http://www.gold-eagle.com/editorials_99/rc062199.html

I've been tracking the Y2K situation since late 1997, though I do remember discussions about it as early as the late 1980s. So, I'm not a newcomer to the scene. I've been diligently searching like many of you for any information and clues that will indicate what direction Y2K will actually take. I'll not bore you with a history of my early thoughts and research... other than to say my opinions see-sawed back and forth as to whether it was gonna be "No Big Deal" or "A serious set back to society" (No, I am not a TEOTWAWKI believer). What follows is a compilation of my reporter notes and instincts to get the full behind the scenes story. In doing so, anonymity of sources is mandatory. These folks who confided to me, fear for their jobs if what they told me was made public. Whether it is justified or not, it was necessary for me to accept those conditions in order to get the full story from them.

Having said all of that, the very first inklings of trouble based on hard first-hand data came from my conversations last year with folks I know in the Oil industry. Here's what I heard from one close relative that works in mid-level management in the refining division a major of a oil company:

Virtually all of the large oil wellheads are at severe risk to embedded chip problems. This is the first threat to the oil supply. This does not apply to small "stripper" wells - as those were not large enough producers to be economically viable operations conversion to expensive computerized systems. Please note that "stripper" wells supply very little percentage of oil to the industry in the overall picture.

Transport of crude oil from the wells to refineries is at risk in the pipeline systems via SCADA embedded chip systems worldwide.

Refining operations of crude oil is at risk due to four possible complicating problems: a--software. b--hardware especially embedded systems. c-- loss of electricity (more on this later). d-- loss of telecommunications in the refineries and also on the delivery systems.

Let's look at #1 in detail... Larger oil wells, especially those owned by the major oil companies (the majors) have been modernized with extensive embedded chip systems. Now I've had a chance to discuss this with oil industry computer engineers, who were working on changing out the rigs systems and also the pipeline and pumping station's SCADA systems. The real problems are located primarily in Alaska, West Texas and the Gulf Coast fields, where most rigs are LOADED with embedded systems. Testing engineers indicated only 10% to 25% of the wellheads to be tested were accessible. I was told that most systems are inaccessible, due to extraordinary circumstances - like offshore oil wells in depths of several thousand feet of water. Most oil well systems are now considered impractical to test and or replace. One consulting engineer told me last December that many new field managers still didn't know what the term Y2K even means. Moreover, they didn't think their operations had any computer connections what so ever. (These old boys didn't have a clue what embedded systems were). So this particular source tells me that the oil field industry throughout much of Texas and the Gulf Coast is in the dark about what they're up against. Those clients that were having assessments performed did not have a desire to assess or test embedded systems that were not easily accessible. If the part to be tested was down in the "hole," forget it! Furthermore, most systems are in sealed units - and once opened, can't be fixed in part because schematics are usually not available and or parts are further sealed and coated for further protection thereby making identification of key components virtually impossible.

The bottom line: Most oilwell embedded systems were never, and are never going to be checked or tested for Y2K compliance. Its a virtual impossibility PLUS... And even if they did, most likely the parts to replace them will no longer be available. It's now become very difficult to find anyone who can supply a replacement system before 1/1/2000. Some easier testing was done on more accessible systems, which are usually newer. Understandably, fail rates have soared 25% in some areas.

Overall, these sources estimate that based on prior limited testing, they are expecting a 10 to 20% ratio of failure, or multiple embedded systems going down on each oil well. There will be no parts to fix them and no replacement systems available for quite a long while. These sources tell me that the major oil companies have adopted a FOF policy (fix on fail), because it is the only affordable and practical approach. Plus, there's no time to get it all fixed anyway. You should also keep in mind (according to my sources) that even if the fail rate is only a 0.1 (or one-tenth) of 1% fail rate on embedded chips within a system, there's a lot of embedded systems on each well. The quantity of systems on board is still large enough to shut-down virtually every large well in the USA, Saudi Arabia and the Gulf States plus most offshore platforms. Remember that I am speaking of only large wells that are indeed computerized. Although most if not all large wells do have these embedded chips systems, there still may be a handful of large wells that have eluded modernization. The embedded systems really have paid for themselves on large wells. The oil companies realized that and converted those wells.

I didn't even mention the nightmares that confound such a situation IF the electricity is out, and/or the phones don't work. That only compounds the problem. Remember too, that for much of the oil industry this will occur in the dead of winter in regions where freezing temperatures will play havoc. Also, if a well goes down for protracted period due to Y2k ramifications... chances are new wells will have to be drilled to replace lost oil production - especially if it is an old well that was using water injection techniques. Wells such as these are extremely vulnerable to shut-downs.

BOTTOM LINE on Oil Wells: Expect a near complete stoppage in crude oil pumping on January 1, 2000.

On Point #2-- SCADA Oil Pipelines (also true for natural gas). The same that was said about the well heads and embedded systems is true for the pipelines. It's just too complicated - and the major companies decided to adopt the FOF policy - and wait to see what breaks down and to subsequently try to fix it. Another consideration is loss of electricity for any significant length of time.

On Point #3-- Refining. The larger refineries are also loaded with embedded systems creating similar problems like the larger oil wells. Many of these are again inside sealed lines and would require major renovations to test and replace components. Also, opening embedded systems even if compliant is like putting "Humpty-Dumpty" back together again - and most likely would require replacement even if found to be compliant.

Like their wellhead counter parts, most refineries are not performing adequate checks and testing of embedded chips and systems. This is not as critical a factor for smaller, older refineries that have not been upgraded like the larger refineries.

Another significant problem for some refineries in North America is the loss of electricity in freezing weather. This is now thought to be a major concern, especially for refineries in the middle parts of the U.S. Why? Because when ambient temperatures fall below 40 degrees Fahrenheit, crude oil gels inside the lines and clogs the system. This creates among other things significant hazard risks of explosion.

Equally disastrous is that once the process has clogged the systems, production ceases. However, a "turnaround" begins once the temperatures rise again above 40 degrees. Now, this temperature factor is no problem normally because electricity is used to heat the pipelines and keep the oil warm enough to not gel up and clog the system. IF the electricity goes down on January 1, 2000 in refineries in the Midwest or the Northeast, and areas are experiencing normal winter temperatures, the loss of electricity for even an hour could be dangerous if not devastating. Therefore, my sources tell me that debates/discussions have developed as to possible preventative measures that might pre-empt such problems.

The only alternative (if electricity is to be lost) is to shut the refining operations down, or at least partially stop operations. These options however could carry even greater safety risks of explosions. One particular source tells me that these options have never been tried before at his refinery - and there is quite a debate going as to whether the risk of explosion is worth the benefit. The benefit is that by implementing a precautionary shut-down or a partial idling of the system to clear the oil lines, the refinery could absorb any power loss temporarily without clogging the systems. Once power is restored, refining production could resume with relative speed. IF, however, power is lost for 3 days... then, even a restoration of power will be a moot issue, as most likely a 3-day outage will necessitate a "turnaround" maintenance program.

There is also the safety risk factor in simply idling the system, especially if power isn't quickly restored or becomes intermittent. If power is lost for a lengthy duration under normal operations in those cold temperatures, it will usually mandate a "turnaround" program that can take up to 90 days to complete. (Remember no gasoline or diesel fuel could be produced during that period) This would be predicated upon temperatures soaring back well above 40 degrees. This source indicated that if the power is out for 3 days or more, it will likely be March 2000 before they can begin a turnaround and another 30-90 days after that before production could resume.

Now the weather factor could also affect much of refining operations as far south as northern Texas and along the Gulf Coast of Louisiana. So, the largest chunk of US refining operations are at serious risk for extended interruptions of production that might last up to 6 months or longer. And that is if the electricity is off only briefly or is sporadic for only a handful of days. IF electricity proves to be unreliable (for extended periods) until warm weather returns then there will likely be very little oil refining production in the US for most of the year 2000. Why? Because until a refinery's electricity source remains stable and trustworthy, there can be repeated lengthy production interruptions lasting far longer than the outage as more turnarounds to clean out the systems is required. Such would be necessary during cold weather. So if its 3 months or 6 months of rolling brownouts or sporadic interruptions, refining will most likely be significantly hampered.

Bottom line on Refining: Don't count on much gasoline or other petroleum products for the first quarter of 2000 - and perhaps continuing though out much or all of 2000. IF the grid goes down and stays down for a long time... then it will be a LONG time before you get much gasoline. KEEP IN MIND... this is ALL CONTINGENT UPON EVEN GETTING CRUDE OIL TO THE REFINERIES IN THE FIRST PLACE...which seems highly doubtful at this moment in time based upon the information presented to me.

Now, I've not even touched on the problems of foreign oil factor and non-compliant tankers. I don't have good first-hand sources to bring reliable reports. I can only rely upon what I've read from Internet sources. These reports do not appear to be good either. Saudi Arabia and the Gulf region along with Venezuela are reported to be in as bad a shape as we are - and probably worse. The tanker issue may well further complicate the import picture as well.

Overall Conclusions on Oil

OPTIMISTIC CASE Scenario: If the power stays up; and NO outages occur anywhere; and the phone systems have little or no problems.

IF Oil Wells experience breakdowns far lower than current testing indicates, then there may be only a small drop in crude supplies, and little or no refining disruptions. This would mean only small shortages and A LOT HIGHER PRICES... best guess... 50 cents to a dollar more per gallon (?) Considering the alternative scenarios, this would be the best we can hope for. However in this kind of price movement could likely produce a recession.

MIDDLE OF THE ROAD CASE Scenario: If there are power failures for 3 days with rolling brownouts through January and early February and normal winter temps everywhere.

Expect U.S. Crude oil production to drop perhaps by half or more. (?) Expect many if not most cold weather refineries in the US to shut down for extended periods until April or May when normal operations could resume in those refineries IF the oil wells are fixed and or foreign oil is able to be shipped in and received. We'll assume that they are at this point. Then expect serious shortages and rationing of fuel for the first six months of 2000.

BAD CASE Scenario: Power failures but not total loss of grid. Brownouts roll on through spring and summer... phone service becomes unreliable for first six months.

Expect little to no crude production, period! No importation of oil in significant quantities would be expected for the first 6 months. This means refineries will sit idle until they have product to refine and a stable, consistent and reliable source of electricity. If the embedded systems run a 25% fail rate as some research has indicated in past testing, and power is unreliable then chip system manufacturers will be unable to make replacements. New wells would have to be drilled and systems converted to manual...but still electricity is required to get it to the refinery. We are likely then to not see much crude oil until late 2000, and then about 90 days more before refining can catch up. This all assumes that foreign oil and tankers also can be brought back around this fast also. Therefore, expect about 1 year of very little fuel for transportation except for emergency services, the military and bare minimum for industry needs. There will be very little available for consumers, most likely in this scenario. This could have grave implications for transporting finished food products to retailing locations.

WORST CASE SCENARIO Scenario: Power grid is gone and can't restart. Phones gone due to power losses.

NO oil, no gas. Get a horse. Until the power grid comes back up there just won't be any fuel. Time frame to fix and restore to 1999 levels: 1 to 10 years??? [The above would most likely be the case if the power grid is down and stays down for a year followed by several years of intermittent rolling brownouts and blackouts].

Will it be "no big deal"? Or will it be a return to the lifestyle of 100 years ago? While no one knows for certain, the odds would tend to favor a scenario that is more than just a bump in the road. More than likely, the Oil Industry going down and will severely impact the power grid...and may well take down the power grid, despite power plants stocking up on coal. Why? Because, a lot of power plants run on fuel oil Don't forget to consider diesel trains not having fuel, or trucks that carry consumer foods and goods. Yikes! Now do you see why things could all hinge upon oil rather than electricity???

Final Thoughts

Now in my investigations over the past year, I've also researched the electricity situation conducting interviews with not only the corporate elite but also with the boys in the field, running down those embedded systems. But that's another sad story for another time. Same also for the phone companies.

Meanwhile, based solely upon the oil industry vulnerabilities, the oil problems could well bring down the system regardless of the utilities. Keep this in mind as you ponder the Y2K problem. It does certainly seem to me that Y2K will trigger an oil shortage that will rival and likely exceed the 1974 "Oil Embargo Crisis." Remember it triggered a terrible recession. Think about what all this might do under current circumstances of 1999.One point that I forgot to address is the little problem of inventory stockpiling. Some skeptics might suggest that the industry could solve the problem of stockpiling. My sources within the industry tell me that stockpiling inventories would cost these companies big money. Oil companies have followed the Wal-Mart lead and have gone to JIT deliveries (Just in Time=JIT). Why? This is due in part because they pay far less in inventory taxes. More importantly though, are the new, stricter EPA laws that have outlawed much of the industry's previous storage capacity. This means that the oil industry doesn't have facilities to stockpile extra inventory. Most refineries are lucky to have a 2 or 3 day inventory of product on hand at any given time. Plus capacity is nearly matched by demand and usage. There is very little extra capacity to store up extra product. So, there won't be a big inventory cushion to work from.

Recommendations

At least prepare for a moderate scenario. The odds are fairly good that conditions will at least get this bad. The optimistic scenario is possible; there would be no need to prepare for that, other than saving a little extra money for more expensive gasoline. However, if the moderate scenario or worse transpires, then one should have at least some stocks of food in reserve as food could indeed become very scarce. Grocery stores only retain about a 3-day stock before having to replenish the shelves. Most stores do not have the large warehouse space in the back rooms that they once had. Groceries will be one of the first casualties of an oil-refining shutdown. It would likely impact within a week or lessdepending upon whether production proceeded to the end or whether the industry does a preventive or precautionary shutdown.

This is what I think one should plan for just in case. IF, we have the worst case scenario, there is little one could do to adequately begin making preparations. Why? Time is too short. The preparations would be too extensive and supplies are almost out for old-fashioned hand tools, wood stoves, etc. Preparations would involve converting to an Amish lifestyle and there are very few of those types of products available for everyone to rush out and buy.

"R.C." 21 June 1999

Editor's Note: The content of this report is indeed sobering. I personally feel the best advice related to Y2K preparation is that made by the chief economist for a major international bank, Dr. Edward Yardeni:

"Prepare for the Worst, but Hope for the best."

-- zoobie (zoobiezoob@yahoo.com), November 27, 1999

Answers

Why is this dated June 21?

-- MegaMe (CWHale67@aol.com), November 27, 1999.

it's repost,baby,yeah!!

-- do I make you horny,baby?do I? (Auston@powers.com), November 27, 1999.

What was that old saying???..."be afraid, very afraid."

-- Irving (irvingf@myremarq.com), November 27, 1999.

Do I shoot myself now or later?

-- (don'tcare@any.more), November 27, 1999.

``Using Y2K-related fear tactics to make a quick buck from consumers is unconscionable,'' said Jodie Bernstein, head of the FTC's Bureau of Consumer Protection. ``Consumers should be wary of any offers that play on their fear of Y2K-related financial difficulties.''

If you like www.gold-eagle.com you'll absolutely love www.nationalenquirer.com

-- CD (not@here.com), November 27, 1999.

Zoobie,

Gold Eagle got this "editorial" from here! It was posted here on June 15, 1999.

Oil/Gas are the real problems in Y2k?

Jerry

-- Jerry B (skeptic76@erols.com), November 27, 1999.

Zoobie

Would someone please explain to me why any idiot would embedd date sensitive chips where they are unacessible for service/repair. Every product purchased in my lifetime has either failed at some point or did not function properly without maintance. NASA can attest to that statement. I personally have purchased goods that failed within several days. Now to place an embedded chip 2 miles deep in an oil well rather than near the wellhead to me would be the height of folly or the function thereof non-critical to production.

Understand, I expect there will be problems. I also know any large producer/refiner is aware that their viability as a continuing company depends upon getting it right. I for one do not believe they are sitting on their butts doing nothing. Time is of the essence. Year 2000 waits on no one.

Are there any IDIOTS out there (no offence intented) that can explain why you would bury an embedded chip 2 miles deep?

-- Tommy Rogers (Been there@Just a Thought.com), November 27, 1999.

Tommy,

Job security? reference planned obsolesence in the auto industry in the 80's.

Okay, bad joke...

-- Hokie (nn@va.com), November 27, 1999.

Expect rationing for anything over a moderate scenario.

Expect nationalization if things get bad.

Worst case - expect a pause in the industrial revolution - think agriculture.

-- Bill P (porterwn@one.net), November 27, 1999.

Tommy: Will somebody please explain to me why an army of programmers from the 1950's until the 1990's would write a fatal flaw in the basic code of every computer on the planet, one that would cause all computers to fail on January, 2000?

-- cody (cody@y2ksurvive.com), November 27, 1999.