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Mark Jones jones118 at
Thu Jun 22 04:37:52 MDT 2000

1. Venezuela struggles to reach Opec quota
2. Oil and gas producers threaten Norwegian continental shelf closure
3. Opec production boost fails to quell prices

Three related items all from today's FT.

The collapse of Venezuelan oil is the most ominous development for the
future stability of US energy markets. Mexico has new fields under
development but also faces critical declines in mature reservoirs. Mexico
and Venezuela are key suppliers of US oil. Alaska too is in decline, as is
Canada. So is Norway. So is the UK North Sea.

To subsitute for them, the US has only Iraq and the Caspian.

Ten years ago a key part of reagonomics was the deregulation of world energy
markets. What would happen so soon afterwards was predictable and predicted.
One lesson is this: never understimate the phenomal gut-wrenching sheer
stupidity of capitalists and their politicians. If you'vev ever seen jerky
Edwardian silent film of helmeted, plumed Prussians strutting their stuff in
the Potsdamerplatz, then you should have a feeling of deja view every time
you see Larry Summers' s bullet-shaped teutonic head hove into view.

Mark Jones

Venezuela struggles to reach Opec quota
By Andrew Webb-Vidal in Caracas
Published: June 21 2000 21:10GMT | Last Updated: June 21 2000 21:39GMT

Venezuela will barely be able to increase oil exports because of
under-investment in its oilfields during the past year, despite agreeing to
raise its quota within the Organisation of Petroleum Exporting Countries,
industry observers warned late on Wednesday.

The country’s inability to boost supplies stems from its output cut of
625,000 barrels a day during late 1998 and 1999, in line with Opec’s policy
aimed at boosting prices.

In the past 18 months, capacity has been lost because windfall income at
Petroleos de Venezuela (PDVSA), the state oil company, has been siphoned off
by the government of populist president Hugo Chavez, rather than being spent
on the upkeep of wells.

Venezuela’s oilfields are smaller than those of Saudi Arabia, and
productivity per well is far lower, requiring greater investment to bring
them back onstream.

Since March, the world's third largest oil exporter has struggled to fulfil
its quota increase of 125,000 barrels to 2.845m barrels a day. After
Wednesday’s deal in Vienna, Venezuela will effectively "legitimise" its
above-quota leakage and, discounting the domestic market, reach its
available capacity, analysts said.

Venezuela’s share of Wednesday’s Opec increase of 708,000 barrels a day is
81,000 barrels.

"Venezuela’s capacity is about 3.1 million barrels, so it would not be able
to fulfil this," said Humberto Calderon Berti, a former Energy and Mines
Minister and former head of PDVSA. "Venezuela will now have a tough job
recovering market share."

>From its ranking as the biggest supplier of oil to the US market two years
ago, Venezuela has now dropped into fourth place behind Saudi Arabia, Mexico
and Canada.

Oil and gas producers threaten Norwegian continental shelf closure
Published: June 21 2000 14:35GMT | Last Updated: June 21 2000 14:41GMT

Oil and gas producers are threatening a total shutdown on the Norwegian
continental shelf from midnight on Friday 23 June for 24 hours in a bid to
end an 11 day-old strike.

The producers, represented by the Norwegian Oil Industry Association (OLF),
will prevent all members of the Federation of Oil Workers.

Trade Union and Lederne from working, unless the unions come to the
negotiating table.

The OLF told FT Gas Daily Europe that it hoped the lockout would be averted.

The two unions are pushing for a lower retirement age, but negotiations have
reached a deadlock. The strike is delaying first gas from Norwegian state
company Statoil's Asgard B platform, and the OLF is worried that the delay
will damage Norway's reputation as a reliable supplier of gas.

OLF said Norway exported about 166m m³/d in the first quarter of 2000.

Opec production boost fails to quell prices
By Robert Corzine in Vienna
Published: June 21 2000 18:30GMT | Last Updated: June 22 2000 09:51GMT

Leading oil exporters on Wednesday night agreed a nominal output increase of
708,000 barrels a day, in a move expected to offer little relief to
consumers struggling with a near trebling of oil prices over the past 18

The increase was in the middle of the 500,000-1m b/d range widely debated.
Despite the rise, crude oil prices rose in New York on Wednesday night after
the deal was announced by ministers of the Organisation of Petroleum
Exporting Countries (Opec) at their meeting in Vienna although gains were
pared in later electronic trading. Dealers said the increase might not prove
enough to calm prices.

Ministers reached agreement after only two formal negotiating sessions, an
indication that they were keen to show a willingness to make a gesture to
oil-consuming countries worried about price levels.

Mexico, a leading non-Opec producer that has been co-operating with the
cartel, on Thursday morning said it would raise its output by 75,000 b/d.

Also on Thursday morning, Rilwanu Lukman, Opec secretary general, suggested
incremental volumes of Opec oil could be put on the market if prices do not
respond to the three percent increase in output agreed on Wednesday. "It is
quite possible we will put more oil on the market if prices stay high for a
month or so," he said.

Nonetheless the outcome of the meeting is likely to disappoint the US, the
world's biggest consumer, which wanted a much larger increase. Opec is
expected to monitor markets closely and may react relatively quickly to any
prolonged period in which prices stay outside its target band of $22-$28 a
barrel. But many analysts fear its actions will not be sufficient to
stabilise prices at a lower level. "If they want to bring prices down they
needed to do 1m b/d a day," said a European trader.

Abdullah bin Hamad Al Attiyah, the minister from Qatar, said: "It's a good
round number." But he blamed "technical problems in the US" for the latest
surge in prices.

Advocates of a small increase argued that the latest price surge was not
because of a shortage of crude oil, but was due to a tight US petrol market
forcing up the underlying price of crude. They claimed that additional oil
on the market would do nothing to relieve US consumers.

Those who sought a big increase accepted that a boost in crude supplies was
unlikely to have much impact on the US market, where the introduction of
"greener" fuel standards has exacerbated upward price pressure.

They added that greater output was needed to influence the psychological -
rather than physical - side of the market and to moderate the speculative
wave that has sent oil futures beyond the politically sensitive $30 a

Wednesday's debate was complicated by the fact that many Opec countries
already produce beyond their quotas. Estimates of over-production vary from
500,000 to 700,000 b/d, so much of any formal increase will be seen as
merely legitimising the level of cheating.

Analysts also warned last night that Venezuela, an Opec member and the
world's third largest exporter, would not be able to raise exports
significantly because of under-investment.

Dr Lukman also appeared to confirm on Thursday morning that Opec has
abandoned its short-lived attempt to create a mechanism for keeping prices
within a $22-28 a barrel range. He said the organisation would instead
target a reference price of $25 a barrel for the basket of Opec crudes. His
comment contradicted remarks by the Iranian oil minister.

Mark Jones

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