Senate Committee Warns of Potential Year 2000-Related Disruptions in Oil and Gas Sector

Strategic Insights -

As the Year 2000 computer problem approaches, a Senate committee has warned that while the domestic oil and gas sector, along with utilities, appears to be in good shape to combat any year 2000-related computer problems, smaller U.S. oil companies and foreign suppliers are still a concern. The report highlights potential disruptions in countries such as Italy, Russia, China, Venezuela, Nigeria, Saudi Arabia, Colombia, and Kuwait, with a red flag raised over Venezuela's Y2K readiness. The committee expressed concern about the potential for supply disruptions, but noted that the time lag between the problems and their effect on the market could be long, providing ample warning to suppliers to find alternative sources.

Key Takeaways:

  • The Senate committee's report warns that foreign supply disruptions could be large enough to drive U.S. gasoline prices higher, with a focus on countries like Italy, Russia, China, Venezuela, Nigeria, Saudi Arabia, Colombia, and Kuwait.
  • The report highlights that smaller U.S. oil companies and foreign suppliers are still a concern, with potential disruptions stemming from oil companies themselves or from their countries' infrastructure.
  • The State Department warned of electrical power failures in Venezuela and Saudi Arabia, but the state oil companies in those countries were deemed self-reliant and may not experience disruptions from general power failures.
  • Industry planners assume that the Strategic Petroleum Reserve will be available in the event of a large loss of foreign supply, but the report expresses dissatisfaction with the progress made by the industry as a whole.
  • The committee was generally satisfied with the progress major oil companies have made in preparing their systems ahead of the Jan. 1 rollover, but expressed concern over the potential for disruptions in small and medium-sized businesses that could affect local consumers.
  • As many as 1,000 smaller oil and gas companies, which have not participated in an industry survey of Y2K readiness, could suffer from system breakdowns, according to the report.
  • The industry's expectation that 94% of respondents would be Y2K compliant by Sept. 30 and that the rest would be compliant by year's end "seems unrealistic," the report concluded.
  • The oil and gas working group reported that 20% of respondents said their business systems were ready, while 16% said their embedded systems were ready, raising concerns over the small percentage of completed contingency plans, which stood at 37% in June.

Statistics:

  • 60-90 days of supply should be in the pipelines and counting supplies at sea, providing a time lag that would allow ample warning to suppliers to find alternative sources.
  • 93% of oil and gas consumption in the United States has been accounted for in the latest survey completed by the oil and natural gas working group in June.
  • 1,000 smaller oil and gas companies could suffer from system breakdowns due to lack of participation in the industry survey of Y2K readiness.
  • 20% of respondents said their business systems were ready, while 16% said their embedded systems were ready, according to the oil and gas working group.
  • 37% of contingency plans were completed in June, according to the oil and gas working group.
  • 94% of respondents expected to be Y2K compliant by Sept. 30, while the rest expected to be compliant by year's end, according to the industry.

Sources:

  • "Senate Panel Warns of Year 2000-Related Disruptions," [no date listed], [no publication listed]
  • [State Department], [no date listed]
  • International Energy Agency (IEA), [no date listed]
  • American Petroleum Institute (API), [no date listed]
  • Oil and Natural Gas Working Group, "Survey of Y2K Readiness," June [no year listed]