![](media/image1.jpeg){width="8.75in" height="3.6055555555555556in"}U.S.
DEPARTMENT OF ENERGY

**Office of Energy Assurance**

**ENERGY ASSURANCE DAILY**

###### May 5, 2004

**Electricity**

**Loads Significantly Reduced in CA as Temperatures Drop**

Spot power prices in the West were slightly lower on Wednesday, weakened
by falling temperatures and loads. Dealers noted the California
Independent System Operator forecast a peak load of 32,221 MW on
Thursday, down from an anticipated high of 34,237 MW on Wednesday and
more than 40,000 MW during a blistering heat wave on Monday.

Reuters, 1354 May 5, 2004

**FERC Warns of \"Troublesome Conditions\" in California**\
The head of the Federal Energy Regulatory Commission on Wednesday said
he was concerned about \"very troublesome conditions\" in California\'s
electricity market and warned of a possible repeat of the state\'s
2000-01 energy shortage. \"There are some very troublesome conditions
out there,\" FERC Chairman Pat Wood told reporters. \"We\'re clearly
monitoring that.\" Wood said he received two updates each day on the
California power situation. He pointed to low hydropower supplies on the
West Coast and above-normal temperatures as factors affecting the
state\'s wholesale electricity supply. It looks like the days of yore,\"
Wood said, referring to California\'s power shortage of 2000-01 that
spurred blackouts and the bankruptcy of the state\'s biggest utility. On
Monday, a heat wave forced the California Independent System Operator
(ISO) to declare a transmission emergency. The California ISO, which
operates the state\'s power grid, and the Southern California Edison
utility urged some businesses to turn off their lights to conserve
power. The power grid said demand in its control area exceeded 40,000
megawatts for the first time in 2004 on Monday. Wood also said that FERC
may issue an order in June on a long-delayed plan to revamp the
California ISO. He spoke to reporters following a monthly meeting of
FERC commissioners.
<http://biz.yahoo.com/rm/040505/utilities_california_2.html>

**Panel: Davis-Besse Clad Could have Lasted 2-13 Months**

Davis-Besse could have run for 2 to 13 more months before failure of the
reactor head cladding, an NRC-appointed expert panel has concluded in a
memorandum NRC released today. The panel\'s median estimate is that the
reactor could have operated for five months beyond the day the unit shut
down in mid-February 2002. It had been scheduled to operate for another
1.5 months before going off line for refueling and inspections, but,
because of concerns about potential boric acid leakage, NRC negotiated
an agreement with operator FirstEnergy Nuclear Operating Co. for an
early shutdown. During the inspections, plant personnel discovered that
boric acid had eaten through the reactor head down to the stainless
steel cladding. <http://www.platts.com/Nuclear/News/8069698.xml?S=n>

**Constellation\'s N.Y. Nine Mile 1 Nuke Back at Full Power**\
Constellation Energy Group Inc.\'s 565 megawatt Nine Mile Point 1
nuclear unit in New York returned to full power by early Wednesday, the
Nuclear Regulatory Commission said in its power reactor status report.
On Tuesday, the unit was operating at 25 percent of capacity.
<http://biz.yahoo.com/rc/040505/utilities_constellation_ninemile_1.html>

####### Petroleum

**Crude Oil Prices Continue Climb**

See Energy Prices below.

**Shell says Deer Park, Texas, Coker at Reduced Rates**

Shell Oil said on Wednesday it reduced rates in an 85,000 barrel-per-day
(bpd) delayed coker unit at its joint venture Deer Park, Texas, refinery
for unplanned repairs. The unit, used to process heavy oils into coke
and gas oils for conversion into light products like jet fuel, was
slowed Tuesday evening and repairs are expected to last five to 10 days,
Shell said in a release. The company added that the amount of crude the
total refinery processes will also be reduced during the repairs. The
340,000 bpd Deer Park refinery is jointly owned by Shell Oil and
Petroleos Mexicanos. Reuters, 1407 May 5, 2004

**EIA Sees Adequate Summer Fuel Supplies in NY, Conn**

The U.S. Energy Information Administration said on Wednesday that
reformulated gasoline supplies for New York and Connecticut this summer
should be adequate to meet demand. EIA says that its recent findings
indicate that domestic refiners, including suppliers from the Gulf Coast
states, \"will likely produce more\" reformulated gasoline blendstock
for New York and Connecticut than previously estimated. \"While sizable
gasoline import volumes are still needed, conversations with a number of
import suppliers and trade press reports about cargoes of summer-grade
(reformulated gasoline blendstock) lead us to believe adequate supply
potential has emerged, and the likelihood of any severe shortfalls due
to the initial transition (to summer gasoline) is significantly
reduced,\" EIA said in its weekly review of the oil market.

[*http://biz.yahoo.com/rm/040505/energy_gasoline_summer_2.html*](http://biz.yahoo.com/rm/040505/energy_gasoline_summer_2.html)

**Some Oil Analysts Concerned about Oil Supplies this Summer**

Analyst say prices are likely to move higher in the months ahead. Some
warn of shortages. Bill Greehey, chief executive of oil refiner Valero
Energy Corp. said last week that U.S. refineries are not likely to have
sufficient stores on had to avoid shortages of fuel this summer
according to a Washington Times article today.  Partly because soaring
oil prices have caused refineries to delay purchases of oil for
refining, inventories of gasoline are 15 million barrels below normal
despite flat-out efforts by refineries this spring to build the
necessary stocks, he said. \"The refining system is already being
strained, and we\'re not even in the peak season yet,\" he told
investors on a conference call.
[*http://www.washingtontimes.com/business/20040504-094424-5205r.htm*](http://www.washingtontimes.com/business/20040504-094424-5205r.htm)

**U.S. Gasoline Stock Jump Dampens Supply Fears**

An unexpectedly large jump last week in U.S. gasoline stocks just ahead
of the start of summer driving season should take some of the drive out
of recent record prices for the motor fuel, analysts said on Wednesday.
U.S. gasoline stocks rose 4 million barrels to 204 million barrels, the
federal Energy Information Administration said on Wednesday. Analysts
had expected a build of 1.7 million barrels.

Reuters, 1347 May 5, 2004

**Gasoline Hits Another High at Pumps**\
The price of gasoline keeps going up, and U.S. car drivers will be
digging even deeper into their pockets at the pumps in the coming weeks.
U.S. retail prices for regular gasoline hit yet another all-time high,
at \$1.844 per gallon, the AAA said Wednesday. That is up 33 cents from
a year ago, according to the AAA, which is the biggest motorist group in
the United States. And to top it off, gasoline prices have yet to reach
their highest for the year, with the traditional summer driving season
not set to start until Memorial Day weekend later this month, the U.S.
Energy Information Administration has said. When adjusted for inflation
in 2004 dollars, however, the highest U.S. gasoline price was \$2.99 a
gallon in March 1981, according to the EIA, which is the statistical arm
of the Department of Energy.
<http://biz.yahoo.com/rb/040505/energy_gasoline_aaa_2.html>

**Venezuela to Expand Jose Oil Export Terminal**\
Venezuela will complete construction this month of a new oil tanker
loading facility at its giant eastern Jose export terminal to
accommodate rising production from a foreign-financed joint venture,
officials with state oil firm PDVSA said. "(The port) should be
completed at the end of this month,\" Ruben Rodriguez, a manager at the
terminal, told reporters during a press conference. The new dock, which
will accommodate ships carrying up to 1 million barrels of oil, is being
built as part of the Ameriven synthetic crude joint venture.
<http://biz.yahoo.com/rc/040505/energy_venezuela_exports_1.html>

#### 

#### Natural Gas 

**Two Different Views on Future of Gulf of Mexico Production**

**The Pessimist: Cheap LNG Imports to Supplant Some USG Gas Drilling:
Consultant**

Houston (Platts)\--4May2004

Called the \"Dead Sea\" in the mid-1980s and early 1990s because of the
lack of interest in drilling there for oil, the Gulf of Mexico could in
this decade earn that moniker again \-- at least for natural gas
drilling, Tom Kellock,

senior consultant for industry researchers ODS-Petrodata, suggested
Tuesday. Despite consolidation, majors have not stepped up Gulf E&P
activity, and probably will not do so, preferring instead to focus on
lower-risk liquefied

natural gas import projects, Kellock said during a presentation at the
Offshore Technology Conference here. He said fewer jackups are drilling
for gas in the Gulf \-- 21% in January 2003, against roughly 50% in
January 1998,

while LNG imports leaped significantly last year, boosting gas storage
levels at the start of the withdrawal season to just above 3 Tcf last
November, rather than the 2.6 Tcf that would have occurred otherwise.
Even ultra-deep

Gulf of Mexico drilling, which has stepped up in recent years, \"will
not be significant enough on the gas side to obviate the need for LNG,\"
Kellock said.
[http://www.platts.com/Natural%20Gas/News/7814604.xml?S=n](http://www.platts.com/Natural Gas/News/7814604.xml?S=n)

**The Optimist: Emerging Plays Could Help Gulf of Mexico Output Bounce
Back**

HOUSTON --- Senior executives of independent US oil and gas companies
said Tuesday that emerging exploration plays in the Gulf of Mexico could
enable the region to bounce back from its recent downward trend in
production.

Noble Energy Chief Executive Charles Davidson, briefing reporters at the
Offshore Technology Conference in Houston, said combined output of oil
and gas in the Gulf peaked at around 20 billion cubic feet of gas
equivalent

per day in 2001. Since then, total production of hydrocarbons has fallen
by about 15% while gas production is

down 21%, mainly because of a steep decline in gas output from the
shallow waters of the Gulf of Mexico shelf, he noted. Davidson said all
oil and gas basins ultimately mature and go into decline, but he
explained it would be premature to conclude that the Gulf of Mexico had
already passed the turning point. "There have been years in the past
where there have been drops in Gulf of Mexico production and it has come
back," he said, adding that new plays, in shallow water and deep water,
could help to reverse the decline. David Pew, Vice President of
Exploration at Newfield Exploration, agreed it is too early to declare
the decline permanent. Oil Daily, May 5, 2004

**LNG Boom May Stall on Ship, Staff Shortages - Energy Co\'s**

The boom in liquefied natural gas could be stunted by a lack of ships,
qualified personnel and building materials despite ample cash available
to fund new projects, energy company representatives said on Tuesday.
More than three dozen new terminals have been proposed in the United
States to receive shipments from producers in Indonesia, Qatar, Nigeria,
Algeria and Trinidad and Tabago, which are all spending billions of
dollars to boost their LNG output. Analysts estimate the major oil
companies will also spend about \$50 billion by the end of the decade to
help develop the LNG industry around the world. Currently, four import
terminals are operating in the United States, but an expected shortfall
in North American natural gas production is expected leave a supply gap
in coming years. That has prompted companies to develop new LNG supply
contracts, regasification facilities and the specialized ships needed to
move the fuel. \"There\'re questions on our ability to find the basic
equipment. Is there shipyard space?,\" said Bill Bullock, general
manager for worldwide LNG at ConocoPhillips. LNG tankers, which can cost
up to \$200 million, take about 30 months to construct, and each new
terminal built requires about 12 new ships to keep supplies flowing.

Reuters, 1828 May 4, 2004

####### 

####### Other

**Pumping of Kirkuk Crude to Ceyhan Resumes at 450,000 B/D: Sources**

Iraq resumed pumping its Kirkuk crude via the pipeline from the
country\'s northern oilfields to Turkey\'s Mediterranean loading port at
Ceyhan Tuesday noon, traders said Wednesday citing port agents. The
crude was pumping at 450,000 b/d by Wednesday. There were 1.8-mil bbl in
storage at the time pumping was resumed Tuesday. Pumping via the
pipeline has been subject to regular interruptions, lately due to
unspecified technical

problems.

<http://www.platts.com/Oil/News/9227645.xml?S=n>

**OPEC May Discuss Raising Output Ceiling at June Meeting: Purnomo**

OPEC would need to consider if it should raise its production ceiling
from the current 23.5-mil b/d when it meets in June next because of
persistent high oil prices and concerns of fuel shortage, the group\'s
president, Purnomo

Yusgiantoro, said Wednesday. OPEC\'s ten members bound by output quotas
are currently pumping almost 1.5-mil b/d above their combined official
ceiling, Purnomo, who is also Indonesia\'s oil minister, told reporters
in Jakarta. \"We consulted with the OPEC secretariat yesterday to see
the reason for the current high oil price. That\'s why we still think it
is important to increase our production after June\...We haven\'t
decided yet,\" Purnomo said. OPEC at its

last meeting in Vienna Mar 31 decided to implement a 1-mil b/d cut in
its production ceiling to 23.5-mil b/d effective Apr 1. In March, OPEC
had exceeded its 24.5-mil b/d quota by 1.56-mil b/d, according to a
Platts survey. And the cartel has continued to overproduce above its new
quota from Apr 1. OPEC\'s next meeting is scheduled for Jun 3 in Beirut.
<http://www.platts.com/Oil/News/9416229.xml?S=n>

**Canada Suspends Duty on Offshore Vessels**

Canada is suspending for five years its onerous duty on offshore
drilling vessels brought in from abroad, John Efford, the country's
minister of natural resources, said Tuesday at the Offshore Technology
Conference. The tax averaged C\$50,000 per day, Efford said, which added
significantly to the already hefty costs of drilling off Canada's

Atlantic Coast. The sum would be in the range of US\$35,000 to \$40,000
per day, depending on the exchange rate.

Efford explained that his main responsibility in the Canadian government
is to promote the energy business in Canada and increase its ability to
serve not only its domestic needs, but also those of its southern
neighbor.

"Canada is positioned very well to be a secure energy provider to the
US," he said. Oil Daily, May 5, 2004

**Energy Prices**

+-------------------------------+-----------+-----------+------------+
|                               | **Latest  | **Week    | **Year     |
|                               | (         | Ago**     | Ago**      |
|                               | 5/5/04)** |           |            |
+-------------------------------+-----------+-----------+------------+
| **CRUDE OIL**                 | 39.66     | 37.17     | 26.43      |
|                               |           |           |            |
| **West Texas Intermediate     |           |           |            |
| US**                          |           |           |            |
|                               |           |           |            |
| \$/Barrel                     |           |           |            |
+-------------------------------+-----------+-----------+------------+
| **NATURAL GAS**               | 6.09      | 5.80      | 5.36       |
|                               |           |           |            |
| **Henry Hub**                 |           |           |            |
|                               |           |           |            |
| \$/Million Btu                |           |           |            |
+-------------------------------+-----------+-----------+------------+

> Source: Reuters

**This Week in Petroleum** from the Energy Information Administration
(EIA)

[*http://tonto.eia.doe.gov/oog/info/twip/twip.asp*](http://tonto.eia.doe.gov/oog/info/twip/twip.asp)

Updated on Wednesdays

**Weekly Petroleum Status Report** from EIA**\
**[*http://www.eia.doe.gov/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/wpsr.html*](http://www.eia.doe.gov/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/wpsr.html)

Updated after 1:00pm (Eastern time) on Wednesdays

**Natural Gas Weekly Update** from EIA

[*http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp*](http://tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp)

Updated after 2:00 pm (Eastern time) on Thursdays