abc.net.au Fri, Feb 21 2003 5:03 PM AEDT

A senior executive of a major Australian oil firm says a number of factors are to blame for rising petrol prices.

BP Australasia president Greg Bourne says the main factor is a low oil inventory worldwide, but the cold weather in parts of the United States and a recent strike in Venezuela have also played a part.

He says the possible war with Iraq has also driven up the price of oil.

Mr Bourne's rejected claims the increases are being driven by opportunism.

"When you look at the competitive dynamic that's in the oil industry it is still highly competitive," Mr Bourne said.

"You still see the cycles, we all hate them but of course, people can take the opportunity to buy when they're at the the low and so you do see them coming right down to a low, and that cyclicity [sic] will continue, I'm absolutely sure of that."

Mr Bourne says while it may seem that the oil companies are making lots of money, they are not making huge profits.

"When you look at the return we get for the outlay, then you actually see that the profitability is not that great and indeed, if you look at all of the information that's been coming out from the Federal Government or any of the studies, it all says this is a highly efficient industry, it's not very profitable," Mr Bourne said.

"There's probably going to be some rationalisation in it - you know, it is tough."

news.ft.com By Carola Hoyos Published: February 21 2003 4:00 | Last Updated: February 21 2003 4:00

As President George W. Bush presses ahead with his plans to topple Saddam Hussein, the oil world is preparing for what many foresee as the dramatic effects of any return by Iraq to the international market.

"The re-emergence of Iraq will be of historic significance, because of the scale of the resources and because of the realignment it may portend among the major oil exporters," says Daniel Yergin, chairman of Cambridge Energy Research Associates (Cera), a consulting group.

Fadhil Chalabi, a former Iraqi oil minister and a second cousin of the Iraqi opposition leader Ahmed Chalabi, goes further. He predicts that Iraq could within five years rival the dominant position of Saudi Arabia, which controls 260bn barrels of crude oil reserves, more than 20 per cent of the world's total and the majority of its spare capacity.

Iraqi oil officials suspect the country's 112.5bn barrels of proven crude oil reserves - the world's second largest after Saudi Arabia - would top 300bn barrels once Iraq's entire acreage was mapped.

And unlike the Caspian region - the "great new frontier" of the 1990s - Iraq's crude oil is easier to access and to export. Iraq has the added advantage of being able to transport much of its output through the Mediterranean via a pipeline to Turkey - a flexibility other Middle East producers lack.

The need for more reliable sources of oil has become acutely apparent, to Washington in particular, in the past two months as political turmoil in Venezuela halted 15 per cent of the US's usual import stream.

Neo-conservatives have lobbied for the US to reduce its dependence on Saudi Arabia, since it emerged that 15 of the 19 hijackers involved in the September 11 terrorist attacks in 2001 hailed from the kingdom.

The US relies on the kingdom for one sixth of its oil imports and depends on it as the only producer that, with a usual spare capacity of up to 3m b/d, could boost its exports significantly in the event of a world crude oil shortage.

That dependence could change drastically if Iraq were finally able - after decades of wars and sanctions have left many oilfields undiscovered and much of its infrastructure destroyed - to fulfil its true potential.

"Iraq needs to be seen as a part of the larger emerging contest between Russia and the Caspian on one side and the Middle East on the other side as to who will add more capacity to meet the growing world's demand," says Mr Yergin, author of The Prize: The Epic Quest for Oil, Money and Power.

After the collapse of the Soviet Union, international oil companies flocked to the Caspian region, tempted by possible total reserves of more than 200bn barrels and potential exports of more than 3m b/d by 2010.

Meanwhile, Russia began to resurrect the production it lost throughout the 1980s and 1990s, pushing it to more than 7m b/d within eight years and steadily eating away at Saudi Arabia's share of the world market. More recently, presidents Putin and Bush announced a strategic partnership between the two countries and BP this month signed a $6.8bn (€6.3bn, £4.3bn) deal to create Russia's third-largest energy company.

Nevertheless, bottlenecks from Russia's pipelines to its ports and an inhospitable business environment make the country a long-term bet rather than a short-term possibility in terms of investment and strategic oil supply, in the eyes of many oil executives.

Whether the same must be said for Iraq depends on many "unknowable factors", as one oil company director put it. Would the country's transition be a smooth one, or would Iraq disintegrate into political turmoil? Would Saddam Hussein, who last month appointed Sameer Aziz al-Naji, a ruthless Ba'athist commander, as his new oil minister, destroy Iraq's oilfields as he retreated?

Vera De Ladoucette, of Cera, warns it could take Iraq two to three years to restart production after a damaging war.

But Mr Chalabi takes an optimistic view, dividing Iraq's investment needs into two phases: recovery and development. The first phase, which would probably last one to two years, would see Halliburton, Schlumberger and other service companies helping Iraq restore its production from the current 2.5m b/d average to 3.5m b/d, a volume it last saw in July 1990, just before it invaded Kuwait.

The second, the development phase, would include the world's biggest oil companies, among them BP, Total, ChevronTexaco, Exxon/Mobil, Shell, Lukoil and Eni, vying for lucrative production sharing contracts with the new government.

Mr Chalabi estimates Iraq's production capacity could increase by another 4.5m barrels per day by 2008, eventually reaching 10m bpd and possibly surpassing Saudi Arabia and Russia to 12m. Others are far more pessimistic.

"This isn't going to happen overnight. It can't. We are going to have to be patient," says James Simpson, managing director for the Middle East and North Africa for ChevronTexaco.

Adam Sieminksi, analyst at Deutsche Bank, says a large increase would be theoretically possible, but he believes Iraq, unwilling to risk severely depressing world oil prices, would choose to move much more slowly. In a recent report he concluded: "In theory, new investment could add a mind-bending 4.7m b/d to Iraq's capacity. In reality, this looks more like a 20-year investment trend and extremely unlikely to come on stream over a short period of time."

Still, Iraq's desperate need for money to reconstruct an economy ravaged by sanctions would probably encourage deals, analysts say. Adding to the burden is the country's $140bn debt and the possibility that the US could demand that a new regime help pay for the cost of the war.

What type of oil policy Iraq would then follow is as unclear as who would run the country. Even if Iraq did not maintain a similar policy of voluntarily shutting in some of its production to act as aswing producer, an aggressive production growth policy could have huge ramifications for the future of Opec.

Since 1999 the cartel has managed to maintain high oil prices by reining in production - a delicate balancing act that could be destroyed if the group's members felt their market share was in jeopardy. That would undercut prices and ultimately also reduce Iraq's returns, but it would benefit consumers, as did the discoveries in the North Sea and Alaska that helped bring down prices from the lofty heights they reached after the Iranian revolution in 1979, when Americans queued for gasoline for the first time.

Rilwanu Lukman, who recently stepped down as Opec's president and is Nigeria's presidential energy adviser, says Opec must face the reality of Iraq's return: "Sooner or later they will come back." He adds: "You have to be reasonable. If we allow Iraq in, someone is going to have to give up."

That sacrifice will probably have to be made by Saudi Arabia, which has gained the most in extra market share from Iraq's absence. How much the kingdom will be willing to rein in production will ultimately decide the future of the oil market and perhaps of Opec itself.

www.nytimes.com By TONY SMITH

SÃO PAULO, Brazil, Feb. 20 — With crude prices edging toward $40 a barrel and a shortfall looming in world production, South America's two main oil producers, Petrobras of Brazil and the Spanish-owned Repsol YPF of Argentina, might be forgiven for spotting a silver lining among the clouds of war gathering over Iraq.

Remote from the potential combat zone and convenient to the United States, both companies could find ready buyers for stepped-up oil exports and give the economies of their home countries a welcome injection of fresh petrodollars.

But in fact, analysts say, neither company can expect to reap a windfall, because of economic volatility, changing government regulations and growing political pressure to keep a lid on fuel prices at home.

Energy analysts say a war in Iraq and the continuing instability in Venezuela could combine to depress world daily oil production by 3.5 million barrels, to about 73 million barrels. Most OPEC nations are already running close to full capacity, so the shortfall would have to be made up by non-OPEC suppliers.

Increased output in Russia and Norway would probably fill part of the gap; the remainder is where the opportunity lies for Latin producers like Mexico, Brazil and Argentina.

"Anyone who is producing will benefit from higher prices," said George Beranek, an analyst at PFC Energy in Washington. "Petrobras and YPF will also benefit, provided they can get the world price."

That last proviso is crucial.

With the advent on Jan. 1 of a new left-leaning government in Brazil, Petróleo Brasileiro, as Petrobras is formally known, appears likely to lose some of the autonomy it has won over the last decade, especially regarding prices. The Brazilian state owns 56 percent of the voting shares in Petrobras and names its top management.

President Luiz Inácio Lula da Silva made two political appointments that will effectively tame Petrobras: a little-known senator, José Eduardo Dutra, will take over the company's presidency from the respected, market-friendly Francisco Gros; and Sérgio Gabrielli, an academic economist with little commercial experience, will become chief financial officer.

Petrobras's refinery prices for fuel are now 23 percent lower than those in the United States, a situation that the company cannot maintain indefinitely. To run its refineries efficiently, it must import some lighter oil to mix with its own heavy crude, and pay the going world rate for the imports.

Mr. Gabrielli said today that Petrobras would "alter prices as soon as possible" but that a recent surge in inflation might prevent the government from allowing any price increases for a while.

Despite its dependence on light-crude imports, Petrobras, Brazil's largest industrial company, has grown rapidly to become an aggressive player in global markets. Last year it was Brazil's top exporter, with much of its success coming in refined products rather than crude.

In January, it was able to double its exports of gasoline, mainly to the United States, after supplies from Venezuela all but ceased because of a nationwide strike against President Hugo Chávez.

Petrobras is producing more oil than ever — 1.62 million barrels a day early this month. According to Fabiana Fantoni, oil analyst at Tendencias, a São Paulo-based consultancy, and it has room to expand its exports of 235,000 barrels a day by about 8 percent.

Doing so might bring in $500,000 a day in extra profits, Ms. Fantoni estimated — "not an extraordinary increase, but it would certainly be good for Brazil's trade balance."

Still, she said, "Petrobras could increase its profits greatly if it kept its pricing at international levels." Though it stepped up production last year, Petrobras posted an 18 percent drop in net profit, to $2.25 billion for 2002.

After years of trade deficits, Brazil recorded a $13.2 billion surplus last year, offsetting a slide in foreign direct investment, which had financed past deficits.

At the moment, though, tackling inflation seems to be the government's prime concern. The central bank has raised interest rates twice this year, despite Mr. da Silva's campaign pledges for easier credit.

Unlike Brazil, Argentina is a net oil exporter. But it is still gingerly recovering from a four-year economic slump that broke the Argentine peso loose from its dollar-pegged moorings and upended the country's politics. And like his Brazilian counterpart, President Eduardo Duhalde has pressed his country's oil companies to limit their exports and hold the line on domestic prices to nurture the fragile domestic market.

So Repsol YPF "can only export a certain part of its production," said Ian Reid, oil analyst at UBS Warburg in London, "and there's a question mark over whether it can pass on price hikes to consumers."

What oil it can ship abroad does not earn the company what it might: there is a 20 percent tax on exports, and regulations saying that at least 30 percent of export revenue must be brought back to Argentina to be spent or invested.

At one point, the central bank thought the figure should be 100 percent. According to an official at another oil company in Buenos Aires, there is widespread concern in the industry that the economy minister, Roberto Lavagna, wants to increase the export tax rate now that world crude prices are above $35 a barrel.

In January, Argentine oil companies reached an agreement with the government to freeze prices for three months and to supply crude to Argentine refineries at $28.50 a barrel, well below the current world price. Repsol YPF has been leading the oil sector's negotiations with the government.

news.ft.com By Carola Hoyos, Energy Correspondent Published: February 20 2003 20:59 | Last Updated: February 20 2003 20:59

As President George W. Bush presses ahead with his plans to topple Saddam Hussein, the oil world is preparing for what many foresee as the dramatic effects of any return by Iraq to the international market. "The re-emergence of Iraq will be of historic significance, because of the scale of the resources and because of the realignment it may portend among the major oil exporters," says Daniel Yergin, chairman of Cambridge Energy Research Associates (Cera), an industry consulting group.

Fadhil Chalabi, a former Iraqi oil minister and a second cousin of the Iraqi opposition leader Ahmed Chalabi, goes further. He predicts that Iraq could within five years rival the dominant position of Saudi Arabia, which controls 260bn barrels of crude oil reserves, more than 20 per cent of the world's total and the majority of its spare capacity.

Iraqi oil officials suspect the country's 112.5bn barrels of proven crude oil reserves - the world's second largest after Saudi Arabia - would top 300bn barrels once Iraq's entire acreage was mapped.

And unlike the Caspian region - the "great new frontier" of the 1990s - Iraq's crude oil is easier to access and to export. Iraq has the added advantage of having the ability to transport much of its output through the Mediterranean via pipeline to Turkey in case of turmoil in the Gulf - a flexibility many other Middle East producers lack.

The need for more reliable sources of oil has become acutely apparent, to Washington in particular, in the past two months as political turmoil in Venezuela halted 15 per cent of the US's usual import stream.

Neo-conservatives have lobbied for the US to reduce its dependence on Saudi Arabia, since it emerged that 15 of the 19 hijackers involved in the September 11 terrorist attacks in 2001 hailed from the kingdom.

The US relies on the kingdom for one sixth of its oil imports and depends on it as the only producer that, with a usual spare capacity of up to 3m b/d, could boost its exports significantly in the event of a world crude oil shortage.

That dependence could change drastically if Iraq were finally able - after decades of wars and sanctions have left many oilfields undiscovered and much of its infrastructure destroyed - to fulfil its true potential.

"Iraq needs to be seen as a part of the larger emerging contest between Russia and the Caspian on one side and the Middle East on the other side as to who will add more capacity to meet the growing world's demand," says Mr Yergin, author of The Prize: The Epic Quest for Oil, Money and Power.

After the collapse of the Soviet Union, international oil companies flocked to the Caspian region, tempted by possible total reserves of more than 200bn barrels and potential exports of more than 3m b/d by 2010.

Meanwhile, Russia began to resurrect the production it lost throughout the 1980s and 1990s, pushing it to more than 7m b/d within eight years and steadily eating away at Saudi Arabia's share of the world market. More recently, presidents Putin and Bush announced a strategic partnership between the two countries and BP this month signed a $6.8bn (€6.3bn, £4.3bn) deal to create Russia's third-largest energy company.

Nevertheless, bottlenecks from Russia's pipelines to its ports and an inhospitable business environment make the country a long-term bet rather than a short-term possibility in terms of investment and strategic oil supply, in the eyes of many oil executives.

Whether the same must be said for Iraq depends on many "unknowable factors", as one oil company director put it. Would the country's transition be a smooth one, or would Iraq disintegrate into political turmoil? Would Saddam Hussein, who last month appointed Sameer Aziz al-Naji, a ruthless Ba'athist commander, as his new oil minister, destroy Iraq's oilfields as he retreated?

Vera De Ladoucette, of Cera, warns it could take Iraq two to three years to restart production after a damaging war.

But Mr Chalabi takes an optimistic view, dividing Iraq's investment needs into two phases: recovery and development. The first phase, which would probably last one to two years, would see Halliburton, Schlumberger and other service companies helping Iraq restore its production from the current 2.5m b/d average to 3.5m b/d, a volume it last saw in July 1990, just before it invaded Kuwait.

The second, the development phase, would include the world's biggest oil companies, among them BP, Total, ChevronTexaco, Exxon/Mobil, Shell, Lukoil and Eni, vying for lucrative production sharing contracts with the new government.

Mr Chalabi estimates Iraq's production capacity could increase by another 4.5m barrels per day by 2008, eventually reaching 10m bpd and possibly surpassing Saudi Arabia and Russia to 12m. Others are far more pessimistic.

"This isn't going to happen overnight. It can't. We are going to have to be patient," says James Simpson, managing director for the Middle East and North Africa for ChevronTexaco.

Adam Sieminksi, analyst at Deutsche Bank, says a large increase would be theoretically possible, but he believes Iraq, unwilling to risk severely depressing world oil prices, would choose to move much more slowly. In a recent report he concluded: "In theory, new investment could add a mind-bending 4.7m b/d to Iraq's capacity. In reality, this looks more like a 20-year investment trend and extremely unlikely to come on stream over a short period of time."

Still, Iraq's desperate need for money to reconstruct an economy ravaged by sanctions would probably encourage deals, analysts say. Adding to the burden is the country's $140bn debt and the possibility that the US could demand that a new regime help pay for the cost of the war.

What type of oil policy Iraq would then follow is as unclear as who would run the country. Even if Iraq did not maintain a similar policy of voluntarily shutting in some of its production to act as a swing producer, an aggressive production growth policy could have huge ramifications for the future of Opec.

Since 1999 the cartel has managed to maintain high oil prices by reining in production - a delicate balancing act that could be destroyed if the group's members felt their market share was in jeopardy. That would undercut prices and ultimately also reduce Iraq's returns, but it would benefit consumers, as did the discoveries in the North Sea and Alaska that helped bring down prices from the lofty heights they reached after the Iranian revolution in 1979, when Americans queued for gasoline for the first time.

Rilwanu Lukman, who recently stepped down as Opec's president and is Nigeria's presidential energy adviser, says Opec must face the reality of Iraq's return: "Sooner or later they will come back." He adds: "You have to be reasonable. If we allow Iraq in, someone is going to have to give up."

That sacrifice will probably have to be made by Saudi Arabia, which has gained the most in extra market share from Iraq's absence. How much the kingdom will be willing to rein in production will ultimately decide the future of the oil market and perhaps of Opec itself.

allafrica.com February 19, 2003 Posted to the web February 20, 2003 Augustine Beecher Freetown

The Management of the three major oil importing companies in the country, National Petroleum Company, Safecom and Mobil Sierra Leone Ltd. have decided to make price increases on their petroleum products with immediate effect.

The increases, which were announced during a press briefing yesterday, 17th February 2003 at the NP House in Freetown by the managers of the three oil importing companies in the country, were made in recognition of the changes that have taken place in the oil market since increase were last efected locally in October last year.

According to Mr. Vincent Kanu, Managing Director of the National Petroleum Company, the shortage experienced by the nation in the past weeks has been a result of negative development on the world oil market, prominent among which are the United States proposed war with Iraq (between the biggest oil consumer in the world and one of the biggest oil producers), the three-month long strike by oil workers in Venezuela, and the ongoing political crisis in the Ivory Coast.

These factors have not only led to a shortage of oil products on the local and world iol markets, the NP Managing Director said, but has also forced the prices of these products upwards.

With regards to the local market, Mr. Kanu disclosed that since December when the prices began to go up on the world market, two major local oil companies NP and Mobil have incurred over Le2 (two billion leones) due to their refusal to increase prices on the local market.

They have however been forced to increase prices this time, not because of their insensitivity to the plight of the people, which is always paramount, but because they can not continue to take the losses associated with the uncertainties of the oil industry.

The three local oil companies have hence decided, without any interference from the government, to increase the prices of basic petroleum products with immediate effect.

In this regard, Petrol now cost Le6, 050 (six thousand and fifty leones); Diesel, Le 6, 000 (six thousand leones); Kerosene, Le4, 750 (four thousand seven hundred and fifty leones) and Fueloil at Le3, 305 (three thousand three hundred and five leones).

The oil officials explained that to arrive at the current prices, both the local exchange rate and the international market price for oil were considered, along with the state of the current world events and the impact of the increases on the general populace.

The companies also consulted and collaborated with the Petroleum Unit, which is supposed to monitor the local oil industry operations, in their decision to make the price increases.

In a public announcement, the companies assured the public of the industry's commitment to rendering reliable and effective service at all times, and apologized for the temporary disruption in the supply of petrol to the public.

The officials present at the briefing were Mr. Vicent Kanu of the National Petroleum Company, Mr. Quincy Hegan, General Manager of Mobil Sierra Leone Limited, Mr. A.B. Ndoeka, Managing Director of Safecon, and Mr.

Tunde Cole of National Petroleum.