Wednesday November 24, 2:44 pm Eastern Time

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Wednesday November 24, 2:44 pm Eastern Time

Wednesday November 24, 2:44 pm Eastern Time

US ready to sell reserve oil if Y2K problems arise

By Tom Doggett

WASHINGTON, Nov 24 (Reuters) - The U.S. Department of Energy says if a Y2K computer problem causes a disruption in oil supplies it is prepared to sell crude oil from the nation's Strategic Petroleum Reserve (SPR).

The Energy Department has drawn up emergency plans to sell oil from the Strategic Petroleum Reserve (SPR) if necessary, but a drawdown is far from definite, said spokesman Robert Porter.

Should the need arise, crude oil could be withdrawn from the U.S. emergency stockpile and moved into the market in just 15 days, he told Reuters in response to queries about the department's Y2K preparations.

``I don't want to send out alarming signals that we are gearing up for an inevitable SPR drawdown because of Y2K. But we do go through the precautionary preparations for that,'' Porter said.

The Y2K problem refers to concerns that older computers and their software, which use the last two digits for the year in dates, may fail to recognize 2000 or mistake it for 1900, causing a crash on Jan. 1.

The possibility of supply disruptions due to Y2K computer problems combined with oil prices hitting nine year highs have prompted U.S. legislators to take a fresh look at the function of the Strategic Petroleum Reserve (SPR).

The SPR was created by Congress in the mid-1970s after the Arab oil embargo. It holds 571 million barrels of oil in underground salt caverns in Texas and Louisiana.

Last week, Democrat Charles Schumer of New York and Republican Susan Collins of Maine introduced a Senate bill that would allow sales of reserve oil if prices stayed above $25 a barrel for two weeks.

``With crude oil prices now approaching levels not seen in a decade, it would be in our nation's best interests if the president would consider releasing oil from our Strategic Petroleum Reserve,'' the lawmakers said in a letter to President Clinton on Tuesday.

On Monday, Energy Secretary Bill Richardson said that a sharp rise in world crude oil prices and Iraq's decision to halt its oil exports were not reason enough to open the spigot on the emergency stockpile.

U.S. crude prices this week soared to the highest level since the Gulf War, topping $27 a barrel on Monday after Iraq confirmed it would halt oil exports.

Under the Energy Department's contingency plan, Clinton would decide whether a reserve oil sale is necessary, with recommendations from the Energy Department.

``Once the president decides a drawdown of the SPR is necessary, then from the time he makes that decision until the time we move oil into the market can be as short as 15 days,'' Porter said.

He declined to say what specific thresholds must be reached to trigger a department recommendation for an SPR sale.

``We would prefer not to unduly influence the market by trying to give some pre-defined trigger,'' Porter said.

Still, he said department officials will be reviewing U.S. petroleum stock levels leading up to Jan. 1 and what -- if anything -- happens to foreign oil supplies after that.

``We'll be looking at the whole situation as we approach Jan. 1 and the aftermath of the Y2K rollover,'' he said. ``We'll be looking at all factors that influence the movement of oil.''

For example, if supplies drop sharply during the week before New Years from drivers rushing to fill their gasoline tanks, Porter said just the announcement of an SPR sale may be enough to reassure consumers that plenty of oil is available and the reserve sale could then be canceled.

``You could very well see the effect of an announcement being sufficient to calm markets and determine that supplies were adequate and never proceed with the actual sale,'' he said.

``Once you start the cycle, it does not mean that you can't stop it. It's not on autopilot,'' Porter said.

A similar situation occurred at the beginning of this decade when the Energy Department offered to sell 33 million barrels of reserve oil when Iraq invaded Kuwait.

When President George Bush announced the stockpile sale, oil prices began to stabilize and only 17 million barrels ended up being sold from the reserve, Porter said.

By Tom Doggett

WASHINGTON, Nov 24 (Reuters) - The U.S. Department of Energy says if a Y2K computer problem causes a disruption in oil supplies it is prepared to sell crude oil from the nation's Strategic Petroleum Reserve (SPR).

The Energy Department has drawn up emergency plans to sell oil from the Strategic Petroleum Reserve (SPR) if necessary, but a drawdown is far from definite, said spokesman Robert Porter.

Should the need arise, crude oil could be withdrawn from the U.S. emergency stockpile and moved into the market in just 15 days, he told Reuters in response to queries about the department's Y2K preparations.

``I don't want to send out alarming signals that we are gearing up for an inevitable SPR drawdown because of Y2K. But we do go through the precautionary preparations for that,'' Porter said.

The Y2K problem refers to concerns that older computers and their software, which use the last two digits for the year in dates, may fail to recognize 2000 or mistake it for 1900, causing a crash on Jan. 1.

The possibility of supply disruptions due to Y2K computer problems combined with oil prices hitting nine year highs have prompted U.S. legislators to take a fresh look at the function of the Strategic Petroleum Reserve (SPR).

The SPR was created by Congress in the mid-1970s after the Arab oil embargo. It holds 571 million barrels of oil in underground salt caverns in Texas and Louisiana.

Last week, Democrat Charles Schumer of New York and Republican Susan Collins of Maine introduced a Senate bill that would allow sales of reserve oil if prices stayed above $25 a barrel for two weeks.

``With crude oil prices now approaching levels not seen in a decade, it would be in our nation's best interests if the president would consider releasing oil from our Strategic Petroleum Reserve,'' the lawmakers said in a letter to President Clinton on Tuesday.

On Monday, Energy Secretary Bill Richardson said that a sharp rise in world crude oil prices and Iraq's decision to halt its oil exports were not reason enough to open the spigot on the emergency stockpile.

U.S. crude prices this week soared to the highest level since the Gulf War, topping $27 a barrel on Monday after Iraq confirmed it would halt oil exports.

Under the Energy Department's contingency plan, Clinton would decide whether a reserve oil sale is necessary, with recommendations from the Energy Department.

``Once the president decides a drawdown of the SPR is necessary, then from the time he makes that decision until the time we move oil into the market can be as short as 15 days,'' Porter said.

He declined to say what specific thresholds must be reached to trigger a department recommendation for an SPR sale.

``We would prefer not to unduly influence the market by trying to give some pre-defined trigger,'' Porter said.

Still, he said department officials will be reviewing U.S. petroleum stock levels leading up to Jan. 1 and what -- if anything -- happens to foreign oil supplies after that.

``We'll be looking at the whole situation as we approach Jan. 1 and the aftermath of the Y2K rollover,'' he said. ``We'll be looking at all factors that influence the movement of oil.''

For example, if supplies drop sharply during the week before New Years from drivers rushing to fill their gasoline tanks, Porter said just the announcement of an SPR sale may be enough to reassure consumers that plenty of oil is available and the reserve sale could then be canceled.

``You could very well see the effect of an announcement being sufficient to calm markets and determine that supplies were adequate and never proceed with the actual sale,'' he said.

``Once you start the cycle, it does not mean that you can't stop it. It's not on autopilot,'' Porter said.

A similar situation occurred at the beginning of this decade when the Energy Department offered to sell 33 million barrels of reserve oil when Iraq invaded Kuwait.

When President George Bush announced the stockpile sale, oil prices began to stabilize and only 17 million barrels ended up being sold from the reserve, Porter said.

-- eggman (eggman@eggs.com), November 24, 1999

Answers

``I don't want to send out alarming signals that we are gearing up for an inevitable SPR drawdown because of Y2K. But we do go through the precautionary preparations for that,'' Porter said.

Someone please explain to me why no one wants to send out any alarms!!!!!

Don't Panic!!!! no no---don't be alarmed!!

Hold on now!!! just sit tight!!! Don't look at those empty shelves.

forget about that price of Oil.

Ignore all those computer scientists!!

OK!!

-- d----- (dciinc@aol.com), November 24, 1999.


Interesting article. Out of the 571 million in the SPR how many barrels are restricted from sale due to National Security reasons? ie military usage. Also, about how many barrels do we, as a country, use per day?

-- Scottsworth (NewEnglander@Ct.com), November 24, 1999.

For more info on the SPR; www.fe.doe.gov/spr/spr.html

from the above site:

The Strategic Petroleum Reserve (SPR) is the nation's first line of defense against an interruption in petroleum supplies. It is an emergency supply of crude oil stored in huge underground salt caverns along the coastline of the Gulf of Mexico.

Decisions to withdraw crude oil from the SPR during an energy emergency are made by the President. In the event of an energy emergency, SPR oil would be distributed by competitive sale. Although used for emergency purposes only once to date (during Operation Desert Storm in 1991), the SPR's current size - nearly 565 million barrels - and the U.S. government's stated policy to withdraw oil early in a potential supply emergency make the SPR a significant deterrent to oil import cutoffs and a key tool of foreign policy.

Origins

The need for a national oil storage reserve has been recognized for at least five decades. Secretary of the Interior Harold Ickes advocated the stockpiling of emergency crude oil in 1944. President Truman's Minerals Policy Commission proposed a strategic oil supply in 1952. President Eisenhower suggested an oil reserve after the 1956 Suez Crisis. The Cabinet Task Force on Oil Import Control recommended a similar reserve in 1970.

But few events so dramatically underscored the need for a strategic oil reserve as the 1973-74 oil embargo. The cutoff of oil flowing into the United States from many Arab nations sent economic shockwaves throughout the Nation. In the aftermath of the oil crises, the United States established the SPR.

President Ford set the SPR into motion when he signed the Energy Policy and Conservation Act (EPCA) on December 22, 1975. The legislation declared it to be U.S. policy to establish a reserve of up to 1 billion barrels of petroleum.

The Gulf of Mexico was a logical choice for oil storage sites. More than 500 salt domes are concentrated along the coast. It is the location of many U.S. refineries and distribution points for tankers, barges and pipelines. In April 1977, the government acquired several existing salt caverns to serve as the first storage sites. Construction of the first surface facilities began in June 1977.

On July 21, 1977, the first oil was delivered to the SPR. Approximately 412,000 barrels of Saudi Arabian light crude were unloaded and sent to the West Hackberry storage site near Lake Charles, LA. Fill of the Nation's emergency oil reserve had begun.

Current Status

Today, the SPR holds more than 565 million barrels of crude oil, the largest emergency oil stockpile in the world. Together, the facilities and crude oil represent more than a $20 billion national investment.

Fill was suspended in FY 1995 to devote budget resources to refurbishing the SPR equipment and extending the life of the complex through at least the first quarter of the next century. In 1999, fill was resumed in a joint initiative between the Departments of Energy and the Interior to supply royalty oil from Federal offshore tracts to the Strategic Petroleum Reserve.

The current status of each of the major sites in the SPR storage network is as follows:

Bryan Mound, Texas - The Bryan Mound Storage Facility, near Freeport, TX, has storage capacity of 226 million barrels and an inventory of 217 million barrels;

Big Hill, Texas - The Big Hill Storage facility near Winnie, TX, has a storage capacity of 160 million barrels and an inventory of 82 million barrels.;

West Hackberry, Louisiana - The West Hackberry Storage facility in Cameron Parish, Louisiana, has a storage capacity of 219 million barrels and an inventory of 193 million barrels.

Bayou Choctaw, Louisiana - The Bayou Choctaw Storage facility in Iberville Parish, LA, has a capacity of 75 million barrels and an inventory of 68 million barrels.

The St. James Terminal, Louisiana- located 45 miles southeast of Baton Rouge on the Mississippi River, serves the storage facilities at Bayou Choctaw and Weeks Island and is available for both fill and drawdown operations.

The Desert Storm Drawdown Stockpiling crude oil in the SPR reduces the nation's vulnerability to economic, national security, and foreign policy consequences of petroleum supply interruptions. The SPR proved its value in 1991 when a partial drawdown, coupled with a coordinated international supply response, dampened oil price hikes during the Persian Gulf War.

On January 16, 1991, coinciding with the international effort to counter the Iraqi invasion of Kuwait, President Bush ordered the first-ever emergency drawdown of the SPR. The Department of Energy immediately implemented a drawdown plan to sell 33.75 million barrels of crude oil, the U.S.'s portion agreed to by the International Energy Agency.

The drawdown proceeded on schedule and without major complications. Between the initial authorization and the final sale, however, world oil supplies and prices stabilized, and the United States reduced the sales amount to 17.3 million barrels which were sold to 13 companies.

The Desert Storm drawdown and the price stability that resulted in world markets showed the merits of the U.S. policy of announcing its intent to draw upon its emergency stockpile early and in large quantities should the U.S. oil supply be threatened.

Program Priorities

In managing the Strategic Petroleum Reserve Program, the Office of Fossil Energy's overriding objective is to maintain the readiness of the oil stockpile for emergency use at the President's direction.

Currently, the Department of Energy's top priority is to ensure the continued readiness of the Reserve through at least the year 2025. This major life-extension program includes replacing or refurbishing pumps, piping and other key components at the SPR's Gulf Coast sites.



-- Scottsworth (NewEnglander@Ct.com), November 24, 1999.


O.K. we get the O.K. to sell the reserves. How do we pump it out of the ground, refine,and distribute? How long dose it take to do all that? How long will these reserves last? How much of these reserves will go to the general public, Government, industrie? Sounds like all B.S. to me.

-- Gambler (scotanna@arosnet.com), November 24, 1999.

As I read the above message, it takes 15 days for the bureaucracy to decide to release the SPR, fill out all the paper, and get the tanker trains there to start pumping. I understand that the SPR is largely a low grade unrefined crude oil, needing significant refinement before becoming usable. Nobody has said if the refineries are compliant, if the trains can get there, if the retail distribution system will work, etc, etc...

My humble prognostication: They'll never get the stuff out of the ground.

-- rob minor (rbminor@hotmail.com), November 24, 1999.



rob, they won't need to take it out of the ground. Where are they going to go with it when they do? 15 days huh. I'll be that JQP never sees a drop of the refined product. Power companies, military and train engines will use it all.

OBTW. If the Strategic Reserve was used to fuel the 'Great American Dream', it would only last 17 days before drying up. That's if we could get every last drop out of the salt domes and that's not going to happen either.

-- Lobo (atthelair@yahoo.com), November 25, 1999.


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