www.bday.co.za   LAGOS - Nigeria's President Olusegun Obasanjo has launched a gigantic bitumen production project in the southwest Ode-Irele region in a bid to diversify the country's sources of foreign exchange.

Nigeria, the world's sixth largest oil exporter, currently derives more than 95 percent of its foreign currency earnings from petroleum.

The commercial project launched on Monday signalled the commencement of the exploitation of massive deposits of bituminous tarsand, reputed to be second only to those of Venezuela, officials said.

The country's bitumen deposits are located in four southwest states of Edo, Ogun, Ondo and Lagos, according to geo-physical surveys carried out more than a century ago when they was first discovered by Germans.

Nigeria is believed to have at least 42 billion barrels of bitumen reserves.

Obasanjo said that the country would reap great benefits from commercial exploitation of bitumen such as employment, foreign exchange and development of infrastructure.

It is expected that more than 20,000 workers will be employed before the end of July for bitumen exploration, chairman of the Bitumen Exploration and Exploitation Company Nigeria Limited Olu Edegboro told journalists.

Bitumen is used for for road construction, the production of fuel oil and petrochemicals.

www.chron.com March 19, 2003, 12:59PM By MICHAEL DAVIS Copyright 2003 Houston Chronicle

RESOURCES • Graphic: Oil prices fallOil prices plunged Tuesday as the "war premium" was stripped from prices and investors began to look ahead to Iraqi oil returning to the market under new leadership.

They began falling in earnest Monday ahead of President Bush's ultimatum to Saddam Hussein, which could lead to war by tonight.

Since oil peaked at near $40 a barrel early this month, it has slipped over the past week back toward $30 per barrel.

Light, sweet crude oil for April delivery fell $3.26, or 9.3 percent, to $31.67 a barrel on the New York Mercantile Exchange.

It was the steepest one-day decline for the near-month contract since Nov. 15, 2001, when OPEC and Russia were fighting over production cuts the cartel was using, trying to rein in Russian production.

The drop is reminiscent of the free-fall in prices at the beginning of hostilities in the Persian Gulf War in 1991. In one day, prices dropped around $10 per barrel after it became apparent that the conflict would not last long.

This time, however, prices are not expected to plunge to the $20-a-barrel level that occurred in the last war.

Historically, the market has been able to adapt to such conflicts.

When Iraq invaded Kuwait in August 1990, prices spiked up, but by the time the war began in January, the oil markets had made up for the lost output, said George Beranek, manager of market analysis for PFC Energy, a Washington energy consulting firm.

"In 1991, the rest of OPEC was able to increase production enough that the markets cooled off substantially," Beranek said.

There is not nearly the same amount of excess capacity in OPEC now compared with 12 years ago.

Most members are producing flat-out, except for Saudi Arabia, which has already offered assurances that it can make up any shortfall of Iraqi oil in the near term.

Inventories are at a bare minimum after a cold winter that pushed up fuel oil demand and a near cutoff of exports from Venezuela after a strike by oil workers.

While Venezuela is slowly rebuilding its exports, Iraq is no longer in the market. Iraq's two authorized export terminals in Turkey and the Persian Gulf are idle. All exports under the oil-for-food program have been halted, with the departure of U.N. officials.

Iraq has been producing about 2.5 million barrels per day of which about 1.8 million was until recently exported under the United Nations oil-for-food program. Iraq was smuggling out about 200,000 barrels per day as well.

This is less than during the Persian Gulf War in 1991, when about 4 million barrels of Iraqi and Kuwaiti oil came off the market for about five months.

But experts say the world oil markets have changed since then, complicating comparisons.

On the negative side, U.S. inventories have been hovering around record low levels.

A big plus now is that oil markets are more integrated and closely linked than 13 years ago, said Dennis O'Brien, director of the Institute of Energy Economics and Policy at the University of Oklahoma.

"When Iraq's and Kuwait's oil came off the market, people had to search around for other crudes, which is always a kind of irregular, worrisome process," O'Brien said.

By the time the war actually started, the 4 million barrels had been replaced, but they were replaced by grades of crude that did not always fit the needs of users.

"In 1990, we were just beginning to see an efficient globalized market and the Gulf War accelerated that process; a lot of areas that had not been linked became linked," O'Brien said. "Today's market is far more efficient, and we will not have as hard of a time finding crude to fill in."

Saudi Arabia issued a statement a few hours before President Bush's speech Monday night, saying it is undertaking "significant actions" to ensure the world's oil supply does not run short in the event of military action in Iraq.

Saudi Oil Minister Ali al-Naimi stated, "We will make sure there is enough oil in the market. We have plenty of spare capacity."

Saudi Arabia has taken actions to increase production and store oil supplies. In the event of any market disruptions, al-Naimi said, "we are confident that OPEC in general and Saudi Arabia in particular will deliver."

U.S. Energy Secretary Spencer Abraham has pledged to tap the 600-million barrel Strategic Petroleum Reserve, holding enough oil to cover about 272 days of U.S. imports, if a war begins. The administration during the Gulf War offered to allow refiners to tap into the nation's stockpile of oil reserves, but it was not necessary to do so.

As traders sold off oil Tuesday, analysts began hashing out what challenges a post-Saddam Iraq oil industry will face.

"There are going to be technical obstacles, such as deciding which facilities need to be repaired and who is going to pay for those repairs," said Amy Jaffe, senior policy analyst with Rice University's James A. Baker III Institute for Public Policy.

There is also the matter of contracts that have been struck with Iraq under Saddam and whether those would be enforceable under a new administration.

Estimates are that Iraq could boost its production to 6 million barrels per day, but historically, oil production has not risen in countries after such a change, Jaffe said.

Still, Iraq has huge reserves, second only to Saudi Arabia, and it has only exploited a few of its large discoveries. The Kirkuk Field, discovered in 1927, is still one of its most prolific.

"Iraq has the capacity to reach 6 million barrels per day -- but not until 2012," said Martin Purvis with consultants Wood Mackenzie. "Twenty years of war and sanctions have severely limited its export capacity as well."

Tuesday's decline in oil prices also drove down wholesale prices for gasoline and heating oil. Heating oil for April delivery fell 5.79 cents to close at 85.78 cents a barrel, while gasoline futures dropped 6.52 cents to close at 96.19 cents a gallon. Natural gas fell 16.8 cents to $5.339 per thousand cubic feet.

On London's International Petroleum Exchange, Brent crude from the North Sea closed at $27.75 per barrel, down $2.23.

www.businessweek.com MARCH 19, 2003 NEWSMAKER Q&A

Dissension over Iraq has dealt "a nasty blow" to the world body, says Canada's U.S. ambassador, but "it's just too important not to survive" Despite his 36 years in public service, Michael Kergin, Canada's ambassador to the U.S. since October, 2000, could never have anticipated the challenges he would face during his time in Washington post-September 11. But he has about as well-rounded a background as any diplomat could have: He was ambassador to Cuba from 1986 to 1989 and has served as Assistant Secretary for Foreign & Defence Policy in Ottawa.
In recent years, Canada and the U.S. have had growing differences on trade issues, and Canada came under criticism after September 11 for being "a weak link" because of what some in the U.S. viewed as a too-porous border. Plus, Canada, like many of America's traditional allies, has not supported President George Bush's willingness to enter Iraq for military action without a second U.N. resolution. Kergin recently dropped in at BusinessWeek's Washington bureau to chat with trade and homeland-security correspondent Paul Magnusson and other journalists. He spoke at length about the situation in Iraq and his country's position. Edited excerpts of the conversation follow: Q: What's Canada's stance on Iraq? A: We've been very supportive of U.S. efforts to get a [U.N.] Security Council resolution [backing military action]. And we've supplied naval vessels to Operation Enduring Freedom in the Gulf. We've placed troops in Afghanistan and lost four of our military there. The second element is homeland security and how Canada fits into the defense of North America. After September 11, we suddenly had real issues at the border. [Anyone] at the border was suddenly guilty until proven innocent, and we had backups of 20 to 30 miles of trucks and rail traffic coming across the border. This is particularly important for both countries because we have about $1.3 billion worth of goods a day coming across that border, 80% of which goes by land transportation systems. You back that up, and it's catastrophic for the Canadian economy, and it's very damaging to the American economy. Q: Should the U.S. act unilaterally in Iraq? A: Canada believes in our U.N., right or wrong. Canadians believe very much that the U.N. is part of our multilateral system. We have 33 million people who think this is very much the way to go. We recognize that Saddam has to disarm, [but] he has to be given time to do that. And we have something now that we hate to see -- a split between North America and Europe. In many ways we're part of both. If we don't get a consensus and there's war, it ensures this will damage the U.N. for a time. But you could reinvent it. It's a nasty blow, but over time the U.N. will recover. It's just too important not to survive. Q: How does this affect NATO? A: NATO is a little different. If a member of NATO requests under Article Four [which says "the Parties will consult together whenever, in the opinion of any of them, the territorial integrity, political independence, or security of any of the Parties is threatened"], we have no option. Also NATO is more and more transforming itself into a political organization. In the short term, there's lots of bad feeling, no question about it. Q: The U.S. vs. France dispute. Is the U.S. acting like another Roman empire? A: The major difference is the Romans occupied enormous amounts of territory while some say the U.S. occupies areas in an economic way and in business practices. But you can't call the U.S. an imperial power in any classical way. The French are reacting to [the idea of the U.S. being] a hyperpower. The EU under French leadership see their role as acting as a kind of balance to the U.S. So we're getting back to the old system of checks and balances or balance of power. To me it's unfortunate that...you have megaphone diplomacy now. This isn't the way allies should be doing things. I hope the history of the alliance between the U.S. and France will once again kick in. But at the moment it's not a pretty sight. Q: Is the U.S. acting arrogantly? A: If the [Administration] had spent a good bit more time discussing this, it would have been better.... Generally speaking, Canadians are very pro-America. But polls are running 70% against acting unilaterally in Iraq without U.N. approval, at least insofar as Canada's involvement. Q: How do Canadians feel about free trade and the North American Free Trade Agreement, which is almost 10 years old now? A: The polls are running very strongly in favor of NAFTA. Our difficult time with NAFTA was in 1994, just after it was signed. Our industries had to make extraordinary adjustments to that, but our economy is now doing very well. We have the strongest growth in the G8 [Group of Eight industrialized countries]. Q: Is Canada concerned about North Korea's development of nuclear weapons with missile warheads that can reach the Pacific coast of North America? A: North Korea is just as much a concern for Canada as it is for the U.S. We need multilateral diplomacy. But the time will come, we believe, for some bilateral discussions. So far, we've left things to the Koreans, Chinese, and Japanese to work out. Q: Are U.S. complaints about the Canadian border being too porous valid? Is enough scrutiny being given to potential terrorists? A: We have an extremely close-knit intelligence and immigration-information sharing system. Little by little some of the changes we made are working. We tightened up some of the procedures. We've issued smart cards now, and we find that most of the refugees that enter Canada come up through the U.S. There are reasons for that -- perhaps they feel that the social services in Canada are more generous. But it's now understood that if they come to either country and apply for refugee status, they will be judged based on the criteria of the country they originally entered. In Canada, we're more aware of who's in our country. The Immigration & Naturalization Service says there are between 8 million and 12 million people who are undocumented [in the U.S]. In Canada, they talk about maybe 80,000 to 90,000 people, which is comparatively a much smaller proportion of our population. Q: What about a North American energy policy? A: Canada is by far the largest supplier of energy to the U.S. in oil and oil-related products -- ahead of Saudi Arabia and Mexico and, increasingly, Venezuela. Fourteen percent of natural gas in the U.S. comes from Canada, and hydroelectricity comes across from Quebec and Labrador so that people are starting to look at Canada much more in terms of energy security.

Edited by Patricia O'Connell

www.nytimes.com By NEELA BANERJEE

Consumers may be complaining mightily about rocketing gasoline prices, but so far they are not buying less, industry experts say. That, in turn, is helping to keep gasoline prices high, given how tight gasoline supplies are now.

The Energy Information Administration, the analytical arm of the Energy Department, predicts that even if crude oil prices decline over the next few months, retail gasoline prices will probably stay high, averaging about $1.76 a gallon in April. The current average retail price of gasoline is $1.73 a gallon, according to the latest Energy Department data.

"At the margin, which is where prices are set, any measurable increase or decrease in demand will have an effect on price," said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation. "We're seeing a very slow increase in demand. But if demand is still going to grow, prices will stay high relative to crude oil."

Because of changes in Americans' driving habits over the last decade or so, demand for gasoline changes little, even when prices climb. The vehicles that many people are driving, most notably sport utility vehicles and light trucks, get far lower gas mileage than cars did 20 years ago.

In roughly the same period, the number of drivers has increased over all, as has the number of miles people drive each year, according to David Costello, an analyst with the Energy Information Administration. And despite the widespread complaints about high fuel prices, when adjusted for inflation prices are actually lower than they were at their peak 20 years ago, Mr. Costello said.

"There's no doubt about it that people are grumbling," said Scott Hartman, president of the CHR Corporation, which owns 51 convenience stores with gas stations in the York, Pa., area. "But we don't see any changes in the gallons that they're buying. Actually, we're seeing some nice growth figures."

At its meeting last week in Vienna, the Organization of the Petroleum Exporting Countries argued that a seasonal drop in demand would help keep a lid on crude oil prices, which have stayed over $30 for weeks now. Yesterday, the price of crude oil for April delivery fell $3.26, or 9.3 percent, settling at $31.67 a barrel on the New York Mercantile Exchange.

Gasoline futures followed suit, with the wholesale price of fuel for April delivery falling 6.52 cents, to 96.19 cents a gallon, the lowest end-of-session price since Feb. 3.

Analysts and traders said that the decreases were impelled by a belief in the oil markets that the expected war with Iraq would be quick and would result in little damage to Iraqi oil fields and installations. But other analysts warned that no one can predict what might happen in Iraq. More important, they said, the underlying factors that have driven up crude oil and gasoline prices persist, and an American victory in Iraq would not change them overnight.

OPEC made a series of output reductions last year that buoyed prices and led oil companies and refiners to draw down their inventories of crude oil and petroleum products. In the winter, when companies normally build stocks of gasoline for the spring and summer, supplies of crude oil plummeted after a strike in Venezuela brought the country's oil exports to a halt.

Then, a cold winter in the Northeast and mid-Atlantic motivated refiners to squeeze more heating oil from a barrel of oil, at the expense of gasoline. Now, supplies of crude oil, gasoline and heating oil are at their lowest levels in years.

Demand for petroleum products usually does dip in the second quarter, as OPEC predicted. But demand for crude oil remains unaffected by seasonal changes. And this year, demand could prove even stronger, especially in the United States, as companies scramble to fill stocks in the short time that remains before the main driving season begins in late spring. As a result, oil prices would probably remain volatile, despite price drops in the last few days.

With crude oil prices so high and stockpiles so low, consumer demand has proved to be an important factor in buoying gasoline prices. The question is, How high do prices have to go before car owners change their driving patterns?

California, where prices commonly exceed $2 a gallon, now has the most expensive gasoline in the country — a situation related to its environmental regulations. California requires a certain additive to make cleaner-burning gasoline, called ethanol, that constrains how many gallons of gasoline can be wrung from a barrel of oil and complicates the refining process over all.

But Tom Robinson, chief executive of the Robinson Oil Corporation of San Jose, which owns 28 local gas stations, said that despite their complaints about high gas prices, his customers continued to buy as much gasoline as they did before prices shot up.

"In California, we've had numerous run-ups, and this is the highest so far," he said. "And people know when the price goes up, it will come down. This time, it's been publicized more — the reasons that we have high prices — the war, Venezuela, the problems compounded by our own situation in California."

Some industry analysts and consumer groups said people might drive less if prices approached $3 a gallon or stayed near $2 a gallon for an extended period. But others contend that consumers adjust to prices — mainly because they have to, with driving integral to their lives.

"It has been our contention since the 1970's that consumers really don't change their driving habits on the basis of price," said Geoff Sundstrom, a spokesman for the Automobile Association of America. "They only change due to supply problems. At this point, the tightness in the markets is pretty much invisible to consumers in that they're not going to gas stations that have run out of fuel."

Auto Sales Off Markedly; Other Retail Sales Rise

reuters.com Tue March 18, 2003 11:34 PM ET

SINGAPORE (Reuters) - Oil prices rose on Wednesday, climbing after four days of steep losses that knocked more than 15 percent off a barrel of crude as traders awaited the outcome of a U.S.-led invasion of oil exporter Iraq.

U.S. light crude CLc1 climbed 63 cents to $32.30 a barrel following Tuesday's nine percent decline, which took prices to the lowest level in nine weeks.

London's Brent crude LCOc1 jumped 75 cents to $28.00 a barrel after dropping 7.6 percent in Tuesday's sell off.

Crude markets tumbled $5.50-$7 in the last four trading days as dealers bet on an easy U.S.-led victory over Iraq and minimal disruption to Middle East crude flows, which make up about 40 percent of global oil trade.

The 48-hour ultimatum, delivered late on Monday by President Bush to Iraqi leader Saddam Hussein, to leave Iraq or face war, pushed prices even lower with traders expecting a military strike in the next few days.

The U.S. deadline for Saddam to leave stands at 8:15 p.m. EST Wednesday.

Saddam rejected Bush's demand for him to go into exile and appeared on Iraqi television to declare his country was ready to repel any invasion that could start in less than 24 hours.

Baghdad denies U.S. allegations that it has built stocks of biological, chemical and nuclear weapons.

"The fall in crude indicates the market is looking beyond war. People are not expecting Saddam to have a scorch-earth policy. This is saying war is going to be short," said Han-Pin Hsi, oil and gas equities analyst at Deutsche Bank in Hong Kong.

UPSIDE RISKS REMAIN

Anticipation of a military strike in Iraq, which exports about two million barrels a day of crude, and possible wider disruptions to crude supplies from other Middle East producers, drove U.S. crude close to $40 in February, a whisker below the record of $41.15 set in the build up to the 1990-1991 Gulf War.

During the Gulf War, prices dropped from over $30 to barely $20 when U.S.-led forces launched their early 1991 offensive to expel Iraqi forces from Kuwait and it became clear Iraq would not harm oilfields in Saudi Arabia, the world's top exporter.

Analysts warned, however, that upside risks remained if Iraq should torch its own oilfields or if the conflict was drawn out.

"If the threat to blow up oilfields is carried out, we would see a savage spike to the upside. We would see sharp price rises probably out to two years forward," said Sydney-based independent oil analyst Simon Games-Thomas.

TEST OF OPEC'S LIMITS

An invasion would almost certainly close Iraqi crude output and southern neighbor, Kuwait, may also be forced to shut some fields near the border with Iraq.

Iraqi exports have already slowed substantially because international oil traders are unwilling to assume the risk on uncertain supplies.

A cold northern winter and prolonged supply hitch from Venezuela have drained commercial stockpiles to historic lows.

Official figures due for release later on Wednesday are expected to show a slight increase of two million barrels in U.S. crude stocks, which are at lows not seen since the mid-1970s and below the 270-million barrel mark that the government considers the minimum for the smooth operation of U.S. refineries.

The OPEC oil cartel has pledged to fill any supply gap caused by war, but many members have already dramatically increased supplies this year and analysts believe any prolonged outage of Iraqi supply, with some impact on Kuwait, would test the group's spare capacity to the limit.

The United States, the world's top oil consumer, has made preparations to release some oil from its strategic reserves to prevent any supply interruption. But the signal to open the taps on these emergency stocks will come only when the government decides a shortage has developed.