Bingaman on U.S. Oil Inventory Policy
February 26, 2008
03:12 PM
“Thank you for being here today to discuss a critical aspect of our nation’s energy security: oil inventories and, in particular, the Strategic Petroleum Reserve (SPR).
“I am concerned about the current policy to fill the SPR with Royalty-in-Kind oil from the Department of the Interior, regardless of market conditions, and for that reason I have co-sponsored Sen. Dorgan’s bill to take a time out on filling the SPR. As we face the threat that Venezuela might suspend oil shipments to the United States, it is more appropriate in my view to consider releasing the SPR rather than filling it.
“But I would also like to discuss broader policy issues related to the SPR. The Administration has asked Congress for the legal authority to double the size of the Reserve to 1.5 billion barrels. Before we can consider such a request, I believe it would make sense to think first about our policy related to SPR fill and drawdown, and second, think about whether simply increasing crude storage will truly enhance our ability to respond to oil supply disruptions.
“Our Strategic Petroleum Reserve fill and drawdown policies are inconsistent across different Administrations, and sometimes they’re inconsistent within Administrations. Perhaps it is time for us to consider adding more clarity to SPR policies, so that the market can know what to expect during oil supply disruptions. I am concerned that the current Administration seems to have changed the long-standing policy that originated in the Reagan Administration, which stated that in the case of a world oil supply disruption, the SPR would be drawn down early and in large volumes.
“The SPR policy enacted during the 1990-1991 Desert Storm operation offered an example of this ‘early and in large volumes’ policy in action. DOE observed that ‘world oil markets remained remarkably calm throughout most of the war, due largely to the swift release of the Strategic Petroleum Reserve oil.’ Then-Secretary of Energy Watkins noted, ‘We have sent an important message to the American people that their $20 billion investment in an emergency supply of crude oil has produced a system that can respond rapidly and effectively to the threat of an energy disruption.’
“In contrast, the current Administration has gone in a different direction, deciding not to release SPR oil, despite three nearly simultaneous oil supply disruptions in Venezuela, Iraq, and Nigeria in 2003. In order to ensure that this large investment – it was worth $20 billion when Secretary Watkins was in office, but today is more likely worth $70 billion – still responds effectively in the case of a disruption, we need to clarify the conditions under which the SPR should be used.
“On a more technical level, we need to discuss whether we should be adding more crude oil inventories, or instead storing refined products; whether we should have the government own all of the oil, or whether there are other, more market-friendly approaches to increasing our supply cushion. The IEA has pointed out that U.S. demand for refined petroleum products exceeds our refinery capacity. The Agency therefore has recommended that we consider other policy options to enhance our response capability.
“Our nations’ energy security is too important to set on auto-pilot. I hope that this hearing will help us to be more thoughtful about our emergency response capability.”
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