www.nationalpost.com Claudia Cattaneo Financial Post Friday, March 14, 2003

Canada and the United States have had lots to fight about recently. But there's one area where our relationship with the United States has never been stronger: energy.

Over the coming months, both countries will have the opportunity to build on it -- or watch it flounder.

George W. Bush cares deeply about energy and his country is again pushing forward legislation to boost continental energy sources so it can reduce its dependence on the Middle East.

Canada has a lot to gain if the United States successfully designs a continental energy strategy. Despite tensions on other fronts, such as the war with Iraq and softwood lumber, Canada must re-enforce it wants to be a secure and growing supplier of energy for the United States.

Said Robert Ebel, director of the energy program at the Centre for Strategic & International Studies in Washington, "Canada has to stress to the United States and the consumers in the U.S. that Canada is our largest supplier of oil, and that virtually all of our imported natural gas, and Canada has proven to be a reliable source of supply that we really don't have to worry about. It also needs to stress that Canada understands the need for more natural gas in the United States and will do what it can to meet that growing demand, which is going to be met largely through imports, since we are not going to be able to develop our own gas supplies."

The United States, too, can do its part by refusing to take steps that would hurt Canada's energy industry -- such as rejecting calls for tax credits to facilitate construction of a natural gas pipeline from Alaska. The controversial proposals died in Congress last year, but ConocoPhillips, which has large reserves in Alaska, is again asking Washington to help make an Alaska Highway pipeline viable by minimizing commodity price risks through tax credits.

The unfortunate part is that detrimental initiatives like government incentives could end up being supported by some U.S. legislators because of a lack of awareness of the role Canada can play in meeting U.S. energy security needs.

"It's disappointing that there is not more appreciation," said one Washington insider. "I think Canada is taken for granted."

Energy ties between Canada and the United States have been strong for a simple reason: we want their markets as badly as they want our resources.

Already, this strong relationship has led to a fully integrated natural gas market. The financial community, in fact, increasingly looks at the industry as borderless.

And, thanks in part to strong energy prices, both countries are blessed with strong and growing players. Canadian companies like EnCana Corp. have a big presence in the United States, while large U.S. companies have become large entities in Canada.

The large U.S. presence in the Canadian oilpatch has recently helped strengthen ties, along with defusing flashpoints such as the Alaska subsidy issue. U.S. companies with large interests in Canada's Mackenzie Delta such as ExxonMobil Corp. and Devon Energy Corp., for example, aligned themselves with Canada last year, pressing their case in Washington, where they have more clout than Canadian companies.

It's also an area where Canadian politicians have fared particularly well. Even the Canadian Association of Petroleum Producers has been happy with the efforts of Jean Chrétien, federal Cabinet ministers such as Herb Dhaliwal, and provincial premierssuch as Ralph Klein in fostering a healthy energy relationship.

Canada has benefited by becoming the largest supplier of energy to the United States.

Canada rose to No. 1 supplier of oil and refined products to the United States in 1999, shipping 1.9 million barrels a day, moving ahead of Saudi Arabia, Mexico, and Venezuela.

Canada also accounts 94% of U.S. imports of natural gas, shipping 10.4 billion cubic feet a day, or about two thirds of its production.

North American energy markets are working so well, in fact, all Canada may need to do is public relations -- ensure the United States understands that when it comes to energy, Canada is on side, capable and willing.

ccattaneo@nationalpost.com

www.whtm.com Friday March 14, 2003 3:51pm

DJIA  38.00   NASQ  0.44   S&P  0.03%

U.S. Backed Resolution On Iraq Appears Doomed London (AP) - If U.S.-led forces invade Iraq, world oil prices will probably plunge from current levels and stay there - so long as the conflict ends quickly and causes little damage to production capacity in the Persian Gulf, several energy analysts said Friday. However, a war that spills into neighboring countries or one in which Saddam Hussein sabotages his own oil fields could panic markets and trigger a spike in prices to $50 or even $60 a barrel, some said. The wide range of forecasts is a sign of the difficulty analysts face in trying to envision how markets will react to a war of unpredictable severity. Fighting might be over in a few days, or it might erupt into a regional conflagration that affects crude exports from Kuwait and even Saudi Arabia. How OPEC and oil-importing countries respond to a war will also have a great influence on prices. Perhaps the only certainty is that markets will welcome any move that keeps supplies flowing. Crude prices fell Friday on reports that Saudi Arabia's state-run oil company Saudi Aramco had chartered supertankers to carry an exceptionally large shipment of crude - 28 million barrels - to the United States for delivery in May. April contracts of U.S. light, sweet crude tumbled by more than $2 a barrel in New York before rebounding somewhat to $34.90, down $1.11 from Thursday's close. In London, North Sea Brent crude futures were trading 98 cents lower at $31.45. Analysts say that fears of a wartime disruption in supply have swollen crude prices by at least $5 a barrel. This so-called war premium has increased along with tensions in the Persian Gulf because markets worry that hostilities with Iraq will paralyze that country's 2 million barrels in daily oil shipments. Although prices might rise in the last hours before any actual outbreak of hostilities, several analysts predicted that an attack on Iraq would knock the floor out from beneath the market - just as it did when coalition forces launched Operation Desert Storm on Jan. 16, 1991. Futures contracts of U.S. light, sweet crude plummeted by $10.90 a barrel on Jan. 17, 1991 to close in New York at $21.30. "History would suggest that oil prices would go down fairly rapidly, maybe $5-7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland. He believes that markets will be awash in crude after a swift war, particularly if Venezuela continues to recover from an oil industry strike and other members of the Organization of Petroleum Exporting Countries keep busting their output quotas. For the second half of the year, ING Financial Markets foresees an average Brent crude price of $18.50 a barrel. "We are adamant that oil prices will fall," McPhail said. Matthew Cordaro, an energy specialist at Long Island University, in Brookville, N.Y., argued that U.S. crude prices would fall to $25-28 a barrel "within a couple of days" of the start of a war. Prices might fall by an additional $2 a barrel beyond that, Cordaro said, if President Bush authorizes a release of crude from the U.S. Strategic Petroleum Reserve, or SPR. U.S. Energy Secretary Spencer Abraham has repeatedly emphasized that the United States will tap into its 600 million barrels of strategic reserves only if it sees a serious disruption in crude supplies. A short war that didn't impair Iraq's ability to soon resume exporting oil would probably not warrant a release of SPR oil, Cordaro said. The first line of defense for importing countries in the event of a war would be an increase in OPEC oil production. OPEC this week estimated its spare production capacity at 2-4 million barrels a day, but the International Energy Agency said that OPEC might not be able to raise output quickly by more than 1 million barrels. The agency is the energy watchdog for major consuming countries. Adam Sieminski, an oil price strategist at Deutsche Bank in London, argued that the Bush administration would most likely tap into U.S. strategic reserves in a war. If not, he said, "Bush will win the war but lose the 2004 election." With no SPR oil, Sieminski said it was impossible to predict how high prices could go. "Who knows? It's going to be much higher than it is now, with consequent damage to the world economy," he said. In a worst-case scenario, a wider war could inflame regional hostility to the United States and lead to another Arab oil embargo. Prices might then spike to as much as $60 a barrel, said Rob Laughlin, managing director of London brokerage GNI Man Financial. Former Saudi Arabian oil minister Sheikh Zaki Yamani agreed, telling an industry conference Friday that prices could exceed $50 a barrel if supplies from neighboring countries such as Kuwait and Saudi Arabia were interrupted. However, Yamani said that a short and successful war against Iraq could push prices to under $25 a barrel.

www.iribnews.com 3/15/2003 8:16:17 AM

Tehran, March 15 - Recent memories in oil markets delineates the fact that crude prices have flactuated by causes other than genuine changes in supply and demand. When the Islamic Republic, for instance, gained triumph in Iran and followed by the flare-up of an 8-year war imposed on Iran the oil prices were pushed up to 38 dollar per barrel in the year 1982. In the year 1992, oil leapt towards hikes of 40 dollars pb from an original 15 dollars after US launched assault on the oil giant Iraq. But heavy slumps at that time followed the jumps after such temporary shocks eased pressure, bringing sharp declines in revenues of oil producing countries which themselves sparked serious economic crises in those states. Mulling the facts on the ground, the giant oil producer organisation, OPEC, would take excessive care in its crude policy with a downbeat look on the market. The approach makes sense for a raft of reasons. OPEC eased taps for an additional 3.5 million barrels in supply during the recent months to see a balanced world market. Not taking the excess into account, some 3.1 million barrels of spare production go daily into market stranded. Venezuela, the third world oil supplier, has made a comeback to scales after months of tense political situation. Pundits forcast a seasonly 2 million bpd fall in demands when warm season comes. The last but not the least is that the minister in charge of the oil affairs of world's biggets consumer, the United States, has hinted lately at making use of US strategic oil reserves with an eye to conditions ongoing in the market. All in all, oil producers would feel no sagation to have any increase in supplies, if deciding to flee from effects of a future flactuated mart.

www.ohio.com Posted on Fri, Mar. 14, 2003 BRUCE STANLEY Associated Press

LONDON - If U.S.-led forces invade Iraq, world oil prices will probably plunge from current levels and stay there - so long as the conflict ends quickly and causes little damage to production capacity in the Persian Gulf, several energy analysts said Friday.

However, a war that spills into neighboring countries or one in which Saddam Hussein sabotages his own oil fields could panic markets and trigger a spike in prices to $50 or even $60 a barrel, some said.

The wide range of forecasts is a sign of the difficulty analysts face in trying to envision how markets will react to a war of unpredictable severity.

Fighting might be over in a few days, or it might erupt into a regional conflagration that affects crude exports from Kuwait and even Saudi Arabia. How OPEC and oil-importing countries respond to a war will also have a great influence on prices.

Perhaps the only certainty is that markets will welcome any move that keeps supplies flowing.

Crude prices fell Friday on reports that Saudi Arabia's state-run oil company Saudi Aramco had chartered supertankers to carry an exceptionally large shipment of crude - 28 million barrels - to the United States for delivery in May. April contracts of U.S. light, sweet crude tumbled by more than $2 a barrel in New York before rebounding somewhat to $34.90, down $1.11 from Thursday's close. In London, North Sea Brent crude futures were trading 98 cents lower at $31.45.

Analysts say that fears of a wartime disruption in supply have swollen crude prices by at least $5 a barrel. This so-called war premium has increased along with tensions in the Persian Gulf because markets worry that hostilities with Iraq will paralyze that country's 2 million barrels in daily oil shipments.

Although prices might rise in the last hours before any actual outbreak of hostilities, several analysts predicted that an attack on Iraq would knock the floor out from beneath the market - just as it did when coalition forces launched Operation Desert Storm on Jan. 16, 1991.

Futures contracts of U.S. light, sweet crude plummeted by $10.90 a barrel on Jan. 17, 1991 to close in New York at $21.30.

"History would suggest that oil prices would go down fairly rapidly, maybe $5-7 a barrel, probably within one day," said Angus McPhail, an analyst at ING Financial Markets in Edinburgh, Scotland.

He believes that markets will be awash in crude after a swift war, particularly if Venezuela continues to recover from an oil industry strike and other members of the Organization of Petroleum Exporting Countries keep busting their output quotas. For the second half of the year, ING Financial Markets foresees an average Brent crude price of $18.50 a barrel.

"We are adamant that oil prices will fall," McPhail said.

Matthew Cordaro, an energy specialist at Long Island University, in Brookville, N.Y., argued that U.S. crude prices would fall to $25-28 a barrel "within a couple of days" of the start of a war.

Prices might fall by an additional $2 a barrel beyond that, Cordaro said, if President Bush authorizes a release of crude from the U.S. Strategic Petroleum Reserve, or SPR.

U.S. Energy Secretary Spencer Abraham has repeatedly emphasized that the United States will tap into its 600 million barrels of strategic reserves only if it sees a serious disruption in crude supplies. A short war that didn't impair Iraq's ability to soon resume exporting oil would probably not warrant a release of SPR oil, Cordaro said.

The first line of defense for importing countries in the event of a war would be an increase in OPEC oil production. OPEC this week estimated its spare production capacity at 2-4 million barrels a day, but the International Energy Agency said that OPEC might not be able to raise output quickly by more than 1 million barrels. The agency is the energy watchdog for major consuming countries.

Adam Sieminski, an oil price strategist at Deutsche Bank in London, argued that the Bush administration would most likely tap into U.S. strategic reserves in a war. If not, he said, "Bush will win the war but lose the 2004 election."

With no SPR oil, Sieminski said it was impossible to predict how high prices could go.

"Who knows? It's going to be much higher than it is now, with consequent damage to the world economy," he said.

In a worst-case scenario, a wider war could inflame regional hostility to the United States and lead to another Arab oil embargo. Prices might then spike to as much as $60 a barrel, said Rob Laughlin, managing director of London brokerage GNI Man Financial.

Former Saudi Arabian oil minister Sheikh Zaki Yamani agreed, telling an industry conference Friday that prices could exceed $50 a barrel if supplies from neighboring countries such as Kuwait and Saudi Arabia were interrupted.

However, Yamani said that a short and successful war against Iraq could push prices to under $25 a barrel.

www.msnbc.com

LONDON, March 14 — World oil prices spiraled down on Friday as the United States hinted it was prepared to use force against Iraq regardless of the U.N. and said it reserved the right to make a unilateral release of oil from its reserves in any supply emergency. The market was also encouraged by news that OPEC powerhouse Saudi Arabia had snapped up 14 tankers to move a massive 29.5 million barrels of crude oil to the U.S. Gulf for May delivery.

	       U.S. LIGHT CRUDE by 1800 GMT was off $1.11 at $34.90 a barrel, an eight percent fall in two days as a series of automatic sell stops were triggered on New York Mercantile Exchange futures. London Brent fell $1.28 to $31.15 a barrel an eight-week low.

       U.S. Energy Secretary Spencer Abraham said on Friday Washington reserves the right to make a unilateral release of crude from the nation’s Strategic Petroleum Reserve.        Abraham told reporters that while Washington would first consult with the Paris-based International Energy Agency (IEA), the energy adviser to 26 industrialized countries, a release need not be part of a coordinated drawdown.        “We made it clear that we would engage in consultation as we belong to the IEA for a reason,” said Abraham. “But certainly the U.S. always reserves its right to make its own ultimate decision of what it’s going to do with our reserves.”        Abraham was speaking after Japan said it was considering a unilateral release from emergency stocks in the event of war.        Abraham repeated that OPEC producers would be given first chance at filling any supply disruption during war, before it considering releasing its emergency stocks.        Thursday’s slump came after the United States and Britain pushed back until next week a deadline for a new U.N. resolution on Iraq and forecasts of warmer weather in the Northeast U.S. sent heating oil prices tumbling.        Analysts said market perception seemed to be shifting towards the view that a war on Iraq, which traders believe is imminent and will be short, will be contained and not seriously affect oil flows from the Middle East as a whole, which supplies 40 percent of the world’s traded oil.        “Last time in the 1991 Gulf War there was a big collapse when the shooting started and perhaps this time traders are getting in ahead of the game,” said Christopher Bellew, analyst at Prudential-Bache International.

 Bush, allies plan emergency summit        Analysts say timing is now key for the war because oil demand is generally two million barrels per day (bpd) lower in the second quarter of the year as spring advances. The loss of roughly two million bpd of Iraqi crude would therefore not be as acutely felt.        The United States says that it could go to war on Iraq without clear United Nations backing but Russia, Germany and France all refused on Friday to drop their opposition to rapid military action.        U.S. Secretary of State Colin Powell told a congressional committee there might be no vote at all on the resolution, widely seen as a war trigger — a sign that Washington fears it might not get enough support at the international body.         SAUDI SHIPMENTS        The tankers booked by Saudi Arabian, to move 29.5 million barrels, represent additional spot tanker bookings over and above normal demand and term contracts.        “It’s a huge volume, yes,” one broker said.        The bookings made by Vela International Marine, state oil company Saudi Aramco’s chartering arm, indicate that its own large fleet is already fully employed.        Oil traders said the volume shows Riyadh will keep supplies running high into May after a sharp increase in recent months to fill shortages from OPEC producer Venezuela and allay possible supply disruption fears ahead of a possible second Gulf War.        Saudi Arabia has raised output by more than a million barrels per day since the start of the year and is likely to average more than nine million barrels per day in March of its 10.5 million bpd capacity.        Brokers said 11 of the tankers booked to load between 27 April and 18 March had so far been confirmed. It takes up to five weeks to reach the United States from the Gulf.        Some four other Very Large Crude Carriers representing some 1.12 million tons of crude, booked under Tankers’ International, were on subjects and had still to be confirmed by the charterer, brokers said.         YAMANI WARNS OF $50 OIL        Despite the short-term easing in oil prices, Saudi Sheikh Zaki Yamani, famed as the face of OPEC during the oil price shocks of the 1970s, warned on Friday a war on Iraq could drive oil above $50 a barrel and wreck the world economy.        “If the absence (of Iraqi crude) is long enough and it can’t really be corrected and reduced by strategic reserves, prices can go to a very horrible ceiling and the price will be above $50,” the former Saudi oil minister told journalists on the sidelines of a seminar organized by his London-based thinktank, the Centre for Global Energy Studies (CGES).        “It will ruin the world’s economy.”

       U.S. oil prices surged to nearly $40 a barrel on fear that a U.S.-led war could disrupt Baghdad’s 1.7 million barrels per day (bpd) of exports, but have since calmed to around $34 after OPEC kingpin Saudi Arabia promised to make up any shortfall.        Asked how much war premium was factored into prices, Yamani said: “You can’t really quantify.” But he added there were also fundamental reasons for current price strength, such as low U.S. oil inventories, which have fallen to a 27-year low.        Yamani said prices would fall to less than $25 a barrel if any conflict were short and did not do any permanent damage to oilfields, but he doubted OPEC could make up in the short-term for any outage of Iraqi supplies.        “With the absence of Iraqi crude from the market for some time, I don’t think OPEC will really stand up to the present offer to make up for the difference, especially if the Venezuelan problems are not solved quickly,” Yamani said.        Asked later by journalists if that meant that the International Energy Agency (IEA) and its leading member the United States would have to tap into emergency stockpiles to meet demand, he said: “I hope so, I think they have to.”        Both the Paris-based IEA and Washington have indicated a preference for OPEC to meet any shortfall on its own, although both remain ready to act swiftly should extra oil be needed.        Among the worst case scenarios would be if Iraqi President Saddam Hussein set out to destroy Iraqi oil wells, something the Iraqi leader has denied he would do, though Yamani said he didn’t take Saddam’s denial very seriously.        He cited research that because pressure in Iraq oil wells was low — in contrast with Kuwaiti wells torched by Saddam during the Gulf War — setting fire to them could destroy them for good.         DEATH OF OPEC?

Playing now: • Consumer sentiment hits decade low • Saudi Arabia books extra oil tankers for U.S. • MasterCard seeks separate antitrust trial       Provided, however, any war ended quickly and damage to oilfields was limited, prices could slump and the producers’ cartel, the Organization of the Petroleum Exporting Countries (OPEC) could lose its power.        “OPEC has a lot of problems... OPEC has to reduce production in order to stabilize prices. To what extent can Saudi Arabia continue to reduce production I don’t know. OPEC has problems even without a war,” Yamani said.        Should foreign investment pour into Iraq, production could soar, heralding an era of far cheaper oil.        “Foreign oil companies injecting billions of dollars have to have a return on their investment, Iraq will produce without restriction,” Yamani said.        CGES Executive Director Fadhil Chalabi went further saying a post-Saddam Iraq could emerge as “a super-giant oil producer and exporter,” leading the world oil supply map to be redrawn and transforming the international oil industry.        Since the price shocks of the 1970s, there has been a shift away from the Gulf, where oil is cheapest to find and produce and to new areas where the development cost is higher, but supplies are seen as more secure.        Opening up Iraq could reverse this, Chalabi said.        In six-to-eight years, Iraq could reach production capacity of at least eight million barrels per day (bpd) from its present known recoverable reserves, estimated at 112 billion barrels.        The CGES believes reserves could reach as much as 200 billion barrels.        But Chalabi said Iraq’s oil, severely under exploited in the past, would only see rapid development with radical reform, including partial privatization of the nation’s oil industry.