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Tuesday September 28, 1:11 pm Eastern Time

ANALYSIS-Euro oil firms diverge on Y2K inventories By Stefano Ambrogi

LONDON, Sept 28 (Reuters) - Some European oil companies are now stockpiling fuels in preparation for a potential supply crunch at the turn of the year.

The companies said they were taking no chances with the millennium computer bug, boosting both crude and petroleum product reserves just in case the calendar switch to 2000 causes disruptions.

Others said they were content to make do with normal inventories.

An official with a leading German refiner heading up a 2000 compliance team said: ``We feel we need to have an increased stock level although the extent of that hasn't been agreed yet.''

``We do intend to increase crude oil and product stocks at the refineries, and terminals we use for storage in exchange agreements,'' said the refiner, who asked not to be identified.

The official said that no additional stock figure had been decided upon yet because there was a risk that everyone would begin stockpiling in December with the resulting surplus depressing prices in January.

``There is a price risk. We will decide on the specific stock level in late December. We remain flexible and this will depend on how big we think the risk will really be,'' he said.

Shortages were more likely in Germany in diesel and gasoline than heating oil which stocks were expected to remain plentiful, he added.

STATOIL TO SUSPEND OIL LOADINGS

In Norway, Hans Aasmund Frisak, a manager in charge of compliance with Statoil [STAT.CN] said the company intends to boost both crude and product inventories.

``We will stock up at the Mongstad refinery and the Kalundborg refinery in Denmark with crude oil so that we have the ability to keep on running if we have problems with supply from our offshore platforms,'' said Frisak.

He said that the company's crude loading programme will operate as normal but that offshore crude storage will have been ``more or less'' emptied in advance.

``Tankers will approach the field to drain storage in the days leading up to the new year,'' he said. Loadings would be suspended for a few hours before and after midnight.

Gas reserves will be boosted by filling up pipelines close to maximum. ``We will fill up our stocks on shore by compressing gas supplies,'' he said.

Other oil companies are gambling on normal stocking levels to see them through the switch to 2000.

An advisor on Y2K compliance issues with the oil and gas division of Finnish energy group Fortum , formerly Neste, said: ``We're not stockpiling crude or petroleum products above normal levels. Every winter we increase our storage because of the freeze over in the Gulf of Finland and that will do.''

NO PANIC, SAYS TEXACO

Walther Thunker, member of the management board with German refiner Veba AG (quote from Yahoo! UK & Ireland: VEBA.F), said: ``There is no specific stock strategy with regard to the problems which may arise from the changeover to the year 2000. We intend to run low stocks between Christmas and the new year.''

He added that because traditionally there was no draw from refinery stocks over the festive season the company would end up with sufficient stocks for the beginning of January.

In France, TotalFina's vice-president of refining Jean-claude Company said there was no plan in place to top up stocks, adding that its normal 90 days of crude would suffice.

``Billing is one of the only problems we foresee. It's a non-event for us as far the refining side goes,'' a TotalFina spokesman said.

Texaco said that no stockpiling would take place ``otherwise people might get the wrong idea prompting panic-buying.''

Multinationals as BP Amoco (quote from Yahoo! UK & Ireland: BPA.L), Royal Dutch/Shell Group (quote from Yahoo! UK & Ireland: SHEL.L) and Esso (NYSE:XO - news) have numerous contingency plans in place to tackle technological failures but declined to comment specifically on inventory issues.

A spokesman for BP Amoco said the company had allocated close to $300 million in preparation for the rollover.

A spokesman for Shell said of the Y2K problem: ``It's not clear what the situation will be at all. There is a lot of speculation around, but with regard to what we are doing on stocks we won't be drawn.''

-- Oil (huile@olio.aceite), September 28, 1999

Answers

Right. And I'm not really stockpiling...just expecting a LOT of guests for Christmas dinner (and they REALLY like rice), and I'm planning on mowing my lawn (which is why all the 55 gal drums of gasoline in the bunker!). Right.

It is telling that so many companies "fail to comment on inventory issues." It keeps us from finding out what is really happening. Yes, there is a legitimate business reason for not letting your competition know what you are doing. However, at that level, the competition KNOWS what you are doing...

-- Mad Monk (madmonk@hawaiian.net), September 28, 1999.

Texaco said that no stockpiling would take place ``otherwise people might get the wrong idea prompting panic-buying.''

Oh, yeah right. Duh. I'm gonna risk my refinery because I don't want people to panic? I've said it before and I'll say it again. The single most important item in a refinery is crude oil. Run out and you're dead in the water. Fired. No questions asked.

This issue is not quite as clear cut as it appears on the surface however. While I think probably 80% will stockpile some extra barrels, it will be interesting to see which areas of supply tighten up. Mid East, West Africa, South America etc. Will light bbls be at a premium? I think so due to the fact that it will be winter in N. America and the lighter the bbl. the better off you are if TSHTF in your pipe or refinery or dock....

But regardless of what these guys say publicly, privately there's not a crude manager in the world that would want to get caught short due to a disruption, and the problem here is the enormous scale of it all. So much has been said about J.Q Public storing this and taking to much cash out blah blah. But J. Q. Commercial Corp has so much more juice it's not even funny. Think about it. If the entire refining complex (that means the whole friggin world ref. complex) decides to take an extra cargo or pipe shipment that month, the consequences are hard to fathom. Total global demand is currently 74.9 million barrels per day! If the world decided to put aside an extra ten days? 750 million bbls. At current prices that would equate to 17 billion dollars worth of physical crude oil. Damn, how's that for inflationary. I'm quite concerned that the endgame has been ignored and as senior management begins to find that their Y2K minions have underestimated the severity of this problem, they will begin to take action. Most entities rarely think more than 3 months ahead. Oops.

One thing you can count on is that most will deny they are doing any stockpiling at all.

-- Gordon (g_gecko_69@hotmail.com), September 28, 1999.

To Gordon, Mad Monk, and all...

Those of you who think that the US oil companies are secretly stockpiling had better understand that a repeat of the previous Arab Oil Embargoes (with secret stockpiling of oil in tankers and barges) is not going to happen. WHY??? Well, Uncle Sam's good old tree- hugging EPA boys decided that there was simply too much ecological danger in having all of those petro-tank farms being put to good use. It had been common practice for the oil industry to indiscriminately use a tank for various different products at various times. Thus, the EPA became concerned about environmental impacts.

Bottom line is that EPA regulations (particularly in the past 15 years) along with increased inventory tax rates has essentially whittled down the storage capacity of the oil industry. It is a fraction of the capacity that it once had.

I know several refineries that now have the storage capacity of only about 3 days worth of refined products (i.e. gasoline, diesel and heating fuel).

These US oil company spokesmen comments are no doubt pretty genuine at this point. My own relatives tell me that their oil companies are still wrangling with what the final days scenario will be like. However, most likely, they will cease refining operations in their midwestern facilities around Dec 30th just as a precaution. The risks of fire, explosions even though considered small are still unacceptable especially when in one instance they've been told to expect 3 to 14 days without power in the dead of winter ... which then presents problems for the crude oil congealing IF temperatures are below 40 degrees Farenheit...which creates not only further safety risks but also much greater "cleanup" efforts once power does return. [note: these refineries have their own power plants but those plants are insufficient to provide power to the heating systems that normally keep the crude oil lines warm in winter].

So fellows, for once, I take these guys at their word when they say they don't know ... because my sources on the inside are telling me the same thing. However, the industry here (I don't think) wants to admit that they don't have near the storage capacity that they used to have. If they admitted it, the truth might further exacerbate the situation with panic runs on inventory. Now, the EPA might be able to alleviate some of this because there are still empty, rusting tanks sitting around that could be used theoretically ... but NOT legally. Therefore, EPA would have to grant waivers. So far, my sources have heard nothing about the EPA granting waivers for these storage tanks in a Y2K emergency.

The situation is this... most US refiners are now running at maximum just to barely keep up with a 3 day standing inventory of gasoline. Much of the time, most refiners are doing good to keep the inventory at 1.5 to 2.0 days of inventory on hand. TALK ABOUT JIT production! I've one relative whom I've recently pinned down on this issue again, who indicated that running at 100% capacity from now til year's end might gain (at best) an extra day or two's worth of extra inventory. In other words, they're selling it as fast as they can make it. (Of course if demand suddenly ceased, then they could catch up and build rapid inventory stocks ...but then comes the storage facility problems...where to LEGALLY put it?

So you see Gordon, for once these guys are most likely telling us the truth...they just don't yet have a clue as to what they're going to do because there are some options available to mitigate circumstances in some cases, if the EPA were to cooperate.

Now, you've seen me post here before (I think) to know that I have sounded the alarms about the woeful neglect of Y2K by the Oil Patch to the extent that the real dangers of Y2K may be from the oil industry as much or more than that of electricity or phones even IF those industries crash also. So, I'm not here as an oil industry shill but rather to provide you with honest data.

Now regarding the actual news reports of European stockpiling. I found it very interesting and valuable. I don't have much contact regarding foreign oil activities. My info is purely domestic, so these kinds of stories help me to underscore to those reading this that indeed many foreign oil firms by stockpiling are secretly indicating that they know foreign crude oil supplies WILL be disrupted.

Keep in mind, someone, I'm not sure who, on an earlier thread from a few weeks ago indicated that the Saudi's were buying up extra tanker capacity for 6 mo. leases. I also think maybe Iran (?) might have been another nation doing so. Then another member here posted the other day a report from a friend doing Y2K remediation in Saudi Arabia indicated that the remediation of the port loading facilities was "toast" and would not make the deadline. These datapoints confirm earlier reports and suspicions that we will see severe oil shortages that will (in all likelihood) be much more severe than any previous oil shortage. And if it gets that bad... look for Saddam to go back to Kuwait and this time also take Saudi Arabia, too!!! Now there's a scary thought, isn't it?

To all... it may well be that the real achilles heel of Y2K will be Oil, not electricity, water, sewer or phones.

-- R.C. (racambab@mailcity.com), September 29, 1999.