When Should Oil Reserve Be Tapped? After comments by Gore, the debate is refueled

by James Bernstein Staff Writer

For all the talk about the Strategic Petroleum Reserve, most people would be hard-pressed to describe it, or even to accurately say what it is.

Simply put, the petroleum reserve is a tank farm, but not like any tank farm most of us have ever seen.

The reserve is a vast federal oil stockpile tucked into a series of salt caverns in Texas and Louisiana, along the Gulf of Mexico. About 570 million barrels of crude oil are stored there, representing a $20 billion investment by the United States, to protect against disruptions in the nation's oil supply.

On and off since 1975, when Congress established the reserve to thwart a repeat of gas lines that resulted from the Middle East oil embargo of 1973-74, there has been a debate about when the reserve should be tapped.

The debate is on again.

Yesterday, Democratic presidential candidate Al Gore urged President Bill Clinton to release some of the reserve to combat the skyrocketing costs of gasoline and home heating oil, which some fear could rise to more than $2 a gallon this winter.

"The argument for [tapping the reserve] is that the inventories are low," said Gary Ross, chief executive of the PIRA Energy Group, a consulting firm in Manhattan. "By providing some extra crude now, you're giving yourself an extra cushion in case there's some supply problem." And, said Tom Bentz, senior energy analyst at BPN Paribas Commodity Futures Inc. in Manhattan, "Prices are getting very high. It's testing everyone's nerves. It's starting to affect economies." But others say the move should not be made because while prices may be high, there is no national emergency, and tapping into the reserve amounts to the federal government's meddling in the marketplace.

"You're playing fast and loose here with national security and you're influencing prices," said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.

The decision will be Clinton's to make. He does not need congressional approval.

The Energy Policy and Conservation Act, which established the reserve, authorizes a drawdown if the president finds there is "a severe energy supply interruption." But in the several times the reserve has been tapped, it has not been for that reason.

In 1991, only hours after U.S. jets began to bomb Iraq at the outset of the Persian Gulf War, President George Bush ordered the release of 33 million barrels to calm peoples' nerves over fuel dependence. Within a day, oil prices dropped from $31 to $21 a barrel. (Crude prices fell yesterday after Gore's announcement, dropping $1.04 to $34.24 a barrel). And in 1996, the Clinton administration sold 12 million barrels, valued at $227 million, to help lower the nation's deficit.

The legislation establishing the reserve also allows for it to be drawn upon if "there is a significant reduction in supply which is of significant scope and duration" or if there is "a severe increase in the price of petroleum products." But even if the reserve were tapped, there are some questions as to how much a difference it would make. The crude would have to be refined into home heating oil. U.S. refineries are already operating at near full capacity, industry experts said.

"And we haven't been able to increase heating oil supplies," Bentz, of BPN Paribas, said. "It's not necessarily going to alleviate the problems."

http://www.newsday.com/coverage/current/news/friday/nd8018.htm

-- Martin Thompson (mthom1927@aol.com), September 22, 2000

Answers

Crude Facts About U.S. Oil Stash

he U.S. Strategic Petroleum Reserve was set up in 1973 as a counter to recurring oil shortages during Mideast turmoil.

The reserve stands at 571 million barrels of crude stored in more than 50 enormous caverns  each deeper than the World Trade Center is tall  at four sites in Texas and Louisiana.

The country consumes about 18 million barrels a day.

Gore's plan would be for an initial release of 5 million barrels from the reserve - with additional releases to follow if prices don't stabilize.

The reserve has been tapped only once, during the 1991 Persian Gulf War.

If President Clinton ordered a release, reserve supplies would be available to buyers in about 15 days and reach the market about two weeks later.

http://www.nydailynews.com/2000-09- 22/News_and_Views/Beyond_the_City/a-81142.asp

-- Martin Thompson (mthom1927@aol.com), September 22, 2000.

If there is a shortage of refinery capacity, why bother?

-- l hunter cassells (mellyrnl@nist.gov), September 22, 2000.