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Australia would find itself with severe oil and gas shortages in the next decade if billions of dollars were not invested in exploration, a key industry body said.

The Australian Petroleum Production and Exploration Association (APPEA) said $A14.5 billion was needed to discover and develop oil and gas fields in Australia to replace depleting supplies in Bass Strait.

Another $A20 billion was needed if Australia wanted to find enough oil and gas to be self-sufficient, said APPEA executive director Barry Jones.

"We have to either make it more attractive to invest, or make it safer to import from overseas," Jones said.

"The Australian government will have to help to do both.

"The idea that somehow we might be able to attract $35 billion of new capital in Australia in the next 12 years to take us from the lowest supply curve to the demand curve is pretty close to impossible, so we are going to have to import.

"To import you have to make it safer, with less political risk."

Jones said increased investment and safe trade links required the government to stop "tinkering" with ethanol and renewable energy issues and focus on ways to improve exploration, tax and foreign policy.

The government needed to simplify the exploration approval process, cutting down on environmental and native title bureaucracy, he said.

It had to realise the tax regime was not set in stone and make changes to ensure exploration, development and production of Australian reserves were competitive with areas such as the Gulf of Mexico and the Caribbean.

And it had to review its foreign policy, to secure increased trade with the Middle East.

Jones said capital in the oil and gas industry would be spread thin in the years ahead as oil companies injected money into clearing up trouble spots such as Venezuela and Iraq after the war.

While Australia was 40% self sufficient in oil, it imported 40% of its supply from Asia and 20% from the Middle East.

More attention would have to be paid to the Middle East region if Australia wanted to ensure long-term secure supply, Jones said.

"Our foreign policy needs to take into account our long-term liquid energy needs," he said.

And with the Middle East holding 60 per cent of the world's reserves, mostly in Saudi Arabia and Iraq, Australia had little choice but to ensure trade continued unencumbered and with minimal risk.

"All governments agree that the cost of energy is the essential underpinning of Australia's international trade and our lifestyle, and that coal, oil and gas will be the prime source for energy for the foreseeable future," he said.

The APPEA is holding its 2003 conference in Melbourne from March 23 to March 26.

Source: AAP

"Alarm clock has gone off" By Michael Weir

THE war in Iraq has increased the urgency to introduce tax incentives to boost the level of oil and gas exploration in Australia, according to the industry's peak lobby group.

The Australian Petroleum Production and Exploration Association said on the eve of its annual conference in Melbourne that hundreds of millions of dollars would be required to rebuild Iraq and investment funds would be directed away from Australia unless there was more incentive to invest.

APPEA chief executive Barry Jones said if exploration expenditure in Australia did not double to more than $2 billion a year, the country's level of petroleum self-sufficiency would plunge.

Australia imports about 60 per cent of its petroleum needs each year and the Federal Government has now slashed its forecast of how long current reserves can last to 2008 from 2014.

If Australia's reliance on imported petroleum increases, it would cause a massive blow-out in the country's balance of payments.

"Iraq is going to need to be rebuilt and so is Venezuela after the oil strikes and that is going to take hundreds of millions of dollars," Mr Jones said.

"There is going to be a capital shortage in oil and gas and we need to find $14 billion for exploration just to stay at the same level of self-sufficiency that we are now."

Mr Jones said the Federal Government's energy policy "alarm clock has gone off".

"Sadly after promises, promises and more promises, Australia's frail efforts to develop a meaningful energy policy are in tatters," he said."We are running out of time to install an energy policy that will produce long-term benefits for all Australians."

Mr Jones said it was a laudable objective for governments to say they want affordable, clean and secure energy supplies."What they don't understand is that they won't achieve such objectives by tinkering with the structure of petroleum product taxes, putting ethanol into petrol, focusing primarily on retail and wholesale energy market competitiveness and subsidising industry development for renewables," he said.

If the parameters for exploration were wrong, development would not occur, but equally the parameters for development needed to be right to encourage exploration.

He said taxation policy could not be set in stone if Australia wanted to stay as an internationally attractive destination for capital.

He also said small to medium business, a critical part of the oil and gas industry, was being driven out of business or forced offshore by the higher regulatory approval hurdles and costly, complex and overlapping approvals process.

Last updated at: (Beijing Time) Sunday, March 23, 2003 13 March 2003.

"At present, the production and management in our enterprise is all in all very normal. We are not going to reduce production for we are not short of oil supply," a senior managerial person with Nanjing Yangtze Petrochemical Plant revealed to the reporter on 13 March 2003.

"At present, the production and management in our enterprise is all in all very normal. We are not going to reduce production for we are not short of oil supply," a senior managerial person with Nanjing Yangtze Petrochemical Plant revealed to the reporter on 13 March 2003.

Recently, the US-Iraqi War has already erupted and the serious situation struck worries into the outside world. Whether the oil supply from the Middle East will be reduced or even come to a standstill, thereby greatly affecting the Chinese economy.

But it seems that domestic petroleum enterprises are not anxious about the oil shortage.

A fact is that one third of the crude oil supply for the Yangtze Petrochemical Plant is from domestic oilfield while two thirds are imported. Last year saw its crude oil importation reached 5.5 million tons. In the meanwhile the person also revealed that the oil import of the plant includes several sources, such as Iraq, Saudi Arabia, Venezuela, Indonesia and Russia.

Most of the oils used for now by the chemical petroleum enterprises like the Yangtze had already been bought from the international future market last year. The spot oil to be imported is only for balancing the stock and the shortage. The informed person of the Yangtze released the riddle, "it won't do not to do the future. To afford the need of several million tons of oil a year it's impossible to get them in all at once when they are needed."

An echoing point of view comes from Chen Huai, research fellow with the R&D center of the State Council. He said, "Smothering as the war is it won't affect us too much even though the war has really broken out." The world market is not short of oil supply by now, pointed out Chen Huai. The oil export from Iraq comes only to 0.2 percent of the total volume of oil exportation in the world and the import of oil from Iraq doesn't come to one percent of the total oil importation in China.

Happiness comes out from mishaps? "Last January and February saw our company keep on getting in a normal profit. No impact ever imposed on our achievements due to the oil price fluctuation," said Wu Huishu, Secretary of the board of directors with the Zhenhai Chemical and Oil Refinery Plant.

The Zhenhai Chemical and Oil Refinery Plant is for the moment an enterprise, the largest of its kind in China, which is now listed in the stock market in Hong Kong. As the annual report for the year 2002 is not yet published Wu's not willing to reveal the particulars they've achieved. But she said for sure that the achievements in 2002 were surely better than that in 2001, hitting a new record that the Zhenhai Chemical and Oil Refinery Plant ever achieved.

However, the informed person of the Yangtze Petrochemical Plant revealed that "the efficiency achieved by the company in last January and February turned out the best over the past 20 years ever since the founding of the company." He cleared up the doubt of the reporter by saying, "Our superiority lies in deep-processing. Though the price of the crude oil has been up the price of our products gets higher due to the multiplier effect."

The informed person said by citing an example, the polyester provided by the Yangtze Chemical Petroleum Plant to Wahaha for making plastic bottles last year reached a price of 5000 yuan/per ton, but now it has risen to 6250 yuan/per ton. And the polyester needed by Wahaha alone now amounts to as many as 30,000-40,000 tons. As at present the by-product is at a high price now the Yangtze is going all out in production. "Now we sell what we've turned out with no more to spare."

"When the oil price goes up, the price of the byproducts goes up too. So we can make both ends meet between the increased profit and the price rise," said a high-ranking person with the Shanghai Petrochemical Plant. Last year saw our plant realize a profit of one billion yuan. Though the profit made in the first two months was less than that of the Yangtze yet still a par with that of last year.

"In the price-setting for gasoline, diesel oil and kerosene we follow the state-guiding price," explained Wu Huishu, Zhenhai still has some 30 percent side-products, such as benzene, asphalt, propylene and polypropylene and so on. For these products, the enterprise may decide the price by itself. Due to the "multiplier effect" there is a wide margin for profit.

With regard to the prosperous business in the purchasing and selling of the petrochemical products, Zhu Kuiran, Person in charge of the Sci-tech Development Company under the Shanghai Petrochemical Plant holds that this was a sort of pseudo-phenomenon. "It's not really in dire need of it but somebody is hoarding it." Chen Huai's view on it is, "The fluctuation of the oil price is induced by psychological effect and speculation, a rise driven up by some people and it's not because of the increase or decrease of the oil supply."

A very interesting phenomenon is that all the aforesaid interviewees told the reporter their own judgement. Once the US-Iraqi War breaks out the oil price will soon go down. Because, they are of the opinion as given in a report by the US Ministry of National Defence, "in the Middle East, what constitutes the first and foremost interests for the US national security is to ensure a stable oil price in the Persian Gulf for a smooth flow to other parts of the world."

A chance of reshuffle Neither of the Shanghai, Yangtze Petrochemical Plants nor Zhenhai Chemical and Oil Refinery Plant is worrying about the shortage of oil supply. What they are worrying of is once the US-Iraqi War breaks out it will lead to a congestion in oil transportation and this will really exercise some disadvantageous influence on the Chinese petrochemical industry.

However, they would rather take the oil price rise as a chance, which is hard to come by. On the one hand it has vitalized the Chinese petrochemical industry as a whole while on the other "a slight inflation would help motivate the consumption." "The oil price rise will probably offer the Chinese petrochemical industry an opportunity to reshuffle, thereby taking up again the oil market," said Chen Huai.

As Chen Huai introduced, at the moment the world oil output amounts to 3.3 billion tons but the oil processing capacity has reached 4 billion tons. There is a processing capacity of one billion tons in China's peripheral areas, of which Japan comes to 0.26 billion tons, China 0.3 tons (including 60 million tons in Taiwan), 80 million tons in Singapore and 40 million tons in Indonesia.

"Though the oil price rise will exert pressure on us there's still somebody else who's under a pressure heavier than us," held Chen Huai. China has a population of 1.3 billion. Our byproducts still enjoy a broad market though the oil price has got up. However, to whom the petrochemical products of other countries are sold," Chen Huai raised the question.

By People's Daily Online

asia.reuters.com Wed March 19, 2003 09:13 AM ET By Tom Ashby

LONDON (Reuters) - World oil prices steadied on Wednesday after a four-day rout that knocked 18 percent off the cost of a barrel, as dealers braced for an imminent U.S. invasion of Iraq.

International benchmark Brent crude oil rebounded by 48 cents, or 1.8 percent, to $27.73 a barrel by early afternoon in London, having fallen eight percent on Tuesday.

U.S. crude futures climbed 24 cents to $31.91, following Tuesday's nine-percent drop which took prices to their lowest level in nine weeks.

"The market seems to have achieved some stability after the sharp sell-off," said Christopher Bellew, a broker at Prudential-Bache International.

"Prices are unlikely to move far from these levels until war starts."

Brent has tumbled $7, or 18 percent, in the last four trading days as uncertainty over an attack lifted and dealers bet on an easy U.S. victory. They also expect only a brief disruption to Middle East exports, which make up 40 percent of global oil trade.

Kuwaiti sources said U.S.-led troops had already moved into the demilitarized zone that straddles the border with Iraq.

The U.S. deadline for Iraqi President Saddam Hussein to quit Baghdad or face war stands at 0115 GMT on Thursday, but Saddam has already rejected the ultimatum.

All international U.N. staff, including weapons inspectors, have been evacuated from Iraq.

FEAR PREMIUM

Dealers said the four days of falls had removed some of the "fear premium" in oil prices. Saudi Oil Minister Ali al-Naimi said in an interview published on Wednesday it could be as large as $10.

"The fall indicates the market is looking beyond war. People are not expecting Saddam to have a scorched-earth policy," said Han-Pin Hsi at Deutsche Bank in Hong Kong.

Fears of a strike on Iraq and wider disruptions to Gulf supplies drove U.S. crude close to $40 last month, approaching the $41.15 record set in the buildup to the 1991 Gulf War.

During that war, prices dropped from over $30 to $20 when U.S.-led forces launched an offensive to expel Iraq from Kuwait, once it became clear Iraq would not harm oilfields in Saudi Arabia, the world's top exporter.

"If there is an early U.S. victory, I don't expect any major price increases, and it could fall further," Prudential-Bache's Bellew said.

Upside risks remain, however, if Iraq should torch its own oilfields, or if the conflict is drawn out.

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

An invasion will almost certainly close Iraqi crude output of 2.5 million barrels per day (bpd) and its southern neighbor, Kuwait may also be forced to shut some fields near its border.

Oil giant Royal Dutch/Shell said on Wednesday it had closed an oilfield in Iran, close to the Iraqi border, because of its proximity to the potential conflict zone.

The offshore Soroosh field pumps 60,000 bpd, and is the first field outside Iraq to have closed because of war fears.

IRAQ EXPORTS SLOW

Iraqi oil exports, ranked seventh largest in the world, have already slowed dramatically this week because most Western companies are unwilling to take the risk on uncertain supplies.

The United Nations said Baghdad was still permitted to export through a pipeline to the Turkish Mediterranean. One ship is expected to load there on Friday, traders said.

The OPEC oil cartel has promised to fill any supply gap caused by war, but many members have already increased supplies to their full extent. Analysts believe any prolonged outage of Iraqi supply, with some impact on Kuwait, would test the group's spare capacity to the limit.

A cold northern winter and prolonged supply hitch from Venezuela have already drained commercial stockpiles to historic lows in the world's top oil consumer, the United States.

Official figures due for release later on Wednesday are expected to show a slight build in stocks of crude, which are at lows not seen since the mid-1970s.

The United States has made preparations to release 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.

Any decision would probably be taken in tandem with the International Energy Agency, the West's energy watchdog, which monitors government oil stocks in 26 industrialized nations.

These stocks, added to reserves held by industry, could cover those countries' total import needs for 114 days.

Keiichiro Okabe, head of the Petroleum Association of Japan, said he did not expect the agency to order a release if the war ends quickly.

www.taipeitimes.com STAFF WRITER WITH AGENCIES Wednesday, Mar 19, 2003,Page 11

Petrol firm considers backup Chinese Petroleum Corp may ship crude oil to Taiwan from countries including Venezuela should its supply from the Middle East be disrupted, state-run Central News Agency said, citing unidentified company officials.

Taiwan imports almost all its oil and plans to reduce its reliance on supplies from the Middle East because of concern an invasion of Iraq could disrupt shipments.

Teco opens motor factory Teco Electric & Machinery Co opened a motor factory in China's Wuxi yesterday. The US$70 million joint venture with Taiwan's China Steel Corp, and Japan's Nippon Steel Corp, Marubeni Itochu Steel Inc, and Sumitomo Corp aims to make back its investment this year, and earn a further US$300 million over the next five years, a statement from the company said yesterday.

Teco currently has another factory in Suzhou, China and other facilities in Australia, North America, Southeast Asia and Taiwan.

Aerospace agreement signed Australian avionics maker TMC teamed up with a Taiwan aeronautics company yesterday to open a research and development (R&D) center in Taiwan.

Under the agreement signed in Taipei, TMC -- the world's third-largest avionics maker -- and Taiwan's Falcon Aerospace Corp will invest NT$350 million (US$10.2 million) to develop, manufacture and market trunk mobile radios. Trunk mobile radios can transmit voice and data messages via radio waves. The radios are designed for companies with messengers and mobile service staff.

TMC is the second foreign avionics firm to open a R&D center in Taiwan this month.

Quanta to make Toshiba laptops Quanta Computer Inc, the world's biggest supplier of notebook computers, signed on Toshiba Corp as a customer, a local newspaper said, citing unidentified Quanta officials.

Quanta expects to become in May the third Taiwanese supplier to Toshiba, which already buys laptop computers from Compal Electronics Inc and Inventec Co the report said.

Notebook computer sellers have lifted orders and pared prices with Taiwanese suppliers after Hewlett-Packard Co started a round of price cuts in recent months, the report said.

TSMC to boost production Taiwan Semiconductor Manufacturing Co (TSMC), the world's biggest supplier of made-to-order chips, expects fourth-quarter factory use to rise to 85 percent, a local newspaper reported, citing unidentified employees.

The company used 61 percent of its production equipment in the fourth quarter last year after a slump in demand for chips started in the middle of last year.

Refco, Polaris to merge Refco Group Ltd, the world's largest privately held futures broker, and Polaris Securities will merge their Taiwan futures-trading operations into a single unit, Polaris said in a statement.

Polaris will own 57.5 percent of the venture, with Refco owning the remainder.

NT dollar declines The New Taiwan dollar yesterday traded lower against its US counterpart, declining NT$0.027 to close at NT$34.730 on the Taipei foreign exchange market.

Turnover was US$430 million.