www.abc.net.au The World Today - Monday, February  3, 2003 12:14

JOHN HIGHFIELD: Opinion polls recorded in Europe show there is a great deal of public suspicion about America's designs on Iraq oil.

But the British Prime Minister, Tony Blair, says the "oil for war" argument being run is a conspiracy theory. And the US Secretary of State, Colin Powell, says Iraq's oil resources would be held in trust for Iraq's people in the event of any war.

But a new report from New York's influential Council on Foreign Relations says America's critics have ignored one important fact in all of this. Iraqi oil may be prohibitively expensive to produce. For Iraq to reproduce Saudi Arabia's oil output it would require $140 billion in new infrastructure investment. The country's vital oil exports only earn about $20 billion a year.

Rafael Epstein reports.

RAFAEL EPSTEIN: Iraq has five times more proven oil reserves than the United States and is the second biggest supply after Saudi Arabia. But it is not simply a matter of walking into the Iraqi desert and turning on the taps.

The Council on Foreign Relations in New York has just completed a report with the James Baker Institute in Texas. The institute's resource expert, Amy Meyers Jaffe, says to bring Iraq's current 2.5 million barrels of oil a day up to Saudi Arabia's 8 million barrels a day would cost $US50 to 70 billion over decade.

AMY MEYERS JAFFE: You have to understand the numbers involved and thinking about the costs of developing the resources under the ground. Just to repair the facilities that were damaged during Iraq's eight year war with Iran and then following the 1990 conflict with the United States, just to repair those facilities that still have not been fixed would cost $US5 billion.

Iraq's total revenue from oil has been running somewhere between $US10 and $US12 billion a year, you can understand that in one year that would mean they had have to then spend 50 per cent of all revenues just to fix what is currently broken.

RAFAEL EPSTEIN: People often say that Iraq has oil reserves second only to Saudi Arabia. What sort of financial investment would you need to make to have those oil reserves at their full potential?

AMY MEYERS JAFFE: Well, I mean, if you wanted to have Iraq produce at the same rates as we see production from Saudi Arabia and that is geologically possible, you, you're talking about spending something like $US50, 60, 70 billion over a five to 10 year period to get there.

It is, this is not, you know, a lot of people talk about these oil resources like we talk about electricity in our home. We think we can just flick a switch and it will come on. But it takes a scientific study of the reservoirs, it takes a, a massive drilling program. It will take in Iraq a huge enhancement of the export infrastructure that currently exists, even beyond just repairing what is broken. So you are talking about a multi-year, tens of billions of dollars program that it would it take.

RAFAEL EPSTEIN: America's critics say the issue is not access but control. Increased exports from a friendly Iraq could leave America less reliant on countries like Venezuela and it could sideline supplies from Russia and Saudi Arabia. The Saudis could even lose their influence within OPEC and the cartel itself might lose what little ability it has left to set prices.

But Iraq has signed mammoth contracts with companies from China, Russia, France and India to develop its oilfields. The contracts' legal status may remain unclear years after any way, not the least because ethnic rivalries in Iraq are often focused on resource-rich areas.

AMY MEYERS JAFFE: People said a lot of that before the United States liberated Kuwait and what we found was that for the past 10 or 12 years, the Kuwaiti Parliament has consistently voted against bringing foreign oil companies back to Kuwait to repair and enhance its oil fields. And as a result, I might add, Kuwait has seen its oil production capability fall actually in the last three or four years.

And people have talked about wanting to see a democratic, pluralistic society where people's views are represented and it's not clear. We can't know in advance.

JOHN HIGHFIELD: Amy Meyers Jaffe is an oil analyst with the James Baker Institute in Texas. Rafael Epstein with our story.

Transcripts on this website are created by an independent transcription service. The ABC does not warrant the accuracy of the transcripts. ABC Online users are advised to listen to the audio provided on this page to verify the accuracy of the transcripts.

goerie.com

A spike in gas prices got the attention of Erie drivers over the past week, but the word from analysts at a management consulting firm is that things could be worse.

What could be worse? How about paying $5.34 a gallon to drive around the streets of Hong Kong.

But then again, things could be better. You could be paying 28 cents a gallon if you drove around the streets of Caracas, Venezuela.

The consulting company, Runzheimer International, put together a list of the most expensive and least expensive places in the world to fill up your gas tank.

Hong Kong, at $5.34 a gallon, topped the list. Caracas was at the bottom, but there was no indication of whether its 28-cent-a-gallon price was reported before or after the strike by Venezuelan oil workers shut off petroleum spigots in that country.

Other cities on the high end of the gas-cost scale and what drivers pay per gallon include: London, $4.55; Paris, $4.41; Amsterdam, $4.38; Seoul, $4.35; Copenhagen, $4.24; Tokyo, $4.20; Milan, Italy, $4.14; Oslo, Norway, $4.13; and Frankfurt, Germany, $4. But if you are looking for a deal on gas, it pays to live where they pump the crude.

After Caracas on the low end of the scale came: Jakarta, Indonesia, 74 cents; Cairo, 75 cents; Kuwait City, 77 cents; Riyadh, Saudi Arabia, 93 cents; Abu Dhabi, United Arab Emirates, $1.05; Kiev, Ukraine, $1.13; Muscat, Oman, $1.13; and Moscow, $1.21. "When you view the U.S., and even Canada, from a global perspective, North American fuel prices are still relatively inexpensive," said John Wada, a consultant and cost-of-living expert with Runzheimer.

But Wada also said that American drivers may well end up paying as much for gas as drivers in those $4-a-gallon cities because Americans drive many more miles than people in other parts of the world.

What got the attention of drivers in Erie, Crawford and other counties in northwestern Pennsylvania last Thursday and Friday was a jump that sent prices at individual stations up anywhere from 6 cents to a dime over the week.

What happened? Apparently lots of things.

AAA Regional President David Poor said the ongoing problems with the Venezuelan oil workers strike and impending threat of war with Iraq continued to put pressure on prices, and extremely cold weather in the East iced up some rivers and ports and slowed the delivery of oil by tankers.

Also, analysts with the federal Energy Information Administration and private oil tracking professionals had been warning that wholesalers, distributors and retailers were absorbing price increases and at some point those increases were going to be pushed onto consumers. In late December they were predicting gas prices would go up another 10 cents or so in the coming weeks.

Anyway, the increases brought the average price being charged by stations in Erie up to $1.573 a gallon as of Saturday morning, according to the survey the OPIS energy group does for the national AAA. A week ago that average was $1.522.

If it is any consolation, prices in metro areas of Ohio jumped even faster. The AAA survey showed the average price in Cleveland jumped from $1.439 to $1.547 over the past week, and the average price in Youngstown jumped from $1.406 to $1.487. Elsewhere in the region, average prices jumped from $1.467 to $1.496 in Pittsburgh and $1.599 to $1.612 in Buffalo/Niagara Falls.

This might be a good time to review some gas-saving tips from the AAA: *If you have more than one car, put the miles on the more fuel efficient one when possible. *Consolidate trips and errands to cut down on driving time and keep miles off the odometer. *Slow down. The faster a vehicle travels, the more gas it burns. *Avoid quick starts and sudden stops. They not only waste fuel, but are hard on the vehicle and increase the odds of a crash. *Maintain your vehicle. Keep tires properly inflated, keep moving components lubricated and keep the ignition and emission systems in good shape to maintain proper fuel economy. *Lighten the load. Don't haul extra weight in the passenger compartment or trunk. A heavier vehicle uses more gas. *Check your owner's manual. If it says your vehicle doesn't require premium or mid-grade gas, buy the less-expensive regular unleaded. *Shop for gasoline prices locally, but don't waste gas driving to distant filling stations to save a few cents. *Don't race a cold engine to warm it up. *Avoid extended idling to warm up the engine. *Maintain steady speeds for the best fuel economy. A car uses extra fuel when it accelerates. *Use the air conditioner only when needed.

Continental Express, which provided Erie-to-Cleveland service until mid 2001, is starting to recall some furloughed pilots.

A total of 48 pilots are expected to return to work in April, according to a report in the Houston Chronicle. The newspaper quotes airline and union officials as saying that virtually every Continental and Continental Express pilot who was furloughed could be back in the cockpit by 2004.

Officials at Erie International Airport have said in recent weeks that they have heard rumors in the industry that Continental Express might be willing to take a second look at service to Erie.

Northwest Airlines is to begin daily seasonal spring and summer service between Detroit and Myrtle Beach on April 18.

Media reports from Pittsburgh say that airport officials hope to allow US Airways passengers to again use curbside luggage check-in as early as next month.

Delta Air Lines is upgrading its Saturday service between Cincinnati and Cancun, Mexico. The airline plans to use a 183-passenger Boeing 757 to make the flight instead of a 148 passenger Boeing 737. The airline also added a seventh daily flight to its Cincinnati-to-Pittsburgh service.

JIM CARROLL,who writes about transportation each Monday, can be reached at (814) 724-1716, 870-1727 or by e-mail at jim.carroll@timesnews.com.

Last changed: February 02. 2003 5:29PM

www.gulf-news.com Abu Dhabi |By Stanley Carvalho | 03-02-2003

Opec will take a final decision at its March 11 meeting on whether to cut production, said Abdullah bin Hamad Al Attiyah, president, Opec.

Opec does not plan to have any extraordinary meeting until March 11 but if an attack on Iraq takes place it might convene an emergency meeting, Attiyah said on the sidelines of the Environment and Energy Exhibition and Conference 2003 which began yesterday.

Al Attiyah clarified that there will be no extraordinary meeting of Opec in the near future and the next meeting is only in March.

"Right now we are only a few ministers in Abu Dhabi and we are holding only bilateral talks. Only at Opec's March 11 meeting we will discuss all options and how to react to the market situation then. For sure, there can be any surprise in the market.

"I hope not to see war but Opec as an institutional organisation will react if there is shortage of supply by balancing demand with supply. Opec always as traditionally can meet any time to discuss the market."

Obeid bin Saif Al Nasiri, UAE Minister of Petroleum and Mineral Resources, expressed concern about falling demand in the second quarter leading to a drop in prices. "If we see any sign of a fall in oil prices, we will correct the situation," he said, hinting that Opec may even cut production.

Saudi Arabia's oil minister Ali Al Naimi said the March meeting of Opec will focus on the international inventory level which is currently on a low level especially in the U.S. "Venezuela's return may mean extra supplies to the U.S and inventories can be rebuilt."  

www.forbes.com Reuters, 02.02.03, 11:12 PM ET By Tanya Pang

SINGAPORE, Feb 3 (Reuters) - Oil prices fell for the third day in a row on Monday as Venezuela continued to bump up vital petroleum exports, while key OPEC ministers warned of a possible glut in supplies in the second quarter when winter demand ebbs.

But the threat of war in Iraq, the world's eighth-biggest oil exporter, continued to keep crude well above $30 a barrel and within $2 of a 26-month high over $35 touched in January.

U.S. light crude slipped 30 cents to $33.21 a barrel, 0.9 percent down from Friday's settlement in New York, when it lost 34 cents.

"War is still very much on the cards and that is likely to counter any downward pressure on prices from Venezuela coming back to work," said David Thurtell, commodities strategist at Commonwealth Bank in Sydney.

Venezuelan President Hugo Chavez said on Sunday that crude production had increased to nearly 1.8 million barrels per day, up from a low of 150,000 bpd after the strike began in December and more than half of the 3.1 million bpd pumped in November.

Oil strikers say current output stands at just over one million bpd, although they acknowledge it is rising.

Data from shipping agents showed Venezuela's oil exports higher at 890,000 bpd in the week to February 1, up from 550,000 bpd a week earlier but only one-third of normal levels of 2.7 million bpd before the strike.

Opposition leaders, who want Chavez to resign, scaled back the nine-week action on Sunday in the non-oil sector only. The strike continues in the oil sector.

"Venezuelan production continues to recover and the further the government can increase production, the greater the pressure for strikers to go back to work. There could be a resolution to the strike in the next couple of weeks," said Thurtell.

A return of oil sales from Venezuela, the world's fifth-biggest oil exporter, could put some pressure on the OPEC producers' group to rein in output.

The Organisation of the Petroleum Exprting Countires agreed in January to raise official production limits by 1.5 million bpd on February 1 to offset the Venezuelan outage.

OPEC ministers warned at the weekend that oil markets could tip into oversupply in the second quarter with warmer weather in the Northern Hemeisphere and spark a price collapse.

OPEC is due to meet again in Vienna on March 11.

"If there is danger of a glut, we have to meet and rectify the situation. Definitely we (OPEC) are concerned about the second quarter," UAE Oil Minister Obaid bin Saif al-Nasseri said on Sunday at an oil conference.

"If Venezuela comes back (to full capacity), we could have four million bpd or more floating," said OPEC President and Qatari Oil Minister Abdullah al-Attiyah.

IRAQ STILL WILDCARD Even if Venezuelan oil exports return to normal levels soon, analysts see little chance of a big fall in oil prices until uncertainty over war in Iraq is cleared up.

"I think the market risks translate into a few dollars to the downside and over $10 upside at the moment," said Sydney-based independent oil analyst Simon Games-Thomas.

Commonwealth Bank's Thurtell said U.S. crude may head down to $30 or $31 a barrel once the strike in Venezuela was resolved.

Iraq sells roughly two million bpd of crude to the world market and traders fear supplies may be shut off if there were a military strike against Baghdad, which has threatened to retaliate against neighbouring oil exporter Kuwait where hundreds of U.S. troops are based.

U.S. Secretary of State Colin Powell is due to present to the U.N. security Council on Wednesday evidence that Iraq has been operating programmes to build banned weapons.

Top U.N. disarmament officials Hans Blix and Mohamed ElBaradei are expected to return to Baghdad at the end of the week as part of last-ditch efforts to secure Iraqi compliance with U.N. resolutions. U.S. President George W. Bush has vowed to disarm Iraq of weapons of mass destruction it claims Baghdad has stocked, with or without backing from the international community.

www.gulf-daily-news.com

LONDON: Oil prices fell sharply yesterday as Venezuelan exports recovered from a supply-choking strike and after Opec (Organisation of Petroleum Exporting Countries) ministers warned of a possible glut of crude in the second quarter when winter demand ebbs.

But the threat of a US-led war on oil-producer Iraq kept crude above $30 a barrel. In London, IPE Brent crude was trading 52 cents weaker at $30.58 a barrel, while US light crude dropped 60 cents to $32.91 a barrel.

"The Venezuelan strike is clearly cracking. The question is how quickly they can ramp up production," said J P Morgan's Paul Horsnell.

Venezuelan President Hugo Chavez said on Sunday crude oil output had risen to nearly 1.8 million barrels per day (bpd), up from a low of 150,000 bpd after the strike began in December and more than half of the 3.1m bpd pumped in November.

Oil strikers said yesterday production stood at 1.2m bpd.

Data from shipping agents showed Venezuela's oil exports rose to 890,000 bpd in the week to February 1 from 550,000 bpd a week earlier, but were still only one-third of normal levels of 2.7m bpd before the strike.

Opposition leaders, who want Chavez to resign, scaled back the nine-week action on Sunday in the non-oil sector only.

A return of oil sales from Venezuela, the world's fifth biggest oil exporter, could put pressure on the Opec producers' group to rein in output.

The Opec agreed in January to raise official production limits by 1.5m bpd from February 1 to offset the Venezuelan outage.

But Opec ministers warned at the weekend that oil markets could tip into oversupply in the second quarter and trigger a price collapse.

"If Venezuela comes back (to full capacity), we could have 4m bpd or more floating," said Opec President and Qatari Oil Minister Abdullah Al Attiyah.

Non-Opec supplies also looked robust, with output from Russia, the world's second largest exporter, hitting a post-Soviet high.

Russian Energy Ministry sources said exports via Russia's Transneft pipeline monopoly rose 200,000 bpd in January compared to December and output reached a new high of 8.07m bpd.

But even if supplies have grown, analysts predict oil prices will not fall far until uncertainty is resolved over Iraq, which sells roughly 2m bpd of crude to the world market.

Traders fear supplies might be disrupted, not just from Iraq, but from elsewhere in the Middle East if there is a military strike against Baghdad.

Dealers were also awaiting US Secretary of State Colin Powell address to the United Nations tomorrow when he has pledged to present "straightforward, sober and compelling" proof that Iraq is hiding banned weapons.