February, 2006:

Feb 28, 2006
OIL supply disruptions such as those caused by Nigerian militants threaten to hurt crude demand and spot tanker rates, warns a leading New York shipbroker, writes Tony Gray.
Poten ' Partners says that successful attacks on export facilities by rebel groups have shut in at least 450,000 barrels per day from Shell's Forcados terminal in Nigeria.
And militants representing the Movement for the Emancipation of the Niger Delta have warned of more attacks that could reduce Nigeria's 2.5m bpd of exports by 30%.
Poten ' Partners says there were 1,010 reported spot tanker dirty fixtures from West Africa in 2005, dominated by suezmaxes (624) and very large crude carriers (334). Half of VLCC discharges are in the US and 44% in Asia.
North America takes the lion's share of suezmax cargoes, accounting for 51%.
Poten ' Partners says an interruption in West African crude exports affects all importers as it lowers overall supply.
In an ideal world, the broker points out, China would like replacement crude from the North Sea to meet their refinery specifications.
But North Sea producers are at capacity, making them an unlikely source of relief.
Instead, Poten ' Partners says replacement crude will mainly draw down on what little spare capacity there is in Saudi Arabia 1m-2m bpd.
The broker comments: 'On the surface, one would think that replacing West African crude with Middle Eastern crude will benefit VLCC owners, but long haul West Africa to the East is an important driver determining VLCC demand.
'Thus the shift in trade patterns will dictate the degree of gain or loss for VLCCs.
'Last week's drop in suezmax rates for West Africa-US of 70 Worldscale points indicates the degree of vulnerability of these tankers to a a supply interruption here.
'What this means is that VLCCs will pick up Arabian Gulf cargoes to compensate for losses out of West Africa.'
Last week's attack on a Saudi Arabian oil facility sent crude prices up $2 per barrel, underlining the global vulnerability to attacks on oil facilities and civil discord among suppliers .
'A major hike in crude prices from supply disruptions will adversely affect economic activity, shrink demand, and hurt spot tanker rates,' Poten ' Partners concludes. read more

It should be the best of times for the energy giant. But a look at its reserves show Royal Dutch Shell may soon be running on empty.
By Nelson D. Schwartz, FORTUNE senior writer
February 27, 2006: 1:24 PM EST
(FORTUNE Magazine) – Judging by the $23 billion it earned last year, these should be the best of times for Shell, the Anglo-Dutch energy giant that ranks third among the top five Western oil companies. But Wall Street isn't celebrating. Instead, analysts are worried that buried beneath the record profit figures are worrying signs of a business in decline.
That's because Shell (Research) hasn't been able to find nearly as much oil and gas as it's now pumping out of the ground. In fact, it hasn't even come close — replacing only 60 percent to 70 percent of what it produced in 2005 and only 19 percent in 2004. Shell has had reserve problems for years — a controversy over improperly booked assets forced it to reduce estimated reserves by roughly 30 percent and led to the resignation of its CEO, Phil Watts, in 2004.
But what's troubling now is that Shell is falling way behind rivals like Exxon and BP despite spending billions more each year on exploring and drilling new wells. Last year Exxon replaced 112 percent of production, and BP came up with 95 percent.
“I have never seen anything like this,” says Fadel Gheit, a veteran energy analyst with Oppenheimer & Co. “Shell used to represent the gold standard in this industry, but lately they can't get their act together.”
To be sure, Shell still has huge assets — nearly 12 billion barrels. But in the oil and gas industry, reserve replacement is the best guide to whether a company will be able to maintain — or grow — production in the future. So not replacing what you pump, says longtime industry observer Matthew Simmons, “is like eating your seed corn. If you're not finding new oil, you're just liquidating what you've got.” Indeed, Shell's daily production figures have been weak lately, falling 6.7 percent in 2005, to 3.52 million barrels a day.
Privately, Shell execs say the company's decision to cut spending for exploration when oil prices bottomed out in the late 1990s is partly to blame for the anemic numbers now. Shell CEO Jeroen van der Veer insists that projects like those on Sakhalin Island off Siberia and in Nigeria and the Gulf of Mexico will enable the company to start catching up with peers in the years ahead. It won't be easy.
“If you're not adding to reserves, you have a problem,” says Sanford Bernstein analyst Oswald Clint. “Shell will have to run twice as hard just to stay in place.” read more

LAGOS (AFP) – Anglo-Dutch giant Shell, which is locked in a bitter legal battle over environmental damage in Nigeria's oil-rich southern Delta, is appealing against a hefty 1.5-billion-dollar (1.2-billion-euro) fine for pollution.
On Friday, the federal high court in the southern city of Port Harcourt slapped the fine for environmental pollution on the company following a suit filed by the local Ijaw community.
“The court ruled that we should pay 1.5 billion dollars to communities in the Niger Delta (but we have) already lodged an appeal in a higher court,” a company spokesman said.
A group calling itself the “Ijaw Aborigines of Bayelsa State” had taken Shell to court because the company had ignored an order from the Nigerian senate in 2004 to pay the money to the impoverished local community.
Last year Shell made a net profit of 22.94 billion dollars (19.03 billion euros) for 2005, the highest full-year profit in British corporate history, on the back of record high oil prices.
The Anglo-Dutch giant said it had appealed “on, among other grounds, the strength of independent expert advice, which demonstrates that there is no evidence to support the claims of the group”.
Shell contends that the pollution of the waters and farmland in the Delta region is a result of sabotage and it is therefore not responsible for the damage.
But this stance is compromised not only by the rulings of parliament and the high court in Port Harcourt, but also by a verdict from the federal court in Benin City.
On November 14 last year the Benin City court ordered Shell to immediately cease gas flaring, following a complaint filed by seven Ijaw villages who said they were suffering from severe respiratory ailments.
The court decreed that flaring was a “violation of fundamental rights and dignity which was guaranteed under the constitution”.
Shell also appealed against this ruling and continued gas flaring, provoking a fresh suit on December 16.
The Ijaws have been aided in their fight by various local and international bodies, including the Environmental Rights Action and the Nigerian branch of environmental group Friends of the Earth (ERA/FoEN).
Akinbode Oluwafemi from ERA/FoEN told AFP that although the two suits were not directly linked, both were “from the Niger Delta people, who have been suffering.
“Both are trying to get justice for the people,” he explained.
“Our own demand is more than compensation. We think they should stop gas flaring completely,” Oluwafemi said.
“What we expect Shell to do is to stop ignoring the law and the judicial system of Nigeria. Shell should allow justice to prevail instead of launching appeal after appeal.”
Nigeria is Africa's largest oil exporter, producing a total of around 2.6 million barrels per day. But the wells and flow stations of the Niger Delta are vulnerable to attack from pirates, separatist militants and angry local groups.
Shell's woes have been exacerbated by increasing attacks by Ijaws on oil installations and the February 8 kidnapping of nine foreign oil workers.
There are a plethora of angry Ijaw separatist or militant groups.
All are united by a common complaint — Nigeria's 30-billion-barrel oil reserves are the rightful property of the Delta's 14-million-strong Ijaw tribe and have been unjustly taken by the federal government and foreign oil majors.
Since the latest kidnapping, Shell has slashed Nigeria's key crude exports — the source of more than 90 percent of the country's external revenue and two thirds of the government budget — by 455,000 barrels per day, or 20 percent. read more

Monday, 27th February, 2006
By Hillary Kiirya
THE Supreme Court has thrown out an appeal by Shell (U) seeking to challenge a Court of Appeal decision that declared its former employer’s dismissal illegal.
The court also ordered Shell to pay costs amounting to about sh150m to Eng. George Ndyabawe.
Five judges in a judgement delivered recently, upheld the Court of Appeal decision saying Shell’s appeal was incompetent and had also been filed out of time.
Shell dismissed Ndyabawe, who later sued them to the High Court but the presiding Judge, Mary Amaitum, dismissed his suit.
However, the Court of Appeal, reviewing maitum’s judgement, declared that the decision by Shell to dismiss Ndyabawe was illegal and unlawful as it was based on heresy from jealous people. read more

By REUTERS
Published: February 27, 2006
Filed at 2:02 a.m. ET
SINGAPORE (Reuters) – Oil fell more than 1 percent on Monday as dealers cautiously weighed a “basic'' nuclear deal agreed by Iran and Russia, but fears over Saudi supplies after last week's thwarted al Qaeda attack checked losses.
U.S. oil futures for April delivery (CLc1) slid 72 cents, or 1.14 percent, to $62.19 a barrel.
Prices had soared 4 percent on Friday after news of the failed raid on an oil facility that handles most Gulf supplies from the world's biggest exporter, but dealers locked away some of those profits on Monday as exports flowed undisturbed.
London Brent crude (LCOc1) fell 69 cents to $61.91 a barrel.
“The Iran issue has settled down a little bit after they agreed this joint venture with Russia,'' said Nahiro Niimura, vice president of Mizuho Corporate Bank's derivatives unit in Tokyo. “That drives some market participants to sell.''
Iran said on Sunday it had reached a “basic agreement'' with Russia on jointly enriching uranium. Moscow had proposed for Iran's uranium to be enriched in Russia to defuse suspicions that it might use some of the fuel for nuclear weapons.
“Talks to complete this package will continue in coming days in Russia,'' said Iranian nuclear chief Gholamreza Aghazadeh.
But there was no immediate sign that Tehran would suspend home-grown enrichment, the crux of a dispute that oil traders fear could disrupt exports from OPEC's second-largest producer.
Dealers will now be looking for more clues when the board of the United Nations' watchdog, the International Atomic Energy Agency (IAEA), meets on March 6 to discuss its latest report.
Iran could next be referred to the U.N. Security Council for sanctions, which traders fear could spur Tehran to withhold oil supplies in retribution, although oil ministry officials have repeatedly insisted this will not happen.
“I don't think Iran will stop oil exports because of the money, but we have to wait and see for the IAEA meeting,'' said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures.
SAUDI SHADOW
In Saudi Arabia, violence flared again on Monday as security forces killed about five suspected militants after besieging a villa in a Riyadh suburb, security sources said.
They said the men were believed to be linked to al Qaeda's raid last Friday on the Abqaiq crude processing plant — the world's biggest — which was foiled by security services before it could cause any serious damage to facilities.
Al Qaeda vowed at the weekend to carry out more attacks.
“The most important thing is the Saudi issue and al Qaeda saying they could attack at any time. We have to watch their activities. Geopolitics will support $60 this week,'' Emori said.
Most of Saudi Arabia's 7.5 million barrels a day of crude oil is exported from the Gulf via the huge producing, pumping and processing facility at Abqaiq.
It was the first direct strike on a Saudi energy target since al Qaeda launched attacks aimed at toppling the U.S.-allied monarchy in 2003, serving oil traders a fresh reminder of the geopolitical risks beyond those in Iran, Iraq and Nigeria.
There was no sign of Royal Dutch Shell (RDSa.L) restarting the 455,000 barrels of daily production that was shut in just over a week ago due to militant violence in Nigeria, the world's eighth-largest oil exporter.
With prices hovering above $60 a barrel, OPEC may be content to agree to keep pumping at near full throttle when it meets on March 8, despite worries about the downturn in second-quarter demand and robust inventories in the United States.
“Our position is that we should not change production,'' Algeria's Energy and Mines Minister Chakib Khelil said on Saturday. read more

KWARA State governor, Dr. Bukola Saraki, at the weekend expressed concern over the activities of militants in Niger Delta, noting that 25 per cent loss in oil production by Shell is a threat to the nation’s economy.
Dr. Saraki, who expressed the concern while signing the state 2006 budget of N35.71 billion into law, said the 25 per cent loss in oil production would affect the implementation of the country’s budget.
The governor expressed concern over the nine expatriates kidnapped by the youths in the Niger Delta and appealed to the foreign countries to show solidarity with Nigeria.
Speaking on the state budget, Dr. Saraki said the government focus was on education, health and agriculture because “we believe these are the key areas of human development.”
He stated that the government embarked on renovation of four secondary schools in the state last year to make them role models in the country, adding that 16 others would be renovated this year.
He said the government would lay more emphasis on primary health care which was started in 2005 through renovation of the 33 general hospitals across the state.
On agriculture, the governor said the budget would promote agriculture which he said could be sustained and be made effective through irrigation. read more

TEHRAN (Reuters) – Iran will next week grant Total (TOTF.PA: Quote, Profile, Research), Shell (RDSa.L: Quote, Profile, Research) and Repsol (REP.MC: Quote, Profile, Research) upstream development contracts in the giant South Pars gas field in the Gulf, an Iranian state oil firm said on Saturday.
Iran intends to use phases 11 and 13 of South Pars, which sits on the world's biggest reservoir of natural gas, to produce liquefied natural gas (LNG). The Islamic Republic hopes to export its first LNG shipments in 2009.
“The signings will be late this week,” said a spokesman for the Pars Oil and Gas Company.
The Iranian working week starts on Saturday and ends on Wednesday or Thursday, depending on the institution.
Total is looking to develop phase 11 of South Pars to produce LNG, gas supercooled to liquid for loading onto tankers, in a project called Pars LNG.
Shell and Repsol are looking to do the same with phase 13, a project called Persian LNG.
Akbar Torkan, managing director of the Pars Oil and Gas Company, was quoted by the Abrar-e Eqtesadi financial daily saying the contract to develop phase 11 would be worth $1.2-$1.4 billion (687-802 million pounds).
The phase 13 deal would be worth $1.5 billion, he added.
Although it sits on the world's second biggest reserves of natural gas, Iran has been very slow to develop exports.
Qatar, which draws its gas from the same Gulf reservoir, is a long-established LNG exporter.
Iran has been reported to the U.N. Security Council for possible sanctions after failing to convince the world its atomic ambitions are entirely peaceful.
However, Iran has struck a defiant tone on its oil and gas industry, saying industrialised countries would never dare embargo hydrocarbons from OPEC's number two exporter while oil prices remain high.
Torkan also told the ISNA students news agency that Pars Oil and Gas Company had tendered phases 19-21 of South Pars. read more

TEHRAN (AFX) – Shell, Total SA and Repsol YPF SA will soon sign contracts with Iran to develop two phases of the Islamic republic's offshore South Pars gas field, an Iranian official.
'The contracts will probably be signed in the current (Iranian) week,' said Akbar Torkan, the managing director of the state-run Pars Oil and Gas Co (POGC) which is in charge of the Gulf gas field.
The contracts concern phases 11 and 13 of South Pars, with the production of liquefied natural gas (LNG) scheduled for export.
Total will be working on phase 11 in a project called Pars LNG, while Shell and Repsol will be working on phase 13 under the name Persian LNG. The firms will be operating jointly with the National Iranian Oil Co.
Investment for each phase has been estimated at between 1.2 and 1.5 bln usd.
aet/sas/np/swp read more

By Richard Orange
26 February 2006
US oil company Amerada Hess has put about $300m (E252m, £171.8m) of its North Sea oil assets up for sale, making it the second North American oil company to cut back investment in the North Sea since Chancellor Gordon Brown slapped a 10% extra tax on oil producers in November.
The Business understands that Hess has hired industry consultants Harrison Lovegrove to find a buyer for its stakes in the Scott and the Telford oil fields, 200 km north-east of Aberdeen.
Together the stakes represent about 20m-25m barrels worth of oil. The company has a 20.95% stake in Telford field and a 17.43% stake in Telford.
Brown’s tax hike seems to have given a push to the North Sea’s previously slow-moving asset market. Canadian oil giant Talisman Energy put a package of fields on the market at the end of January.
Royal Dutch Shell in December slashed its oil drilling plans in the North Sea, blaming Brown for the decision.
BP has recently sold its first North Sea field in at least two years, offloading its stake in the Statfjord Field to Japan’s Nippon Oil.
Shell has also launched its biggest North Sea clearout so far. The company has released a data package to potential buyers that covers some 350m barrels of “technical reserves” in the North Sea, with 35 exploration prospects.The entire package is potentially worth billions of dollars, but Shell is thought to intend only to sell a prospect if it receives a compelling offer.
Charles Westwood, of oil and gas intelligence consultancy Hannon and Westwood, said: “I think we’ll see a substantial number of later life assets coming to the market over the next 18 months. It’s a good time to get rid of everything that will come back and bite you when the oil price falls.”
Buyers were also hoping Amerada might throw in its 76.56% stakes in the far smaller Rob Roy and Ivanhoe fields.
Have your say e-mail: letters@thebusiness.press.net read more

Royal Dutch Shell PLC, Europe's second-largest oil company, said it believes it has “strong grounds” to appeal a reported US$1.5-billion fine a Nigerian court has ordered it to pay the country's Ijaw people for environmental damage.
The court ordered Shell to make the payment following claims for compensation from the Ijaw dating back to 2000, the British Broadcasting Corp. said yesterday on its Web site. Nigerian militants calling themselves the Movement for the Emancipation of the Niger Delta have attacked oil facilities run by Shell's Nigeria venture and kidnapped foreign oil workers.
The group has previously called on Shell to pay the Ijaw the US$1.5-billion as compensation for environmental damage and the loss of life caused by company operations. read more

San Francisco, CA (PRWEB) February 24, 2006 — Five residents of County Mayo, Ireland, were jailed for blocking Shell Oil Company and their Irish Government partner’s plans to pipe raw gas through their communities and close to their family homes.
Shell Oil plans to build a giant processing plant on one of the county’s most spectacular and pristine stretches of coastline.
The jailings set off a storm of protest throughout Ireland with widespread international support, including protests, marches, petitions, fundraisers, blockades and pickets aimed at blocking the billion-dollar gas project.
“We have refused access because of the certainty that if this pipeline as currently proposed ruptures we, our families and neighbors, will die,” said Vincent McGrath, a retired teacher who was jailed with four others for 94 days last year for obstructing work on the pipeline.
“What would you do if a court ordered you to accept installation of a potentially lethal pipeline which no state agency has or will take responsibility for?” McGrath said.
McGrath and the four other prisoners have come to be known across Ireland as the “Rossport 5.”
The Rossport 5 gained international attention when they were imprisoned for what the Irish Judge, Finngean deemed to be contempt of a court order taken out by Shell.
This shot taken by Shell Oil was an apparent attempt to quickly silence a community’s efforts to ensure that the health and safety of their families, and the environment, would be protected.
Additionally, there is concern that relatively no local jobs would be created, and there would be no return to Irish owners of the resource. Shell would sell the oil back to Ireland, with no contribution to Ireland and the economy.
As Shell Oil threatens to put the Rossport 5 back into prison, Irish political leaders in the U.S. are urging U. S. citizens to support the Rossport 5 and their community.
“The Rossport 5 are to be commended for protecting their families and community,” commented Séamus Collins, Chairperson of Irish Northern Aid, San Francisco.
“It doesn’t make sense for the Irish government to put the interests of a big oil company before safety of its own citizens,” Collins said.
Irish Northern Aid is asking supporters in the U.S. to take action. To voice an opinion to Shell Oil and the Irish government, visit: www.inac.org
Click on: http://www.ShelltoSea.com for news and events. read more

The vast gas reserves controlled by Vladimir Putin give his nation enormous global influence. But he needs the Anglo-Dutch oil giant's help to fully exploit his position, reports Nick Mathiason
Sunday February 26, 2006
In July Russia's President, Vladimir Putin, will welcome the leaders of the world's seven richest nations to Moscow. At the top of Russia's G8 agenda will be energy security. To many, this has the makings of a joke waiting for a punchline. After all it was the Russian leader who just last month ordered the state energy giant Gazprom to turn off the gas supply to neighbouring Ukraine, forcing an icy shiver down the spine of the Western world.
Here was petropower writ large. The Russian bear showed its teeth at a time when world oil supplies have rarely been less secure. Royal Dutch Shell's top man in Russia, Chris Finlayson, 49, momentarily saw the funny side too. In London this week, he allowed himself a brief spluttering guffaw when asked whether he believes President Putin's primary concern was global energy security.
But for Finlayson, himself a roly-poly bear of a man, diplomacy is a prerequisite because for Royal Dutch Shell, Russia is vital. The Anglo-Dutch giant has two massive projects there. It is the single largest foreign direct investor in Russia and is desperate to win the right to extract more Russian oil and gas if it is to stave off nervous investors who are only now recovering from the company's mis-stating of its oil reserves by 40 per cent.
Composing himself on the 22nd floor of Shell's South Bank London headquarters, Finlayson says: 'I think frankly it's a good thing that they're bringing [energy security] up as an issue they want to discuss, rather than it being put to them as a concern and a challenge.'
Some might call that getting your retaliation in first. But not Finlayson. Careful with words, he says the renationalisation of vast swathes of industry, and in particular energy firms previously controlled by oligarchs, is a 'rebalance of the portfolio from one where it was a case of very little control for government.' The row with Ukraine, meanwhile, is 'robust negotiation style on display'.
Finlayson is not expecting a repeat performance of a Ukrainian-style Russian show of strength. 'Their own importance as an energy supplier means people are hanging on every nuance of every action…. So I would be surprised to see anything done in the same way in the future but that's my speculation.'
Does Putin, by having more gas reserves than any other country on the planet, want to effectively control the world? 'I think there can be no question that given the scale of the resources, Russia sees that this gives them a place of real influence and a place at the top table so they want to make sure that importance is recognised by the world.'
But this is something they can only do with Shell's help. Shell is the world leader in the liquified natural gas sector. This is the technique of freezing natural gas into liquid form which can then be transported around the world in ships. Far easier than using cumbersome, geopolitically sensitive pipelines.
At a stroke this changes the distribution of energy, broadening Russia's global horizons, yielding new markets and international relationships.
And it is why Shell was given the right to lead a consortium on what's known as Sakhalin-2 off the east coast of Russia. There is 4.9 billion barrels'-worth of oil and gas here. At a conservative estimate revenues to Russia will be in excess of $50bn and several billion to Shell.
But for the Anglo-Dutch oil giant, these are nervous days. Sakhalin-2 has gone an astonishing $10bn over its initial $10bn budget and Putin isn't happy. Russia is concerned that its share of the Sakhalin revenue will be delayed as a result of cost overruns. Finlayson has said that the ballooning budget will be borne by the consortium members alone.
Some in the City say that it is only because the price of oil has shot up and that Shell has merged its British and Dutch divisions that have allowed it to escape investors' flak.
Finlayson attributes overruns to a budget drawn up when oil was $10 a barrel. It is now six times that and the resulting construction inflation combined with rouble inflation and 'not having the information to fully appreciate all the challenges there from the start' have led to the $10bn overspend.
But questions are being asked. Is the company capable of handling such pivotal and difficult projects? Sakhalin is inhospitable. Winter temperatures average minus 24C, the area is prone to typhoons and is littered with unexploded ordnance – a legacy of Russian- Japanese hostilities.
Sakhalin Energy Company, 55 per cent owned by Shell, has to build platforms to withstand massive ice flows and dig trenches for pipes in frozen sea floors while trying not to disturb endangered grey whales who feed in the area. There's also the risk of poisoning of fishing stocks vital to islanders' livelihoods.
But Finlayson is convincing when he defends the handling of the scheme. 'It is estimated that up to 50 per cent of the total pipeline subcontractors in the Russian federation are working in Sakhalin at the moment. Those companies are learning about the challenges of working to full Western standards with external, independent monitoring and when they do other projects one hopes that learning will stay with them.'
He adds that Shell's responsibility is proved by its moving the route of a pipeline, at a cost of $300m, so that it will not affect the endangered whales.
And some do praise the firm for this. Jason Kenney, an energy industry analyst at ING says: 'The environmental aspects in Sakhalin that Shell has achieved have been groundbreaking for the industry. Not just the whales or the salmon industry or how they're dealing with the river crossings, but their efforts in trying to ensure the islanders benefit.'
But environmentalists pour scorn on this, pointing to vivid examples of Shell's failure. They argue that Shell only moved because it was pushed and until now they have had a field day at Shell's expense. The firm privately admits it has been on the back foot in dealing with campaigners, and Finlayson is eager to put Shell's side of the argument before Tuesday. Then, environmentalists will be lobbying the European Bank for Reconstruction and Development at a public meeting in London. They will be urging the bank to refuse to forward money to the Sakhalin consortium. The issue is portrayed as a test of the bank's environmental credentials.
Without the EBRD's backing, getting loans from other banks will be much harder. In two months, Shell will finally learn whose side the EBRD is on.
But, however Sakhalin is financed, it will happen. And it is just the start. There are many shelves beyond the island that will yield huge resources. But how secure is Shell in Russia? Once Russian companies have the ability to harness LNG, will they not just seize Shell's assets? 'No,' says Finlayson. 'I think we will jointly grow the space and I think we have a track record of showing we can work with national partners who then develop their own businesses. At the same time our business is not constrained by that.'
Shell is keen to win concessions in western Siberia. But it has to get Sakhalin right. If not then Putin's joke will be on the world's third biggest energy firm read more

Officials Worry Terrorists
Are Targeting Oil System;
Crude Futures Jump 4%
By BHUSHAN BAHREE and CHIP CUMMINS
February 25, 2006; Page A1
A foiled attack Friday on a Saudi oil-processing facility reinforced a dire concern for the U.S. and the energy industry: that terrorists are looking to score a direct hit on one of the world's largest petroleum chokepoints.
Friday's target, the vast Abqaiq facility, may be the single most vital cog in the world petroleum system. Saudi Arabia is the world's largest oil exporter. Abqaiq processes six million to seven million barrels a day of crude oil — equal to about two-thirds of daily Saudi output and 8% of the world's consumption.
“There is nothing that matches Abqaiq, in volume and strategic terms, in the world,” said Jim Burkhard, senior director of oil-market analysis at Cambridge Energy Research Associates in Cambridge, Mass.
Saudi officials said the thwarting of the attack proved that their oil assets are tightly guarded. Officials said two vehicles laden with explosives were attempting to drive through defenses at the facility's outer gates, roughly a mile from the main entrance, when security forces fired on them. The vehicles blew up, killing those inside and critically injuring two security guards. Al Qaeda has been implicated in previous oil attacks, but it wasn't clear if the group was behind this assault.
ABOUT ABQAIQ
• Oil was first discovered there in 1940.
• The oil field has 17 billion barrels of proven reserves.
• Aramco facility there processes about two-thirds of Saudi Arabia's oil output
• It is Aramco's main crude processing center.

Sources: Saudi government, EIA, Aramco
MORE ON OIL MARKETS
Issue Briefing: Unrest Behind Oil's RiseThough Saudi oil minister Ali Naimi said the attack and explosions at the site didn't affect oil and gas production or exports, markets were jolted by the news. Crude-oil futures jumped 4% on the New York Mercantile Exchange. Light sweet crude for April delivery surged as high as $63.25 a barrel before settling at $62.91, an increase of $2.37, on the New York Mercantile Exchange. (See related article on page B5.)
The attack comes as trouble in a slew of oil-producing powers has put energy security back atop the world agenda. Insurgents have hobbled oil output in both Iraq and Nigeria. Russia last month briefly cut off gas supplies to neighboring Ukraine. Iran has threatened to disrupt Persian Gulf shipments amid its dispute with the West over its nuclear ambitions.
Oil prices have doubled since 2003, as growing demand has outpaced supply increases, leaving the world with only a thin cushion of spare pumping capacity. The shortage has made it easier for governments, rebels and terrorists alike to use energy as a potent political weapon, sending prices soaring by withholding supplies, attacking pipelines or merely threatening to cause havoc.
More broadly, the attack brought to mind the nightmare scenario that has worried Washington for more than three decades: a significant disruption at Saudi export facilities on the Persian Gulf side of the kingdom. The threat from internal subversion has always been considered greatest in that area, and the ability of foreign military forces to help prevent trouble there is the lowest.
Such fears help explain President Bush's declaration in his State of the Union address this year that the U.S. needs to reduce its dependence on Middle Eastern oil imports. The fact that Mr. Bush referred specifically to the risks of reliance of Middle Eastern oil — as opposed to imported oil generally — offended the Saudis, who have long prided themselves on being a reliable supplier to the U.S. and the West. The Saudis may point to the fact that the attack was stopped as evidence they remain as reliable as ever, but the Bush administration could suggest it shows the need to follow up on the president's challenge.
Underscoring growing concern about oil terrorism, the North Atlantic Treaty Organization last week in Prague held its first energy-security conference, attended by senior U.S. and NATO officials.
In recent years, Saudi Arabia has ramped up spending on security following a spate of terrorist incidents. In 2004, there was a rash of oil-infrastructure strikes in Saudi Arabia that involved refineries and foreign oil workers, which while sensitive aren't strategically important enough to hobble the global energy supply.
According to the Energy Department, Saudi spending on security rose by 50% in 2004 to $5.5 billion. Abqaiq, for one, is so well-protected that “you would need an army, probably with air support, to get through,” said Nawaf Obaid, a Saudi oil and security consultant and an adviser to the government.
Still, the mere attempt highlighted the world's dependence on the facility, which may have been the purpose of the attack. “This is a weapon of mass media,” said Anthony H. Cordesman, an energy-security analyst at Washington's Center for Strategic and International Studies. “Even if they fail, they get the publicity.”
Security analysts said terrorists in Saudi Arabia appear to have switched to targeting oil facilities after a backlash in the kingdom. In previous attacks in populated areas, Saudis were angered by the terrorists killing innocent Muslims, Mr. Cordesman said. At the same time, Friday's attack also suggests terrorists have so far been unable to recruit people inside oil facilities who could help them penetrate the huge plants, he said.
Abqaiq receives petroleum streams that are pumped in from Saudi Arabia's giant fields, processes and cleans the oil by separating out water and gas, then pumps it through pipelines for export via shipping terminals on the nation's coasts.
Damage to Abqaiq could cripple Saudi exports, bottling in crude streams that can't be processed for export. That has happened once before: An accidental fire at Abqaiq in 1977 knocked out 70% of Saudi Arabia's output for three days. The Saudis gradually fixed the damage and output recovered over several weeks. Had the fire reached the complex's generating plants, it might have taken months, and possibly years, to rebuild Abqaiq.
Saudi Arabia has a few other vulnerable targets, including Ras Tanura on the Persian Gulf, the world's largest oil-export terminal, which can ship up to 6 million barrels a day. But the kingdom's network of pipelines and export terminals has a large cushion of fallback facilities. The Saudis have built spare facilities on the Red Sea coast, on the other side of the Arabian Peninsula. All told, they can move some 14 million barrels a day through their pipelines and ports, much higher than their current daily output of some 9.5 million barrels.
Almost all of the world's slim spare oil-pumping capacity of some 1.5 million barrels a day is in Saudi Arabia. So a dislocation of Saudi supplies couldn't be made up by another oil producer. To cover any shortfall, the world would have to resort to the use of strategic stocks of oil held by the 26 industrial country members of the International Energy Agency, as happened after last year's hurricanes in the Gulf of Mexico.
–Gerald F. Seib contributed to this article.
Write to Bhushan Bahree at bhushan.bahree@wsj.com and Chip Cummins at chip.cummins@wsj.com read more

Associated Press
WARRI, Nigeria — Armed militants holding nine foreign oil workers hostage in Nigeria showed one of them to reporters for the first time Friday, a 68-year-old American who said he and his colleagues were being treated well.
Three Americans, two Egyptians, two Thais, one Briton and one Filipino have been missing since they were kidnapped Feb. 18 by militants who stormed a barge belonging to a U.S. oil company in the Niger Delta's Forcados estuary. The kidnappers are demanding that people in the country's south receive a greater share of their region's oil wealth.
“We're being treated quite well. Just let's hope it ends well,” said the American, who identified himself as Macon Hawkins of Texas.
Nine militants wearing black masks, military fatigues and carrying Kalashnikov assault rifles and rocket-propelled grenade launchers brought the hostage to a group of journalists by boat in the Niger Delta. The militants reiterated demands for a third party to mediate an end to the crisis before returning the hostage to a boat, firing their weapons into the air and setting off into one of the delta's creeks.
Thursday and Friday, militants issued photos of what they said were the nine kidnapped foreigners. In an email, they also threatened more attacks on oil workers and the country's volatile oil industry. The militants released a separate statement saying the photos, which appeared slightly out of focus, were “pictures of our hostages with a section of the unit that secured their capture.”
“Oil industry workers should accept that we are going nowhere very soon and will show little mercy especially in facilities previously attacked,” the militants said. “We are continuing with our attacks on oil facilities and oil workers in the next few days. We will act without further warning.”
The barge the hostages were abducted from was owned by Houston-based oil services company Willbros Group Inc., which was laying pipeline for oil major Royal Dutch Shell PLC.
The militants denied reports that any negotiations were taking place to secure the hostages' release.
Hostage takings have been a common occurrence in the volatile delta for years. Most of those kidnapped are released unharmed. Last month, militants held four foreigners for 19 days before releasing them unscathed.
The militants are demanding a greater share of oil wealth for their impoverished region, which has remained poor despite the large amounts of oil flowing from it. The militants say they also want to secure the release from jail of the delta's two most prominent leaders, Mujahid Dokubo-Asari and former Gov. Diepreye Alamieyeseigha.
Mr. Dokubo-Asari, who waged a struggle for autonomy for eight million Ijaws that dominate the Niger Delta for years, was jailed on treason charges in September. Mr. Alamieyeseigha was arrested recently in Nigeria after fleeing the U.K. on money laundering charges.
The militants said in the emailed statement that the hostages” release was “directly related to the release of Alamieyeseigha and Asari.” The statement added: “Politicians who don't care about how many soldiers and oil industry workers are killed as long as the oil keeps flowing.”
Separately, a Nigerian court on Friday ordered a Royal Dutch Shell joint venture to pay southern communities $1.5 billion in compensation for environmental pollution and degradation in the oil-rich Niger Delta. The payment was first ordered by the country's parliament in August 2004. The joint venture includes the Nigerian government, France's Total SA and Italy's ENI SpA.
Stuart Bruseth, Shell spokesman in London, confirmed the ruling and said he believed the company has “strong grounds to appeal.” Shell had gone to court to challenge the lawmakers' decision made in response to a petition by ethnic Ijaws.
The joint venture Shell operates produces a little under half of Nigeria's 2.5 million barrels daily of oil exports. read more

A thwarted attack on a massive oil facility in Saudi Arabia rattled oil markets Friday, pushing up crude-oil futures by more than $2 a barrel.
THE BACK STORY: Heavy demand has kept the price of oil at about $60 since the end of July 2005. But lately, political concerns have been the primary driver of energy prices. In Saudi Arabia, the No.1 oil producer accounting for more than 30% of OPEC's production in 2005, suicide bombers Friday attacked the world's largest oil refinery, the Abqaiq oil complex. Although security forces stopped the assualt, analysts worry about more attempts on oil installations. Nigeria, which produced about 8% of OPEC's output last year, has been dealing for several months with militant attacks. Earlier this month, gunman took nine foreign workers hostage there, forcing oil giant Shell to shut in 450,000 barrels of daily production amid the unrest. Traders are also concerned over Iran, which is currently in a standoff with the West over its nuclear-energy program. In 2005, Iran ranked second in OPEC crude production.
WHAT'S NEXT: Oppenheimer analyst Fadel Gheit warned that any attack that shuts down a major Saudi facility could send the price of oil skyrocketing to more than $100 a barrel. Meanwhile, supply concerns are likely to remain subdued for the next couple of months due to the greater-than-usual stockpiles of key energy products, including crude and heating oil, as the unusually warm winter comes to a close. — David A. Gaffen read more

By REUTERS
LONDON (Reuters) – Oil jumped more than $2 on Friday after news of a suicide bomb attack at the huge Abqaiq oil facility in Saudi Arabia, which triggered worries about supply from the world's top crude producer.
At least two cars exploded at the gates of the Abqaiq site when security forces fired on suicide bombers trying to storm the facility in the country's eastern province.
“It's all about perception. Just the idea of an attack in Saudi Arabia is enough to make the market jumpy,'' said Glenn Murray, an oil broker at GM Oil.
Saudi Oil Minister Ali al-Naimi described the raid as a ''terrorist attempt'' but said oil exports had been unaffected. He said a limited fire at the site was being brought under control.
“This incident had no impact on oil and gas production in the kingdom,'' Naimi said in a statement carried by the official Saudi Press Agency. “The plant continued production at full levels and export operations are as usual.''
Most Saudi oil is exported from the Gulf via Abqaiq which handles about two thirds of the country's output.
“This just emphasizes fears over global oil supply security when we're already facing major ongoing risks in Nigeria, Iran and Iraq,'' said Gary Ross, CEO at PIRA Energy consultancy in New York.
U.S crude prices hit a high of $63.00 a barrel, up $2.46. They later eased back to $62.88 at 1920 GMT.
London Brent was up $2.04 at $62.58 a barrel.
U.S. blue chip stocks edged lower after the surge in oil price which revived worries about high energy costs and inflation.
TUGGED BY TWO FORCES
Oil prices had risen a dollar earlier Friday as fears of deeper disruptions to Nigerian exports overshadowed the comfort drawn from brimming fuel stockpiles in the United States.
Attacks on Nigeria's oil network have already forced Shell to cut output by 455,000 barrels a day, shutting in a fifth of the country's exports. Militants holding foreign oil workers hostage say they will continue attacks in the next few days.
But oil's upside may be limited by brimming U.S. fuel tanks. Gasoline stocks rose to 225.6 million barrels, the highest level in seven years, according to weekly data. Crude stocks rose 1.1 million barrels to 326.7 million barrels.
“The market is being tugged by two forces — data are pulling it down and political forces are pulling it up,'' said independent oil consultant Geoff Pyne.
Aside from tension in Nigeria, traders said Iran's nuclear ambitions and the possible ramifications for the nation's oil production also remained a worry.
The board of the International Atomic Energy Agencymeets on March 6 to discuss the next step in resolving Iran's nuclear row with the West.
Iraq, which has been struggling to get oil output back to pre-war levels, is suffering the worst sectarian violence since the fall of Saddam Hussein, compounding the geopolitical risks in the Middle East. read more