www.msnbc.com By Stanley Reed BUSINESSWEEK ONLINE

March 7 — Oil shock. That’s the worry of executives, consumers, and world political leaders alike as the Bush Administration prepares to launch a military campaign to depose Iraqi President Saddam Hussein. For the moment, the energy markets show every sign of giving in to such dread. WITH GLOBAL INVENTORIES reaching dangerously low levels, crude oil approached the feared $40-per-barrel mark in the trading week of Feb. 24-28, while futures markets gyrated in some of the wildest action traders had ever seen. Heating-oil, gasoline, and natural-gas prices in the U.S. also hit near-record highs before falling back a bit. “There has been genuine chaos,” says Peter A. Gignoux, head of the oil desk at Citigroup in London.        Is the chaos justified? Not if you believe this optimistic scenario: After the U.S. delivers a quick knockout blow to Saddam, prices decline swiftly and uncertainty evaporates. A U.S. victory in Iraq would instantly wipe away a war premium of at least $5 per barrel, analysts figure, and prices would drift down further not long after that. Oil prices surge higher        “I personally feel that the price is going to fall,” says Leo P. Drollas, deputy executive director and chief economist of the Center for Global Energy Studies, a London think tank. “The war is going to be short and won’t have much impact in terms of the oil market unless Saddam goes for some outrageously bizarre self-sacrificial act.” ‘A LOT OF IFS’        There’s more roiling the oil markets and driving up prices than the prospect of war, however, which is why the outcome may not unfold quite as smoothly or swiftly as the optimists hope. Supplies are tight, and may get tighter still, for a host of reasons investors may only be dimly aware of. Claude Mandil, director of the International Energy Agency in Paris, which is responsible for making sure consuming countries have adequate energy supplies, ticks them off. First is Venezuela. After a devastating strike, it’s still producing far below its previous output, and it may not come back for months or years, if ever. No. 2 is Nigeria. It’s facing turbulent elections, and violence could spread to the oil fields. Then there’s Japan. The country has shut down some reactors for safety checks and may soon need a lot more oil. “There are a lot of ifs,” says Mandil.        OK, but what about the Saudis and Russians? Aren’t they pumping as fast as they can? They are — but the OPEC members in particular have only been at full speed for about two months, and it’s going to take a while for the crude to work its way through the system. That’s especially true in the U.S., because inventories of crude oil as well as refined products such as heating oil and gasoline are near historic lows. A devastating two-month strike by oil workers in Venezuela and a fiercely cold winter in the U.S. have drained American crude stocks to 270 million barrels — the lowest level since 1975. Refineries in the U.S. are operating at just 89 percent of capacity, below seasonal averages. LITTLE EXCESS        Even in the best circumstances, with the world’s big producers in high gear, it will take months to replenish stocks. And in less-than-ideal circumstances? Well, the global system can’t take too many more shocks. If the war lasts more than a few days, Iraq’s current 2.4 million barrels per day in oil production is likely to evaporate. “There is spare capacity but not much more than Iraqi production,” says Mandil.        Edward L. Morse, executive adviser at Hess Energy Trading Co. LLC, a New York-based energy-trading firm, is more pessimistic. He estimates that the OPEC cartel can only produce 1.1 million barrels more per day than it is already, outside of Iraq and Venezuela. In contrast, OPEC’s spare capacity in July, 1990, before the Iraqis invaded Kuwait, was 5.2 million barrels per day. “Systems with limited capacity have reduced levels of cushion in case of emergency,” says Morse. Because of the tight supply conditions, prices are unlikely to fall as precipitously as they did in January, 1991, when they sank to $18 shortly after the U.S. attacked Iraq. If the war takes unexpected turns, prices could rocket.        No wonder the recent market gyrations have commanded attention from Washington to Riyadh. On Feb. 25, Energy Secretary Spencer Abraham announced that the U.S. “can act quickly” to use the Strategic Petroleum Reserve [SPR] of 599 million barrels “to offset any severe disruptions if it’s needed.” Some analysts expect President Bush to tap the SPR in the early days of a war. “My guess is that when the order comes for the tanks to move, the order will also come to start the oil flowing,” says W. David Montgomery, an energy expert at Charles River Associates Inc. in Washington. But even that may not happen if the war is over quickly and there’s no major supply disruption. Abraham has refused to speculate on the timing of any release. ‘NOT JUST PROPAGANDA’        The Saudis are doing practically all they can to boost supply. They have long railed about the dangers of an attack on Iraq but are now resigned to Saddam’s removal. They are positioning themselves to limit the political damage of a war: That includes a big shift in their approach to oil. For three years, Saudi Petroleum & Minerals Minister Ali Al Naimi cajoled producers inside and outside OPEC to stick to production discipline to keep prices at $25 per barrel. No longer. “We’re contributing a lot, and this is not just propaganda,” says a senior OPEC official in the gulf. “We’re using our production capacity, and we’re pushing OPEC to increase.”        Industry sources say the Saudis are producing from 9 million to 9.5 million barrels per day — the highest level since the Gulf War. Engineers for Saudi Aramco, the world’s largest oil producer, are busily opening up mothballed wells and testing out Saudi oil fields so that the kingdom will be able to sustain output of 10.5 million barrels per day in the event of a war.        Oil-company executives say that while the Saudis are trying to preserve a bit of ammunition for later emergencies, they are willing to sell almost all the oil their customers want. “Anybody who goes and asks for extra barrels will get it,” says one crude buyer. All the big producers welcome the opportunity to fill their coffers. The Saudis are raking in $250 million in oil revenues a day. PIPELINES NEEDED        The Saudis are also loading an estimated 30 million barrels of crude onto their own fleet of tankers and steaming toward Asia and the Caribbean as a buffer against disruption in their fields. Across the rest of the oil world, from Russia to Norway to Mexico, production is also humming. Outside the kingdom, only a few countries — chiefly Kuwait and the United Arab Emirates — have any spare capacity left. Russia could pump more, but a lack of pipelines and other facilities is limiting its exports to just 4 million barrels per day out of total current production of 7.75 million. “It’s important to build new infrastructure — the more the better,” says Eugene Shvidler, president of Russian oil major Sibneft.        Venezuela remains a wild card. State-owned oil company Petroleos de Venezuela (PDVSA) is still reeling from the effects of the recent national strike aimed at forcing Venezuelan President Hugo Chavez to resign. PDVSA managers supported the strike, as did many of the company’s 38,000 workers. Chavez recently fired over a third of them and split the company into two parts to weaken its clout. Some analysts say the outfit has permanently lost some 400,000 barrels per day in capacity because of damage to facilities and mature wells.        It’s now pumping an estimated 1.55 million barrels per day, vs. 2.66 million before the work stoppage — and Venezuela’s turmoil may not be over. As a result, Caracas might not be able to supply the U.S. with oil in an emergency. ” Venezuela is going from being a part of the solution to being a part of the problem,” says Jose Toro Hardy, an ex-director of PDVSA who is now an independent oil analyst in Caracas. EXTENDED CONFUSION        How the markets play out in the short-to-medium term may depend on the release of oil from the SPR and similar stocks in Japan, South Korea, and Germany. Oil-industry sources say the U.S. and other countries could tap worldwide reserves to the tune of 8 million barrels a day — close to all U.S. imports — for three months. But there may be delays in actually marketing the SPR oil, and refineries may have difficulty matching substituted crude to what it is replacing.        Lee R. Raymond, chairman and CEO of Exxon Mobil Corp., told analysts on March 5 that he expects a period of extended confusion in the oil markets after fighting starts, no matter what happens with the SPR. “I wouldn’t suspect there will be clarity on this at all,” he says. “There’ll be a lot of what-ifs and whens.”        Then there’s the danger that war poses to the fields of the Persian Gulf. Alarmists say Kuwait and Saudi Arabia are exposed to an attack from Saddam. Not likely. Anthony H. Cordesman, a gulf military analyst at the Center for Strategic & International Studies in Washington, notes that there are built-in redundancies in the oil installations of the gulf countries. PANIC ATTACK?        If the Iraqis or Osama bin Laden sympathizers, for instance, managed to damage the Saudi Gulf terminal of Ras Tanura, the kingdom could shift oil exports to the safer Red Sea. “Unless Iraq tried a concerted terror attack using virtually all of its remaining missiles and advanced attack aircraft plus large amounts of persistent nerve gas or biological weapons, and had great success, it could not produce a serious cut in oil exports in another gulf state,” says Cordesman.        Still, smaller disruptions are possible. Some tankers may steer clear of the gulf, creating bottlenecks. Or a hit in Kuwait and Saudi Arabia might panic the markets even though no oil is affected. And there’s the chance that Saddam could destroy the Iraqi oil patch himself. If so, it could take years and billions in investment to bring the fields back to what they were. The effects of war may linger for a long time.         Dousing the flames of an Iraqi war    

Anthony Bianco in New York, John Carey in Washington, Christopher Palmeri in Los Angeles, and bureau reports contributed to this story.

www.forbes.com Reuters, 03.07.03, 1:49 PM ET CARACAS, Venezuela, March 7 (Reuters) - Venezuela's foreign-financed Cerro Negro extra-heavy oil project has restarted its synthetic crude processor after a boiler problem shut the unit on Thursday, project partner ExxonMobil Corp. (nyse: XOM - news - people) said on Friday. "Operadora Cerro Negro SA (OCN) informs that its upgrader unit is restarting operations today," said a statement from ExxonMobil, which is partnered with state oil firm Petroleos de Venezuela (PDVSA) in the Cerro Negro joint venture. The upgrader, which has the capacity to process 120,000 barrels per day (bpd) of extra heavy oil from the Orinoco region into 108,000 bpd of light synthetic oil, was shut due to a problem with one of its furnaces, the statement said. Cerro Negro and three other projects which upgrade Orinoco oil are in the process of restarting after being shut by an oil strike started on Dec. 2. The strike, widely supported by PDVSA employees, caused a disruption in the Orinoco projects' natural gas feedstocks from the state oil firm. Cerro Negro, which has been producing about 60,000 bpd of extra heavy crude since it resumed operations in late February, continued pumping oil into storage tanks despite the one-day shutdown at the processor. The four Orinoco projects, which partner PDVSA with international oil firms, had been producing over 400,000 bpd of Venezuela's total output of 3.1 million bpd in November.

www.vheadline.com Posted: Friday, March 07, 2003 By: Oscar Heck

VHeadline.com commentarist Oscar Heck writes: I have been watching more television here in Venezuela in recent days (I got sick of watching it at some point) and must say that finally, Globovision, Venevision, RCTV and Televen, the four privately-owned stations, appear to be reporting quite objectively.

However, their editorial news and commentary programs ... similar to some recent Washington Post, BBC and other USA media articles and editorials ... are still overtly anti-Chavez, pro-USA and manipulative, distorting facts in favor of anti-Chavez bashing ... claiming that Chavez is inciting terrorism, Chavez is a communist, Chavez is allowing infiltration of FARC members, Chavez is a dictator, Chavez must be ousted, Chavez people are sabotaging the refineries, the Chavez government is backing terror cells ... Chavez this and Chavez that.

Their advertising appears back to normal, however they still pass a few opposition sponsored ads (paid for by whom?) calling for people to take to the streets. The next "march" is planned for this coming Saturday, March 7, and the ads include the following calls:

"...all Venezuelans take to the streets... to the highway at Chacao... march against political oppression...against judicial terrorism...for our liberty and for democracy...in support of those who are persecuted for political reasons...you have the right to demand liberty and democracy for your country..."

The more I see of these commercials, the more they appear to contain American-style rhetoric: against terrorism, for liberty, for our country, for democracy, etc. Also, the increase in the use of the word terrorism by opposition people started after the bombings of the Colombian and Spanish embassies/consulates a few days ago. (Note that Chavez has been using the word "terrorism" for weeks ... to describe the opposition's attempt without-conscience at destroying Venezuela ... and in my opinion, correctly so).

For months, the opposition tried (and are still trying) to link Chavez to people such as Saddam Hussein and Khadaffi ... to biological weapons. Now they're trying to link him to the FARC. They also accuse Chavez of being a communist because of his close relations with Fidel Castro, but wasn't Carlos Andres Perez close to Fidel Castro in some way as well?

I speak of these things to bring to view another side of Venezuela.

Expensive restaurants are full, banks are open, some "casas de cambio" are open. Even with all the talk of scarcity of food, it appears to me that there is plenty. Manufacturers are working in the industrial area of the barrio where I am. Everything appears to be coming back to normal (except for the continuation of marches and demonstrations by opposition supporters, which include blocking the main arteries of Caracas).

However, speaking with people here in the barrio, it's obvious that many are struggling. The economy was taken to the floor by the incessant attempts by the opposition to oust Chavez by paralyzing the country ... and many people lost their jobs, including some of my friends.

But ... there is a positive side.

Many people are realizing that now is a good time to start businesses, to be creative, to find new ways of making money ... and perhaps to not be so customarily dependent on an employer who pays a pitiful minimum wage.

Has the opposition helped open the eyes of the average Venezuelan to greater possibilities?

Venezuela has all the basics and the talent to produce anything they want (instead of importing 60-70 % of consumer items, including food). Venezuela has oil, gold, precious stones, aluminum, ore, and extensive undeveloped agricultural capacity.

Now is probably the best time to start new ventures.

Venezuela can be "The best country in the world." For readers who have not been to Venezuela, I highly recommend that you come to visit and disregard the negative press that some of the "international media" and the Venezuelan anti-Chavez media is spreading.

In a recent telephone survey by Globovision (the major anti-Chavez television station) viewers were asked to answer the following question: "What is the main problem in Venezuela at this time?"

The answers:

1. Unemployment 14.0%
2. Insecurity (as in personal safety) 5.7%
3. Political situation 76.0%
4. Cost of living 4.3%

...and imagine, these are answers coming almost entirely from anti-Chavez, pro-opposition people! The same ones that are spreading all sorts of horrible rumors about the "dangers," "terrorism," "kidnappings" and "human rights abuses" that a visitor will supposedly encounter in Venezuela.

Venezuela has mountains (Andes), lakes, plains, jungles, Caribbean beaches and islands, tepuys, waterfalls and deserts.

There is dry heat, humid heat, cool weather, cold weather, snow.

There are crocodiles, boas, snakes of all kinds, capibaras, monkeys, lots of parrots, eagles, vultures, dolphins and piranhas.

You can go para-gliding in the Andes, white river rafting, parachute, take helicopter trips to Angel Falls (the highest falls in the world) and the Tepuys ... you can take 4-5 days tours into the Amazon jungles and live with the indians ... you can rest at top-notch tourist resorts on Isla de Margarita or Los Roques or rent inexpensive "posadas" in small fishing villages along the Caribbean.

In Merida you can take a spectacular trip on the longest cable car in the world (if I recall correctly 11-12 km. in length).

Venezuela has everything ... but above all ... Venezuelans.

Venezuelans are a kind, jovial, family oriented, resourceful and proud people.

Families take care of their elders at home ... children and adults feast together ... the music is everywhere.

For me ... and for many people who immigrated to Venezuela ... and for many Venezuelans ... Venezuela is "The best country in the world."

Oscar Heck oscarheck111@hotmail.com

www.townonline.com By Bill Thibeault / In My Opinion . . . Thursday, March 6, 2003

I'm glad to see that the windy month of March has finally arrived ... especially since Spring officially arrives on March 20, so maybe things will soon warm up a bit around here.

The temperature actually got up to the low 40's last Saturday, which was warm enough for an army of smiling and waving local political sign holders to post themselves downtown in support of their particular candidates who are seeking your vote in the upcoming town election.

All the candidates seeking contested seats had their dutiful supporters out there ... Selectman Avril Elkort ... as well as challengers Sal Salvatori and Bob MacDonald. And while a large number of Assessor Rocco DiGirolamo supporters toted his signs, the green and white signs of challenger Paul Alfano also seemed to be all over the place.

Speaking of political signs ... not that it means anything, I conducted another mini-survey last week of political signs in the windows of downtown merchants, and while I found no signs for Selectman Elkort, I counted 10 signs for Salvatori and three for MacDonald ... and for Assessor, I counted seven DiGirolamo signs and six for Alfano.

It won't be long before candidate nights will be held in various sections of town providing an opportunity for you to go and listen to these candidates ... and hopefully these informative nights will help you reach an informed decision about who to vote for.

Most of us who buy gasoline for our gas-guzzling chariots have become painfully aware of skyrocketing gasoline prices, and it won't surprise you to learn the national average for a gallon of 87 octane unleaded regular is now $1.66.9 which is 54 cents more than what it was a year ago ... and if that isn't bad enough, another round of increases, estimated at 4 to 8 cents per gallon may soon be inflicted on us, ostensibly because of Bush's imminent Iraqi war and the big oil-worker strike down there in oil-rich Venezuela.

Out of curiosity, I did a survey last Saturday of all gas stations in town to find out what they're charging for a gallon of 87 octane regular unleaded, and found the lowest everyday price in Canton was $1.65.9 at the full-service Getty station on Washington Street, and I also found the same price at the full-service Mutual Gas station out there on Route138 next to Dan Road.

However, for the lowest special price in town, you'll only have to pay $1.61.9 on Mondays at the Texaco station on Washington Street next to the railroad crossing because on that day of the week they knock off 8 cents a gallon from their current regular daily price of $169.9.

If you want to find the lowest daily price in the entire local area you'll have to drive over to Stoughton. Both the Cumberland Farms Gulf station on Washington Street (Rte. 138), and the Mutual Gas station further up Washington Street near the center of town, are selling it at $1.62.9.

I wasn't surprised to find the highest prices for the same type gas in Canton was at the two stations on Neponset Street ... $1.74.9 at the Citgo station, and $1.73.9 at the Sunoco station next to I-95.

There are four stations up on Rte. 138 on the other side of Rte. 128 near Big Blue Hill and Royall Street ... but I surprisingly found the prices only ranged from $1.67.9 to $1.69.9, apparently due to all the competition at that location.

Incidentally, both the Mobil and Shell stations just over the line in Stoughton at Cobb's Corner charged $1.71.9 ... and both deduct 8 cents a gallon on Mondays, which means your cost on that day of the week is $1.63.9.

And while you're digesting all this information, let me add that I found four existing stations in town that no longer sell gas. Crowell's station at the intersection of Washington Street and Turnpike Street is now boarded up ... and the Sunoco station on Washington Street, and I hear the property is not only up for sale, the underground storage tanks will also be removed shortly.

The Getty station on Chapman Street at the intersection with Neponset Street hasn't sold any gas for about three years ... and then there's that old run-down self-service station eyesore out there on Neponset Street that has been boarded up for the last several years with a "For Lease" sign on it.

Finally, things are very sad over in Mr. Rogers' Neighborhood ... long-time children's TV pioneer Fred Rogers died last week at age 74.

Former Canton Executive Secretary Bill Thibeault is a member of the Society of Professional Journalists and the National Society of Newspaper Columnists. You can e-mail him at OpinionColumn@WebTV.net

usinfo.state.gov 07 March 2003

(He describes energy challenges in Russia, Caspian, Africa, Gulf) (3970)

Conflict in Venezuela has damaged its reputation as a reliable oil supplier, and all parties to the ongoing political turmoil there must work together to restore confidence, stability and rule of law, U.S. Under Secretary of State Alan Larson says.

"The damage done cannot be repaired overnight," Larson said in March 4 remarks in New York.

"And when the Venezuelan parties show a commitment to seek reconciliation and restore their position as a reliable partner of the United States, they will find a willing and ready partner in the United States," he said.

Aside from Venezuela, Larson described also challenges facing other major energy suppliers in Russia, the Caspian region, West Africa, North America, Saudi Arabia and the Gulf.

He expressed concern that growing opposition in Russia might jeopardize passage of legislation allowing production sharing agreements that would promote more foreign investment, citing the need to bring technology to Russia's frontiers.

Russia needs to adopt many other reforms, he said, including strengthening rule of law for business, allowing competition in energy and transportation, improving its technology and moving domestic oil prices to world levels.

Around the Caspian, Larson said, the key issues are completing the South Caucasus natural gas pipeline, improving the investment climate and bringing Kazakhstan oil into the East-West Energy Corridor.

In West Africa, he said, bribery threatens the hope of using oil and gas production to stimulate national economic development.

"We have an interest in helping West African nations solve these problems, not just out of altruism but also self-interest," Larson said. "West Africa will not be a fully reliable supplier if its energy sectors are corrupt."

The countries of the Gulf should not view the rise of other oil-producing regions with alarm, he said, because rising world demand will require expanded supply all around. He said Gulf producers should open their economies to expanded private investment and let market forces set price and production levels.

Following is the text of Larson's remarks: (Note: In the text "billion" means 1,000 million.) (begin text)

Reliable Supplies of Energy for a Growing World Economy

Alan Larson, Under Secretary for Economic, Business, and Agricultural Affairs Remarks to the Energy Forum, New York University New York, New York March 4, 2003

Good evening. Thank you for the opportunity to come to the Energy Forum to discuss the important and timely issue of international energy security. Energy remains a vital ingredient in the modern industrial economies where roughly one billion of the world's people live. Over the next 50 years, rapid economic progress in the rest of the world will require expanded supplies of energy, including oil and gas.

There no longer needs to be, of course, a one-for-one correlation between in economic output and energy inputs. In the United States, for example, we have reduced energy consumption per dollar of GDP [gross domestic product] to less than 60 percent of its 1973 level.

We can also help developing countries achieve growth in a less energy-intensive fashion than we experienced over the past 200 years. Nevertheless, it would be naïve to believe that continued strong economic growth in the United States and dramatic progress in reducing global poverty can be achieved without substantially increased supplies of energy.

I am not suggesting, of course, that growing world energy demand must lead inexorably to commensurate growth in greenhouse gas emissions. The U.S. is pursuing aggressive R and D [research and development] initiatives on such technologies as fusion, the next generation of nuclear fission, carbon sequestration and hydrogen.

The transportation sector has been the Achilles' heel of oil conservation. Ethanol has made a dent and the Administration is encouraging through tax incentives the expanded use of energy-efficient hybrid vehicles. Moreover, President Bush announced in his State of the Union address that the United States will more than double the amount of money spent on hydrogen technology research and the development of fuel cells to over $1.2 billion. We are actively seeking international partners for these technology initiatives.

Over the next generation, however, oil and natural gas will continue to play a central role in the world economy and international energy markets. We must find more oil and gas supplies, and these supplies must be reliable and made available at prices that permit sustained economic growth.

Long before "globalization" had become the defining concept of our era, the people in this room realized that the oil market was global, that energy independence was a mirage and that energy security had to be pursued in cooperation with friends and allies.

We knew that two-thirds of the world's known oil reserves were in the Middle East.

We knew that imports were supplying roughly half of our oil needs and an even greater share of the needs of some of our most important allies and economic partners.

We knew that OPEC [Organization of Petroleum Exporting Countries] nations were providing roughly one third of the total oil exports but also controlled two-thirds of world reserves.

And we knew that oil supply shocks in any region of the world would have an impact on our economy through the instantaneous operation of international oil markets.

Reliability Through Diversification

Energy investments are costly, risky and require long-term commitments. For that reason, neither companies nor countries can have all of their eggs in one basket. Recognizing this reality, American energy security policy has sought to encourage like-minded policies toward energy, emphasizing the expansion and diversification of energy supplies. We also have sought to broaden the scope of operation of market forces, both in our own economy, where energy price controls and archaic regulatory practices once diminished our energy security, and also in oil-exporting countries, where restrictions on foreign investment and government control of production decisions add additional layers of uncertainty.

At the moment, there are interesting possibilities for expanded oil and gas production from the Caspian region, Russia, West Africa and North America. There also is the prospect of increased oil and gas production in the Middle East. Finally, depending on political events there, Venezuela could be a source of expanded oil and gas production. American policy aims to give the private sector the best possible chance to exploit these opportunities by reducing the political uncertainty that otherwise might scare off the necessary investments.

Let me provide a few examples of what we are doing internationally to promote diversification, reliability and energy security.

Russia

Russia already is an energy super-power. Expanded oil and gas production in Russia can make a major contribution to its own economy and to a well-balanced global supply mix. We welcome strengthened energy ties with Russia, and their expanded energy production in the coming years could enhance U.S. and global energy security.

To achieve its full potential, Russia will need to strengthen its corporate governance and legal/regulatory framework for business, improve the foreign investment climate, allow competition in the transportation system, open Gazprom and Transneft up to reform and competition, improve its technological capabilities and move domestic energy prices to world levels. These reforms are also critical in furthering Russia's desire to accede to the World Trade Organization.

Enactment of legislation for Production Sharing Agreements [PSAs] would also open the door for greater foreign investment, including in technologically challenging frontier regions. However, we are concerned by recent actions that indicate growing opposition to PSA legislation. It also will be necessary to embrace competition and private investment in oil and gas transportation systems. Investment in oil and gas production will fall below potential if investors fear that Transneft and Gazprom have a hammerlock on the pipeline system. We also encourage Russia to have a positive attitude toward the development of multiple pipeline projects for the transportation of Caspian energy to Western markets.

Through the programs of Ex-Im Bank and OPIC [Export-Import Bank of the United States and Overseas Private Investment Corporation], we are providing financing and insurance to reduce the political risk of energy investments. We look forward to working with Russia as it strengthens its ties with the International Energy Agency.

The Caspian

The Caspian basin has tremendous potential, offering the possibility of production increases from 1.6 million b/d [barrels per day] in 2001 to 5.0 million b/d in 2010. This will represent the largest non-OPEC production growth in the world. The key issues in Caspian energy development at the moment are: 1) to complete the second pillar of the East-West Energy Corridor by developing the South Caucasus natural gas pipeline; 2) to improve the investment climate throughout the region; and 3) to bring Kazakhstani oil into the East-West corridor. To achieve its promising potential, it will be necessary to establish a new network of pipelines for transporting Caspian resources to Western markets and establish reliable investment regimes.

American policy has made significant headway in creating an East-West energy corridor from the Caspian to the Mediterranean. We support efforts to build multiple pipelines to strengthen the sovereignty and economic viability of the new nation states in the region and to allow the Caspian Basin to contribute new energy supplies for the world market on commercial terms. We welcome the groundbreaking on the Baku/Tbilsi/Ceyhan oil pipeline that will allow energy from Azerbaijan and Kazakhstan to reach world markets at competitive prices; and last week's announcement that the South Caucasus gas line, running from the offshore Shahdeniz gas field in Azerbaijan to central Turkey, is a "go."

Kazakhstan needs to work particularly hard to ensure that investors are given an open, fair and transparent environment. We are pleased that the dispute that clouded the TengizChevron project has moved toward closure. Our efforts in the Caspian are intended to complement -- not detract from -- our support for Russia's efforts to develop its energy export potential. We all win when transparency and free market conditions prevail.

West Africa: Significant Potential

West Africa is one of the world's fastest growing sources of oil and gas. Nigeria is currently the fifth largest supplier of crude oil to the U.S. Oil reserves generate a large share of government revenue in countries such as Nigeria, Angola, Gabon, Equatorial Guinea, Republic of Congo and Cameroon. Emerging potential producers, such as Sao Tome, Chad and Mauritania, also will begin producing significant new oil supplies in coming years.

Democratization and the development of responsible governing institutions are particularly important in reducing oil-related conflicts and promoting African supply stability. Accountability and transparency are necessary to ensure that oil revenues benefit the population and support development. Growing oil and gas production could be an engine for national economic development in these countries, but this will not happen if energy development is accompanied by corruption, rent-seeking and the suffocation of other economic sectors. We have an interest in helping West African nations solve these problems, not just out of altruism but also self-interest. West Africa will not be a fully reliable supplier if its energy sectors are corrupt.

Substantial foreign direct investment is needed to develop African energy resources both onshore and offshore deepwater. We support this process by encouraging the reforms needed to improve the investment climate. We have negotiated a bilateral energy cooperation framework agreement with Nigeria. We favor the World Bank's involvement in independent monitoring arrangements in the Chad-Cameroon pipeline project.

Another sign of our commitment is the opening of our new embassy in Equatorial Guinea. This new mission will support our ongoing work in the areas of energy security, human rights, and good governance in Equatorial Guinea.

We also will ensure vigorous enforcement of the OECD [Organization for Economic Cooperation and Development] Convention to prohibit bribery in international business transactions, an agreement that internationalizes the main elements of the U.S. Foreign Corrupt Practices Act. We are prepared to explore new partnerships to help West African countries make good on their commitment to good governance, transparent business practices, sound economic policies and market-based regulation.

North America: Energy Integration

Here in North America, we are strengthening our energy cooperation with Canada and Mexico. Senior energy experts from the three North American governments recently released a North American "Energy Picture" report that, for the first time, jointly measures the energy stocks, trading balances, and energy flows in the continent.

In the last few years, Mexico has begun to allow independent power producers (IPPs) to sell power to the public grid. Energy consumption in Mexico is expected to grow by 25 percent during the next five years; IPPs could attract the required investment in new generation and transmission infrastructure.

What often goes unrecognized is that North American energy trade is a two-way street. Mexico is becoming an important source of our oil imports. At the same time, the U.S. is a net natural gas exporter to Mexico, and our refineries supply over 15 percent of Mexico's refined petroleum products.

The reliability of North American energy trade is enhanced, of course, by geographic proximity. But more important than geography alone is the rule of law and predictable investment conditions created by NAFTA [North American Free Trade Agreement], integrated pipeline networks, closer cooperation between our governments and energy companies and long-term reliable supply relationships. Our policy is to deepen further this framework of rule of law and predictable investment conditions in North America even as we seek to build similar frameworks in other regions.

Saudi Arabia and the Gulf Producers

The Middle East holds some two-thirds of proven world oil reserves. The size of its reserves combined with its low production cost guarantees that the Middle East will continue to play a pivotal role in the world market. Despite frequently expressed concerns about "dependence" on the Middle East, our economy clearly benefits from these supplies. Without them, we would expend scarce economic resources to secure the energy we need at higher cost to our citizens and economy.

Producers of the Persian Gulf, therefore, are a vital part of a reliable energy supply system. Saudi Arabia plays a key role in global oil markets as the world's largest oil exporter. Moreover, the Saudis support international energy security by maintaining considerable excess production capacity that can be brought on line quickly in the event of a serious supply disruption anywhere in the world.

Saudi Arabia and the other major Gulf producers like the UAE [United Arab Emirates] and Kuwait repeatedly emphasize their commitment to be reliable suppliers. Saudi Arabia's own efforts in working with other major producers to offset the Venezuelan disruption is an example of its leadership role.

A policy of diversifying global oil supplies should not be interpreted as diversifying "away" from Saudi Arabia or other Gulf producers. Gulf producers will continue to have an indispensable role in the world market, and we encourage them to increase foreign investment and steadily expand supplies. What we seek is better balance and a more flexible, resilient oil market that responds to price signals.

In this regard, we believe Gulf producers would do well to open their economies to more private investment so that oil capacity could grow and oil supply could respond more fully to shifts in demand. The high prices of the last two years have been a drag on the world economy. OPEC's fear of a price collapse made it too slow to expand production.

I would encourage Gulf producers to view the expansion of oil and gas investments in Russia, the Caspian, West Africa and North America with equanimity. There is room in the market for these supplies and for continued, even expanded, supplies from the Gulf. The best response for Gulf producers in the long run is to open their economies to expanded private sector investment and allow greater scope for market forces to establish price and production levels.

Natural gas could be a good place to start. Once stranded for local or regional use, natural gas has become a globally traded oil substitute in certain key markets. For example, Saudi Arabia is contemplating a large-scale natural gas investment program that could involve several international oil companies.

The Saudi initiative would substitute gas for oil in producing electric power and desalinated water for the domestic market. If successful, this Saudi initiative also could serve as a bellwether for foreign direct investment in other sectors of that economy and expand economic growth and employment opportunities for Saudi Arabia's burgeoning population. Although the final shape of this proposed foreign direct investment in the Saudi energy sector is not yet clear, this investment would contribute to global energy security by expanding energy supplies and diversifying by fuel.

Qatar, another key Gulf state, has vast natural gas reserves. Working together with major international energy companies, the Qataris are becoming leading exporters of liquefied natural gas (LNG) to developing countries in Asia. In the UAE, the successful Taweelah power and water privatization project is another example of the dynamic role foreign investment can play in the energy sector.

We support these positive private investment initiatives because they expand and diversify energy sources, provide opportunities for American companies and foster economic growth in strategically important countries.

Venezuela

Closer to home, Venezuela and the United States have also enjoyed strong historical energy ties. Traditionally, we had considered Venezuela to be one of our most reliable oil partners, and we still very much want this to be the case. Venezuelan oil policy, until recently, has been built upon a reputation of reliability to international markets, which was of great mutual benefit. Through World Wars, politically inspired embargoes, and global dislocations, Venezuela found that its national interest was best advanced through maintaining a reputation of reliability.

Unfortunately, through a collective failure to come to consensus within the boundaries of their political system, it has been clearly demonstrated that Venezuela's democratic institutions and its reputation in the United States as a reliable supplier appear no longer matters of primary importance to President Chavez, PDVSA or the political opposition. Venezuela's turmoil has come at a difficult period for the world economy.

U.S. firms continue, of course, to be hard at work in Venezuela, and CITGO continues to operate in the U.S. as a commercial entity. The benefits that these reciprocal energy investments bring to both parties, and to the relationship, are clear to me, but they do not seem to be clear in Caracas.

The United States will continue to work to help Venezuelans resolve their political differences. The key to reverse the severe economic and political decline in Venezuela is a renewed dedication to find a constitutional, democratic, peaceful and electoral solution to the crisis. Democracy and the rule of law are essential elements of a sound investment climate. We are disturbed by measures taken by President Chavez and the Government of Venezuela that can only be seen as polarizing the conflict and eroding Venezuela's democratic institutions. We urge the Government of Venezuela and the Venezuelan opposition to engage in the dialogue facilitated by OAS [Organization of American States] Secretary General Gaviria under OAS Permanent Council Resolution 833.

However, until a sincere political compromise is achieved, and the level of rhetoric lowered, world energy markets simply cannot view Venezuela with the same certainty that they once did, and, sadly, neither can the United States. The damage done cannot be repaired overnight. We hope that Venezuelans, both in the Government and those involved in the strike, will take the necessary additional steps to restore confidence, stability and rule of law. And when the Venezuelan parties show a commitment to seek reconciliation and restore their position as a reliable partner of the United States, they will find a willing and ready partner in the United States.

Emergency Preparedness and the Role of Gulf Producers

Close cooperation with energy producers and consumers builds our collective emergency preparedness. In the event of a serious disruption, we will look to producers to make a maximum effort to use spare capacity to replace lost supply. We are intensifying consultations with our partners in the International Energy Agency (IEA) and, if necessary, we are ready, willing and able to make an appropriate emergency response, primarily based on coordinated drawdown of strategic stocks. The 26 IEA members collectively hold over 1.3 billion barrels of government-controlled stocks, representing 114 days' import coverage.

Here in the United States, the President has authority to draw upon our Strategic Petroleum Reserve (SPR) to counter a significant disruption in supply. The SPR contains almost 600 million barrels of crude oil. In the event of a drawdown, DOE can deliver oil to the market in 10-15 days, pumping at a maximum rate of 4.3 million barrels per day for up to 90 days, then at a declining rate thereafter.

Iraq and the Oil Market

Since we are talking about possible oil supply disruptions, let me say a word about Iraq. UN Security Council Resolution 1441 found Iraq to be in "material breach" of Security Council Resolutions. It called for immediate and complete cooperation and gave the Iraqi regime one last chance to give up its weapons of mass destruction and disarm. Iraq has failed to seize that opportunity. The credibility of the UN Security Council is now at stake.

This is not "about oil." As Secretary of State Powell said on November 18, "Iraqi oil belongs to the Iraqi people .... The United States is not going there to start dividing up that which belongs to the Iraqi people." Should military action be required to enforce UN Security Council Resolutions, the United States will work to ensure that Iraq's oil sector is protected from acts of sabotage and that its proceeds are applied for the benefit of the Iraqi people. Iraq's oil and other natural resources belong to all the Iraqi people -- and the United States will respect this fact.

We should not and need not allow short-term concerns about the oil market to dissuade us from following the resolute policy we need to protect global peace and security. One of the most important reasons why we have an energy security policy is to allow the President to advance American national security requirements without letting foreign oil suppliers hold us hostage.

Looking to the future, a vibrant, independent and responsible Iraqi government -- free of weapons of mass destruction and at peace with its neighbors -- will contribute to the stability of the international oil market, as well as the political stability of the region. That is and should be the goal, for the U.S. and for the international community.

Conclusion

In the long run we need new technologies that can fuel our economy without posing threats to the environment or our national security. In the interim, our international energy policy must address the familiar challenges posed by a hydrocarbon-based economy where oil reserves are concentrated in various challenging regions of the world.

Energy security is advanced by sustained improvements in the investment climates in Russia, the Caspian, Africa, and in our own hemisphere, as well as by improved investment opportunities in traditional regions such as the Gulf and Venezuela. We are placing special emphasis on making the integrated North American market work better. To counter short-term, physical disruptions, we increased the SPR to 600 million barrels; stand ready, with our IEA allies, to deploy a collective response if needed.

We intend to engage intensively with energy partners all over the world to diversify supplies, improve investment opportunities and assure that market forces work as transparently and efficiently as possible. Like the war on terrorism, achieving energy security will not be achieved by one dramatic breakthrough but rather by sustained, patient and determined efforts. Thank you very much.

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