Friday, May 16, 2003

LONDON (News Tribune-AP) -- With OPEC mulling cuts in summer crude production, an already low level of oil inventories in major importing nations raises a risk of volatile gasoline prices as the peak driving season approaches, the International Energy Agency said Tuesday.

The U.S.-led war in Iraq interrupted crude output in that country and contributed in April to a decline in world oil production of 1.4 million barrels, or 1.8 percent. Although other members of the Organization of Petroleum Exporting Countries boosted their output to prevent a shortage, the IEA argued that some exaggerated their production levels and are making prices more unstable as a result.

"Unless producers continue to meet market needs, precariously tight first-quarter stocks will set the stage for tensions in the summer gasoline and the winter heating oil seasons. Crude and product stocks need time to rebuild," the agency said in its monthly Oil Market Report.

The IEA is the energy watchdog for the world's biggest oil-importing countries. It assesses market conditions but refrains from predicting their effect on prices.

"I think the chances are that gasoline prices will remain quite strong through the summer," said analyst Steve Turner of Commerzbank Securities in London. "I think we can just about avoid a spike if there are no nasty surprises" such as unscheduled refinery shutdowns, he said.

Total inventories of oil and refined products fell sharply, by 1.4 million barrels a day, during the first quarter. By contrast, inventories declined by just 300,000 barrels a day during the same period of 2002, and 100,000 barrels in 2001, the IEA said.

Crude inventories alone grew slightly during the quarter, as OPEC pumped more oil to offset the loss of exports from Nigeria and Venezuela. However, inventories of heating oil and other refined products plunged. The net result was that combined inventories were well below their five-year averages among all major importing countries, the agency said.

This supply pinch developed even before the war on Iraq, which halted Iraqi exports of about 2 million barrels a day, it said.

Peter Gignoux, managing director of the petroleum desk at Salomon Smith Barney, said inventories remain squeezed but attributed this partly to refiners who are putting off crude purchases in anticipation of a further slide in U.S. prices. Many buyers expect U.S. oil to fall to $24 a barrel, he said.

Average U.S. crude prices tumbled by 16 percent in April, and 6 percent in March, the IEA said. June contracts of light, sweet U.S. crude were up 93 cents at $28.28 a barrel in afternoon trading Tuesday in New York.

Members of OPEC, which pumps about one-third of the world's crude, have said they are considering cutting production when they meet next month in Doha, Qatar. The IEA said such a move would worsen price volatility.

The agency noted that no "tidal wave" of crude supplies has developed, despite a surge in OPEC production on the eve of the war and a seasonal decrease in demand in the second quarter. It argued that some OPEC members probably weren't pumping as much oil as they claimed and said this increased market uncertainty.

An industry source speaking on condition of anonymity said Saudi Arabia, the No. 1 crude producer, has already notified customers that it would reduce its crude deliveries in June by 14 percent to 20 percent.

World oil supplies averaged 78.42 million barrels a day in April, down from 79.82 million barrels in March. The collapse in Iraqi output shaved an average 1.27 million barrels off daily production last month. Output from the 10 OPEC members excluding Iraq rose by 167,000 barrels a day, with Venezuela and Kuwait posting the biggest gains, the report said.

The impact that Severe Acute Respiratory Syndrome is having in Asia led the IEA to trim its demand forecast for the year by 90,000 barrels a day. This cut represents almost half of the agency's earlier estimate for demand growth.

By Hil Anderson <a href=www.upi.com>UPI Chief Energy Correspondent From the National Desk Published 5/13/2003 5:37 PM

LOS ANGELES, May 13 (UPI) -- The terrorist bombs that ripped through Riyadh, Saudi Arabia, overnight helped send the price of crude in New York more than $1 higher in New York Tuesday as more bullish sentiment was added to markets already buoyed by talk of further OPEC production cuts and the usual concerns about the summer gasoline supply in the United States.

June crude broke through $28 per barrel on the New York Mercantile Exchange and settled at $28.50 per barrel, $1.15 higher on the day and the highest level since mid-April. London's International Petroleum Exchange settled $1.01 higher at $25.90 per barrel.

While traders were understandably concerned about the short-term impact of the bombing, Saudi oil installations were not affected and crude markets were already in a bullish mood before the deadly Riyadh explosions took place.

The United States continues to experience relatively low inventories levels of crude and gasoline, and the bombing comes just a day before the oil industry and the U.S. Energy Information Administration release their closely watched weekly supply reports.

Also, when OPEC meets on June 11, the cartel is expected to consider further cuts in production to offset the deflation of prices seen since the start of the war in Iraq. Cuts among the some of the 10 OPEC nations other than Iraq totaled 440,000 barrels per day, but they were virtually offset by increases by other member nations.

"For all intents and purposes the current ceiling became redundant when OPEC announced at its April 24 meeting its new higher ceiling of 25.4-mil bpd," said John Kingston, director of oil for Platts, an oil industry publication that tracks OPEC's output. "The new ceiling, even though it doesn't come into effect until June, has become the new target for OPEC."

The production figures compiled by Platts showed production increases of 390,000 bpd in Venezuela, which had been virtually shut down earlier this year by labor and political strife.

At the same time, the major cuts were led by Saudi Arabia's 260,000 bpd reduction flowed by smaller cuts by Indonesia, Iran and Nigeria.

The prospect of less crude on the market comes at a time when U.S. refiners have been hurriedly producing gasoline for an anticipated record demand during the summer driving season that unofficially begins on Memorial Day weekend.

Analysts see enough gasoline on hand and high enough production levels to avoid any sharp increases in retail prices, although, as always, unexpected disruptions could always lead to regional shortages and result in sharp spikes upward.

"Domestic gasoline markets could tighten again if world oil markets fail to continue to ease or if domestic refining and distribution facilities are disrupted in some way," the U.S. Energy Information Administration said in an analysis released late last week.

The EIA predicted that the lower crude costs would keep the nationwide average price of a gallon of regular at around $1.46 per gallon, less than 10 cents over last summer.

"The current gas price average is an encouraging development as Americans prepare for the start of the summer driving season," said Dawn Duffy, a spokeswoman for AAA. "These pump prices reflect a decline in the price of crude oil since the start of Operation Iraqi Freedom, a gradual increase in oil and gasoline production from Venezuela, and rising gasoline imports from Europe."

By Timothy Burn THE WASHINGTON TIMES

     Energy Secretary Spencer Abraham said yesterday that the Bush administration's "quiet diplomacy" kept global oil prices from skyrocketing during the war with Iraq.

     "We have emerged from that period in really much more stable and strong condition than other energy crises in the last 30 years," Mr. Abraham said in an interview with editors and reporters at The Washington Times.

     Mr. Abraham was referring to the events of the past six months, a period in which world oil prices were battered by several factors, including the threat of a U.S.-led invasion of Iraq, a nationwide strike in Venezuela that temporarily halted oil exports, a cold winter in the United States and labor unrest in Nigeria.

     Though crude oil prices rose steadily during the three months leading up to the start of fighting in Iraq, peaking at about $38 per barrel in March, prices quickly retreated below $30 as the war began. Crude closed at $26.98 on the New York Mercantile Exchange yesterday.

     "I don't think that happened by accident," Mr. Abraham said. "It happened without having to tap the [Strategic Petroleum Reserve]. It was a success, a triumph for the quiet diplomacy approach we have taken."

     Many of the world's major producers, even those that opposed the Iraq invasion, such as Russia, promised to ensure stable oil supplies during the war. Their goal was to prevent the kind of price volatility that followed other crises in the Middle East, such as the oil embargo by the Organization of the Petroleum Exporting Countries (OPEC) in 1973 that caused world oil prices to quadruple and drag down the U.S. economy.

     According to the Department of Energy, Saudi oil production, which stood at 8.8 million barrels per day in February, rose to 9.6 million barrels per day by last month, when major combat operations in Iraq ended.

     Global oil prices settled in late March once it became clear that the Iraqi military had not sabotaged its oil fields, a possibility that weighed heavily on oil markets because Iraqis had set fire to hundreds of Kuwaiti oil wells during the 1991 Persian Gulf war. Additionally, Venezuela's oil production began increasing in February after the nationwide general strike collapsed.

     The Bush administration, while it has made energy a top priority, has sought to pursue diversifying the nation's foreign sources of oil and boosting world supply through back channels and away from the media, a tactic Mr. Abraham calls "quiet diplomacy."

     By contrast, Clinton administration Energy Secretary Bill Richardson, now the governor of New Mexico, was noted for making highly publicized trips to oil-producing nations to persuade them to boost production and, thereby, hold down world oil prices.

     The Bush administration "has been much more quiet in their pronouncements," said John Felmy, chief economist with the American Petroleum Institute, an industry think tank. "So far, it looks as though the current administration has been much more successful in terms of seeing additional supplies come out."

     Mr. Abraham returned last week from a quick trip to the Middle East, where he visited with oil ministers and other high-ranking officials from Saudi Arabia and Qatar. The goal was to thank the Saudis, the world's leading oil producers, and other OPEC members, for boosting oil production in the weeks leading up to the war.

     Mr. Abraham yesterday also said the Bush administration has not given up on its goal of opening the Arctic National Wildlife Refuge in Alaska to oil drilling. Though ANWR drilling is only part of the administration's nearly $50 billion energy plan, it has caused the most debate and its future is uncertain.

     "It is baffling to me that at a time when we once again face ... crisis in the energy world that we wouldn't want to produce a little bit more here at home," Mr. Abraham said.

     The Senate began debate this week on overhauling the national energy policy. Sen. Pete V. Domenici, New Mexico Republican and chairman of the Senate Energy and Natural Resources Committee, hopes to pass an energy bill this year, after a similar effort failed last year.

     Though the Bush administration is led by two former oilmen, Mr. Bush and Vice President Dick Cheney, a past chairman of oil-services company Halliburton, Mr. Abraham noted that the president's energy priorities go well beyond petroleum. They include the following:      •"Freedom Car," a plan to spend $1.7 billion over five years to encourage the research and development of a hydrogen fuel-cell-powered car and support systems.      •"Future Gen," a 10-year plan to build the world's first totally clean coal gasification power station, which would produce electricity as well as hydrogen, and reduce the release of carbon dioxide, believed to be a source of global warming.      • "Gen Four," a program to develop a new generation of meltdown-proof nuclear reactors.      • Re-authorization of the Price-Anderson Act, which provides government-backed insurance for nuclear power plants.      • Promoting the development of clean-coal technology. Mr. Abraham plans to hold a summit in June with several countries to find ways to use coal in a "benign fashion."

Posted on Thu, May. 08, 2003 H. JOSEF HEBERT Ledger Enquirer.com-Associated Press

WASHINGTON - Energy Secretary Spencer Abraham, just back from a trip to the Persian Gulf, says a major expansion of Iraqi oil production beyond prewar levels will be impossible for years because of the condition of the country's oil industry.

While Iraqi oil exports could reach prewar levels of 1.5 million to 2 million barrels a day "within a reasonable time," expectations much beyond that are unrealistic given the damage and other shortcomings of Iraq's oil infrastructure, Abraham said Thursday in an interview with The Associated Press.

Abraham, who during his trip last week met with the oil ministers of Saudi Arabia and Qatar, said he sensed little if any anxiety among Persian Gulf producers about future Iraqi oil production. He said they recognize Iraq's production limitations and expect the country to remain in the OPEC oil cartel.

Some energy analysts, as well as some within the Iraqi exile community, have expressed hope that Iraqi exports, which have never been higher than about 3 million barrels a day, could reach 4 million to 6 million barrels a day in the near future and bring in more money to help reconstruction.

But analysts have said such an expansion also could raise concern among other producers, including Saudi Arabia, that it might drive down prices and disrupt OPEC oil marketing strategies to keep prices around $25 a barrel.

Abraham said production much beyond Iraq's prewar 2 million barrel-a-day level would require major capital investments and take years to complete.

"Speculation about massive increases in production in the near or reasonably near future is completely exaggerated," he said, adding that "the capabilities for that kind of production just doesn't exist."

Abraham, echoing other administration officials, emphasized that future decisions on Iraqi oil policy, including whether to remain in OPEC, would be up to the Iraqis. Whatever their decision, a stable government in Iraq will "alleviate at least some of the concern" about future oil supply disruptions in the region and benefit all consuming nations, not only the United States, said Abraham.

Abraham said an intense campaign of "quiet diplomacy" led to early assurances that Saudi Arabia and other oil producers would boost production and stabilize markets once war erupted in Iraq.

Abraham cited the relatively calm response of oil markets to the war in Iraq, compared to the volatile price spikes and supply disruptions that accompanied turmoil in the region and the Iranian revolution in the 1970s.

"It turned out pretty well," said Abraham during the hourlong interview in his office.

"If somebody had said that this limited dislocation would occur (with a war in the Middle East) and that you wouldn't have to tap the strategic (U.S. oil) reserve ... I don't think many people would have taken the bet," he said.

In the months leading up to the war, said Abraham, he and other administration officials had "many conversations" with OPEC producers and others in search of commitments to replace oil lost from Iraq. He declined to go into details.

The OPEC producers announced early on that they would boost production to replace oil lost because of Venezuela's political strife and gave assurances that Iraqi oil also would be replaced if war erupted. In the months leading up to the war, Saudi Arabia, which had the largest amount of excess capacity, pumped 9.5 million barrels a day - 1.5 million barrels above its OPEC quota - and built up substantial stocks.

While oil prices increased before the war to nearly $40 a barrel because of uncertainty about the ability to protect the region's oil fields, prices quickly dropped once it became clear the war would be short, the Iraqi fields were protected and plenty of oil stocks were available.

Newswatch (Lagos) May 5, 2003 Posted to the web May 5, 2003 Phillip Oladunjoye

Nigeria's dependence on aid as main revenue earner may be broken as exploitation of bitumen promises billions of naira in annual revenue

It is a big boost for the Nigerian economy. A large deposit of bitumen estimated at 42 billion barrels in Agbabu, Ode-Irele community in Ondo State currently being explored and exploited will fetch at least N155 billion annually.

C. O. Akubueze, an estate surveyor and valuer, said the local market alone in Nigeria is estimated at about N20 billion annually while it is also projected to pump into the economy N135 billion annually from its exportation, he said.

Oyewola Oworu, special technical adviser to the minister on solid mineral development, said the communities where bitumen was being explored would also benefit from the exploitation and exploration of the bitumen. According to him, the communities would have equity in the project, where the compensation due to the communities would be re-invested in the project. This investment, he said, would yield streams of income for the development of the communities. "There is a proposal on ground that the communities might have to invest in the exploitation of the bitumen. The proposal has been presented to the two firms authorised to mine bitumen in the country," he said.

The two firms authorised to mine bitumen in the country are Beecon Limited and Nisand Limited. The companies, however, have promised to employ 20,600 Nigerians before the end of July this year.

President Olusegun Obasanjo also promised to develop a seaport in Ondo State based on the success of the bitumen project. This, he said, would serve as motivation for the commencement of mineral mining in other parts of the country.

Modupe Adelaja, minister of solid minerals said the bitumen project would enhance industrialisation of the country. Newswatch gathered that commercial activities in major cities in Ondo State have improved as a result of the bitumen project. Rents in major towns like Akure, Ondo , Ore and Owo have gone up sharply in anticipation of the commercial exploration and exploitation of bitumen. A two-bedroom bungalow in the highbrow residential areas in the state capital now attract an annual rental income of at least N150,000, from between N30,000 and N40,000 it attracted some years back.

The state capital has witnessed an avalanche of banks with colourful edifice in recent time. In anticipation of increased commercial activities, Biola Olaseinde, chairman, Nigeria Institute of Estate Surveyors and Valuers, NIESV, Ondo State branch, said the state had already started feeling the impact of the project. "Akure and other cities are growing, so are our commercial and business activities. Both the federal and the state governments are providing infrastructure because of the bitumen project, and these will, no doubt, attract more foreign investment to the state. We are already feeling the effect of the project on residential and commercial properties," he said.

In spite of the benefits of the project in the state, the communities have expressed fear over the adverse impact the exploration might have on the people. A community leader in Ode-Aye, who pleaded anonymity, said the community was not opposed to the project but demanded that thorough environmental impact assessment survey be carried out so that the people would know the potential socio-economic losses that might follow the implementation of the project. "We are not opposed to this project which has a lot of potentials, for the country in terms of foreign exchange earnings as well as employment opportunities for our youths, but we are concerned about the safety of lives and properties and the future of the present generation of youths and those yet unborn," he said.

Adebayo Adefarati, governor of Ondo State , had recommended that adequate compensation be paid to those that would be affected in the exploitation. "There cannot be a peaceful exploration of bitumen without the payment of adequate compensation to those that will be affected," he said.

Akubueze opined that the individuals within the mineral-producing communities should be developed to avoid conflict between the communities and the companies carrying out the mining project. 'In mineral-producing areas, the emphasis is centred on the provision of infrastructure for economic growth only. But this should not be so. For sustainable development, the authorities concerned must foster the development of each human being. Failure to do this will generate conflict as experiences in oil-producing areas have shown," he explained.

But the Federal Government seems to have made provision in its new national policy on solid minerals to allay the fears of the communities where solid minerals are being mined. The policy provided for adequate preservation of the environment. It also analysed health and safety measures that must be followed in the mining industry.

The policy states in part that "issues connected with environments, health and safety form an integral part of development. It follows, therefore, that the environmental impact, health and safety measures need to be incorporated from the beginning in any development project.

Oworu affirmed that the ministry of solid minerals had embarked on a strategy which would be endorsed by all stakeholders in the mining industry to avoid the repeat of the Niger Delta experience where disagreement over cash compensation has always led to hostilities between the communities and the oil companies. Newswatch gathered that the bitumen deposit in Ondo State is the second largest deposit of bitumen in the world. Venezuela is said to be the largest producer of bitumen.

Bitumen was first discovered in Nigeria by the Germans in 1901. Nigeria has 42 billion barrels of bitumen resources which stretches over an expanse of land covering Ondo, Edo , Lagos and Ogun states.

Bitumen is said to have about 44 by-products that are vital for industrial production. The tar-sand, which is the major by-product of bitumen, is a main raw material for road construction. Bitumen can also be used to produce fuel, oil, asphalt, and insecticide.

President Olusegun Obasanjo had inaugurated the bitumen project implementation committee, August 28, 2000 , to look into the modalities of exploring the product in commercial quantities. The committee was headed by Julius Ihonvbere, a professor. The committee, however, prepared the groundwork within two years for the commissioning of the bitumen project. Obasanjo described the bitumen project a launch pad for the Federal Government's plan to diversify the economy.