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A Global View of the Year that was ... 2000....  
Date: January-04-2001

A Global View of the Year that was ... 2000 - Could it get any Wackier?

On January 1st, 2000, the energy industry entered the millennium in similar fashion to the rest of the world, amid apocalyptic warnings of an impending information age meltdown.

Technocrats and e-prophets had warned of the potential dangers of the mysterious and sinister-sounding Y2K bug causing havoc to the world's computer systems. In the US alone, the oil and gas industry is estimated to have spent around $5 billion on anti-millennium bug measures.

But the world managed to enter 2000 without the sky falling. The energy industry was ready for the roller-coaster ride of tragedies, takeovers, political mass-confusion, ten-year-high oil prices, and much more.

The new year was barely days old when a new wave of oil spewed from the stricken tanker Erika causing fresh misery and environmental carnage on France's eastern Atlantic coastline. It is believed over 13,000 birds and miles of the country's most stunning coastline were contaminated by the slick after the Maltese vessel spilled 25,000 tons of oil.

Also in January, the cities of Istanbul and Melbourne were visited by the scourge of oil slicks, and in the Australian case, the state authorities used an innovative 'finger printing' technique to identify the tanker that fled the scene.

The state of mergers that began with the crude price collapse in 1999 continued into 2000. The year started with the Federal Trade Commission ratifying the $82 billion merger of Exxon Mobil while British giant BP followed suit with their acquisition of Amoco.

Later in the year, the European Commission approved the merger of TotalFina and Elf Aquitaine, before Chevron gave up on securing Phillips and decided to merge with Texaco in a deal thought to be worth $35 billion.

But not all the majors 'got their man' on the mergers and acquisitions front. In May, Shell launched what they claimed was a very generous bid for Australian oil and gas company Woodside Petroleum. Unfortunately for Shell, the board of Woodside disagreed and the offer was rejected. Another offer was made, but the Australians, placing a high premium on their independence, refused that too, leaving Shell to stare enviously at the growing portfolios of its rivals.

Many of these new super companies were scrambling for a piece of the action in the deepwater fields across the world.

In Brazil, many of the world's major oil company's submitted tenders for a number of License blocks. Chevron and BG, along with Brazil's state oil company Petrobras, secured the first license with a bid of over $52 million. Rainier, Amerada Hess, Oderbrecht and Pan Canadian were also successful in Brazil.

Also in the Americas, Peru ended 18 years of stop-start negotiations to sign contracts worth $3 billion with Argentine consortia leaders Techint and Pluspetrol to bring on-stream the enormous natural gas field, Camisea.

Meanwhile, confusion reigned in a new oil field discovered in the Caspian Sea. The field was thought to contain between eight and fifty billion barrels of recoverable reserves. But OKIOC, the operating consortium comprising BP, Shell and other big hitters, were quick to distance themselves from the initial estimates. OKIOC said the $50 billion barrel figures came from the Kazakhstani government, who may have had their own reasons for talking the find up. To muddy the waters further, other reports alleged the quality of the crude was not as good as originally thought.

Meanwhile, Iran awarded Italian oil and gas group Eni a $3.8 billion project to develop the giant South Pars gas field in the Gulf. The move is understood to have caused no small degree of resentment among US energy companies, who are still banned from operations in Iran, but this year have become increasingly vocal against the continuing sanctions.

Tragically, the inherent dangers of the oil industry were all too graphically illustrated in a series of disasters in Nigeria that brought carnage in an almost unimaginable way.

In January, seven people died in the Niger Delta from an oil slick and in July 250 people lost their lives following an explosion near the town of Warri, before a further 30 people were killed in the same town later that month.

It is believed all the explosions were caused by vandals siphoning off fuel products for sale on the black market. The government in Abuja was determined to stamp out this most dangerous of practices out, but they caused domestic and international outrage by announcing the return of the death penalty for anyone convicted of pipeline vandalism.

But the biggest story of the year was the price of a barrel of crude that broke through ten-year highs. IPE Brent in January was selling for just over $24 a barrel, amid mild US weather forecasts.

But dark clouds began to hover on the horizon amid accusations of market mismanagement by OPEC. Julian Lee, a senior analyst with the influential Centre for Global Energy Studies, said the cartel had ignored calls for production to be increased in December which led to a chronic shortage in the US and Atlantic Basin in the first quarter of the year. “Refineries were not getting the stocks they had been expecting at the turn of the year, so they were trying to process as much crude as they could. And the result is they have been playing catch-up ever since,” he said.

Watching nervously was the US, the world's biggest consumer, the country where people believe cheap fuel is an almost constitutional right.

And US energy Secretary Bill Richardson was acutely aware of the political price that would have to be paid by an administration that failed to deliver cheap fuel and gasoline.

He began a whistle-stop tour of all OPEC member state capitals to lobby, cajole and persuade for an output boost. OPEC did agree to an increase in March, but the 1.4 million bpd increase was attacked for being too little, too late.

Prices continued to rise or stubbornly refused to cool down, and the Clinton administration was forced to preside over the ignominy of some motorists having to pay $2 for a gallon of gas during the traditionally busy driving season of the summer.

Anxious to avoid a similar situation for the winter, President Clinton ordered 30 million barrels of crude from the Strategic Petroleum Reserve (SPR) to ensure affordable heating oil.

The move was a controversial one and Charles Snow a political analyst with the Middle East Economic Survey openly attacked the SPR tactic.

Others said the move was fundamentally flawed as the high prices were caused by a lack of refinery capacity in the US, not a shortage of crude.

It was also a year of record earnings for the world's oil companies. High prices combined with the belt tightening of the previous year, which saw most companies reduce costs and increase efficiency, led to unheard of profits far exceeding even the most elastic of estimates.

At the end of the summer, happy financial directors were looking at half-yearly and second quarter profits leaps of anything between double and ten-times that of the year before.

The Big Three of Shell, BP and ExxonMobil were especially doubled-up with glee. Shell saw second quarter profits jump 80 per cent to almost $3.5 billion, ExxonMobil, in its second year of operation, climbed close to the magic 100 per cent increase to over $4.15 billion in the same period, while BP saw its first half figures rise more than twice to $8.6 billion.

Smaller operations with smaller overheads fared even better - Texaco and Apache showed increases of two times and four times, respectively.

It may have been a good year for the oil companies, but there was another player in the field who wasn't having such a good time.

For the first time since the 1970's fuel embargo, the consumer was having his say in the oil industry. For most of the world's consumer countries high oil prices mean high taxes - and John Doe was unhappy - and wanted to show it.

The French government giving in to its angry farmers and transport unions was a signal to the rest of the disgruntled drivers of the world to let their feelings be felt. Throughout Europe, especially in the UK, traffic was brought to a standstill for a brief few days as consumers blocked roads, service stations and refineries.

The UK government reaction was swift. Prime Minister Tony Blair took the exact opposite reaction to his French counterpart, claiming that “direct action was not the way to achieve change”, and put the consumers and oil companies on a warning to sort themselves out. By the time the protestor's action deadline arrived in November, Blair's tactics seemed to have won the day and the protests fizzled out.

Elsewhere, the protests have met with better success. In Germany, from January 2001, the government has instituted a sliding scale fuel rebate that advantages the long-distance driver.

But though prices around the world generally remained unaffected, and various governments' promises on the issue have remained vague, the protestors actions were not entirely futile, prompting companies like BP to say that they had had a “significant effect” on their profits.

A signal, if ever there was, that John Doe cannot be ignored by Big Oil.

In the early Autumn, the ancient sectarian enmities of the Holy Lands threatened to suck the world in to an oil war similar to the 1973 Yom Kippur crisis.

Over 200 Palestinians, many of them children, were killed by Israeli troops in the West Bank and Jerusalem. Arab states were furious at what they saw as the murder of the brothers and many states, not usually associated with militant Islamic causes got involved in the war of words that followed the killings.

King Fahd of Saudi Arabia caused extreme nervousness on the markets by warning “Arab states could not stand idly by, while our brothers were killed in the streets of Palestine”.

Fears of supply shortages grew by the hour and in one hectic afternoon in October, crude shot from $28 a barrel to a ten year high of over $35.

Saddam Hussein, pouting from his recent lack of attention in the world’s stage, gave notice that he had not gone away as he caused similar alarm by threatening to halt UN approved oil exports under the oil for food program.

And as the first year of the new millennium peters out, some semblance of sanity returned to the crude markets. In a matter of weeks, crude slipped back to $25 as Asian traders stopped buying in the volumes of recent months and mild weather was forecast for the US.

But as we have all learned from recent history and we all fear more than anything, the last thing the industry needs is another bust year.  

Special thanks Energy24.com for their contributions to this article.

 

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