That, in turn, could help HP Chile lower its operating costs and grab market share from Canadian and Japanese companies that already benefit from their countries' free-trade agreement with Chile, said HP Chile's marketing manager, Axel Heilenkotter.

In time, Heilenkotter said, the free-trade agreement could create such favorable business conditions that the Palo Alto company might set up manufacturing operations in Chile, a small but entrepreneurial South American nation in whose capital, Santiago, HP employs 200 people at a sales and marketing complex.

The pact now goes before the congresses of both countries for ratification. In the United States, Congress can vote either for or against the deal, but cannot amend it under terms of trade promotion authority narrowly granted to President Bush last year.

Supporters of the agreement maintain that it will create a level playing field for business. Skeptics fear that U.S. producers will be undercut by cheap Chilean imports and the South American nation's skirting of U.S. labor and environmental laws.

If implemented, the trade deal will be Washington's first such agreement with a South American country. It would make Chile the fifth nation to join the United States in a tariff- and quota-slashing trade pact, after Canada, Mexico, Israel and Jordan.

The United States also has reached tentative agreement on a free-trade pact with Singapore.

On Wednesday, U.S. Trade Representative Robert Zoellick announced that Washington will open talks with five Caribbean nations, to forge a trade deal with them. Two days later, Zoellick said he will meet trade ministers from five southern African countries this week with an eye toward creating a regional free-trade area there.

The pact with Chile could serve as a stepping-stone for even more ambitious projects such as the proposed Free Trade Area of the Americas, an idea ardently supported by Bush. It would encompass every country in the Western Hemisphere except Fidel Castro's Cuba, in a huge region devoid of tariffs, quotas and other trade barriers.

Chile's ambassador to Washington, former central banker Andres Bianchi, helped negotiate the deal with the United States, which as Chile's largest trading partner accounts for 18 percent of Chilean trade.

Bianchi said in an interview that he is convinced the agreement will benefit both nations, and that its significance goes beyond its immediate worth in dollars and cents.

"The real value is the message that it sends to the rest of Latin America," Bianchi said. "The message is that countries that pursue sound monetary and economic policies, that are open, that are democratic, those countries are accepted into the club."

Bianchi said failure to pass the agreement could strengthen the populist backlash reflected recently in the election of left-leaning leaders in Brazil and Venezuela.

Chile emerged in 1989 from a bloody military dictatorship led by Gen. Augusto Pinochet. Since then, it gradually has rebuilt democratic institutions and embraced freewheeling capitalism, which the government says has reduced the number of Chileans living in poverty from 45 percent to 20 percent of the population.

In addition, Chile has enjoyed government budgetary surpluses in 14 of the past 15 years and earns high marks on international surveys of competitiveness,

transparency and resistance to corruption.

The Chile trade deal has been in the works for some time. First floated as an idea in 1989, it was set aside while Washington crafted NAFTA with Canada and Mexico. Formal talks with Chile finally began in late 2000 and lasted two years.

When the tentative agreement was announced last Dec. 11, Zoellick characterized Chile as "an ideal free-trade partner of the United States because of its sound macroeconomic policies and commitment to free trade."

In the long prelude to negotiations, U.S. businesses were broadly supportive, though some, including California vintners and farmers, fear unfair competition from rivals that pay their workers low wages and receive government subsidies.

Bianchi, though, played down the threat of competition from Chilean farmers and winemakers, noting that because it is in the Southern Hemisphere, Chile is growing produce when it is winter in the United States, while in the summer, U. S. producers could export to Chile.

Lisa Dillabo, an international specialist at the California Farm Bureau, said the Farm Bureau is generally supportive of free trade.

In working out the tentative deal with Chile, however, Dillabo said California farmers demanded that the pact incorporate penalties should Chilean exporters dump products on the U.S. market below cost.

She said California fruit and vegetable growers are vulnerable, but added that the deal could open up opportunities for the state's meat producers.

The Wine Institute, a trade group based in San Francisco that represents U. S. winemakers, expressed reservations about the deal. "We insisted on tough point-of-origin regulations, so companies couldn't just transship their products through Chile to the United States and say they were Chilean and take advantage of the trade agreement," said Gladys Horiuchi, a spokeswoman for the Wine Institute.

U.S. agricultural interests succeeded in getting a 12-year delay for the elimination of tariffs on farm goods. Tariffs on most nonfarm goods are either dropped the day the trade deal becomes law or expire after four years.

Lon Hatamiya, secretary of California's Technology, Trade and Commerce Agency, said he thinks the Chilean trade pact eventually will prove to be a good deal for California's farmers, whom he characterized as highly productive and competitive.

Chile, ranked 32nd among the state's export markets, is not a big country, Hatamiya noted, but certain sectors of the Chilean economy could be profitable for California exporters, he said.

The state's manufacturers, he said, should benefit, noting that Chile, which has a large mining industry, needs to buy heavy equipment for mining and for environmental cleanup, fields in which California companies are world leaders.

U.S. high-tech firms largely support the deal with Chile, said Tim Bennett, senior vice president for international affairs with AEA (formerly the American Electronics Association).

"The size of their market is not huge," Bennett said of Chile. "However, Chile is probably the most advanced and open economy in South America. We think this will have some symbolic effect, and that it will stimulate a move toward the Free Trade Area of the Americas."

Chile, with 60 percent of its gross domestic product generated by exports, strongly supports free trade, said Bianchi, the Chilean ambassador. Chile has trade deals with the European Union and South Korea that should become law this year, he said.

If all goes well, said Bianchi, who follows the machinations of the U.S. Congress from his base in Washington, the agreement could be approved this summer or fall, clearing the way for it to become law Jan. 1, 2004.

U.S.-Chile free trade agreement

The agreement: Trade negotiators announced an agreement between the two nations on Dec. 11. The Chilean pact will be the first for the United States with a South American country. The agreement will be the fourth free-trade agreement that the United States has entered into. The other agreements are the North American Free Trade Agreement (the United States, Canada and Mexico) and bilateral agreements that the United States has with Jordan and Israel.

What will it do? Phase out 85 percent of tariffs within four years and all tariffs in 12 years. Loosens controls on foreign investment and flow of capital. Serve as a model for agreements with other Latin American countries.

What's next: The agreement needs to be ratified by the congresses of both nations. .

Demographics on the two economies:

Chile (flag)

Population: 15 million

Gross domestic product: $153 billion (2001)

Value of exports to the United States: $4.3 billion (2001).

Leading exports to the United States: copper, nitrates, fruit, wine, farm- raised salmon

United States (flag)

Population: 281 million (2000)

Gross domestic product: $10.08 trillion (2001)

Value of exports to Chile: $4.5 billion (2001)

Exports to Chile: autos, computers, construction machinery, paper products, telecom equipment.

California (state flag)

Population: 35 million

Gross state product: $1.3 trillion

Value of exports to Chile: $281 million (2001)

Imports from Chile: fruit (fresh, canned, juice), wine

Exports to Chile: computers, construction equipment, aircraft .

Sources: U.S. Trade Representative's Office, Government of Chile, World Factbook 2002, California Trade, Technology and Commerce Agency, U.S. Census Bureau

E-mail David Armstrong at davidarmstrong@sfchronicle.com.

www.sfgate.com Verne Kopytoff, Chronicle Staff Writer Sunday, January 12, 2003

Chevron knows how to pump oil under pressure. Over the years, the petroleum giant has kept the barrels flowing even in nations besieged by rocket attacks, kidnappings for ransom and corruption.

But the company's usual immunity to local inconvenience has been put to the test in Venezuela, where a riotous general strike has shut down most of the country's economy.

Because of a lack of workers, supplies and ships, ChevronTexaco, headquartered in San Ramon, has significantly curtailed its pumping of oil from three fields in Venezuela, according to analysts. The strike seems to be so protracted, they said, that the company's business there may be blocked for months to come.

But due to the complexities of the global oil market, ChevronTexaco may be financially untouched by the chaos, though it is Venezuela's largest private foreign oil producer. The strike has caused world oil prices to rise, allowing the company to charge more for what it pumps in other places, such as California, Nigeria and Angola.

"While what's going on in Venezuela is reasonably significant for ChevronTexaco, it's not a disaster," said Charles Lucas-Clements, a president in London for IHS Energy, an oil industry consulting firm. "Because of pricing dynamics, ChevronTexaco may in fact be slightly better off."

A spokeswoman for ChevronTexaco declined to comment.

GROUND TO A HALT

The most substantial effect on ChevronTexaco's Venezuelan business has been the closure of the Hamaca field, an expansive project on the nation's eastern plains that normally produces 104,800 barrels a day. The company owns 30 percent of the operation alongside its partners, Phillips Petroleum and the Venezuelan state oil monopoly, Petroleos de Venezuela S.A.

Pumping ground to a halt in Hamaca primarily because of a supply problem, according to a source familiar with ChevronTexaco's affairs. The strike has made it impossible to get deliveries of liquid diluent, which is needed to coax the heavy oil there up to ground level.

2 OTHER FIELDS HOBBLED

ChevronTexaco is having slightly better luck with the two other Venezuelan fields it oversees. They are operational, according to the source familiar with the company's business, though analysts suspect the output is a dribble compared with what it was before the strike.

One of the fields is LL-652, of which ChevronTexaco is a 27 percent owner. It normally produces 4,900 barrels a day from the depths of Lake Maracaibo, on the nation's western coast.

The other field is Boscan, on a dry, western savannah, which ChevronTexaco manages as a contractor on behalf of Venezuela's oil monopoly. The field's usual output is 35,000 barrels a day.

ChevronTexaco does not disclose its revenue from Venezuela.

"This kind of wholesale shutdown is very unusual for oil companies," said Lucas-Clements. "You get them occasionally, like in Alaska after an earthquake or because of environmental activism."

WIDESPREAD DISRUPTION

Venezuela normally produces 3.1 million barrels of oil a day and is the world's fifth-largest oil exporter. The government says the total output has fallen since the strike to around 800,000 barrels, though analysts say that figure is inflated and that the real output is between 200,000 and 600,000 barrels.

Virtually all oil companies operating in Venezuela have been affected by the country's unrest. They include ExxonMobil, Shell and British Petroleum.

The current problems began Dec. 2, when Venezuelan workers from an array of industries left their jobs in protest against the foundering economy and the leftist policies of President Hugo Chavez. Among the strikers were many of the state oil monopoly's 35,000 employees.

ECONOMY IN CHAOS

Currently, the two camps are at an impasse marked by huge protests and street clashes. The nation's economy is in shambles from the loss of oil money,

which accounts for nearly 80 percent of the nation's export revenue.

"It's an unfortunate situation," said Fadel Gheit, an analyst for the investment bank Fahnestock & Co., who has no financial ties to ChevronTexaco. "It's obviously hurting Venezuela, but it's hurting the world, too."

American oil companies are the principal buyers of Venezuelan crude. But with the nation's troubles, they have had to look elsewhere for petroleum, pushing the price for a barrel up several dollars to above $30. Just a year ago, a barrel cost half as much.

DOUBLE WHAMMY

The spike is troublesome to U.S. drivers and industry because it comes on top of a so-called war premium already levied on oil. Analysts estimate that concerns about war in Iraq have driven the price for a barrel up an extra $5.

Compared with its global oil output, ChevronTexaco's production in Venezuela is relatively small. Around 150,000 barrels a day are typically pumped from fields where the company operates. But the actual amount the firm owns is much less because it is merely a part-owner in two of the projects and is a contractor in a third.

Globally, ChevronTexaco produced an average of 1.959 million barrels a day in 2001, according to regulatory filings.

ChevronTexaco's biggest source of oil is actually the United States. It pumped an average of 614,000 barrels a day here, or 31.3 percent of its worldwide total, mostly in California, Louisiana and Texas. Next on the list was Indonesia, with 304,000 barrels a day, or 15.5 percent.

PART OF THE PIE

Oil companies are expected to withstand the troubles in Venezuela with varying degrees of success, depending on whether they produce oil, refine it or sell gasoline. ChevronTexaco engages in all processes, but the company is nonetheless expected to reap a financial windfall, analysts said.

Its production unit, the company's biggest business, will be able to charge more for the oil it drills around the world. The smaller refinery operation may take a hit, however, because it will have to pay more for the oil it buys.

Service station profits will probably be a wash. Gasoline prices may increase 10 cents a gallon in the next three months, according to the Energy Department, but ChevronTexaco will see no extra profits because of increased oil costs, analysts said.

COUNTER-PRODUCTIVE

In the final calculation, analysts agreed that the company will probably come out ahead. But, they added, it is not as if ChevronTexaco executives pray for revolution to erupt somewhere in the world to improve profits.

"The oil companies are enjoying higher prices," Gheit said. "They're not going to say no.

"But too much of a good thing turns out to be bad," he added. "Higher oil prices will hurt economic growth and, at the end of the day, you kill the goose that laid the golden egg." In past crises, consumers have lowered consumption and sought out alternative energy sources.

ChevronTexaco's history in Venezuela has been a love-hate affair, even before the current developments. The company began exploration there in the early 1920s and discovered a big oil field in 1946.

But the company was subsequently kicked out, when Venezuela nationalized its oil industry in the mid-1970s. The company returned in 1996 after the nation's laws were liberalized somewhat.

Now, ChevronTexaco is eager to expand in Venezuela if allowed to do so, analysts said. There is virtually no chance the company will pull out, they said, considering that it has held steadfast in some fairly unstable places over the years.

For example, ChevronTexaco operated in Angola during its long and bloody civil war. It also kept pumping in the Democratic Republic of Congo during its spate of coups, ethnic fighting and political assassination.

"They've been around the block in working in dicey places," said Terry Hallmark, who gives advice about political risk and policy assessment for IHS Energy. "Typically, oil companies are a very hardy breed. Unless something drastic or cataclysmic happens, they are willing to ride it out."

One exception came during the Gulf War. Prior to its merger with Chevron in 2001, Texaco temporarily pulled out of an oil field along the border between Kuwait and Saudi Arabia.

Hallmark said oil companies usually try to balance their risks by operating in relatively secure fields. For example, ChevronTexaco has big operations not only in the United States, but in the United Kingdom, Australia and Canada.

After the strike in Venezuela ends, ChevronTexaco will still have its work cut out for it. Simply getting the fields the company already operates back to full strength could take two months. Analysts said the process would be more complicated than simply flipping a switch back on.

Heavy oil, of the kind found in one field where ChevronTexaco operates, tends to gum up if left idle for too long. Other wells may have to be repressurized.

In any case, the Organization of Petroleum Exporting Countries will meet today to discuss boosting oil output elsewhere in the world. Members hope to scotch fears of an oil shortage created by the loss of production in Venezuela and a potential war in Iraq.

Oil prices have already modestly retreated from their two-year peak of just above $33 in the past couple weeks, to $31.68 on Friday.

If current world problems end, oil prices are expected to decline much further. Venezuela's oil spigot would be open again, while Iraq -- under a new leader -- could potentially expand its fields within a couple of years.

In that scenario, ChevronTexaco's fortunes would probably take a turn for the worse, analysts said. Profits would probably drop and there would be little that executives could do about it.

"When you see a tremendous rise in earnings, it's not because the oil companies got smart," said Gheit, the analyst. "It's because prices were high. But longer term, oil companies know that higher oil prices are unsustainable."

E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.

news.ft.com By Carola Hoyos in Vienna Published: January 12 2003 13:08 | Last Updated: January 12 2003 13:08

Saudia Arabia has so far failed to rally its Opec colleagues around formalising an increase in the cartel’s oil production quota.

Instead Opec members have already begun to informally fill the supply gap left by the shut down of Venezuela’s oil production,  oil ministers said ahead of their meeting to be held in Vienna on Sunday.

Ali Naimi, Saudi Arabia’s oil minister said today: “There is not a shortage [of supply] in the international market, there is only a shortage from Venezuela, probably of two million barrels per day,” he said. “The feeling of 23m b/d, we will leave it.”  

It is still unclear whether Opec will announce new more generous quotas for the nine members who could, at least in theory, help fill the 2-2.5m b/d gap left by a strike against Venezuela’s president which has crippled the country’s oil industry since the beginning of December.

Venezuela’s strike and worries about a possible war in Iraq have driven oil prices to more than $30 per barrel well above Opec’s ideal range of $22-$28.

Opec’s inability to send a strong message to the oil market that it will increase supply will likely dampen any bearish effect on prices that a concrete decision could have had, analysts said.

Much of the increase to fill the hole left by Venezuela has already begun, Opec sources said, but some extra production is still expected to hit the markets in the coming weeks. However incremental barrels from the Middle East would take at least 45 days to reach the US, the market most effected by the loss of Venezuelan exports.

Riyadh, in the past days, had tried to persuade Opec members to increase the cartel’s 23m b/d quota by 1.5-2m b/d, but ran into resistance from countries worried about the seasonal drop in demand in the first two quarters of each year and the subsequent dangers of significant depressed prices if Venezuela’s production was restarted and a US military action against Iraq were delayed. Many producers were also concerned about losing market share to Saudi Arabia, which is the Opec member most able to increase its production.    Venezuela, meanwhile, raised objections over it possibly losing its quota share -- even temporarily -- in spite of the fact that it is unable at this point to meet it.    Ali Rodriguez, head of Petroleos de Venezuela (Pdvsa) Venezuela’s state-owned oil company, said today that the country’s oil output would return to pre-strike levels by the end of February.

“We will give Opec certainty that we will recovery operations... by the end of February,” Mr Rodriguez said. But analysts doubted the validity of the statement saying that the strike showed little sign of coming to an end and even once it did, it would be months before Venezuela could fully restore its production.