Oil: What's behind the local gas station?

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Some may remember the "Arab oil embargo" of the 1970s, many won't. Or at least the memory of what a mess it made of things economically for a few years is probably vague by now. That was the time when the price of a U.S. gallon of gas went from somewhere around 65-cents to $1.30 in less than a year, and the interest rate wound up somewhere around 18% (if not higher), making life difficult for lots of people and impossible for lots of businesses.

The oil industry, the oil supply system, is a mine field of Y2K vulnerabilities (everything from computer chips on drills 10,000 feet beneath the sea, to highly computerized supertankers, oil refineries, and even tanker trucks whose onboard computers think that oil change is 100 years overdo). Will the flow of oil be stopped by Y2K? Not likely. Could it be slowed way down? As the following (and much more info on the net) reflects, it doesn't take much contraction in the pipeline to do that. What has a lot of people nervous is that the year 2000 problem has the potential to turn that global pipeline into a global strawline. (One of the best perspectives on this issue and its potential impact on the economy comes from Dr. Ed Yardeni who has an extensive and excellent Y2K section on his web site. He's no dumby - click that first link - and for about the past year he's been saying there's a 70% chance of a global recession due to y2k.)

While the United States, Canada, Australia, the United Kingdom, and a few other countries have been working hard on the problem for at least a couple of years (when they should've been working hard on it for about 10), a lot of the rest of the world is just starting, or is waaaaaaay behind. If we got all our oil from Alaska, Texas, and other places around the country, there might be less cause for concern. But we're all wrapped up in that thing called the "global economy" now. As a result, every refinery, tanker truck, and gas station in America may be ready as can be for the new year, but they could have trouble getting stuff to put in tanks. (Theirs and ours.)

The following article excerpts come from Roleigh Martin who specializes in keeping an eye on "embedded systems" and y2k's potential impact on "core infrastructures":

This is the key quote: - Roleigh (others follow, interesting about Iraq).

"It wouldn't take more than a two percent cut in output -- 1.5 million bpd -- to dramatically alter oil market fundamentals and lead to a significant price increase," said Peter Bogin of Cambridge Energy Research Associates (CERA) in Paris.

Thursday March 25 1:03 PM ET

Big Oil Exporters Pose Key Y2K Puzzle
By Andrew Mitchell

LONDON (Reuters)

[...]

"Nearly 50 percent of the oil used in the U.S. comes from foreign sources, yet many of the countries have a high risk of failure," a Senate special committee report said this month.

Three of the top five U.S. oil suppliers -- Venezuela, Saudi Arabia and Nigeria -- are up to 18 months behind in preparing for the millennium bug, the report said. Another key exporter, Kuwait, is understood to be especially far back.

[...]

Surprisingly, Iraq's two million bpd of exports should not be hit too hard, despite its long isolation by U.N sanctions.

"Iraq is aware of the problems and local officials say they are dealing with it," said Mrayati.

"They are also less vulnerable because they have missed out on a lot of modern automation over the last decade."

The threat of supply chaos early in 2000 will bolster lowly oil prices later this year as traders buy advance provisions, analysts said.

As well as potential oilfield shutdowns, refineries and oil tankers could suffer. Some shipping bodies are understood to have decided not to carry any oil around the turn of the year.

"It wouldn't take more than a two percent cut in output -- 1.5 million bpd -- to dramatically alter oil market fundamentals and lead to a significant price increase," said Peter Bogin of Cambridge Energy Research Associates (CERA) in Paris.

Click here for full story

You may also want to read the excerpts from the " Central Intelligence Agency Y2K Worldview" senate testimony.

-- Bill (billdale@lakesnet.net), March 30, 1999


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