Wampum

The SPR redux

While Chris Matthews and others fall all over Bush's "candor" in conceding that there is absolutely nothing he can do to decrease gas prices, that there needs to be an increase in the amount of oil in the world market, I have one question.

Why, in the midst of this admitted "energy crisis" (Andrea Mitchell even used that term numerous times) did we thus add 3.742 BILLION barrels to the Strategic Petroleum Reserve? (Note: Current US consumption averages around 20 million barrels/day.)

So is there anything the President can do?

Well, according to the DOE website:

Question: When can the Reserve be used?

Answer: The circumstances that might require the use of the Strategic Petroleum Reserve are defined in the Energy Policy and Conservation Act (EPCA). Generally, there are three possible types of drawdowns envisioned in the Act:

* Full drawdown: The President can order a full drawdown of the Reserve to counter a "severe energy supply interruption." EPCA defines this as "a national energy supply shortage which the President determines -

(A) is, or is likely to be, of significant scope and duration, and of an emergency nature

(B) may cause major adverse impact on national safety or the national economy; and

(C) results, or is likely to result, from (i) an interruption in the supply of imported petroleum products, (ii) an interruption in the supply of domestic petroleum products, or (iii) sabotage or an act of God.

EPCA also states that a severe energy supply interruption "shall be deemed to exist if the President determines that -

(A) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration;

(B) a severe increase in the price of petroleum products has resulted from such emergency situation; and

(C) such price increase is likely to cause a major adverse impact on the national economy."

Now, there have been times where the President has suspended oil shipments to the Reserve. Clinton, concerned with the massive budget deficit he inherited, instituted a period of suspension from 1994. But upon reading further from the DOE's site, these paragraphs in particular disturbed me:

In February 1999, the Clinton Administration announced a new plan to resume fill of the Strategic Petroleum Reserve with federal royalty oil from production in the Central Gulf of Mexico. The initiative was designed to replace approximately 28 million barrels of oil which were sold from the Reserve in fiscal years 1996 and 1997 largely for deficit reduction purposes.

Royalty oil is owed to the U.S. government by operators who acquire leases on the federally-owned Outer Continental Shelf. Under current law, federal ownership ranges from 12.5 percent to 16.7 percent of the oil produced from federal leases. The Minerals Management Service (MMS) is responsible for collecting royalties. MMS has traditionally collected royalties from federal oil and gas leases in cash, but, in 1998, it started testing the effectiveness of collecting royalties "in kind" - or in other words, acquiring the crude oil itself. This mechanism was adopted to begin refilling the SPR.

In May 2001 the Bush Administration released its National Energy Policy. The Policy endorsed adding oil to the Strategic Reserve using the "royalty in kind" program, and in November 2001, President Bush announced his intent to fill the Reserve to 700 million barrels.

On several occasions, the Energy Department has rescheduled incoming oil shipments to the Reserve, deferring them for several months to a year or more. In these instances, companies under contract to deliver crude oil to the Federal Government agree to increase the volume of oil shipped to the Reserve at the later date at no additional cost to the taxpayer. This also permits more oil to remain on the market and available to consumers during times when supplies are tight.

Shipments in April, when oil climbed to over $55/barrel, increased over 150%. US oilmakers this week announced their highest profits every. Anyone willing to put one and one together?

(Note: I first raised this issue back in February 2003 at the old Wampum.)

Posted by MB Williams at April 28, 2005 09:07 PM | TrackBack