March 8th, 2006:

By Doug Cameron in Chicago
Updated: 3:12 p.m. ET March 8, 2006
Exxon on Wednesday ruled out paying a special dividend, a stance that leaves the world's largest listed oil and gas group well-positioned to make a “substantial” acquisition.
The US group has sat out the latest round of industry consolidation, using record profits from high energy prices to fund $25bn in stock buy-backs and dividends last year and to build a cash pile of $33bn.
Rex Tillerson used his inaugural analysts' presentation since taking over from Lee Raymond as chairman and chief executive in January to deny that Exxon would follow BP, its smaller rival, which last month announced it would return up to $65bn to shareholders over the next three years, partly through special dividends.
“It's not evident that it does anything for the long-term investor,” said Mr Tillerson, noting that one-off measures appeared only to “scratch the immediate gratification itch” of shareholders.
His comments raised expectations among investors and analysts that Exxon may turn its attention to acquisitions at a time when the company's excess cash generation is at an all-time high, dividends remain at historic lows and capital expenditure is broadly flat.
Net profits in 2005 rose 23 per cent to $10.3bn and the company generated almost $45bn in operating cash. Exxon's expanding portfolio of natural gas projects has led many analysts to identify UK-based BG as a potential target, with Royal Dutch Shell and Repsol of Spain also seen as good strategic fits.
Mr Tillerson declined to comment on the likelihood of any deal soon, but said it would have to be “substantial” to make a difference to Exxon's portfolio. “For us, it's got to be large [and] in line with our core business holdings today,” he told analysts in New York.
Exxon's resource base grew to 77bn barrels of oil equivalent at the end of 2005 after a string of new projects – notably its liquefied natural gas developments in Qatar – came on-stream, lifting its closely-watched reserve-replacement ratio to 143 per cent.
Mr Tillerson said the company was “well-positioned relative to any of the competition” to take advantage of opportunities in the Middle East at a time when dwindling reserves elsewhere have made the region the focus of industry development, alongside Russia and west Africa.
“My own expectation is that over time we will gain access to additional resources in the Middle East,” he said, pointing to the potential emergence of opportunities in Kuwait and Saudi Arabia. read more

Wednesday, March 08, 2006; Posted: 11:04 AM
(RTTNews) – Amid uncertainties regarding the International Atomic Energy Agency's ongoing meeting to decide the faith of Iran's nuclear program, the Nigerian militant crisis and disturbances in the Middle East, the decision by the OPEC on Wednesday, to leave the current output ceiling unchanged came as a breather. The next meeting of the oil cartel is scheduled to be held in Caracas, Venezuela, on June 1.
The OPEC President, Edmund Daukoru, the Nigerian oil minister, confirmed that the cartel would not change its production level in the midst of the political volatility and terrorism upsetting global markets. It was highly expected that the group would retain the output levels at 28 million barrels per day ceiling, amid forecasts of lower demand in spring. This official target, however, excludes Iraq, which produces an additional 1.5 million barrels per day.
The much-hyped meeting of the Organization of the Petroleum Exporting Countries was kicked off in Vienna. OPEC, which controls, more than half of the world's oil exports was left with little choice with the prices hovering near $62 a barrel, interruptions in exports from Nigeria and Iraq and the Iran nuclear debate.
Geopolitical Factors
Nigerian Crisis
Oil facilities in Nigeria, which ranks eleventh in oil production, have been hit by violent attacks by armed separatist militants, who seek control over the Niger delta's oil revenues. Armed militants have vowed to slash daily oil export by another 1 million barrels by March-end. However, Edmund Daukoru, OPEC's president and Nigeria's oil minister, said that the country was “committed to providing adequate security for operators in the Niger Delta,” and that it planned to pump an additional 600,000 barrels a day by June.
Kidnappings of the employees of the oil companies have been rampant, forcing the companies to shut down their facilities in the region. Earlier in the week, one of the major pipelines of the oil giant Royal Dutch Shell, was severely damaged in a series of militant attacks. Shell had already shutdown its output from the region over security concerns.
In February, the suspension of crude loading at the Forcados terminal as well as evacuation of the EA field by Shell, resulted in a drastic reduction of about 20% in Nigeria's 2.6 million barrel per day output as well as fuelling a rise in world oil prices.
Beginning 2006, the country has suffered a loss of more than 10.5 million barrels of oil output due to rebel violence. Iran Nuclear Conundrum
Wednesday, the IAEA, UN's nuclear watchdog, passed the Iran nuclear issue to the Security Council to consider possible political or economic sanctions against the Islamic republic, which refuses to give up nuclear research. While Iran insists it only wants to produce fuel for nuclear reactors to generate electricity, the U.S. and an increasing number of nations doubt that the true goal of Tehran is to create the fissile material for warheads.
Iran, the second-biggest producer of crude in OPEC, might slash its oil exports if it comes under UN sanctions over its nuclear program. Iranian nuclear negotiator, Ali Larijani on Sunday, issued a veiled warning, indicating that the Iran could use oil as a weapon on escalation of the nuclear crisis, but hinted that it would not initiate bringing oil into the dispute. Iran did not back down from oil supplies, even during the 1980-88 Iran-Iraq war. Larijani is quoted as saying that Iran had no interest in using oil prices as a weapon against the West but warned that if action were taken against Tehran, it would affect international oil prices anyway.
The U. S. has cautioned Iran, the world's fourth largest oil exporter, to watch out for consequences from the United Nations, if it failed to stop nuclear research. Iran retaliated saying it had the potential of inflicting “harm and pain” and could change its oil policy.
The European Union announced that Iran must stop uranium enrichment work and cooperate fully with United Nations inspectors if it were to avoid scrutiny from the UN Security Council. The EU representative urged Iran to reinstate a full suspension of all uranium enrichment-related and reprocessing activities.
Iraq, Middle East Concerns
Iraq's oil industry is hit with lot of technical disruptions in terms of lack of field maintenance, power cuts, insufficient storage and problems with tugs cut shipments out of Iraq's main southern terminal of Basra, worsening security problems. Oil exports climbed to 1.42 million barrels per day in February from 1.1 million barrels per day in January. During Saddam Hussein regime, the nation shipped around 1.7 million barrels per day.
Elsewhere in the Middle East, on February 24, the world's largest oil-processing complex in Saudi Arabia was bombed.
Outlook
OPEC, the 11-nation cartel, projects a global slowdown for oil demand in the second quarter. The hard-to-refine high sulfur crude of Iran is facing less demand. In contrast, the oil prices are at an all-time high for the quarter of a century in real terms.
The major exporter and the most powerful in OPEC, Saudi Arabia has left the output flat since May 2004 considering customer needs and the country is of the opinion that any slash in production now would be counter-productive. Meanwhile, another member, Venezuela is seeking a production cut of nearly 500,000 barrels a day.
Anxiety is surrounding the peak winter season, when some analysts fear OPEC would find it difficult to meet demand if output constraints continue. However, non-OPEC producers like Russia and Angola are expected to fill the gap.
The United States, consumer of nearly a quarter of the world's oil and the oil thirsty China are driving the demand, which almost doubled the prices in the past two years. Analysts fear if the prices tend to move uphill by $10 a barrel in next two years, inflation would move up 0.25% a year and hurting growth similarly.
Meanwhile, the U.S. Department of Energy is scheduled to release the weekly petroleum report. Analysts expect a rise in U.S. crude stocks, while a decline is anticipated in gasoline and distillates, consisting of heating oil and diesel.
In a statement on Wednesday, Britain's Prime Minister Tony Blair said, Britain faces a “major challenge” in meeting its energy needs and climate change obligations without considering nuclear power “in the mix”.
Oil Prices
On Wednesday, oil prices slid on expectations that OPEC would retain the current output levels and the data from the U.S. to indicate growth in crude inventories. Light, sweet crude for April delivery shed 31 cents to $61.27 a barrel in electronic trading on the New York Mercantile Exchange, while April Brent crude futures on London's ICE Futures exchange lost 50 cents to $60.67 a barrel. Gasoline slipped more than a cent to $1.6200 a gallon, while heating oil shed a cent and a half to $1.7061 a gallon. Natural gas gained 2 cents to $6.700 per 1,000 cubic feet. read more

Wed Mar 8, 2006 1:09 PM GMT
By John Acher and Ina Vedde-Fjaerestad
OSLO (Reuters) – Energy groups Statoil and Shell plan the world's biggest scheme to bury industrial gases beneath the seabed in a $1.2-$1.5 billion project off Norway to raise oil output and curb global warming, the firms said on Wednesday.
It would be the world's first project to use carbon dioxide to boost oil recovery offshore, though the gas has been injected into onshore oilfields in Texas, company officials said.
Norway's Statoil and Anglo-Dutch Shell said the plan, due to start in 2010-12 and including construction of a gas-fired power plant in west Norway, would need “substantial government funding and involvement.”
“If we succeed, this technology can be used at other fields off Norway and internationally,” Statoil Chief Executive Helge Lund told a news conference.
Under the scheme, Statoil would capture CO2 from a huge, 860-megawatt gas-fired power plant to be built at the company's Tjeldbergodden methanol complex in mid-Norway.
The CO2 would then be piped to Shell's Draugen oilfield off Norway — and later also to Statoil's Heidrun field — and injected into subsea reservoirs, to force oil to the surface.
Lund estimated that the plan, which could bury 2-2.5 million tonnes of heat-trapping carbon dioxide a year, would cost 8-10 billion Norwegian crowns ($1.19-$1.49 billion).
Building the power plant alone would cost 4-4.5 billion crowns, and the CO2 capture system and pipeline to the field would cost a similar amount, Lund said.
“And then we have to do much more work over the next year or so to understand the costs and associated revenues connected to increased oil recovery,” Lund told Reuters.
He declined to say how much the government should pay, but said that without support the project would be uneconomical. Many other firms have been put off by high costs of similar CO2 storage projects, which could help slow global warming.
Environment Minister Helen Bjoernoy welcomed the plan as a “showcase for Norway as an environmentally friendly technology nation.” But she did not say how the government would help.
ENHANCED OIL RECOVERY
“This is an important milestone for Shell toward our vision for greener fossil fuels with part of the carbon dioxide captured and sequestrated underground,” Chief Executive Jeroen van der Veer said in a statement.
If things go as planned, a final decision to invest could be made by the end of 2008, the power plant started in 2010-2011 and the first CO2 delivered to Draugen in 2011-2012, Lund said.
“We see that both Heidrun and Draugen have reservoir conditions suitable for enhanced oil and gas recovery, but we have to do more work to be precise on that,” Lund told Reuters.
CO2 from burning fossil fuels is the main gas blamed for blanketing the planet and driving up temperatures, threatening more droughts, floods, heatwaves and raising sea levels.
Many other oil companies are also looking at ways to cut carbon emissions. Schemes for capturing and storing at least a million tonnes of CO2 a year are already operating in Canada, Algeria and Statoil's Sleipner field off Norway.
In Texas, about 30 million tonnes a year is injected to help boost oil recovery at onshore fields under schemes that started in the 1970s before climate change was a worry.
Use of natural gas in power plants is welcome in many countries as a cleaner alternative to dirtier coal or oil. But it is controversial in Norway, which generates almost all its electricity at non-polluting hydropower plants.
Norway, the world's number three oil exporter behind Saudi Arabia and Russia, is also running out of rivers to dam and needs to raise electricity output to cover growing demand. The gas-fired plant would help avert a power shortage in the region.
(Additional reporting by Tom Bergin in London and Alister Doyle in Oslo) read more

• Wednesday, Mar 8, 2006
The recent abduction of four expatriates attached to Shell Petroleum Development Company (SPDC) at one of its offshore oilfields, “the .Sea Eagle,” and the continued threats of abduction of oil workers once more brings SPDC’s relations with its host communities to the front burner. The abduction of the expatriates and other recent attacks on SPDC’s facilities represent only the tip of the iceberg when one examines the avalanche of problems that Shell has had in its host communities in the Niger Delta.
Unquestionably, Shell has embarked on community development projects in its host communities. The company’s social investments programME dates as far back as the 1950s when it began to provide scholarships and agricultural training programMEs for some residents of the Niger Delta. For example, by 1998, SPDC had built over 71 classroom blocks for communities in the Niger Delta, providing in the process, learning environment for thousands of children.
It also began to provide good drinking water, and roads in its host communities from 1980s, and commenced to provide health facilities (clinics and hospitals) in the Delta region between 1992 and 1994. Shell says by 1998, its community projects supported 22 hospitals and health centers, nine of which were started from the scratch. According to SPDC, by 2000, its medical personnel treated over 8,500 patients at its mobile clinics, compared to nearly 6,000 in 1998. Additionally, the company says it has built new cottage hospitals in the host communities, bringing to 31 the number of hospitals it has built, renovated, or supported by 2000. This number has increased since then. It has also built flea markets in the Delta region, and provided thousands of scholarships for indigenes of the region at primary, secondary and university levels.
Shell further claims that its social responsibility programme in the oil-producing communities include environmental safety projects. For instance since 1996 the company has replaced or buried old flow-lines in order to reduce crude oil spillage, and it has embarked on restoration of vegetation of the mangrove swamp that was destroyed when it cleared the paths for seismic exploration. SPDC says that by 2000, it completed 17 Environmental Impact Assessment and 14 Environmental Evaluation Reports that were approved by the federal government. Further, the company says its rapid response capability to oil spillage increased to 75 per cent by 2000. This is in addition to the company’s environment awareness training for over several thousands of its staff, contractors, host communities, and students.
If Shell has done all these, why has the relationship with its host communities ruptured even to the extent that by early I 990s it was chased out of Ogoni land? Shell is yet to return to Ogoni land. Why does the problem in its host communities persist? Shell’s community relations problem arose in the first place because at the beginning of the Niger Delta crisis, the company denied that its activities led to any oil spillage. A good public relations philosophy its not informed -by denial. Rather, a sound public relations philosophy requires a company to first accept its fault, and then takes steps to mend the problem. Admitting one’s fault publicly helps to build trust. Denial fuels public resentment.
SPDC’s community relations problem persists due to poor communication. In the wake of the Niger Delta crisis, Shell’s communication strategies consisted of “public information” i.e. one-way communication aimed to make the company to look good through propaganda and dissemination of only favourable information. It failed to volunteer negative information about its oil drilling activities, including the deleterious environmental effects of oil spillage and gas flaring.
Shell’s public relations policy should incorporate “two-way symmetrical” communication strategy. This strategy would enable it to use research and dialogue to manage its conflict in the Delta, and to build understanding between the company and its host communities. Two-way symmetrical communication helps an organisation to secure symbiotic, positive and favourable changes in the behaviours of its publics.
For Shell and other multinational oil companies in the Niger Delta, I recommend that they adopt public relations strategies that are guided by a policy of openness, honesty and two-way communication with their host communities’. Two-way conversation and dialogue enables organisations to stem the tide of crises. At the same time, it enables them to build, preserve, sustain and maintain cordial and symbiotic relationship with their host communities. This is because the development, sustenance and maintenance of relationship constitute the central goal of organizations’ public relations strategies.
Oil companies public relations strategies ,in the Niger Delta should incorporate listening and dialogue just as they should be guided by ethical considerations, and respect for cultural values in the communities where they operate. This will enable them to build trust, goodwill, acceptance and understanding with their host communities. The more the Niger Delta-based oil companies are able to build trust and understanding in their host communities the more they will be perceived as good community neighbours. Securing this type of perception will help to reduce or even nip in the bud the chances of crisis in the future.
Further, I recommend that each multinational oil company operating in the Niger Delta should develop a sound crisis communication plan. As organisations do not pray for crisis, it, however, seems crises are inevitable in today’s business dealings with stakeholders that are getting increasingly ethno-religious and socio-culturally diverse. A crisis communication plan enables an organization to know what to say and do immediately a crisis erupts.
When the Niger Delta crisis first began the oil companies seemed to have cared less about listening to the demands of the communities. Yet, listening enables organisations to show more concern and sympathy, an important part of organisations’ public relations plans towards their publics. Instead – the multinational oil companies utilised – and still use to some extent – divide-and-rule tactics, coercion, brute force and violence m attempts to suppress the demands of their host Communities. The key communication principle in dealing with crisis is not to clam up when disaster strikes but to provide prompt, frank and full information.
The lesson learned from the use of instruments of violence, force and coercion in the wake of the Niger Delta crisis should be instructive in future relationships with their host communities.
A policy of sustainable development in which the oil communities are active participants rather than casual economic beneficiaries should underpin the public relations strategies of the oil companies in the Niger Delta.
Further, Shell and other multinational oil companies in the Niger Delta should show a concern for environmental protection and sensitivity towards the issues at the hearts of their host communities – just as they show such sensitivity and concerns in the communities where their parent companies operate in Europe and North America. This would help avert or mitigate future crises in the Niger Delta. read more

Fyneface Aaron • Wednesday, Mar 8, 2006
Amidst the relative calm that now prevails in Bayelsa State, militant groups have struck again at Ekeremor Local Government Area, destroying two manifolds built by Shell Petroleum Development Company at Agge and Agoro.
Ekeremor in Bayelsa West Senatorial District has porous boundary with Bomadi and Burutu in Delta State.
Both Bayelsa and Delta State Governments have been having problems containing youth restiveness in the areas.
The restive youths have been taking full advantage of their knowledge of the terrain, to carry out subversive activities against oil companies.
The Tide gathered that the blasting of the manifolds has resulted to the spilling of more than 250 barrels of crude into the streams and swamp of neighbouring communities.
Although, government officials are keeping sealed lips over the recent development, a press release by the External Affairs Manager, Western Division of SPDC, Mr Harriman Oyofo, confirmed the incident.
The Tide further gathered that the recent incident may affect the agreement reached between the militant youths and Federal Government officials on stoppage of hostility pending when the issues raised are addressed.
A member of the “Operation Restore Hope”, the military outfit responsible for security in the Niger Delta, told The Tide on phone, yesterday.
It was in view of this agreement that an American gunship that was deployed to the troubled area recently has not been put to effective usage.
However, residents of Agoro and Agge communities are counting their losses as the anguish of the clash between the armed youths and peace keepers lingers.
Perede Agaowei, a fisherman, told The Tide that since the incident began, most of them “no longer go for fishing, beside, the crude oil spill into our river has made live very difficult”, he said.
As at the time of reporting, no group has claimed responsibility for the burning of the manifolds. read more

Statoil and Shell want to form a joint company which will transport the greenhouse gas CO2 from gas fired power plants to the Draugen Field in the Norwegian Sea. This will increase output of oil and extend the life of the field. The plans will be presented Wednesday morning.
In this way it will economically feasible to build gas-fired power plants with today's technology, NRK reports.
According to NRK, the companies will propose the building of a shore based gas-fired power plant. The CO2 gas will be transported to the Draugen Field in the Norwegian Sea, where Shell is operator.
Here the gas will be pumped down into the reservoir, and used to force more oil out of the rock.
The proposal calls for Shell to pay for the gas, and in this way making it economically profitable to build a gas powered energy plant with CO2 cleansing.
Up to now it has been difficult to find anyone willing to put money into such a plant because the costs have been too high.
The plan will be presented just days after it was announced that Central Norway is about to face a shortage of electricity in just a couple of years.
The Draugen Field is located off the coast of Central Norway.
(NRK/Norway Post)
Rolleiv Solholm read more

CEO Tillerson, Prototype of Texas Oilman,
Must Focus on Delicate Global Diplomacy
By JEFFREY BALL
March 8, 2006; Page B1
Rex Tillerson just got the top job at the biggest publicly traded oil company on the planet. But his success as chairman and chief executive of Exxon Mobil Corp. is likely to be measured by how well he plays the diplomat.
With his Texas twang, rugged visage and real-life skills on horseback, Mr. Tillerson personifies Hollywood's image of the swashbuckling American oilman. Yet the days are long gone when the head of Exxon could call all the shots in the global energy game. Though Exxon has plenty of engineers who can turn crude oil into profits, it first has to get its hands on that crude, most of which today is controlled by sovereign governments in politically dicey places.
Mr. Tillerson, who turns 54 years old next week, is scheduled to make his first major public appearance as Exxon's chairman and chief executive when he addresses analysts in New York this morning. Next Tuesday, he heads to Capitol Hill, where he and other oil-company executives are scheduled to testify in a hearing held by the Senate Judiciary Committee to examine whether consolidation in the oil industry has led to today's high gasoline prices.
He succeeds one of the most financially successful yet politically vilified CEOs in history. Lee Raymond engineered the 1999 merger between Exxon Corp. and Mobil Corp. that produced today's colossus, and he followed up the merger with a ruthlessly efficient management style that delivered quarter after quarter of dependable financial results regardless of whether oil prices were high or low. But Mr. Raymond also was a lightning rod for his unrepentant views on social issues like global warming, voicing skepticism that fossil-fuel emissions are the main cause.
In an interview last spring, seated next to Mr. Raymond at a conference table in Exxon's Irving, Texas, headquarters, Mr. Tillerson made clear he shares Mr. Raymond's doubts about the link between his company's products and the environmental problem. “At a minimum, there's an enormous amount of uncertainty around this whole question,” he said.
Mr. Tillerson declined to comment for this article ahead of his presentation to analysts today. But he notes frequently, as did Mr. Raymond, that Exxon believes oil, natural gas and coal will continue to provide more than 80% of the world's energy through 2030. Most oil companies share the view that fossil fuels will remain dominant for many years. What differentiates Exxon is its view that renewable energy sources like solar and wind aren't worth investing in as viable businesses today.
BP PLC and Royal Dutch Shell PLC have hatched small renewable-energy businesses. Exxon is investing in alternative-energy research, but it's not trying to sell solar panels or wind turbines today. Mr. Tillerson shows no signs of changing that strategy.
In a March 2005 speech in Dallas, Mr. Tillerson warned against “wishful thinking” about energy, according to a transcript on Exxon's Web site. He criticized as “unrealistic” the “perception by some in the United States that this country can achieve energy independence.”
If there's little difference in strategic outlook between Mr. Tillerson and Mr. Raymond, many observers do detect a difference in style. Mr. Raymond was famous for his frosty response to critics; how to ask a penetrating question without getting publicly dressed down by the Exxon chief was something many Wall Street analysts worried about as they prepared for their annual meeting with Mr. Raymond each spring. Mr. Tillerson is expected to be less publicly confrontational.
“Rex Tillerson's more avuncular style means the traditional Raymond analyst humiliation during questions will probably not occur,” Deutsche Bank analyst Paul Sankey deadpanned in a research note this month.
Analysts won't be the only group eyeing Mr. Tillerson. The new Exxon chief is likely to face more hostile questioning next week on Capitol Hill. Exxon has argued since gasoline prices soared following last year's hurricanes that it has done everything it could to minimize the spikes. But Exxon — fresh from posting a record $36 billion profit for 2005 — clearly is worried about potential political fallout.
The biggest challenge facing Mr. Tillerson in coming years will be inking deals to get access to oil and gas. This tension is nothing new for the Wichita Falls, Texas, native. Mr. Tillerson went to work for Exxon in 1975. In the 1990s, he led tense negotiations for access to underwater fields off Russia's Sakhalin Island.
By Mr. Tillerson's own account, the negotiations were plodding. At one point, a Russian minister slammed his fist on the bargaining table in a dispute over a permit, prompting visions in Mr. Tillerson's mind of former Soviet President Nikita Krushchev banging his shoe on the table during a 1960 United Nations debate. “I thought, OK, he's slipped back,” Mr. Tillerson recalled in a 2004 interview. “How do I get him away from that place and back to today?”
The answer: gingerly. The long-running talks required a careful touch. The danger was that the Russian officials would resent the Exxon leaders, thinking: “Here come the powerful Americans that won the Cold War, and now they're going to come in and tell us all how messed up we are and how we got it all wrong,” Mr. Tillerson recalled. “You make yourself very aware of it, and almost go out of your way to make sure there's nothing that conveys” such a sentiment.
Exxon's Sakhalin project began producing in October. The fate of a related nearby project, known as Sakhalin 3, is up in the air. In 1993, Exxon won an auction for the right to develop that area, and it expected that its license would be codified in another “production-sharing agreement” similar to the one Exxon had inked for the first Sakhalin project. But in 2003 the Russian government passed a law against new production-sharing agreements. A key decision for Mr. Tillerson will be how to proceed.
Beyond Russia, some other oil-rich governments that reached deals to hire Exxon to help pump out their oil and gas are now trying to rewrite the contracts. Their motive: Today's high oil prices hold the promise of greater riches than the governments initially expected.
One hot spot is Venezuela. President Hugo Chávez has raised royalties on Exxon and other Western oil companies operating in the country. Exxon says it is paying the higher royalties under protest and is talking with the Venezuelan government to iron out a solution.
Another spat has erupted in the African nation of Chad. In the late 1990s, Exxon, the World Bank and Chad's government reached a deal to allow an Exxon-led consortium to tap oil in the country. In exchange, Chad pledged to reserve most of its revenue from the project for development projects in the country — as opposed to enriching the country's leaders. But recently Chad announced it was loosening those spending restrictions. Exxon has held back its payments for this year in a separate account. Chad signaled it would force Exxon to stop production if it doesn't pay the money directly to the government. Exxon says it hopes to resolve the dispute.
In the interview last spring, Mr. Tillerson said he was sanguine about the mounting assertiveness of some oil-rich governments. Exxon brings a track record of efficiency and technological prowess to projects, he said, and it tries to convince national governments that those are skills worth paying for.
“That's kind of just the state we find ourselves at today,” he said. “Some place a value on that, and some don't.”
–Susan Warren and Gregory L. White contributed to this article.
Write to Jeffrey Ball at [email protected] read more

Mar 08, 2006
SYDNEY, March 8 Asia Pulse – The North West Shelf Venture has signed a 12-year contract with Chugoku Electric Power Co Inc for the long-term supply of liquefied natural gas (LNG).
The North West Shelf Venture will supply between 1.2 million and 1.4 million tonnes of LNG a year to Chugoku Electric on an ex-ship basis starting in April 2009.
Chugoku Electric is the first of the North West Shelf Venture's original Japanese LNG customers to renew its long-term LNG supply requirements with the project.
The North West Shelf Venture is operated by Woodside Petroleum's (ASX:WPL) Woodside Energy Ltd, which also holds equal ownership stakes alongside BHP Billiton Petroleum (North West Shelf) Pty Ltd, BP Developments Australia Pty Ltd, Chevron Australia Pty Ltd, Japan Australia LNG (MIMI) Pty Ltd and Shell Development (Australia) Pty Ltd.
Woodside's North West Shelf Ventures director Jack Hamilton said the venture was delighted to extend its long-term relationship with Chugoku Electric, which received its first LNG deliveries from the North West Shelf Venture in March 1990.
“Over the past two decades, the North West Shelf Venture has enjoyed a strong friendship and a mutually beneficial business relationship with our highly valued customer, Chugoku Electric,” he said.
(AAP) read more

Mar 08, 2006
INDIA'S state-owned explorer-producer Oil ' Natural Gas Corp has tied up with Norway's Electromagnetic Geoservices to improve its prospects of recovering oil and gas through deepwater drilling, writes Shirish Nadkarni in Mumbai.
The tie-up will give ONGC access to the Norwegian company's pioneering, patented technology in this area, named 'seabed logging', which is particularly suited to extracting what the oil industry terms 'difficult oils'.
The partnership, finalised on February 2, is expected to improve ONGC's low success ratio in deepwater drilling, part of which is attributed to a lack of access to appropriate technology.
'The new technology should be particularly useful in improving our success rate in blocks off the Indian east coast, like the Krishna-Godavari basin, the Bengal basin and the Mahanadi basin,' said ONGC chairman and managing director Subir Raha.
As India's first operator to acquire the seabed logging technology, ONGC would also be in a position to reduce the cost of its deepwater campaign.
Seabed logging is used by the world's top 25 oil companies and ONGC is counting on the technology to help double the quantum of 'in place' oil and gas reserves by 2020.
ONGC has also forged two key tie-ups in recent weeks. The first is with Royal Dutch'Shell for bidding jointly for assets in India and abroad, including the Sakhalin-II fields in Russia. 'We have a 20% equity holding in Sakhalin-I, but we would like to pick up a stake in Sakhalin-II so that we can tie up gas from the two projects to make shipments viable,' said Mr Raha.
There are chances that Shell would take equity in ONGC-owned blocks. The two energy majors would then bid jointly for exploration blocks in future options of prospecting licences in India.
The second tie-up is a three-year pact with Malaysia's Asian Supply Base to obtain consultancy services for upgrading and transforming ONGC's existing Nhava Sheva Supply Base into a supply base of international standards.
The corporation is also exploring the possibilities of investing in oil sand extraction projects.
Oil sand, or tar sand, is a mined product found mostly in Canada and Venezuela that is treated to produce crude oil. read more

Mar 08, 2006
Ann O'Loughlin
SHELL has failed to adhere to a planning condition requiring it to lodge a 20m security for the costs of the future restoration of the site of the gas terminal connected to the development of the Corrib gas field in Co Mayo, it was claimed in the High Court yesterday.
A letter by Shell E and P Ireland of December 10, 2004 that its parent company Shell Overseas Holdings Ltd will provide such a security “in due course” and subject to the approval of the Board of Shell Overseas does not actually constitute a legally enforceable security, Dr Michael Forde SC, for photographer and environmentalist Peter Sweetman, argued.
There was no indication from Shell E and P that the board of its parent company had met since December 2004 to approve any such security, he added. Nor was there any indication in documents before the court if and when such approval would be forthcoming.
The situation is equivalent to telling a bank manager that Daddy will guarantee a loan and will come down “tomorrow” for that purpose but no signature being provided, he contended. The fact that Mayo County Council has agreed to this arrangement with Shell E and P does not mean that the required security is in place, counsel added. As things stood now, the Council could find itself forced, in 20 years time when activity at the gas terminal site near Balinaboy Bridge in Co Mayo had ceased, to take legal proceedings against Shell in an effort to have the site restored to its original condition, Dr Forde said.
Rejecting those claims, Mr Maurice Collins SC, for Shell E and P, argued his client's letter of December 10th 2004 does constitute a security which conforms with the planning conditions for the terminal.
Planning condition no. 37 provided that Shell E and P and Mayo County Council should agree on the terms of security for the reinstatement of the gas terminal site – either by cash deposit, insurance company bond or “other form” of security – and that was what had happened, he said. It did not matter that there were “formalities yet to be attended to” in relation to the security, Mr Collins added.
The Council had raised no difficulties about that, there was “a technical lacuna” to be filled which would be done in due course and “that was that”. Shell's position is that it fully intends to “dot the i's and cross the t's” and there was no question but that will be done, Mr Collins added. There was no evidence the Council had concerns about the form of security and in fact the evidence was “the other way”.
There was no basis for the court to intervene in the matter and no basis for the proceedings by Mr Sweetman aimed at securing orders requiring Shell E and P Ireland to comply with condition 37, he said.
The fact was that no works were being undertaken at the site since last July because of local opposition to works linked to the gas terminal development, Mr Collins added. The hearing of Mr Sweetman's application concluded yesterday afternoon and Mr Justice Thomas Smyth will give judgment on Tuesday March 14. read more

Mar 08, 2006
OSLO (AFX) – Statoil ASA and Shell are to unveil plans to use carbon dioxide from a new gas-fired power plant to inject into the Draugen field on the west coast of Norway to increase oil recovery, Norwegian daily Aftenposten reported, without citing sources.
Statoil last night said it and Shell would launch plans for a joint industrial project today, without giving details.
According to the report, Statoil will build a gas-fired plant at Tjeldbergodden in Norway with technology to harvest carbon dioxide and sell this dioxide to Shell.
This would reduce carbon emissions and increase the recovery rate at oil fields, Aftenposten reported.
The Norwegian government earlier said it will not approve the building of a new gas-fired power plant unless the plant has carbon dioxide cleansing. read more

Mary Carolan
Mar 08, 2006
Shell has failed to adhere to a planning condition requiring it to lodge a 20 million security for the costs of the future restoration of the site of the gas terminal connected to the development of the Corrib gas field in Co Mayo, it was claimed in the High Court yesterday.
A written assertion by Shell E&P Ireland in a letter of December 10th, 2004, that its parent company, Shell Overseas Holdings Ltd, would provide such a security “in due course” and subject to the approval of its board does not constitute a legally enforceable security, argued senior counsel Dr Michael Forde, for environmentalist Peter Sweetman.
There was no indication from Shell E&P that the board of its parent company had met since December 2004 to approve any such security, he added. Nor was there any indication in documents before the court as to if and when such approval would be forthcoming.
The situation is akin to telling a bank manager that Daddy will guarantee a loan and will come down “tomorrow” for that purpose but no signature being provided, he contended.
The fact that Mayo County Council has agreed to this arrangement with Shell E&P does not mean that the required security is in place, counsel added.
The council could find itself forced in 20 years, when activity at the gas terminal site near Balinaboy Bridge in Co Mayo had ceased, to take legal proceedings against Shell in an effort to have the site restored to its original condition, Dr Forde said. However, the statute of limitations would apply to the alleged security or contract.
Rejecting those claims, senior counsel Maurice Collins, for Shell E&P, argued his client's letter of December 10th, 2004, constitutes a security that conforms with the planning conditions for the terminal.
It did not matter that there were “formalities yet to be attended to” in relation to the security, Mr Collins said, and there was no basis for the court to intervene.
The hearing has concluded and Mr Justice Thomas Smyth will give judgment on March 14th. read more

Mar 08, 2006
BEIJING, March 8 Asia Pulse – Royal Dutch Shell plans to invest US$500 million this year in both the upstream and downstream sectors to increase its presence in the competitive Chinese energy market, a senior executive yesterday said. “So far we have invested some US$3.5 billion in China and we hope to invest another half a billion this year,” Lim Haw Kuang, executive chairman of Shell China told a news conference yesterday in Beijing.
The new investment will be used to build new project facilities and expand the existing production, Liu Shiman, a senior official for Shell China, yesterday told China Daily on the sidelines of the news conference.
“It is one of our biggest investments in China in a single year,” Liu said.
Lim said Shell would spend the money on everything from oil and gas exploitation business to downstream refining and oil retailing.
Shell yesterday announced it had signed an agreement to acquire Koch Materials China (Hong Kong) Ltd, a deal that will more than double the size of Shell's bitumen business in the country.
Koch has interests in companies operating six bitumen manufacturing plants in China, with a total production capacity of about 4,200 tons per day.
Before the acquisition, Shell's bitumen production came from five plants, which together produced 2,400 tons per day, the company said in a statement.
Shell executives yesterday refused to disclose how much they spent to buy the China business of Koch, a US-based company involved in refining and chemicals, but said the acquired business is “well complimentary” to its existing presence in China.
“The Koch portfolio is a good fit for Shell in China with plants in areas of the country where we have no plants or weak coverage,” Egbert Veldman, vice-president of Shell's global bitumen business said at the news conference.
The deal was signed at the end of last month and Shell expects to take control of the Koch business in the second quarter of this year, subject to regulatory approval.
Global oil giants are stepping up efforts to increase their presence in China's accelerating energy market, with Shell, BP, Total and Exxon Mobil competing in the escalating rivalry.
Last Thursday, French oil company Total announced it had finalized an agreement with the country's biggest oil producer PetroChina to jointly develop a gas field in Northwest China's Ordos Basin with reserves of more than 100 billion cubic metres.
BP has set up a joint venture with Sinopec, China's biggest oil refiner, to have 500 petrol stations built in the East China's Zhejiang Province, while another JV with PetroChina will run 500 more outlets in Guangdong Province within the next three years.
Shell also has similar ambitious plans in China. Lim said it now has about 200 service stations operational in Suzhou of Jiangsu Province, and the figure is expected to hit 500 this year through the partnership with Sinopec.
The oil firm also reported robust growth in its lubricant business in China, which increased at a double-digit rate, the chairman said.
In the upstream business, Shell is working with PetroChina to develop the Changbei gas field in Northwest China's Shaanxi Province, and the project is expected to supply gas to Beijing and the northern regions before 2008, Lim said.
The company has also signed a memorandum of understanding with Shenhua Group and the local government of Ningxia Hui Autonomous Region to develop a coal-to-liquids project in the northwestern region.
“We are looking to develop wind projects in China, and are working to develop a hydrogen fuel project in Shanghai,” Lim said.
(XIC) read more

By GARY RIVLIN
Published: March 8, 2006
NEW ORLEANS, March 7 — When Frank A. Glaviano Sr. told friends that he believed his company, Shell Oil, would return to New Orleans despite the devastation done by Hurricane Katrina, many had a good laugh. Forget it, they said; you are moving to Houston.
Chang W. Lee/The New York Times
Shell Oil bought properties near New Orleans to lease to employees, like this complex in Hammond, La.
After all, more than 100 Shell employees lost their homes when water covered much of the city and the surrounding suburbs. Mail delivery was still unreliable, air service remained thin, and only a small fraction of the previous hospital capacity was back. With Shell's American base in Houston, it seemed to make sense to move its exploration and production unit there from New Orleans.
But Shell, a subsidiary of the Royal Dutch/Shell Group, returned last month to its marbled office building here at One Shell Square, after making an extraordinary investment to do so. It bought $32 million in residential properties in the area — 120 houses and condominiums in all — to lease to its employees. The company owned no residential property in the United States before Hurricane Katrina.
In considering whether to move back its 1,000 employees who worked in New Orleans before the storm, Shell had to monitor closely things like the federal government's commitment to rebuilding the levees and the city's progress in reviving its school system.
“In the end, we decided to do the right thing by the city, the company and our employees,” said Mr. Glaviano, the company vice president in charge of Shell's operations here.
Shell's unusual move demonstrates the difficulties that businesses of all sizes have encountered in moving back to New Orleans, and the dedication that is required to restart commerce in a city where basic necessities, like roofs, can be difficult to come by. To reopen their doors, many businesses have had to develop expertise in flood protection, transportation and medical care.
Chevron, one of Shell's competitors, which this week moved back the last of its 700 or so employees who worked in New Orleans before the storm, has added a paramedic to its staff and leases an ambulance so it does not have to rely on the city's 911 system in an emergency.
Most companies, of course, do not have the resources of a company like Shell, which reported record profits of $25.3 billion in 2005. “A lot of smaller companies, and even a lot of medium-sized ones, cannot afford the costs of getting up and back in business,” said Don Hutchinson, the director of economic development for the city.
As a result, six months after Hurricane Katrina, at least four of every five businesses in New Orleans are still shuttered, Mr. Hutchinson said. About 60 percent of the downtown businesses have reopened, he said, but that statistic is deceptively high because many companies are moving back only part of their workforce.
Another large energy company, Dominion Exploration and Production, a subsidiary of Dominion Resources, has announced that it will start moving employees back to New Orleans this month. But 140 of those positions — 40 percent of its pre-hurricane workforce — will remain permanently in Houston, according to David J. Auchter, a Dominion spokesman.
Entergy, the country's fifth-largest power company, has so far issued no public statement about the fate of its 1,500 employees who worked in New Orleans before the hurricane, except to say that whatever the company's decision, not all of them will be moving back.
“The question isn't whether New Orleans is going to take a huge hit in terms of job loss,” said Jay Lapeyre, a local businessman who, as chairman of the Business Council of New Orleans, speaks on behalf of more than 50 of the area's largest corporations. “The real question is where we'll have to rebuild from once we know where we've bottomed out.”
Many factors went into Shell's decision to move back to New Orleans, including a workforce that was eager to return. Informal polling, said Rob Ryan, a Shell vice president, showed that more than 80 percent of employees preferred moving back to New Orleans over staying in Houston, including those who had temporarily relocated to Houston. A sense of corporate responsibility was also a factor.
New Orleans is a city where oil and gas exploration takes a back seat only to tourism and perhaps the port in terms of economic impact, and before Hurricane Katrina, Shell was the industry's largest employer in the city. Its tower — a white marble monolith on a premier corner of the downtown business district — is the second tallest in town. The Place St. Charles office building is the tallest.
From Shell's perspective, the city had a variety of factors working in its favor, including its culture and especially its geography. The easy access to the rich oil reserves in the waters off the Louisiana coast first drew exploration firms to New Orleans decades ago, and the wells could not easily be abandoned — at least not by firms with the means and the will to stay.
“A lot of the smaller oil and gas companies haven't committed to return,” said Mr. Hutchinson, the city economic official. “Basically, it's still wait and see with most of them.”
That was Shell's attitude for weeks after the storm. Houston is the energy capital of the nation, and there were efficiencies in moving the company's operations to the home office. To many executives, there was no question that Houston represented the path of least resistance.
“This was one of those decisions,” Mr. Glaviano said, “that had several executives feeling very strongly that we should relocate to Houston and several feeling very strongly in favor of moving back.”
Shell was luckier than many of its rivals. The building Dominion called home before the storm, across the street from the Superdome, still sits abandoned, with roughly half of its windows covered by plywood. The basement and first floor of Chevron's office tower were flooded, which meant it was not ready for occupancy until the end of January.
The building Shell calls home, in contrast, sits atop a pedestal of white marble stairs. “The building was fine,” Mr. Ryan said. “The key issue for us was whether we could bring 1,000 employees back.”
To answer that question, Shell set up a virtual war room to monitor the city's progress and help its executives calculate the wisdom of returning. The company assigned about two dozen employees to judge the city's progress on a long list of factors, like repairing the pumping stations and providing parking in the central business district.
Other big companies did the same, including Chevron, which approached the task with military precision. It issued daily situation reports, devising a color-code system “just like the federal government does to track the terrorist threat level,” said Matthew Carmichael, governmental affairs director for Chevron in New Orleans. Early on, the company deemed almost every core function code red.
It was in late October that Mr. Glaviano and his colleagues decided to move back to New Orleans, yet it was not until January that a thorough audit of the state of the city prompted the company to conclude that “the city was sufficiently back, from a safety and security perspective,” Mr. Ryan said.
Nonetheless, Shell employees are returning to find that working downtown remains a challenge. Flight capacity is less than half of what it was before the storm — a crucial issue for a company with headquarters in another city. Mail service is still so unreliable that customers often pay the extra expense of overnight services to pay bills and send other important documents. The 120 or so Shell employees who lost homes no doubt appreciate that the company leases them housing at cost, but some of the units are a two-hour drive from downtown.
Still, despite these and other inconveniences, most of the employees seem happy to be back home, Mr. Glaviano said. Certainly he is. “Walking through the lobby,” he said, “it feels like an ordinary day to me.” read more

By Thomas Catan andJames Mackintosh in London
Published: March 8 2006 02:00 | Last updated: March 8 2006 02:00
International oil companies and carmakers have joined forces to promote a new generation of synthetic fuels derived from natural gas or coal at a time when many are seeking alternatives to oil.
DaimlerChrysler, Renault and Volkswagen have teamed up with Royal Dutch Shell and SasolChevron in a new body, the Alliance of Synthetic Fuels in Europe.
The two oil companies are pioneering a novel technology that can be used to produce high-quality diesel fuel from natural gas or biomass instead of oil.
Diesel engines burning the synthetic fuels are cleaner-running, making them appealing both to carmakers facing strict exhaust gas controls and to governments trying to deal with vehicle pollution in cities.
But only fuel made from biomass – a process still at the experimental stage – provides improved greenhouse gas emissions, with coal-based fuel producing almost twice as much carbon dioxide as ordinary diesel. GTL produces about the same level as ordinary diesel.
Thomas Weber, board member for research and technology at DaimlerChrysler, said this new generation of fuels would help Europe meet its energy policy objectives. “Synthetic fuels can make a real contribution in many of Europe's policy areas, combating climate change, reducing energy consumption, diversifying energy supplies, ensuring security of energy supply and improving air quality.”
Oil companies are investing billions of dollars in new “gas to liquids” plants that use a method developed in Nazi Germany and apartheid-era South Africa to turn gas, coal or biomass into products traditionally refined from oil. Of the three processes, GTL is the most commercially advanced.
Shell operates a small “gas-to-liquids” plant in Malaysia, which produces some synthetic diesel that is used in its high-performance V-Power fuel. The first large-scale commercial GTL plant is due to open in the coming weeks in Qatar, a joint venture between Sasol and Qatar Petroleum. read more

Beijing. March 8. INTERFAX-CHINA – Full transcript of an exclusive Interfax interview with Zhang Guobao, the Vice Director of the National Reform and Development Commission (NDRC).
Interfax: What is your opinion of energy cooperation with Russia?
Zhang: Russia has largely complied with our agreement to export oil by rail to China.
As for cooperation in other areas, there has been contact, such as between government officials, departments and the private sector, such as during investment conferences. There has been a lot of communication, but there has been little actual progress.
Currently, the Sino-Russia pipeline question is one step forward, two steps back. Today is cloudy with a chance for sun while tomorrow is sunny with a chance for clouds just like a weather forecast. One moment Russia is saying they have made a decision, the next saying that no decision has been made.
To date, there has been no correct information. This is regrettable.
There has also been a lot of contact regarding natural gas exports to China. Russia has expressed a great deal of interest in exporting natural gas. Once during a visit to China, Energy Minister (Viktor) Khristenko asked China to provide a report detailing China's natural gas demand conditions and requirements. He said Russia was developing their natural gas plan and wanted China to provide him with a demand forecast, which China provided within the time period he specified.
However, even though there have been a lot of promises expressing Russia's interest in exporting natural gas to China, in truth no real progress has been made. Deals with Sakhalin, Western Siberia and other regions, have been discussed, but no agreement has been reached.
As for Russian electricity exports, it was Russia who first contacted us about it. I've forgotten his name, but he's currently working for Russia's State Power Company. He brought a delegation to China and we signed a northern network memorandum expressing our mutual interest in electricity sales.
Why did we express such a great interest at that time? Because Heilongjiang (Province) and Russia's lonely far eastern Siberia cannot help but have a pair of power lines that can send electricity from Russia into China.
However, during all the years we've been connected together, Russia has only sent a total of 1 bln kWh of electricity to China. During the peak year, Russia exported 100 mln kWh.
Though this area is energy rich, it is not very economically developed, so the electricity sales price should be quite cheap. My impression is it should cost about USD 0.02 per kWh, so China was very interested. At that time, China's energy demands were very strong and we hoped Russia could sell us all the electric power in Siberia.
Later, they had a lot of communication with the State Grid Corporation of China to sell the electricity. But, why didn't the talks continue? Because Russia's asking price per kilowatt hour was very high, about USD 0.08 per kWh.
I think they didn't understand China's energy situation. They just didn't understand. They also didn't understand the cost of electricity in China.
China's energy shortage is quite severe, but Russia's offer was not competitive. China's average cost per kWh for thermal power generation in is a little over RMB 0.3 or about USD 0.04. If their electricity will cost more than domestic electricity, why would we want to buy it from Russia? Why not build a power plant in China, where we could also help reduce unemployment?
If Russia's electricity, which should be very competitive, were more competitive than China's, that would be alright. But they don't understand China, thinking that we have to purchase their electricity. Even though we've had a lot of contact, we haven't continued talks.
If talks were to continue, the main issue would be that Russian electricity exports to China must be more competitive than domestic power generation. If Russia's asking price is higher than the domestic price, then why do we have to buy electricity from Russia?
In my opinion, though both sides have had developments in energy cooperation and communication, in reality there have been few results. The one exception is in crude oil talks, where the two sides have agreed to purchase 7 mln tons of crude oil shipped by rail. For the other aspects, it is still only talk.
Interfax: Does China have any plan to invest in Eastern Siberia and develop Russian oil reserves? Does China plan to allow Russian companies to construct refineries in China to refine Russian crude oil imports and sell oil products in China?
Zhang: I think you know, China is making investments and developing oil fields in Kasakhastan, in Sudan, and other places. We even have contacts in Venezuela, in Central America, and in Canada's tar sands. Russia is so close to China, why wouldn't we be willing to invest in Russia?
The first question is easy to answer. We are willing, but will Russia let us? Have I answered your first question? (laughs)
Russia wouldn't let China purchase a small, little-known oil company. Russia's reaction was exactly like America's when we wanted to purchase Unocal, saying they do not want China to acquire their oil assets. You shouldn't ask me whether we are willing or not. We're shown our willingness to cooperate with and invest in other countries, but Russia isn't willing to let us invest.
Truthfully, we've been in contact with Russia for such a long time, but we still don't understand Russia, I feel. We don't know who can make the decisions, or who to seek out.
We have contacted government officials. We've even talked to Putin and department heads. We've talked to everyone in the government. They say they can't make a decision, and we say should talk to the private sector. We've met with every company. They say they can't sign an agreement and we should talk to the government. We don't know who can make decisions.
I can give you an example. I once went on a special trip to Russia to pursue an energy cooperation agreement. I sought out Russia's Nuclear Energy Ministry, the Economy and Trade Ministry, and the Economic Development Ministry, which is Russia's equivalent of the NDRC. I went to all of them, including meeting with Khristenko, and the former Energy Minister Igor Yusufov.
I sought them out because it was said they had talked with Ma Fucai (former head of China National Petroleum Corporation (CNPC) about the Lianyungang nuclear power station. At that time, the Lianyungang nuclear power station deal was a barter deal. They said, if China was willing to make it a cash deal, and pay the entire amount up front, Russia could use this money to construct an oil pipeline from Siberia to China.
This information was passed to the government through Ma Fucai.
The government approved and I went to Russia. In Russia, I sought them out, telling them the Chinese government was willing to give them USD 1.4 bln, which would then be used to construct the pipeline. We were willing to give them the entire sum then and there so they can begin work on the oil pipeline, but they were just talking in circles and didn't want to reach an agreement.
They had asked us if we would agree to changing the Lianyungang nuclear station barter-agreement into a cash agreement. Ok. So I went to Russia. I went to every government department and told them we were willing to make this change, but after talking with everyone, I couldn't find anyone who could settle it. It was a wasted a trip.
I just didn't know who could make the deal happen.
Interfax: And regarding China's plans to allow Russian oil companies to construct refineries and sell oil products in China?
Zhang: If you ask me this question, I'll reply with a question of my own. As I just said, China is investing in Kazakhstan, going to Sudan and Latin America, why not in Russia? The American firm Exxon Mobile can setup a joint venture in Fujian, Saudi Aramco can set up a joint venture in Fujian. BP can set up a joint venture in Shanghai. Why couldn't Russia do the same? China's government has never said Russia can't do it.
Russia has just emerged from the planned economy and hasn't done it as quickly as China has. They don't understand international cooperative ventures.
It's not as though we've told Russian companies they couldn't invest here. They've never asked if they can invest here. Other countries have come to China, why can't Russia?
Interfax: When will China implement a new oil product pricing system?
Zhang: International oil prices have been rising. Last year, international crude prices hit USD 70 per barrel and have fallen back to about USD 60. Such high prices will obviously raise the cost of kerosene, gasoline and oil products.
About half of China's oil is imported from abroad and import oil costs are very high. However, the effect raising oil product prices would have on society would be too great. Many weak industries would be heavily affected, like agriculture which needs oil for tractors and fertilizer. Agricultural costs would rise. Taxi prices would have to rise. It would directly affect the lives of common people.
Other industries, like airlines, would have to raise ticket prices, along with ticket prices on public busses. Because of this, we have to consider society's ability to accept price hikes.
Two years ago, even though international oil product prices rose, domestic oil product prices remained stable. At present, domestic oil product prices are more than RMB 1000, or more than USD 100 below international prices. If we were to close the gap between domestic and international oil product prices, it would affect a lot of weak industries.
We have not finished thinking over this aspect. There are a lot of opinions from different departments, but we have yet to reach an agreement. However, we are committed to moving in the direction of using market price measures.
Interfax: When will China begin filling the strategic reserve?
Zhang: If you enter the International Energy Association (IEA), they require member states to hold a strategic reserve of 90 days. China still isn't a member of the IEA but when a country becomes an energy consumer, it should develop a reserve for energy security. However, there are two types. One is a government reserve. The other is commercial reserves.
China also, for energy security, needs commercial and government reserves. Commercial reserves are reserves held by energy companies, like CNPC and Sinopec, for their commercial needs. We will encourage companies to slowly start building up their reserves.
As for the government reserves, have marked out a plan for government reserves, but I don't want to imply we want to have reserves comparable to those abroad. Whether the best reserve quantity is 90 days or 30 days or 100 days, it should be decided by every country's unique circumstances.
For example, Japan said 90 days wasn't enough and felt they should have 100 days or 120 days reserves. But Japan's justification is that 100% of its oil is imported from abroad. More than 60% of China's oil is produced domestically. Only a bit more than 30% is imported. Why should we establish a reserve as large as theirs when the conditions are completely different?
China will construct a reserve based on our own requirements.
During a visit to the US, a reporter asked me about the construction of our strategic reserves. He immediately reported my statements that China wanted a strategic reserve, and international oil prices spiked. Everyone blamed the price spike on China.
As long as oil prices are this high, I definitely will not announce China will begin filling the strategic reserves, as it might affect international prices. I won't allow my position to be used by price speculators who will say 'China wants a strategic reserve' to push the market price higher. Then China gets blamed for the price increase.
With prices over USD 60 a barrel, if we began filling the reserves and the price of oil fell to USD 50 per barrel, China would suffer a large financial loss.
Interfax: I have a very simple question. Russian President Putin will come to China in March. During an interview with Russian television, he said China and India should join the G8, especially in discussions of energy issues and problems. What is your opinion of this?
Zhang: First, you must look at how the G8 emerged. In the beginning it was the Group of Seven, all western countries. Later, Russia joined. Some people call this the Group of Wealthy Countries. China cannot yet be considered wealthy, but the Group of Wealthy Countries should realize the importance of China's economic development on international trade and development.
China is currently the second largest energy producer in the world, as well as the second largest energy consumer, trailing the US. This isn't just crude oil production but also includes coal and other energy sources.
If the second largest crude oil consuming country isn't allowed to attend, is it a truly international conference? China should definitely attend. If the second largest energy producer and consumer doesn't attend, is it internationally representative?
Interfax: What is the government's attitude towards the ongoing iron ore price negotiations?
Zhang: In the international iron market, there are two monopolists, Australia and Brazil, if you go by country. But China also imports some iron from India as well.
Last year, international iron markets were tight and prices rose 41.7%. This year prices are expected to continue to rise. The two largest iron exporters have expressed their desire to see prices continue to rise.
However, China's steel price is already quite low due to China's large production capacity. We would not be able to accept another large rise in the price of iron ore. We would not agree with another 41.7% rise in ore prices.
-ED read more