Winter Rains Spell Trouble for Reindeer
Energy Dept. Sees Rise in Costs
Ford Shifts On Global Warming
Oil Firms Urge Voluntary Action On Global Warming
High Energy Prices Squeeze Small Biz
Enron To Build Croatian Power Plant
E-Commerce's Efficiencies May Help Reduce Pollution
The Price Of Oil Has Doubled; Why Is There No Recession?
Oil Giants Get More Power In Bid To Ease Fears Among Foreign Investors
Gazprom To Develop Gas Field In Vietnam
Pakistan Wants Oil/Gas Exploration Boost

Ford Shifts On Global Warming

Ford Motor Co. said yesterday that it is resigning from a coalition of oil companies, automakers, electric utilities and others opposed to the Kyoto Treaty, an international agreement to reduce emissions from fossil fuels that have been blamed for global warming.

The company advised the Global Climate Coalition--a Washington-based group that argues there isn't enough evidence of global warming--that it would not renew its membership. A Ford spokesman said the company is still opposed to the Kyoto Treaty but believes that there is evidence of global warming and that companies should work together to reduce carbon emissions.

The resignation from the GCC is in keeping with a strategy launched by Ford Chairman William Clay Ford Jr. and Jacques A. Nasser, the company's chief executive, to improve the company's image on environmental issues.

Both executives have vowed to cooperate with environmental initiatives whenever practicable, and to remove their company from the ranks of automakers and other businesses that traditionally oppose environmental and related regulations.

"We believe that some things can be done [to improve the environment] and we will work to do those things whenever possible," Ford said in a recent interview.

The resignation of a major U.S. manufacturing company was a blow to the Global Climate Coalition, one of the highest profile opponents of the Kyoto Treaty. BP Amoco Corp. and Royal Dutch/Shell Group previously had resigned from the coalition--but both companies are based in Europe, where environmental concerns traditionally have more sway among corporate leaders. Dow Chemical Co. also has resigned.

Supporters of the treaty immediately hailed Ford's move as a major coup. "In the same way that the GCC's power over the years has represented industry's unwillingness to acknowledge global warming, its current disintegration is a signal that corporate America is finally recognizing the reality of the threat," said John Passacantando, executive director of the environmental group Ozone Action.

Connie Holmes, senior vice president of the National Mining Association and the head of the GCC, which has more than 40 corporate members, said she was surprised by Ford's decision but played down its significance.

"We're quite disappointed that they chose to go on their own way," she said. "It's clearly up to them, but I'm sure that we're not that far apart on any of the issues that matter."

Oil Firms Urge Voluntary Action On Global Warming

Times of London, Dec 05, 1999
http://www.timesofindia.com/061299/06busi21.htm

HOUSTON (Reuters) - The U.S. oil industry, firmly opposed to the Kyoto Protocol's mandatory reductions in greenhouse gas emissions, is promoting voluntary initiatives as an alternative way of countering global warming. A wide range of technologies were showcased last week at an industry conference in Houston on limiting emissions of carbon dioxide and other gases that scientists believe are contributing to a gradual warming of the earth's atmosphere.

These included oil companies' efforts to reduce energy consumption and emissions at petroleum refineries and to cut back on the wastage of natural gas that is often released or burnt off in remote locations rather than used as fuel. Development of cleaner, more fuel-efficient car engines was also discussed as was research into capturing carbon dioxide released from power generation plants and pumping it into depleted oil fields or saline aquifers deep underground.

Global warming is a touchy issue for the oil industry because fossil fuels -- coal, oil and natural gas -- account for about 80 percent of man-made carbon dioxide emissions. Scientists predict that greenhouse gases will cause the earth's atmosphere to rise by 1.6 to 6.3 degrees Fahrenheit (0.9 to 3.5 degrees Celsius) by 2100 with potentially serious environmental consequences.

Red Cavaney, President of the American Petroleum Institute which hosted the Houston conference, reiterated U.S. oil firms' opposition to the mandatory curbs on greenhouse gases set out in the Kyoto Protocol adopted by over 160 countries in 1997. ``We want to encourage the use of voluntary approaches while we urge more work on the science (of climate change) so that we can resolve some of the tremendous uncertainties that exist,'' Cavaney told reporters attending the conference.

Cavaney said Kyoto could damage the U.S. economy and might fail to reduce global greenhouse gas emissions because it did not place any curbs on emissions by developing countries, many of whom were experiencing rapid economic growth. The Clinton administration supports the protocol but is seeking the right to trade emission permits freely with other countries and wants to secure the ``meaningful participation'' of key developing countries in tackling global warming.

Iain McGill, a policy analyst with the Greenpeace environmental group who attended the API conference, said mandatory curbs on greenhouse gas emissions were a vital first step to reducing mankind's reliance on fossil fuels. ``We have technologies that allow us to reduce emissions...but we've also got a very large fossil fuel industry that would much rather keep things going the way that it is used to,'' he said.

Environmentalists are calling for a big push to promote the use of renewable sources of energy such as solar power, wind turbines and hydroelectricity which currently make up about 10 percent of U.S. energy production. Stan Bull of the U.S. National Renewable Energy Laboratory told the conference that the costs of solar and wind energy had fallen rapidly since 1980 while their use had risen steadily, though they still met only a small amount of world energy needs.

Bull said a 100-mile (160 km) circle of Nevada desert could generate enough solar power to meet total U.S. electricity demand while five northern U.S. states could achieve the same goal with power generated by wind turbines. Tom Vonderhaar from oil giant BP Amoco Plc's (BPA.N) Solarex subsidiary said the solar energy market was growing at 15 to 20 percent a year and that improving economics were rapidly making it a viable alternative to conventional sources of power.

Solarex was currently installing solar power panels at some 200 BP Amoco gasoline stations around the world as a statement of the oil giant's confidence in the technology, he said.

High Energy Prices Squeeze Small Biz

Wall Street Journal
November 19, 1999

The oil-price squeeze is on—and some small businesses are feeling the pinch. Small firms say they are paying 25% more for fuel in the past two months, primarily because of rapidly escalating crude-oil prices. But they lament that their customers, spoiled by several years of stagnant inflation, are balking at price boosts that would let the companies pass along the rise.

Freddie Wilson of F.D. Wilson Trucking Co. of Vernon, Ala., winced over the past few months as his company began to pay $1.21 a gallon for diesel fuel, up from around $1. So, he tried to impose a three-cent-per- mile surcharge on what customers pay for their trucking costs. But "a lot of customers won't let us do that," says Mr. Wilson. And they can be stubborn. "If they won't pay, there's no need to bill it. We're stuck between a rock and a hard place."

The result, not surprisingly, is a direct hit on the bottom line. At another trucker in the same town, Vernon Milling Inc., vice president Henry Smith says the 125-truck company is paying $16,000 to $18,000 more in fuel each week. "When you're running on a 2%, 3%, 4% profit to begin with, it eats you up," he says. "Right now, we're just trying to hold our own. We keep hoping this [price increases] is a short-term effect." While truckers are taking a major hit, the rise in crude-oil prices, which are nearing a nine-year peak, is slamming companies across the transportation industry.

Not surprisingly, some are nervously raising prices, always watchful of pushback from consumers. Sam Lavasani, president of Nationwide Limousine Service in San Francisco, says that when gas prices jumped a few months ago, the gas fee his clients must pay jumped as well to 2% from 1%. Depending on how much higher gas prices rise, he expects to increase the fee to as much as 3% in the next few weeks.

Yet, he worries about how that may affect business. "They might start looking around for someone else," says Mr. Lavasani. Indeed, that fear is keeping prices tamped down at Dav El Chauffeured Transportation Network, a limousine service in Chelsea, Mass. Bob Stankus, chief financial officer, says that even as gas prices have risen roughly 20% since the summer, costing Dav El several hundred-thousand dollars, the company's $49 fixed hourly rate for Lincoln Towncars or $63 for limousines has remained steady.

Instead, a few months ago, Mr. Stankus contacted the company's general managers and told them to instruct their drivers not to idle as they wait for passengers. If gas prices continue to rise, Mr. Stankus says that he may consider instructing his drivers to drive at 55 miles-per- hour, more fuel-efficient than the 65 mph speed limit. He also is considering ways to reduce insurance and telecommunications costs. "It's kind of a balancing act constantly," he says.

Opportunity for Some
Of course, for some, the escalation in gas prices can be a business opportunity. Some in the traveling-billboard industry, for example, say that trucking fleets will be eager to offset increasing gas costs and so will be more likely to display advertisements on their vehicles. "It's just one more sales pitch that we can use," says Cecil Lander, president of Mobile Billboard Advertising International LLC in Parkland, Fla. "We'll certainly be using that in our approach."

Despite such strategies, most small-business owners are simply left to take the hit. That's because they often can't use the type of price- control mechanisms—futures contracts and the like—that their larger counterparts can.

Double Whammy
In Tallahassee, Fla., Bill McCray, a franchisee for Snap-on Tools Co., has endured the double-whammy of higher gasoline prices and a longer sales route; together, they have raised his fuel costs by $400 a month. But increasing his tool prices to customers would be a hassle, because he would have to go into the computer on his truck and individually raise the price of thousands of items. (A Snap-on spokesman confirms that computers in franchisees' vehicles make it difficult to perform price increases "across the product line.")

Increased fuel prices may seem invisible for those shopping on the Web, and food deliverer Peapod Inc. is trying to keep it that way. The Skokie, Ill., company, which takes food orders from customers over the Web and delivers food to their houses, says it will make sure its route structure is in order. "We're preparing for the higher prices by making sure we have more stops on our routes and that we have more density," says John Caltagirone, chief logistics and operations officer for Peapod.

Others aren't as flexible. In Atlanta, Steve Porter, an owner of A Tow Inc., a tow-truck company, says A Tow is spending about $480 extra a week in fuel. But he can't touch the prices for about 70% of his business. That's because it is tied up in contracts with the city of Atlanta, among others, and A Tow must charge a set rate. "It comes out of our back pocket," Mr. Porter says. "You got to eat it; that's what it boils down to."

Enron To Build Croatian Power Plant

Reuters, December 10, 1999
http://www.planetark.org/dailynewsstory.cfm?newsid=5031

LONDON - U.S. energy group Enron said yesterday it is to build a $175 million gas-fired power station in Croatia which will supply electricity to state utility HEP. The Jertovec plant north of Zagreb will be owned and operated by Enron and will be the first independent power project in Croatia, the U.S. firm said in a statement. "We are pleased to reach this important step toward completing the first truly independent power project in Croatia", Joseph Sutton, vice chairman of Enron, said.

The project will be the first U.S. private infrastructure scheme in Croatia, said Enron. The 240 megawatt plant will sell power to the Croatian state-owned power utility Hrvatska Elektropriveda (HEP) under a 20-year deal signed in June. It will be fueled by natural gas supplied by HEP. Sutton said he hoped the Jertovec plant would be one of many projects the company would develop in collaboration with the Croatian government.

Ivic Pasalic, the Croatian government's coordinator for the project, said the the plant would help the country stabilise its economy. "(The plant) will contribute to economic stability...and provide reliable, environmentally friendly and competitively priced electricity", he said. Major construction will commence in early 2000 and the plant is expected to be operational by 2002. Enron entered the UK and Nordic energy markets in 1989 and owns approximately $34 billion in energy and communications assets and builds energy plants worldwide. The energy group has investments in power stations in Poland, Italy, Turkey and Britain.

E-Commerce's Efficiencies May Help Reduce Pollution

Dow Jones Newswires
December 10, 1999

WASHINGTON -- Save the earth. Shop online.

That's the bumper sticker slogan suggested by a new study finding potentially significant environmental benefits as a consequence of the Internet and e-commerce. The information economy heralded as undergirding a historically unprecedented era of high growth with zero inflationary pressures also promises to realize tremendous gains in energy efficiency, which in turn will reduce pollution, the analysis concludes.

Along with a new economy, the Internet is forging a new energy economy. "The Internet economy could allow a very different type of growth than we have seen in the past," said Joseph Romm, director of the Center for Energy and Climate Solutions and the lead author of the report. "It means there is also a new energy economy that will have profound impacts on not only the environment, but also economic forecasting," said Mr. Romm, who formerly headed the Department of Energy's energy_efficiency program.

Strong Growth __ Except in Pollution
The U.S. experienced economic growth of about 4% annually in 1997 and 1998, with efficiencies driven by information_technology companies playing a significant role in economic gains, according to the report. "During those same two years, the nation's energy consumption __ the principal source of air pollution and gases linked to global warming __ hardly grew at all," the study said. In the 10 years leading up to 1997, energy intensity __ or energy efficiency gains measured in terms of energy consumed per dollar of gross domestic product __ declined, that is improved, 1% annually.

But in 1997 and 1998, energy intensity declined 3% annually during a time of historically low energy prices, the study found. That efficiency gain may account for why U.S. emissions of greenhouse gases, primarily carbon dioxide from the burning of fossil fuels, increased only 0.2% in 1998, the lowest annual increase since 1991, a recession year.

The report cited studies by the U.S. Environmental Protection Agency suggesting that current forecasts may be overstating by 5% the rate of growth in U.S. greenhouse gas emissions, while underestimating overall U.S. economic growth, by failing to take into account these Internet- driven efficiency gains.

This would mean the U.S. would have an easier time meeting its mandate for reducing climate-altering greenhouse gas emissions under the Kyoto climate treaty.

More Efficient Delivery
As an example, the study's authors cite the efficiency gains of a consumer purchasing a book from online retailer Amazon.com Inc., rather than the neighborhood book store. A warehouse can store more books per square foot than a retailer, while using much less energy per square foot of space. And shipping 10 pounds of books by overnight air uses 40% less fuel than a consumer's round_trip drive to the book store. The delivery truck uses just 10% of the energy equivalent of the consumer's car trip.

E_commerce means not only fewer shopping trips to the mall, but more workers eliminating energy_consuming commutes to the office by working from home offices, the study noted. By 2007, e_commerce could eliminate the need for 1.5 billion square feet of retail space, or 5% of the U.S. total, and one billion square feet of warehouse space.

The Internet also holds the potential to eliminate up to two billion square feet of commercial office space __ the equivalent of 450 skyscrapers such as the Sears Tower in Chicago, according to the analysis. The resulting energy savings would replace the output of 21 average_size power plants, preventing the release of 35 million metric tons of greenhouse gas emissions.

Avoiding construction of those buildings equals the energy output of 10 more power plants, and another 40 million metric tons of climate_altering emissions, according to the study. "The Internet can turn buildings into Web sites, and replace warehouses with supply_chain software. It can turn paper and CDs into electrons, and replace trucks with fiber_optic cables," Mr. Romm said.

The Price Of Oil Has Doubled; Why Is There No Recession?

Wall Street Journal
December 15, 1999

Oil prices spiked to their highest level in nearly a decade last month. But when the consumer price index was released Tuesday, it was up a whispery 0.1%. How is this possible? After all, this is oil—the stuff that helped fuel recessions in 1973, 1980 and 1990. Why aren't rising oil prices walloping the economy the way they used to?

Part of the answer can be found at LTV Corp. The Cleveland steelmaker is responding to this year's more than doubling of petroleum prices by flicking a switch. Using technology it installed over the past decade, it is shifting the fuel that fires its blast furnaces and boilers to natural gas from oil. Computer modeling lets LTV know when it's time to make the change.

Next, consider UAL Corp.'s United Airlines. The Chicago air carrier paid about the same for jet fuel in the third quarter as it did a year earlier, thanks to futures markets that let it lock in long-term prices. Good thing, too, since competition has hindered air carriers from pushing through broad-based fare increases.

Indeed, nationwide, the same forces that have propelled the U.S. economy through the 1990s—new technology, greater productivity, deregulation and sophisticated financial markets—are cushioning the blow from oil's jump to more than $25 a barrel from a February low of $11.37 a barrel.

'Startling Changes'
True, oil is the main reason consumer prices have risen at a 2.7% annual rate so far this year, up a full percentage point from 1998. But inflation still remains tame. In fact, last month's CPI increase was half the rate of October's and the lowest monthly rise since June. That's because oil has become less relevant as the U.S. economy moves away from manufacturing and toward services. Fuel-gulping manufacturers accounted for only 17% of the economy in 1997, down from 22% in 1977. The decline's impact has been so pronounced that even Oil Minister Ali Naimi of Saudi Arabia, the world's biggest petroleum producer, lamented in a speech last week in Washington the "startling changes" that have reduced oil's importance to the world's industrialized economies.

Among them: U.S. oil expenditures have fallen to an estimated 3% of gross domestic product from a high of 8.5% in 1981, according to the U.S. Energy Information Administration. Suggesting that the growth of the Internet and the service sector has produced lasting changes in the economy, the U.S. in 1997 and 1998 posted its sharpest energy- efficiency gains in a decade, according to an analysis by the nonprofit Center for Energy and Climate Solutions. In both years, energy consumed per dollar of GDP fell by 4%, compared with the previous decade's average decline of less than 1% a year.

Given that trend, "businesses should be spending no more time anguishing over oil prices then they do about pork bellies," says Mark Mills, senior fellow at the Competitive Enterprise Institute, a Washington think tank.

Of course, some industries still feel like they are over a barrel when oil prices climb. Hedging can't delay the pain forever, so airlines and other transportation businesses eventually feel the pinch. In recent weeks, trucking companies have begun to demand higher rates, citing higher fuel costs. And this year's oil-driven rise in the CPI will boost labor costs next year, since many wage contracts are pegged to that index.

The real test may be yet to come. If industries stock up on fuel ahead of the New Year or a lengthy cold snap grips the Northeast, some analysts think oil prices could creep above $30 a barrel—a level seen only briefly during the Gulf War. That scenario worries some economists. If prices reach that height and stay there, "economic activity slows, and the trade deficit worsens," says oil economist Phil Verleger of the Brattle Group, a consulting firm based in Cambridge, Mass. "It can be a prescription for a fairly serious and sharp recession."

So ingrained is the perceived impact of oil prices on the economy that some worry higher prices will create inflationary expectations all their own. But economists say that even at today's prices, oil and its derivatives are relatively cheap. Adjusted for inflation and excluding taxes, a gallon of gasoline is 10 cents cheaper today than it was in 1973, according to data from the American Petroleum Institute and the Energy Department.

Meanwhile, those industries that still rely heavily on oil have learned to squeeze more out of every drop. In 1981, for instance, jet fuel accounted for 29.7% of airlines' operating expenses, says the Air Transport Association. With new energy-saving technologies, such as two-engine planes with the same kick as the old three-engine versions, fuel now represents only 10% of the industry's costs.

The sport-utility vehicle craze has put more gas-hungry cars on the highways. But computer-controlled fuel injection and new transmission technologies have raised the overall efficiency of the nation's auto fleet by about 5% since 1990. The average American car was driven about 2,000 more miles last year than in 1973, but it used about 200 gallons less gasoline, the Transportation Department says.

For their part, energy-intensive manufacturers, such as LTV, have protected themselves from oil-price swings by diversifying their fuel sources. Natural gas, in particular, has become a popular alternative, because it is plentiful and relatively cheap. "Just 30 days ago, we were in the process of ramping down gas and ramping up oil," says Marty Suhoza, LTV's director of energy and metals purchasing. "Now we're doing just the opposite," he adds. "Our average fuel prices are fine."

When the first oil embargo hit in 1973, almost 17% of the nation's electricity was generated by burning more than 560 million barrels of oil. Today, with utilities deregulating and facing more competition, 3.2% of the nation's electricity is generated with the use of just 178 million barrels of oil. Coal, natural gas and nuclear power have taken up the slack. In Silicon Valley, the heart of the New Economy, Santa Clara County added more than 150,000 jobs between 1994 and 1998 while area utilities relied almost exclusively on natural gas and renewable resources, such as hydroelectric power, to fill the new demand. California's environmental laws also resulted in a wholesale shift away from oil. The state's utilities, which burned 12 million barrels of oil in 1990, used just 103,000 barrels in 1998.

Absorbing the Jolt
On the financial-management front, the explosion over the past five years in the number of companies using financial markets to hedge their energy costs has left the U.S. better able to absorb an oil jolt. United Parcel Service of America Inc. has hedged nearly all its oil purchases for next year, and as a result, "we've removed ourselves from the spot market," says spokesman Norman Black. Of course, if oil prices stay where they are for the next year or so, the shipping company ultimately will face higher costs. But, "this gives us the flexibility to build our whole budget for next year with a predictable number," Mr. Black says. "That allows us to better manage our cash flow."

The oil-price jump also is coming at a time of phenomenal cost-cutting, thanks in part to the magic of the Internet. Alaska Airlines, for example, now sells 8% of its tickets via its Web site, up from 3% a year ago. Its $7.5 million-a-year savings is about half its cost of higher fuel prices.

Pass-Throughs to Price-Downs
Even if oil-dependent companies can't completely offset higher fuel costs, the odds those pressures will translate into significant inflation are much lower today than they were 10 or 20 years ago. Through the 1980s and early 1990s, "we had pass-through economics," says Gary Williams, vice president for supply-chain management for Borg-Warner Automotive Inc.'s Indiana powertrain-systems division. Contracts had built-in price increases pegged to wholesale-prices rises. "Today, most contracts have fixed prices with price-downs" or built-in cuts, Mr. Williams says. So far, Borg-Warner's suppliers haven't sought higher prices to offset higher energy costs. "Companies are reluctant to be the first guy to ask for a price increase," he says.

In other industries, a capital-investment boom and competition have tempered oil's impact. With new factories slated to open next year in western Canada, an additional two billion pounds of polyethylene, a petrochemical used to make plastic bags, will be aimed at the U.S. market, a 10% increase, says Earl Simpson, a senior consultant at Pace Consultants Co. of Houston. "There's too much competition to hold prices up," he adds.

A More Aggressive Fed
Like corporate executives, economic policy makers also have absorbed painful lessons from earlier oil shocks, and appear better poised to handle a rerun. In retrospect, most economists believe that the Federal Reserve erred in the 1970s by keeping interest rates low to make sure oil-related production cuts didn't push up unemployment. But the easy money accentuated oil's inflationary impact, leading to double-digit price increases.

Today's Fed is much more aggressive about pre-empting inflation, and today's economy gives the central bank more breathing space. With the economy growing at well above a 3% annual clip and the unemployment rate at a 29-year low of 4.1%, the Fed can afford to fight inflation by cooling growth and pushing joblessness higher. Alternatively, the Fed has ample room to let prices rise a bit.

The politics of oil also have changed radically over the past two decades. The most powerful producers have learned that higher prices are risky, encouraging conservation efforts and new producers, who are harder to control. That may not be obvious from the current state of petro-politics. After all, the main reason oil prices have soared is that the Organization of Petroleum Exporting Countries, along with nonmembers Mexico and Norway, agreed to cut production, and compliance has been unexpectedly good. The group is hoping to make up for a glut of oil in 1996 and 1997 that sent prices tumbling as production increased and Asian demand fell.

With world inventories reduced, many expect OPEC to increase production again when the current agreement expires in March. At meetings last week with U.S. Energy Secretary Bill Richardson, Mr. Naimi of Saudi Arabia and Sheik Saud Nasser Al-Sabah assured Mr. Richardson their interest was in stable prices, not an oil crisis. That reflects an improvement in relations since 1973, when the U.S. learned in a terse cable that oil supplies to its Sixth Fleet in the Mediterranean and U.S. forces in Europe were being shut off, as the Arab nations launched their oil embargo.

Just One Crisis Away
As a result of all these factors, oil experts are betting on lower prices next year, even if there is another wintertime spike. While spot oil prices now trade at around $25 a barrel for January delivery, futures contracts for delivery one year from now sell for about $5 less per barrel. Producers know there is much technology waiting in the wings to displace oil if they allow a sustained price spike. Hybrid automobiles, which use fuel cells and gasoline engines, as well as teleconferencing are just a crude crisis away from wider use, says Joseph Romm, a former assistant energy secretary and now director of the nonprofit Center for Energy and Climate Solutions.

That's why the oil industry has been undergoing its own revolution. Many oil companies are producing more natural gas. They are even joining with auto makers to develop alternative fuels and moving into the power-generation business. And, at Texaco Inc.'s Houston research facility, geologists are using a new computer-based technology to figure out the best place to drill for oil and the optimum method of extracting it.

Texaco earlier this year announced its largest discovery in 32 years, a massive field underneath about 5,000 feet of water off the coast of Nigeria. Without the greater certainty offered by the three- dimensional seismic data the new technology generates, companies could never afford to drill for crude a mile or more below the ocean's floor.

Assessing the seismic data, which once took 10 or 15 people, now takes one or two. Development planning times that took months or years now takes weeks. "The visualization technology will allow our crop yields to go up and reduce our risk," says Michael Zeitlin, a pioneer of the technology. "It's going to keep the cost of oil relatively flat and help us maintain oil prices at a level that is competitive with other energy sources."

Oil Giants Get More Power In Bid To Ease Fears Among Foreign Investors

Inside China Today
December 10, 1999

Beijing will further deregulate its oil and petrochemical industry to ease fears among foreign investors of the government's role in three state oil giants that plan to list in Hong Kong and the United States next year. Chen Geng, deputy minister of the State Administration of Petroleum and Chemical Industries, said the government would no longer set mandatory production targets and get directly involved in product distribution. Instead, the government would push for allocation of resources according to market forces and aim to establish a regulatory framework using legal means and economic levers.

"The government shall give to company management sufficient decision- making power in terms of investments and trade," he said. Mr Chen said the government would not "examine and approve universal projects except for the projects of significant infrastructure or those related to the economic security of the State".

Mr Chen also promised further pricing deregulation by giving oil companies more power to decide prices of oil products while fully liberalising prices of petrochemical products. He said even prices of natural gas at present set by the government would be allowed to float within a certain range.

Analysts said Mr Chen's remarks were aimed at allaying fears of foreign investors that the government would continue to meddle in the operations and management of China National Petroleum Corp (CNPC), China Petrochemical Corp (Sinopec), and China National Offshore Oil Corp (CNOOC), even after their overseas flotations. The three oil giants plan to come to the market early next year in a bid to raise more than US$12 billion.

Sources said CNOOC shelved its $2 billion flotation for a dual listing in Hong Kong and the US in October, partly because many investors were not satisfied with their explanations about the regulatory role of the government. Sources said CNOOC planned a comeback in February, followed by CNPC and Sinopec. Mr Chen said the mainland's oil and petrochemical industry expected to generate more than 25 billion yuan (about HK$23.34 billion) in profits on revenues of 700 billion yuan for this year.

The industries which count the three giants as the backbone have a combined asset value of one trillion yuan, accounting for more than 12 per cent of the value of the country's state assets.

Gazprom To Develop Gas Field In Vietnam

Russia Today
December 10, 1999
http://invest.russiatoday.com/business.php3?id=117524#top

MOSCOW, Dec 10, 1999 -- (Reuters) Russian natural gas monopoly Gazprom plans to take part in developing a gas field in Vietnam, Fuel and Energy Minister Viktor Kalyuzhny said on Thursday. He told a news conference Gazprom and Vietnam signed a protocol in Vietnam for Gazprom to work there during a visit last week by a Russian government delegation.

Kalyuzhny estimated the field's reserves at 700 to 800 billion cubic meters and put the investment required at around $100 million. He said that during the same visit Russian company Zarubezhneft, which produces some 80 percent of Vietnam's total crude output, signed a deal giving Zarubezhneft the right to develop the Dai Hung field and two other blocks, N9 and N14.

Kalyuzhny said Zarubezhneft, nearly all of whose crude production is in Vietnam, would produce 13 million metric tons (260,000 barrels per day) this year, from 12 million last year.

Pakistan Wants Oil/Gas Exploration Boost

Reuters, December 16, 1999
http://www.planetark.org/dailynewsstory.cfm?newsid=5105

ISLAMABAD - Pakistan's military ruler General Pervez Musharraf announced plans yesterday to speed the search for oil and gas, and attract more foreign partners, to meet the nation's growing energy needs. "The next growth area in the government's programme will be the energy sector," said Musharraf in a national broadcast to outline the government's strategy to revive a sickly economy.

He said the exploration and development of known gas fields would be accelerated and foreign investment encouraged in the sector. He gave no details. "The development of recently discovered large reservoirs of gas will be expedited," Musharraf said, referring to an estimated nine trillion cubic feet of newly-discovered gas. According to the official figures 16 discoveries, four of oil and 12 of natural gas, were made in 1997/98 fiscal year that ended in June 1998 of which six gas discoveries are estimated to be of major size.

Tough Task
But Pakistan faces a tough task developing them and finding the finance for infrastructure development. It has also had problems fixing a gas purchase price with foreign companies. Industry analysts say if the dispute over what the government is willing to pay for gas is not resolved, it could end up mirroring a tariff row with foreign-backed independent power producers (IPPs) which has hurt the investment climate.

Pakistan's demand that IPPs slash the prices they charge for their power has led to a showdown that is held responsible for the halving of direct foreign investment in the past two years. Musharraf said his military- led government would deregulate the petroleum sector but gave no details.

"The petroleum sector will be deregulated and the privatisation process expedited." He also announced a rationalisation of the "margins of oil marketing companies" but did not say when or how. Foreign oil companies have complained that the margin on retail sales fails to reflect the real cost of transporting fuel to many distant parts of Pakistan because the same price prevails along its Arabian sea coast as on the Afghan border.

Several foreign companies are involved in the search for oil and gas in Pakistan, which spends more than $2.5 billion a year on imported energy sources. Industry sources say Pakistan has potential reserves of at least 26 billion barrels of oil and 100 trillion cubic feet of natural gas but which have remained largely unexplored in an unstable economic and political environment.

Exploration and development is also said to be hindered by frequent policy changes, disputes on the price of newly-found gas and delays in payments. "Regulatory authorities will be established for the orderly operations and development of the oil and gas sectors," Musharraf said without further explanation.

Gas meets 37 percent of Pakistan's energy needs, with oil accounting for 44 percent, hydro/nuclear 13 percent and coal five percent. Pakistan imports 12 million tonnes of petroleum products a year, while six million tonnes are locally produced.

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