Gold vs. Oil & Y2K
Hi George!
If I remember correctly you are bullish for gold next year.....what is your stance on oil for the next couple of years?
Also, if you have looked into the Y2K problem, how do you think this may affect oil prices? I believe that Y2K is bullish for gold, but what about oil? If Y2K only causes a slowdown in economic activity, then it would seem that would pull oil demand down....put if it causes international "instability" it would seem that certain nations might want to stock up on oil to prepare for problems with supply routes.....
Supposedly a significant percentage of the oil drilling, refining and transportation infrastructure may be subject to problems with embedded systems........but as to the reality one can only guess.....
This may just be hype, but FWIW this is what some have said about the oil industry & Y2K:
North Sea Platforms Shut Down ?
gSitting on a time bombh
ABERDEEN, Scotland (Reuters) 10/29/97 - David Trim of Shell's year 2000 team told the conference that a worldwide ''commercial meltdown'' and ''economic hardship'' were real risks if worst came to worst. We're talking about something akin to the aftermath of a war."
Companies such as Royal Dutch/Shell & British Petroleum said they realize they are sitting on a time bomb & are racing against the clock to check millions of microprocessors. They fear smaller firms have not yet fully grasped the threat to the oil industry.
The oil industry faces a gargantuan task to fight the millennium bug, illustrated by the fact a single offshore oil platform may contain more than 10,000 microprocessors. Some are deep below sea level, but all need to be checked. There are over a 100 platforms in the North Sea alone.
pathfinder.com@@t3xCtwYA7TSVHHnK/net/latest/RB/1...
British Petroleum, Shell & Exxon: Failures
Energy Industry Year 2000 Committee results discussed at November f97 meeting - 19 member companies.
North Sea Expro (Shell-Exxon JV)
 Platform, Pipeline and Gas Plants
 200 systems identified, 12% failure rate
BP Refinery, Grangemouth, UK
 94 systems identified
 Couldn't find vendor for 20
 74 assessed
 3 will fail, 2 will cause shutdown
4%, 10%, 20% c Sometimes 50% Failure Rate
Manager of Texaco's Corporate Year 2000 office, Jay Abshier, had this to say: Gartner Group is estimating 2% (50MM out of 3B) of embedded chips have Y2K problems.
Our experience at Texaco is the number is closer to 4% for our continuous flow systems (refinery systems) and much higher for discrete systems (10%, 20%, and some as high as 50%). The systems most likely to fail are Auxilliary Systems...not catastophic, but will affect plant operation.
Jay Abshier, Mgr - Corporate Y2K Office Texaco Inc, Bellaire, Texas
techstocks.com
Expect to remediate LESS than 30%
of Overall Potential Failure Points
WORLD OIL - April 1998 Vol. 219 No. 4
gulfpub.com – Go to "Feature Articles"
It is estimated that the average oil and gas firm, starting today, can expect to remediate LESS than 30% of the overall potential failure points in the production environment.
Methods for analyzing this equipment are only now emerging.
 Compliance info coming from manufacturers has been sketchy & sometimes inaccurate.
 In some cases, the chips are no longer made.
 In others, the controller is manufactured in such a way that entire unit must be replaced.
 Upgraded chips and new controllers also would have to be tested to ensure that their insertion will not impact drilling and production processes negatively.
 Some studies suggest that there may not be enough manufacturing capacity to just replace all affected chips in less than two years.
Few organizations have recognized the full potential for possible failure in embedded systems. Moreover, the supply of talent qualified to identify and correct these problems is being consumed quickly by other year 2000 projects. The longer that production managers wait, the less the likelihood that they will be able to affect the outcome pragmatically.
It is estimated that the average oil and gas firm, starting today, can expect to remediate less than 30% of the overall potential failure points in the production environment. This reality shifts the focus of the solution away from trying to fix the problem, to planning strategies that would minimize potential damage and mitigate potential safety hazards c
The recognition of issues surrounding EMBEDDED SYSTEMS is a relatively late entrant into the year 2000 discussion. Companies only now are becoming aware that the most likely threat to the revenue stream, environment and safety is more likely to come from an offshore platform or refinery, than from a mainframe accounting system.
New Problems in Oil Refineries
"But while the company was testing some of the equipment that controlled oil valves in its refineries, engineers inadvertently discovered a host of new problems. Thousands of terminals that control the (dispensation) of oil have old chips with a Year 2000 problem.
"The chips all need replacing - BUT the new chips won't fit on the old motherboards and the new motherboards don't fit the old valves. So all the valves have to be replaced too.h
gIf the company doesn't address all these problems, it soon won't be able to deliver oil to its customers." The beat goes on and on. One things leads to another. Secondary and tertiary effects unfold and nobody knows where they might lead.
Consider the implications of the oil company example extending throughout the economy and you'll have some idea of the unpredictability of the economic consequences of Y2K.
December 9, 1997 – Letter to Alan Greenspan
y2ktimebomb.com
Super Tankers: 30% Failure Rate
Large Crude Carriers &
Fuel Storage Facilities at Overseas Airports
Just got off the phone with a contact at US Army Corps of Engineers. He was passing on to me a conversation he had had with an individual whose firm had done a Y2K study on behalf of Shell and other oil companies.
The findings: that there was a roughly 30% Y2K failure rate in the embedded control systems aboard very-large and super-large crude carriers (VLCCs and SLVCs), the enormous and highly computerized oil tankers that ply the oceans.
There was also about the same failure rate in the embedded control systems found in fuel storage facilities at overseas airports.
Bruce F. Webster, CTO, Object Systems Group Member, Fannie Mae Year 2000 Team
Chair Pro Tem, Washington DC Year 2000 Group
SIM discussion board, Topic 11, 'Infrastructure Year 2000 Problems'
Supertankers may need to be dry-docked
for Y2K Fix
Letfs hope this isnft necessary. There are NOT enough dry-docks available, to fix all of the supertankers by January 2000. Currently being determined by shipbuilding engineers. If not dry-docked – cargo areas might need to be emptied for fix. Either way c not a good scenario.
Cheryl Kufta (from a reliable source)
Stunned by Magnitude of Problem
A pretty frightening email I received regarding OIL INDUSTRY state-of-readiness on Year 2000 gembedded systemh problems.
Actual name of oil company changed to gMAJOR OIL COMPANYh at request of who sent this to me.
Cheryl Kufta
Cheryl – Greetings,
Got off the phone with Mr. XXXX from MAJOR OIL COMPANY today, and was stunned by the magnitude of the problem at that company alone.
MAJOR OIL COMPANY has 80 separate business entities, and managers within those entities, assigned to Y2K compliance issues. In 1996 MAJOR OIL COMPANY believed that the Y2K issue was an IT mainframe issue only.
It wasn't until this past August 1997(!!!!!!) that the embedded system, PLC issues came to awareness. They now recognize that everything from manufacturing, refining, exploration, process control, blending, and delivery systems are affected by this.
To this end, they have identified to date - 26,000 separate components throughout the system, have assigned personnel to each component with the responsibility to determine through vendor contacts, testing etc. the compliance of each device. For this they have remained predominately in house with little external assistance.
They have triaged a critical list of highest medium and low criticality and have just dismissed the low items and will deal with them as they break. They also are identifying the interfaces with others that they depend upon for delivery of product, utility generation etc. and are working with these issues now.
An example given was the Texas Pipeline that comes out of their refinery in Texas and across the midwest.
They lease the pipeline as do other companies and sophisticated computer programs between the separate refineries and the pipeline owners track exact amounts of delivery throughout the midwest. This system then controls flow from different refineries to their destinations and the amounts in the system.
Any non-compliant interface between programs
regarding date, and between the software and PLCs in the pipeline,
would cause the line to shut down.
If not repaired within three days the
refinery would not be able to operate
due to lack of storage space for product.
The Natural gas pipeline to the Northeast is similar with different companies leasing the line for gas delivery. Customer expectation is gas for the winter heating needs.
As to oil rigs, they are setting up demonstration rigs here in the US to duplicate the structures on the platforms and hopefully assess compliance that way. With the rigs however, the outgoing pipelines that transport the crude to unloading stations, are also shared by various companies who have to coordinate their testing and shutdowns with MAJOR OIL COMPANY.
Mr. XXXX ended by stating, that this is NOT only an information problem.
gThis is a BUSINESS RISK PROBLEM with vast consequences for MAJOR OIL COMPANY's business relationships with customers and business viability for the company.h
He then said, what has been missed by most, is that over the past twenty years, all of our manual way of doing things in our infrastructure, has changed to computer software or PLC driven equipment.
And, that the problem is so pervasive that we don't even know where they are.
He listed, from his perspective, the major infrastructure needs threatened were electicity, natural gas, oil, other utilities, telephones and financial services.
He stated that the company was comfortable doing the assessment in-house.
He admitted that they did not have the manpower in-house to do the remediation, and that they would have to go outside for this help.
He was concerned about the escalating cost of this for his business, but especially for the small or medium business c and the lack of qualified personnel to perform all the work to be done.
WE departed, with the following reflection from Mr. XXXX:
"I discussed this issue with a consultant just yesterday, and he said the US and UK were doing a lousy job with this so far - but there were pockets of companies making great progress in the Y2K assessment and early remediation in embedded systems. As to the rest of the world, they can't even be categorized as doing a pathetic job since they for all purposes are doing NOTHING".
We plan to videotape our presentations, Cheryl, and Mr. XXXX & Mr. ZZZZ was willing to come from Houston and Chicago to speak here (we have a local MAJOR OIL COMPANY small refinery here). I asked him if this went well, would he consider similar forums in Houston and other places, and he said yes. Maybe some other forum to think about out your way, and also to your contacts.
I have tried my damnedest to be level headed about this, as I have learned and organized this group.
As we embark on spreading the word about this problem I find myself more frightened than ever regarding the severity of the problem c moderately severe here in the US c but so devastating elsewhere. The iceberg analogy does nothing for this problem.
It is a monster of sorts, that I could never have dreamed about as a child. For up until the last two years, I never imagined such a hideous impact on our fabric of life.
Dr. Stephen Moore
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