Year-end Oil Industry Outlook--Dallasnews.com

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Here's a link to an article in today's dallasnews on the outlook for the oil industry and prices at the end of the year. Thanks to tfletch for the headsup.

-----------Alexi.

http://www.dallasnews.com/business/0709biz4y2koil.htm Dallas News Article on Oil.

Excerpt:

Fueling worries

Gas price spike could lie ahead as oil industry struggles with Y2K

07/09/99

By Jim Landers / The Dallas Morning News

WASHINGTON - A brief, sharp increase in gasoline prices later this year could signal the beginning of Year 2000 computer problems in the international oil market, industry and government analysts warn.

Oil industry buyers anticipate problems with computer programs in such oil-producing countries as Russia, China and Nigeria. They also expect failures in crude oil tankers equipped with embedded microchips used for navigation and cargo control.

"To the degree the industry anticipates these problems, we could see some early buying for inventory. Then consumers are probably going to think the same way," said Larry Goldstein, president of the Petroleum Industry Research Foundation in New York.

"A couple of extra gallons in every car on the road could drain the system," he said. "It doesn't take a lot of buying to have an impact on spot prices, and we're very concerned about that issue."

John Koskinen, chairman of the White House Year 2000 Conversion Council, has also expressed concern about panic buying pushing up gasoline prices "if everybody waits until Dec. 31 to show up at the gas station to fill their tanks."



-- Alexi (Alexi@not-in-the-dark.com), July 09, 1999

Answers

Something similar was posted at FreeRepublic.com by Dog Gone. Compare the readiness statements made here for Saudi Arabia and Venezuela with those of the CIA with respect to Y2K and Imports/Exports.

Let me see if this works: Fueling worries

Gas price spike could lie ahead as oil industry struggles with Y2K

07/09/99

By Jim Landers / The Dallas Morning News

WASHINGTON - A brief, sharp increase in gasoline prices later this year could signal the beginning of Year 2000 computer problems in the international oil market, industry and government analysts warn.

Oil industry buyers anticipate problems with computer programs in such oil-producing countries as Russia, China and Nigeria. They also expect failures in crude oil tankers equipped with embedded microchips used for navigation and cargo control.

"To the degree the industry anticipates these problems, we could see some early buying for inventory. Then consumers are probably going to think the same way," said Larry Goldstein, president of the Petroleum Industry Research Foundation in New York.

"A couple of extra gallons in every car on the road could drain the system," he said. "It doesn't take a lot of buying to have an impact on spot prices, and we're very concerned about that issue."

John Koskinen, chairman of the White House Year 2000 Conversion Council, has also expressed concern about panic buying pushing up gasoline prices "if everybody waits until Dec. 31 to show up at the gas station to fill their tanks."

Price spikes caused by worry over Y2K problems are not expected to last long, said Richard Morris, director of the forum for information technology strategies with Cambridge Energy Research Associates.

"The real issue is how long any effect on the market would last," he said. "Y2K problems would likely be sporadic in nature, so any impact on price would probably be short-lived."

Confidence flows

The American Petroleum Institute reported last week that U.S. oil companies are confident they will master the Year 2000 problem from wellhead to gas station before Jan. 1.

"Go on that trip. Don't be concerned," said Ron Quiggins of Shell Services International, chairman of API's Year 2000 task force. "Gas will be available."

Most crude oil consumed in the United States is imported. The Energy Department reports that the top four U.S. suppliers - Saudi Arabia, Venezuela, Mexico and Canada - seem to have the Year 2000 problem in hand.

Saudi Aramco and Mexico's Pemex reported that they had substantially completed their Year 2000 repairs and testing on June 30.

Petroleos de Venezuela has said it will finish its repairs and testing well ahead of the end of the year.

"You see it as your energy supply. We see it as our economy," said Gustavo Mendez, Venezuela's national Year 2000 coordinator. "Venezuela lives off its key export product, and that's oil."

But a breakdown anywhere in the world will raise the global price.

An Energy Department official told Congress in April that a prolonged shortfall of 1 million barrels a day - less than 1.5 percent of world oil supply - could raise prices 7 to 12 cents a gallon.

Oil prices already this year have gone from $10 to $20 a barrel because of production cutbacks by Mexico, Norway, Russia and several members of the Organization of the Petroleum Exporting Countries.

"We see oil prices tightening fundamentally because OPEC has implemented a very severe cutback in supply. When you add Y2K on top of that, well, we haven't seen the peak yet in prices this year," Mr. Goldstein said.

On Jan. 1, most computer date applications will roll like two-digit odometers to "00." The "double-ought" date will leave many computers and embedded microchips struggling with programming logic that says the year is 1900 rather than 2000. Unless corrected, the date change will cause many systems to fail, while others will produce incorrect information.

Most multinational oil companies began dealing with the problem years ago and expect to complete repairs and testing by September. Irving-based Exxon Corp., in filings with the Securities and Exchange Commission, says it began work in 1997 and expects to spend as much as $250 million fixing the problem. The Royal Dutch-Shell Group of Companies is spending $600 million, said Shell spokeswoman Cerris Tavinor in London.

In many oil-producing countries, however, work didn't get started until mid-1998, and that was at a time of depressed oil prices that made such computer repairs something of a luxury expense, analysts say.

"Clearly there are some countries which may have left it [until] too late," said Keith Miller, an economist with the International Energy Agency in Paris. "The attitude we're taking is to encourage them to concentrate on contingency planning."

The approach was aired this week in Moscow, where the International Energy Agency sponsored a meeting with Russian oil officials to discuss the Year 2000 problem. Russian oil exports reached a post-Soviet record in April of 3.59 million barrels a day, and disruptions of that amount of oil would have a major price impact on world markets.

U.S. Energy Department officials, the State Department and the CIA have said Russia started late and has given off mixed signals about the seriousness of the Year 2000 problem. When a CIA official testified before Congress that Gazprom, the big Russian gas firm that exports large volumes to Western Europe, would have breakdowns due to the Y2K problem, Gazprom denied it.

China has been a concern as well. CIA officials have said both Russia and China may endure shutdowns in energy utilities during the winter, causing significant hardships.

The spillover from these breakdowns - both perceived breakdowns and real ones - will make itself felt in price hikes rather than lines at gas stations, analysts said.

Pricing issue

"We don't really expect supply problems. It's a pricing issue," Mr. Goldstein said. "OPEC does have substantial spare capacity of about 5.5 million barrels a day, with Saudi Arabia accounting for about half of that. With prices rising, anyone with spare production capacity will start putting that on the market."

The U.S. Coast Guard is worried that Y2K failures could disable navigation systems aboard some oil tankers. Shell Oil Co. in London discovered two years ago that its fleet of 50 tankers had 3,000 embedded microchips that needed to be tested for Y2K compliance. Tests showed chips controlling radar mapping, ballast and cargo monitoring would fail.

Shell and BP Amoco have both announced they will not use tankers that cannot demonstrate Year 2000 readiness.

The Coast Guard has sent questionnaires to ship owners worldwide asking about their Year 2000 readiness. Depending on how well the vessels score, ships could be required to come into U.S. ports under warning flags or even in a dead tow, said Lt. Sanford Sears.

"We don't want to close U.S. ports," he said.

The Coast Guard successfully tested the system in the California ports of Los Angeles and Long Beach last month with tankers chartered by Arco, Lt. Sears said.

Shipping problems remain a concern for oil supplies, however, because it's not certain in many countries that computer systems controlling loading and customs formalities will work, Mr. Miller said.

Mr. Goldstein said a recent anti-dumping petition filed by U.S. independent oil producers could prove a wild card in the Year 2000 situation.

The petition filed with the U.S. International Trade Commission seeks to impose tariffs on oil imports from Mexico, Saudi Arabia, Venezuela and Iraq because those countries were allegedly selling oil at prices below the cost of production.

Mr. Goldstein said the suit could make those countries hesitant about raising production to offset any Y2K losses.

"I take it very seriously, not because I think the case has merit, but because the rules set out a very low threshold to prove your case," he said.



-- nothere nothere (notherethere@hotmail.com), July 09, 1999.


Major Surplus & Survival sells genuine German made military style gas cans for $14.95, and flex nozzles for $6.95. PRI fuel preserver, one pint, goes for $19.95. That's enough to treat 256 gallons of gasoline, or about a cost of 6 cents a gallon. Each gas tank holds about 5 gallons (it's actually a 20 liter tank). The gas cans have seen some use, some bumps and dents, but represents a bargin considering the cost of new tanks. I painted mine with Rustleum and look great. One disturbing note is that orders are limited to only 3 to customer. Usual disclaimers, I have no financial ties to Major, etc. just a happy customer.

-- Sure M. Worried (SureMWorried@bout.y2k.coming), July 09, 1999.

you can get 5 gall. gasoline tanks at Ames for about $6.99

-- bill s (wsch117360@aol.com), July 09, 1999.

This sure is a real problem. I think the industry is gonna get whipsawed pretty bad. My inclination is that much of the reporting has been happy happy faced. Vendor statements taken as gospel. Tightly bound complex systems. Lack of management buy in to remediation. Industry populated by dinos who don't know shit about systems or care. I am talking from the inside here.

Look for S. America, Pac Basin, and W. Africans to be FUBAR. I think that the mid-east and N. Sea will prob only be SNAFU. This will mean big ass problems for all. I think crude is gonna pop pretty hard. It's been a while since fundamentals whooped as on technicals, but this one's gonna be a fundamentalist revival baby. It'll all be about getting some to the refinery!

As for this gasoline storage stuff, it's definitely gonna happen. People will freak, and no there's not enuf tertiary or secondary storage available to pull off a tank topping bonanza. This will serve to help panic the mewing idiots who haven't planned ahead. F-em! As far as I'm concerned, I'll have some gas stored. Just enuf to go to a bug out loc. if I have to.

Hang on. It's definitely gonna get weird.

-- Gordon (g_gecko_69@hotmail.com), July 09, 1999.


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