ogj.pennnet.com Maureen Lorenzetti Washington Editor

WASHINGTON, DC, Jan. 14 -- New York state Jan. 6 formally asked 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 .

"In order to continue with the progress already being made in reference to the removal of MTBE contamination, New York wants to remove the minimum oxygen requirement in RFG," wrote New York Department of Environmental Conservation Commissioner Erin Crotty to EPA Administrator Christine Whitman.

Crotty said that New York is concerned that smog levels may increase if fuel suppliers are forced to replace MTBE with ethanol to meet the oxygen standard.

The commissioner also cited ethanol transport as an additional burden to suppliers. She said that regional clean air officials estimate that transporting 22.9 million bbl/year of ethanol to New York and surrounding Northeast states could require as many as 34,000 miles of barge travel and as many as 3 million miles of truck travel.

History In June 2001, EPA rejected California's petition to obtain a waiver of the 2wt % oxygen requirement for RFG.

Both New York and California next year are banning MTBE because of groundwater contamination concerns. Connecticut has an MTBE ban that will take effect in October. Washington state's ban is also scheduled for this year. An earlier MTBE ban in Arizona expired in 2001. Five other states— Colorado, Nebraska, South Dakota, Minnesota, and Iowa—already have bans on MTBE. Meanwhile, Kansas, Illinois, and Indiana, like California and New York, have bans that will activate in 2004. 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 vs. EPA, which struck down EPA's 1994 attempt to impose a nationwide ethanol mandate in RFG.

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

Ethanol suppliers meanwhile say there will be enough product to replace MTBE and that EPA should reject New York's waiver request.

"We would oppose the waiver because the only way EPA can grant a waiver is if it determines in this case ethanol blends would prevent New York from meeting air quality (standards) and that's not accurate," said Monte Shaw, a spokesman for the Renewable Fuels Association.

California picture According to the California Energy Commission, most refiners in that state have started early MTBE phase-outs. ConocoPhillips, they said, has already been producing the majority of its gasoline for blending with ethanol. Royal Dutch/Shell Group, ExxonMobil Corp., BP PLC, and Kern Oil Co. earlier said they planned to stop blending MTBE and switch to ethanol a year before the current Dec. 31 deadline.

Meanwhile, ChevronTexaco Corp. announced this week that it would be producing gasoline with ethanol in Southern California. Valero Marketing & Supply Co., Tesoro Refining & Marketing Co., and ChevronTexaco in Northern California are the only refiners who have decided to adhere to the governor's revised phase-out date, although limited production of gasoline for blending with ethanol may occur, CEC said.

Ethanol marketers say shipments began arriving in December, and production of a specially tailored California clean fuel is already under way at 9 of the 13 refineries that produce RFG. CEC says that 60-70% of the state's gasoline production is expected to contain ethanol by the end of January, which would represent an ethanol demand of 37,000-43,000 b/d.

MTBE bans 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, more than 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.

Contact Maureen Lorenzetti at Maureenl@ogjonline.com.

www.forbes.com Reuters, 01.14.03, 4:00 PM ET

(The following statement was released by the rating agency) NEW YORK, Jan 14 - Standard & Poor's Ratings Services today further downgraded its ratings on U.S. refining and marketing company PDV America Inc. and its indirect, wholly-owned subsidiary CITGO Petroleum Corp. The ratings remain on CreditWatch with negative implications where they were placed on Dec. 10, 2002.

Tulsa, Okla.-based PDV America has approximately $2 billion in debt and capital lease obligations outstanding.

"The ratings downgrade reflects the deterioration in PDV America's credit quality as a result of the crippling of the oil export capacity of its ultimate parent, Petroleos de Venezuela S.A. (PDVSA), the national oil company of Venezuela," said Standard & Poor's credit analyst Bruce Schwartz.

As its crude oil production has fallen from about 2.8 million barrels per day to less than 500,000 barrels per day, PDVSA has declared force majeure on crude supply arrangements with CITGO that contain margin stabilization provisions that fortify CITGO's credit quality. (CITGO purchased about half of its crude oil under these arrangements.)

The reduced volume of crude supplied under these contracts is diminishing the profitability and cash flow generation of CITGO's refineries by forcing it to refine alternate crude oils that have less attractive margins. Crude runs, to date, have not been affected at CITGO Lake Charles and Corpus Christ refineries, although runs at its Lyondell-CITGO joint venture have been cut.

In addition, the purchasing of alternate supplies is increasing working capital requirements at CITGO because the trade credit terms on open market purchases are worse than those on purchases under its crude supply agreements with PDVSA. Given the nature of the political conflict within Venezuela and the capital and lead times required for PDVSA to restore PDVSA's crude oil production, Standard & Poor's believes that crude shipments may not normalize for some time. Furthermore, CITGO's working capital requirements could increase in the interim if oil prices were to rise due to events surrounding a likely war with Iraq.

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions.

Standard & Poor's will be hosting a seminar titled, "Determining Corporate Credit Quality in a Volatile Environment," on Feb. 2-4, 2003, at the Grand Floridian Resort & Spa, Orlando, Fla. Standard & Poor's senior analysts and invited industry leaders from the corporate, banking, and investment communities will discuss trends and current issues related to corporate credit quality.

www.sabcnews.com January 14, 2003, 23:00

Hugo Chavez, the President of Venezuela Six people, including four children, were killed in Venezuela today in the explosion of a family's gasoline cache, apparently stockpiled because a nationwide work stoppage has disrupted fuel supplies, officials said.

Four children between the ages of 9 and 15 were among those who died in the explosion in the western Andean state of Merida, Luis Martin, the state governor's secretary, told local radio. Four men and a woman were also injured. Martin said they suffered second-degree burns on 90% of their bodies.

Many Venezuelans have started storing gasoline in their homes to offset shortages caused by the 6-week-old strike called by opposition leaders to press leftist President Hugo Chavez to resign and hold early elections.

The shutdown has crippled vital oil production and exports, causing an unprecedented scarcity of gasoline in the world's No. 5 petroleum exporter. Long lines of cars and trucks have formed daily at gas stations around the country and authorities have prohibited the sale of gasoline in containers. - Reuters

news.ft.com By Kevin Morrison and Adrienne Roberts Published: January 14 2003 20:01 | Last Updated: January 14 2003 21:09

Oil futures prices in London hit their highest since October 2000 after United Nations weapons inspectors said they had proof of weapons-related smuggling.

IPE Brent crude jumped by about $1 to $31.25 after Hans Blix, the chief UN weapons inspector, said in a BBC interview late on Monday that his teams had found evidence of Iraqi smuggling in violation of UN resolutions.

Comments by Jack Straw, UK foreign secretary, that war on Iraq might not need a new UN resolution, added to the oil price momentum.

Late in London Brent was up 41 cents at $30.61 a barrel. By the close in New York, February WTI was 11 cents higher at $32.37 after an earlier high of $32.90.

Nickel prices hit their highest in more than two years on fears that mine closures might cause supply shortages.

The base metal's price rose to $8,105 a tonne in early trade on the London Metal Exchange, a point not seen since October 2000, but slipped back to end at $7,920, compared with Monday's close of $8,010.

The nickel price rose more than 30 per cent last year, compared with gold's 24 per cent jump.

Political instability in both Zimbabwe and Venezuela is seen having an impact on potential nickel production.

Anglo American has warned that it may close its nickel operations in Zimbabwe after export earnings were slashed following the government's harsh 2003 budget measures.

Canadian miner Falconbridge has said the lack of crude oil due to the Venezuelan oil workers' strike has caused it to cut back production at its nickel plant on the Caribbean island Dominican Republic.

The Venezuelan strike has also affected output at Anglo American's nickel mine Lomo de Niquel.

There are concerns over the timing of new nickel mines coming on stream.

"There has been talk that we could see a situation where existing supply is tight and there is no new supply for some time," said Jim Lennon, base metals analyst at Macquarie Bank.

"And that could provide the grounds for a repeat of the price run in 1988/89 when it hit $13,000 a tonne," he added.

www.cbc.ca Last Updated Tue, 14 Jan 2003 17:54:13

CARACAS - Soldiers have taken some weapons from police in Caracas, where the force is loyal to a mayor opposed to embattled Venezuelan President Hugo Chavez.

The army seized submachine-guns and anti-riot rifles that can fire rubber bullets and tear gas early Tuesday, but left the officers' pistols, said Cmdr. Freddy Torres, the department's legal consultant.

Venezuelan soldier (AP Photo-File)Chavez had complained that the 9,000-member force suppressed pro-government demonstrations.

He threatened to take over the department after government officials accused the police of killing two government supporters during a demonstration. The investigation is continuing.

Critics said it was an effort to reduce the power of Mayor Alfredo Pena, who backs the groups which have disrupted Venezuela in their fight with Chavez.

Opposition parties, unions and business leaders called a general strike – now 44 days old – to force Chavez to resign or call early elections.

Chavez is resisting the pressure, and on Monday, Energy and Mines Minister Rafael Ramirez said the strikers are committing "acts of terrorism."

Many stores and schools are closed, and the state-owned oil company has been forced to slash production, costing the country tax revenue and foreign exchange.

Chavez told the army to take over police stations in Caracas in November, but the Supreme Court later overturned the order.