Couple of hrs ago got quite a call from my good friend JoeDi123.
Many of you probably remember Joe (a long time NYMEX trader in crude, NG and gold) as a mainstay contributor on the Yahoo RIG thread. Until recently turning the keys over to Supplyside, Joe was the source of our post Tuesday close API numbers and summary.
Joe is a friend and business associate of Matt Simmons of several years standing. He got a call from Matt today and received an email of the memo below. Matt asked Joe to distribute it among his friends in the oil and investment communities and he called me shortly thereafter. We agreed it'd be a good idea to post it here.
I've PMed with a few folks in the past couple of hours including Big Dog before posting the contents of the memo. It's certainly going cause quite a stir if the national media ever give it the full public exposure it deserves.
I've already emailed it to Matt Drudge and was happy to learn that Big Dog had also. It's another shocking story.
But I think what al this is increasingly coming down to is not only the need to know if we're to make informed decisions as voters. But about whether our private business or these self serving and incredibly cynical government/political interventions and programs are best suited to run our energy industry.
Isopatch
"Forwarded by Matt Simmons/SCI on 10/08/2000 04:52 PM --------------------------- Matt Simmons 10/07/2000 03:42 PM
Subject: Somebody Was "Napping" on Fixing Heating Oil Crisis
This is a slightly long story, but well worth reading through, as it almost defies any form of logic that so many bad things could happen to what is being billed as a sound part of Clinton/Gore's energy plans.
There seems to have been a screw-up in the recently announced SPR oil plan. If it is just a screw-up, it is of major importance. It could also become a realtime political scandal beyond any aspect of Whitewater. Since the tale is relatively complex, it may or may not ever get picked up by the national media. In my opinion, it certainly should.
In summary, here is what seemed to have happened:
A program to release 30 million barrels of SPR oil was announced on 9/22. The aim of this emergency program, as first announced, had no political overtones. It was a necessary act to prevent high heating oil prices in the Northeast. The decision to release these SPR barrels of oil was apparently made the previous Saturday afternoon at the White House. According to a story in the New York Times, Clinton was starting to get very worried about the high price of crude and the remarkably short levels of heating oil with only six weeks to go before the heating season began and also six weeks until the elections were held
(As the NYT story mentioned, Clinton might have been as worried about the impact on a heating oil problem for hurting Hillary in upstate NY as its impact on Gore.) A carefully coordinated plan to cool off the price rise of crude oil and heating oil was quickly figured out: SPR oil would be dumped on the market. But it now seems the only planning with any professionalism was how to choreograph this release to maximize its political gain, while also keeping the price of both oil and heating oil supressed at least through 11/7!
Within 24 hours of the plan being announced, various industry people realized it was extremely flawed in its ability to make a dent of furnishing extra heating oil. Our refineries are operating at effectively 100%. All the pipelines to take either crude or finished products are jammed full. There are no spare tankers or barges to get SPR oil or heating oil into the Northeast.
And the time it would take, even if these bottlenecks did not exist. to deliver extra heating oil to the Northeast would not occur until late November at best and the delay could last through sometime in January.
But all the bottlenecks are real, so the actual delay would be even longer. To counter these skeptics, the DOE announced they were speeding up the time when the contracts would be announced. (I do not believe the deadline of 10/4 to make the awards was part of the first announcement. But I might be wrong.)
There was also a growing skepticism throughout the industry that not enough industry players would even tender for this oil, though its terms were intriguing. If you got an award, there is no money to put up. All you have to do is give oil back next fall. And the 'best deal' would be decided by how much extra oil you agreed to give back.
Even on the morning of when the awards would be announced, the markets were filled with gossip that Richardson would end up with egg on his face when they could not find enough parties to even take free oil, since the system was so full it could not really address the problem of heating oil In the meantime, the heating oil problem was not getting better. It was getting increasingly severe. The heating oil problem which Clinton et al were wringing their hands about on Saturday, Sept. 16th was all bout low primary heating oil stocks.
In the entire East Coast were only 24 million barrels in primary stocks with no earthly idea what the stock levels were further down the delivery chain to the 7 million homes which need this for winter heat. (This number is for the reporting period ending 9/8/00 which would have been the latest information available when the White House meeting was held. ) This was a genuine heating oil crisis level by this date, as there were so few weeks left to get supplies in place before cold weather arrived in the Northeast. Once furnaces are turned on, heating oil stocks begin to decline.
Three weeks later, stocks have actually fallen by 500,000 barrels to only 23.5 million barrels on the East Coast compared with 48.5 million at same time last year. Winter weather is now too close by for there to be any way for heating oil stocks to get rebuilt before cold weather sets in. And worse, cold weather is now arriving in the Northeast. Various cities will see below freezing temperatures this weekend.
Back to the SPR plan. Despite all the rumors to the contrary, a beaming Bill Richardson announced on Wed. afternoon that all 30 million barrels of heating oil had been awarded. He did caution that heating oil was not "out of the woods yet, but there were lots of backs being patted that oil prices had retreated by $7 since the Clinton/Gore team devised this great plan.
On Thursday, the names of the 11 parties who got the government oil were released. The list included industry heavy weights like BP and Marathon. But it also names three entities totally unknown to any industry player.
The names were Lance Stround Enterprises, Burhany Energy Enterprises and Euell Energy Resources. Together, these three firms had been awarded the ability to take away from our SPR $300 million dollars, or 10 million barrels of oil. Moreover, they all got the high value sweet oil. In fact, they got about half of the sweet. A front energy story at Plattes Oilgram yesterday broke the first news of who these guys were. "Who are the saviors who will be turning oil into life-saving heat, the Platt's story asked.
Answer: three tiny firms with no apparent financial resources nor any experience in figuring out what companies like Exxon could not do. How to convert SPR oil into heating oil. (After all, remember that it was a heating oil problem which required our government to declare an emergency and decide to use 5% of our national insurance policy SPR oil in the first place.) A description of the three firms follows:
Lance Stround Enterprises is a one man firm located in the Harlem section of Manhattan. When Plattes called to interview Mr. Stroud, his mother answered the phone and said he was out "shopping for a letter of credit" for his new oil. He works as a grain dealer. This is his first experience in handling an energy deal. Nevertheless, he is now the proud owner of 4 million barrels of oil, assuming he can come up with a satisfactory letter of credit by next Wed.
According to the D&B on the firm, he expected total revenues for his grain trading of between $100,000 and $300,000 this year. With his new SPR contract, revenues will obviously soar!
Burhany Enterprises is also a small firm based on Cool Emerald Drive in Tallahasse, Florida. Like Stroud, there is only one employee, Ronald Peek. The only thing Plattes could find out about Mr. Peek is that he testified in 1998 at a Federal Reserve Hearing on behalf of a Florida Black business development advocate group. Burhany is now the proud awardee of 3 million barrels of our national security oil.
The final winner is Euell Energy Resources, located in Aurora, Colorado. Euell got the final 3 million barrels worth over $90 million. The company's website lists its business activities as "an integrated energy services company with operations that include natural gas and power marketing, diverse pipeline installations and construction management."
Mr. Euell spoke to both Platts and Oil Daily. He will apparently refine his SPR oil in "some of the refineries he holds stock in." He also said that his goal is to service the shortage of fuel oil for the East and the West Coast. (The DOE has failed to tell anyone that we might have a heating oil shortage on the other side of our country. I did not think this region even used heating oil.)
When Mr. Euell spoke with Oil Daily, he seemed to be changing his mind, as he said, "most of his oil would be turned into jet fuel or sold the electric utilities. (Perhaps this turned out to be what the refineries he is a stockholder in decided they wanted to do.)
These three firms now have contracts to begin receiving over $300 million of US government oil. They still have to post letters of credit by the end of business this Wednesday. Since a DOE contracting officer has to have made a "determination of responsibility" before the oil was awarded, I hope the same person is not assigned to check out the letters of credit.
The letters of credit will be tricky to create. Why? Because no body knows what oil will be selling for next fall, nor is there any assurance that these three individuals will even find someway to buy 10 million barrels, let alone get them back to the SPR. As to the financial ability of any of these firms, nothing is known from simply reading the Dunn and Bradstreet reports on all three.
The D&B on Mr. Euell does note that he went through personal bankruptcy in 1985 but also notes that all creditors were paid in full a year later. While Euell Energy is not Big Oil, is it 12 times bigger than the other two firms. It's D&B lists the firm as having 12 employees.
President Clinton told the press late Thursday that he was going to watch the heating oil situation like a hawk as it was critical to get this oil to the Northeast were it was needed. But early Friday evening, the Associated Press reported that Mark Mazur, acting head of the Energy Information Agency, announced that only about a third of the 30 million barrels of SPR oil will go to U.S. refineries.
The rest is apparently going to be sold into foreign markets, but Mazur said that they will "displace" 20 million barrels that refineries will not buy elsewhere. (I am not sure I understand this logic. Is the revised goal of the SPR to help lower our balance of payments or ease the logistics manager of a refineries job in lining up crude?)
If delivering only 10 million barrels of SPR crude to U.S. refineries becomes the final chapter of what was originally meant to save a heating oil crisis, it is worth noting that 10 million barrels of crude only translates into 800,000 to 900,000 barrels of high sulfur heating oil. On a cold day in the Northeast. this lasts about 12 hours or less.
It seems like someone has gone to alot of work and considerable security risk, given that these are SPR barrels, let alone financial risk that we never see a return of these swapped barrels, for a miniscule amount of heating oil that will show up to late anyway. The last part of this sordid story is "Thanks but No Thanks."
This was an article that was printed in the Oil Daily on the same day that Gore first suggested we should use SPR oil to solve a heating oil problem. According to the Oil Daily, a delegation from PDVSA, the national oil company of Venezuela travelled at their own expense to the Department of Energy just two days before Gore made this official first leak of what Clinton did the next day. They had been encouraged to make this trip by a democratic congressman from Massachusetts. They offered the DOE some of their storage terminals in the Bahamas to store heating oil which they would also supply from their refineries. (They were talking about real heating oil, and once it is in the Bahamas, it is only three or four days by tanker from ports in Portland, Boston, Providence or New York. How did the Department of Energy respond?
Thanks but no thanks. Our government believes that heating oil supply should be left to the private sector. (Did they mean the Big Three Oil firms: Stroud, Burhany and Euell?) This whole fiasco raises a laundry list of questions. Some need to be raised before our nation selects our next leader. The country will have to sort through a genuine energy crisis as the new Administration gets underway. A fiasco like this does not give me alot of comfort that Gore would leave us in really solid energy hands. I might be too harsh. Maybe a logical explanation for what now looks so weird will emerge. But it is time to start asking alot of questions and receiving alot of real answers. The story takes awhile to tell, but is worth hearing about." |
