Gulf Oil Giants Brace for Y2K Showdown

Updated 9:20 AM ET November 22, 1999

y Michael Georgy

DUBAI (Reuters) - Giant Gulf oil producers are scrambling to exterminate the Year 2000 millennium bug with no guarantees that they will be able to thwart the potential computer glitch from sabotaging millions of dollars in exports.

From Saudi Arabia -- the world's biggest exporter -- to smaller Gulf oil countries like Oman, state firms seem confident they will keep the oil flowing.

But experts say Gulf states, which sit on nearly half of the world's oil reserves, cannot afford to let their guard down in the countdown to 2000.

Industries around the globe are bracing for a potential coding glitch that could cause computers and embedded chips to misread 2000 for 1900, threatening economic chaos. SAUDI ARABIA BEST PREPARED

A U.S. Senate report on the Y2K status of oil imports based on data from information technology research firm Gartner Group (IT.N) put Saudi Arabia and Kuwait in the "high risk of disruption" category. It left a question mark over Iraq.

But experts say OPEC kingpin Saudi Arabia appears to be in the strongest position to combat the bug in the region.

The kingdom has turned to the Internet to highlight efforts to keep its crude moving, detailing everything from contingency plans to external and third party interface strategy.

"Saudi Aramco acknowledges that there remains a risk of Year 2000 associated business interruptions. To meet this challenge, the company must be prepared to manage the risk," the state oil firm said on its regularly updated Y2K Web site.

Oil experts said Saudi Arabia could always draw on its vast worldwide oil resources to cope with any Y2K problems.

"The Saudis have got so much excess capacity that even if there were some problems I can't see anything but a temporary problem," said Mehdi Varzi of Dresdner Kleinwort Benson.

"They have got tens of millions of barrels stored outside Saudi Arabia. This tends to minimize fears," he added.

IRAQI OIL INDUSTRY EXPOSED

Kuwait has said it conducted successful tests for the smooth running of oil exports but diplomats have said its Y2K compliance program appeared to face delays earlier this year.

The picture is not so reassuring elsewhere in the Gulf.

Iraq, currently the Organization of the Petroleum Exporting Countries' (OPEC) third largest producer, may be forced to shut down production because it is not prepared to deal with Y2K.

An industry source in Baghdad has said Iraqi oil officials wanted to avoid the heavy cost of tackling the Y2K problem.

That could mean fresh pressure on Iraq's oil industry, which is cranking up output despite eight years of crippling U.N. sanctions imposed after Iraqi troops invaded Kuwait in 1990.

Major importers like the United States, dependent on Gulf oil, are not taking any chances. They are expected to stock up on supplies ahead of the New Year.

U.S. oil companies that have made fortunes in the Gulf have spent years and millions of dollars preparing for Y2K.

"We conducted tests in our operations in Saudi Arabia, Bahrain and Qatar and we are in good shape," said a Chevron Corp (CHV.N) official based in the Gulf.

SMALL PRODUCERS HIT Y2K BATTLEFIELD

The region's smaller oil producers have also enlisted in the fight against the millennium bug.

OPEC's smallest producer Qatar, which sits on the world's third largest gas reserves, said it is Y2K ready.

"All systems and equipment have been made Y2K compliant and now the certification process is on," said a Qatar General Petroleum Corp official.

Non-OPEC medium producer Oman has turned to Royal Dutch/Shell (RD.AS) (SHEL.L) to spearhead its Y2K program.

"We are faced by the challenge of interrupted production and exports of Oman's crude oil in the face of the millennium bug. The whole economy of the country could be in a shamble if we don't get it right," said Lot Bouma, Petroleum Development Oman's Computing and Communications Director.

Hard facts on exactly what preparations have been made and how much money has been spent on Y2K compliance efforts in the Gulf is difficult to obtain.

Iran is one of the world's biggest producers but its computer systems are old, raising questions about how vulnerable OPEC's second largest producer will be to the millennium bug.

The head of the country's Y2K compliance program has said Iran's two newest refineries at Bandar Abbas and Arak face possible disruptions but other complexes are not vulnerable because they do not have date-embedded computer systems.

"It's so difficult to know the honest answer. My only view on the Iranian side is that not all the industry has been fully computerized, only in the past year or two," said Dresdner Kleinwort Benson's Varzi.

"Until now a lot of the oil well logging is done by hand. I don't think Iran has too much to worry about also because it has 30 million odd barrels stored in Gulf tankers ready to go."

Some Middle East oil veterans are playing down the computer glitch issue.

"These countries have an amazing ability to fix things when they go wrong. It could cause some hiccups but I am sure they will take care of it," said a U.S. oil executive.

====================================== End

Ray

-- Ray (ray@totacc.com), November 22, 1999

Answers

Mid-year 1998, I was offered the opportunity to go to Saudi and assist w/Y2K inventory and analysis on contract via the middle east subsidiary of one of the "big five" technology consulting companies companies. The sheiks, with all of their billions of petrodollars, only wanted to pay what amounted to a pittance for contract support. About $85.00/hr, unaccompanied. I passed, as I could make more here in the good old U.S.of A. And, oil field oil field roughnecks make more than this in Saudi.

One thing that everyone is missing - the Saudi's (and all middle east oil producing countries) do nothing for themselves. They contract out all of this type of work.

What does this tell you about the prospect of oil problems after 1/1/2000?

-- Nom (nom@de.plume), November 22, 1999.

Repeat after me...

"Renewable Energy... Renewable Energy... Renewable Energy..."

Will the world "get it?" Next year?

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), November 22, 1999.

I find it real interesting that this is not showing up in the mainstream press or on CNN. I did a Bloomberg search on AOL using the term crude oil and got a lot of Reuters stuff, yet it is not on Yahoo or the Street.com or wasn't early this am. Very curious.

Unless I have been unduly influenced by the petroleum posts on this forum, I cannot help but feel that fuel is our yucky underbelly here.

-- Nancy (wellsnl@hotmail.com), November 22, 1999.

Y2K gives the oil business tremendous opportunities to exploit the situation for profits. I think oil will go to $40 a barrel, gasoline either rationed or $5 a gallon. Here is another related story:

Crude rallies as Iraq rejects U.N. deal

Futures Movers

Crude rallies as Iraq rejects U.N. deal Prices close in on $27 a barrel

By Myra P. Saefong, CBS MarketWatch Last Update: 12:13 PM ET Nov 22, 1999

NEW YORK (CBS.MW) -- Crude oil prices soared Monday morning on news that Iraq had suspended oil exports under its humanitarian exchange program with the United Nations.

On New York Mercantile Exchange, January crude gained 76 cents to $26.90 a barrel after hitting a high of $27.08. December unleaded gasoline rose 2.15 cents to 75.30 cents a gallon. December heating oil rose 1.55 cents to 69.60 cents a gallon. See latest commodity prices.

On Saturday, Baghdad rejected a two-week extension by the United Nations of the current six-month oil-for-food exchange phase -- a move which came after the United States and Russia failed to agree a longer extension, sparking fears of a halt in Iraqi oil supplies.

"Two weeks of suspension may translate to more than 25 million barrels of crude off the market," Paul Ting, an analyst at Salomon Smith Barney said in a research note. "The immediate effect is bullish for oil prices."

On the other hand, "Iraqi intent is not decipherable [but] a suspension, if it occurs, may create a near term explosion of prices," Ting added. If a suspension lasts more than two weeks, then it's "quite possible" that oil prices could stay above $25 beyond the end of the year, he said.

The U.N. decided on a stopgap resolution on phase six of the oil-for food deal, which was to expire on Saturday, providing an extension until December 4 to give the United States and Russia time to settle differences. The program allows Iraq to sell $5.26 billion worth of oil every six months to buy food, medicine and other goods.

The Philadelphia Oil Service Index (OSX: news, msgs) followed along with the rally in crude oil prices Monday, led by a 4.9 percent rise in Global Industries (GLBL: news, msgs) to 9 3/8, up 7/16 from the previous session. See Sector Screamer.

The rapid rise in futures prices was also due to the January crude contract playing catch-up with December's price levels. January became the front-month contract on Monday after December expired on Friday at $26.56, up 76 cents, after reaching an intraday high of $27.00, crude oil's highest price level since the Gulf War.

Bullish market sentiment was also fueled by remarks from oil producers that they remained committed to the current accord on output cuts at least until it expires in March 2000, and might consider an extension, Reuters reported.

In other energy news, natural gas futures were sharply lower on forecasts for warmer-than-usual weather in the eastern two-thirds of the U.S. for the next few days.

December natural gas lost 12.9 cents to $2.305 per million British thermal units on the New York Mercantile Exchange.

Gold makes minor gains

December gold gained 10 cents to $295.80 an ounce on the Commodities Exchange division of the New York Mercantile Exchange. The U.S. dollar was trading nearly unchanged against most major foreign currencies. See major currencies.

December silver rose 3 cents to $5.16 an ounce. January platinum rose $5.90 to $410 an ounce, and December palladium gained $5.15 to $402 an ounce.

Meanwhile, the Philadelphia Gold and Silver Stocks Index fell 0.6 percent to 67.52.

The Commodities Exchange said gold warehouse stocks were up 32,148 ounces to 974,721 ounces as of late Friday, while silver stocks were unchanged at 77,858,935 ounces.

December copper gained 0.4 cent to 78.95 cents. The London Metals Exchange said copper stocks declined by 650 metric tons to 781,250 metric tons Monday. Comex supplies remained flat at 90,856 short tons late Friday.

-- Hawk (flyin@high.again), November 22, 1999.