|TAPPING THE OIL RESERVES|
September 21, 2000
With the price of oil at a 10-year high, US leaders are considering tapping into the nation's strategic oil reserves. After a background report, Margaret Warner leads a discussion with four experts.
KWAME HOLMAN: Over the last few months, oil prices in the US and Europe hit 10-year highs. Today's price for benchmark US crude oil-- known as West Texas Intermediate-- is more than $34 a barrel. Just 21 months ago, it was $11 a barrel. Government officials are considering several responses, including tapping the nation's emergency oil supply-- known as the strategic petroleum reserve. The reserve (called SPRO) is some 570 million barrels of unrefined petroleum stored in underground caverns along the US Gulf Coast. SPRO was created in the 1970s in response to the oil crisis. Today, Al Gore talked about his energy policy, including his call to take oil from the reserve and replace it later, in what he called "a swap with oil suppliers."
VICE PRESIDENT AL GORE: We ought to start with several releases of five million barrels each, and assuming that is successful, we should continue with these swaps in an effort to stabilize the price of oil at lower levels and help consumers. America's energy resources should not be so reliant on others, so subject to shortages, so vulnerable to big oil interests, with disregard for the public interest. You ought to have the choice to get in your car, turn on your engine, and go where you want, all at a reasonable price to you and your family.
KWAME HOLMAN: Gore also has proposed tax breaks for those who buy more fuel efficient cars; new spending on high-speed trains and other transportation alternatives. And Gore opposes oil drilling in Alaska's arctic national wildlife refuge, known as ANWAR. Within hours today George W. Bush responded to Gore's energy plans.
GOV. GEORGE W. BUSH: The strategic reserve is an insurance policy meant for a sudden disruption of our energy supply, or for war. The strategic reserve should not be used as an attempt to drive down oil prices right before an election. It should not be used for short- term political gain at the cost of long-term national security. Mr. Gore is not heeding the advice of members of his own administration and the head of the Federal Reserve Board. In a memo written earlier this month, Secretary of Treasury Lawrence Summers, a member of President Clinton's cabinet, warned that he and Federal Reserve Chairman Alan Greenspan believe opening the strategic reserve would be a major and substantial policy mistake. Let me tell you what I'd like to do: Aggressively explore for oil and natural gas on our own continent. I believe we need to open up ANWAR, which is in Alaska, and believe we can do so in an environmentally friendly way.
KWAME HOLMAN: On Capitol Hill at a House Government Reform Committee hearing today, Energy Secretary Bill Richardson was asked about tapping the reserve.
BILL RICHARDSON: We will also continue to examine the option of swapping oil from the strategic petroleum reserve if the oil supply and supply and demand conditions warrant it.
KWAME HOLMAN: Richardson said a decision on the reserve should come any day.
|Precariously low inventories|
WARNER: For reaction to Al Gore's proposal we turn to Phil Flynn, vice
president and senior oil analyst at Alaron Trading, an online brokerage
firm; Gary Ross, chief executive officer of PIRA Energy Group, an international
energy consulting firm; Linda Stuntz, former Deputy Secretary of Energy
in the Bush administration; she is now a partner in a Washington law
firm; and Chris Flavin, acting president of the Worldwatch Institute,
an environmental research organization.
Phil Flynn, what do you think of this idea of drawing down the strategic reserve? Is it a good one?
PHIL FLYNN: It's actually a very bad idea. It's not good for the economy, it's not good for the country, and it could cause far-reaching problems to come, both politically and economically. So it's just the wrong thing to do at this time, and it's too aggressive.
MARGARET WARNER: Mr. Ross, what do you think of it?
GARY ROSS: Well, in general, I'm not that pleased about the government's getting involved in manipulating prices. But in this particular instance, inventories are at a precariously low level, we're about to enter the winter with the uncertainty of weather. There's political uncertainties in terms of what may happen with Iraq and the controversy between Iraq and Kuwait and other issues. So it seems to me it's a prudent step for the government to take as a precautionary measure, only because we have extremely low inventories going into the winter.
MARGARET WARNER: And Mr. Flynn, back to you for a minute, what are
PHIL FLYNN: Well, the down side, first of all about inventories going into the winter, it's true that they're 20 percent below last year. But heating oil inventories don't just come from inventories. Sometimes they come right to the refiner to the customers. So that's one thing we've to keep in mind. Last year's big spike in prices was partly a transportation problem and not just a supply problem. So really what we have here is a big charade to show that the... that the government's trying to do something to bring prices down after the horse has left the barn.
MARGARET WARNER: What do you think, Linda Stuntz?
LINDA STUNTZ: Well, I agree with Mr. Flynn. I think what's really going on is there's a failure of this administration to have is balanced energy policy that's left us vulnerable to shortages and price spikes not only in heating oil but in natural gas, in electricity that consumers are seeing all across the country. Using SPRO built under previous administrations may help solve the problems of this administration at least until after the election, but it's not with a long-term answer.
MARGARET WARNER: As you know, the last time this was drawn down, I think you were in the Bush Energy Department then, it was during the Gulf War. Is the situation at all close? Does it warrant it in any way? I mean is there anything comparable in terms of the need?
LINDA STUNTZ: The only thing that's potentially comparable is that Saddam Hussein is again threatening to invade Kuwait and making menacing gestures, which of all things should tell me we ought to hang on to the oil we've got in the strategic petroleum reserve in the event that he should commence another invasion. And the last thing we should be doing is attempting to use that strategic asset for price-control measures.
MARGARET WARNER: All right. How do you see it, Chris Flavin?
CHRIS FLAVIN: I just don't think it's that big a deal. I think it makes a lot of sense to put a small amount of incremental oil in the market at a time when supplies are tight. Let's face it, government is involved in oil policy throughout, we're jawboning OPEC; OPEC itself is controlling production. I think this should really almost more automatic. It should not be something that politicians should have to get so directly involved in. But we all have an interest in having a more stable energy market. Prices at $10 a barrel are too low, at $37, they're clearly too high, and I think that it would be very helpful at this time to ease consumer fears. And I actually don't think that this latest action, should it into effect, will have any effect on the market until after the election anyway. So I think it's really not a good argument to say that Gore is just doing this for political reasons.
|A delayed effect|
PHIL FLYNN: Well, that's all the more reason why they shouldn't tap the reserve, because it will be after winter. I mean this will give a psychological downturn to the market, but essentially it's not going to have any effect for the need that we have right now. The bottom line is, is that this is probably a move that could be an embarrassment to our country. What if we tap into the reserves, then all of a sudden prices continue to go up? You know, that's going to take away some of the power that the reserve has.
MARGARET WARNER: So are you saying that you don't think the oil... How do you think the oil markets will react if, let's say, the President adopts the Gore proposal, which is several releases of five million barrels each?
PHIL FLYNN: Well, initially the market will go down, just as near the Fourth of July when Saudi Arabia said that they were going to unilaterally raise production immediately, prices came right back down. But then after the initial push, the market started to head back up as they realized that that oil didn't show up in a quick enough time period. So initially it will hurt prices and bring prices down. But when you do that artificially, the market finds a way to even that out.
MARGARET WARNER: Gary Ross, do you agree that the impact will be negligible, and if so, what would it take from the reserve to actually drive down prices to say the level of a year ago? Is that even doable?
GARY ROSS: Well, I think it's not doable to get prices down to a year ago. The problem has been that OPEC was undersupplying the market all year long, and that's why we've these precariously low inventories. They essentially mismanaged the world oil market. I mean this will help us get by. It would give us a little cushion. I'm not generally in favor of these kinds of actions, but now I think it's worthwhile, only because it will help us get by, even if there was some weather disturbance in the Gulf of Mexico, which we just were experiencing last week, if that were to hit the oil platforms, we would lose some production. It would give us a little cushion in order that our refineries can run at maximum rates when they're available to produce the heating oil. It may not solve the heating oil problem because at the end of the day, we have a bit of a bottleneck on refining capacity as well. Our refiners, which take the crude oil, the raw material to make heating oil and gasoline, they were up and operating at very, very high utilization rates all summer long to meet the gasoline requirement.
MARGARET WARNER: All right. What about the issue that Ms. Stuntz raised and others and George Bush raised, which is if you use the reserve for this, what if there is a severe disruption in the oil supply, either because Saddam Hussein decides to do it or war breaks out? Then what? What about that?
GARY ROSS: Well, we're only talking about using five million, maybe ten million barrels. I mean we have 570 million barrels in the strategic petroleum reserve. We could draw that out theoretically at four million barrels a day. There's no reason why the administration couldn't immediately start increasing the withdrawal rate in case of a real emergency. They could use the strategic reserve if there's an actual emergency or a perceived emergency. And this particular instance, you could argue that there could be some problems down the road because we have these precarious low inventories.
MARGARET WARNER: All right, Linda Stuntz, that raises the question of who's to blame here. Now, Al Gore said today it's big oil, he pointed to the big profits the oil companies have and called it profiteering and price gouging. George W. Bush said actually the Clinton-Gore administration, I think his words were, "should be held accountable for a failed energy policy." Who's closer to the mark here?
LINDA STUNTZ: Well, not surprisingly I agree with Governor Bush. Big oil companies don't set the price. Price is set in the world oil markets, supply and demand. It's not big oil companies who have closed vast tracks of this country to research and development, to exploration and development, which I believe could be done in an environmentally sensible, responsible manner. They have been asking to develop those resources. They've been saying we need opportunities, we need the ability to expand refineries, we need more sensible cost-effective environmental regulation. And it's this administration that has failed to put any emphasis on production of energy in this country.
MARGARET WARNER: Chris Flavin?
CHRIS FLAVIN: Well, I have to disagree with Linda. The amount of oil that could be produced from these offshore areas is really quite minimal. Linda is right, it's the world market that we should look at. And we're really talking about quite incremental supplies that would not make a difference here. I think what we really need to do is to move beyond oil and accelerate the development of new technologies. It's something that I'm afraid the Republican Congress is mainly standing against.
MARGARET WARNER: What do you think it is that has made us right now so vulnerable to OPEC deciding to cut back on production?
CHRIS FLAVIN: The reason we're so vulnerable is because we've greatly increased our consumption as a result of the massive purchase much sport utility vehicles and a general consumption binge. We use more than twice as much oil per capita as even other industrial countries do, and we're also the second largest oil producer still in the world. But despite that huge production that we have, we're having to import 51 percent of that oil today. And that is because we're just using too much of it and because we have not devoted the kind of technological effort that we potentially can to move on to renewable forms of energy that can supply our automobiles and SUV's even without being dependent on foreign oil.
MARGARET WARNER: Yeah, go right ahead.
PHIL FLYNN: I was going to say by tapping the oil reserves and keeping prices low, that's not going to motivate people to go in that direction either. See, it's not the right idea. The market has a way to level these things out, and the bottom line is-- it's kind of funny. We forget that it was just two or three years ago that the domestic oil industry was pleading with this administration, "help us, don't allow OPEC to dump, you know, cheap oil on the U.S. Market. We're dying here." We didn't listen then, and now two years later, we're hearing about the gouging oil companies and how they're trying to take advantage of the US consumers.
MARGARET WARNER: So are you saying you agree with at least what I heard Al Gore say, which is anyone ought to be able to get in there car any time, turn the key, drive away at a low price. He seemed to be suggesting we don't have to do anything about consumption, or do you agree more with Chris Flavin on that?
|A consumption binge|
PHIL FLYNN: Exactly. The bottom line is, keep driving your SUV's, we'll keep the prices low for you, don't worry about it. He can't have it both ways and that's what he's trying to have you believe. The thing that I get, you know, every time the prices go up, the first thing that we've done is blame the oil companies. We've investigated them, we've double-investigated them. Last spring, when gas prices went to $2 a gallon, the EPA was pointing fingers. What happened to that investigation? It turned up nothing. And here we go again with the same old rhetoric, blame the oil companies, it sounds good on TV, and you know, cover... you know, direct the blame for the real problem.
MARGARET WARNER: All right, Gary Ross, where would you point the finger here?
GARY ROSS: Well, I think definitely, you point the finger at OPEC, keeping too tight a reign on production of oil all year long. But the true policy is we haven't had much of a gas policy or oil policy or electric electricity policy. And it's not just this administration, it's previous administrations as well. I mean, we won the Gulf War and we thought we'd have cheap oil for as long as we wanted it. Meanwhile, we maintain sanctions on Iran, on Iraq through the UN, as well as Libya. These are prime producing areas of the world, which could increase production. Many of the prolific areas potentially in the United States, which could add something, not dramatic amounts, also are off limits. So there hasn't been much a supply policy, there hasn't been much of a demand policy, as it's been stated. I mean SUV's today represent over 40 percent of the vehicles, over 50 percent of the new car sales. The fuel efficiency on the SUV's are just really awful. So we haven't really had much of a policy.
Let me just add we also have people in the country that can't afford their heating requirements this winter. And I think one of the things that Al Gore suggested should be done, there must be more money given to LIHEP, which is the low income assistance program, because there are actually - people need some help -- the elderly on fixed incomes, so some of the things they're proposing in that area certainly are very important.
MARGARET WARNER: Briefly I want to hear from all of you about this, is the prediction of this winter in the short term. If the president doesn't do this, Linda Stuntz, what are we going to see?
LINDA STUNTZ: We're going to see rising prices and I'm particularly concerned about natural gas prices. We haven't talked about folks in the Midwest, in the upper Midwest. I don't think they'll go a lot higher than they have now. Folks that I respect in the market, and I would defer to Mr. Flynn, believe there's already a bit of panic in the market that there's more supply out there than is being reflected.
MARGARET WARNER: All right, Chris Flavin?
CHRIS FLAVIN: I see a similar problem, and again, particularly in natural gas. I think it's going to really hit people hard when they realize how much these prices have gone up. Very few people have had to pay much for natural gas yet because we haven't got into the heating season, but those prices have more than doubled in the last year.
MARGARET WARNER: And Phil Flynn, do you also share concern about home heating oil? That's what we're hearing a lot about on the Hill.
PHIL FLYNN: I definitely do. We'll see higher prices this year, but Bill Clinton himself says we will get through this winter. What we have to do is we have to learn from this, look to the future. Yes, we're going to be paying higher prices this winter, no doubt about it. But we've enjoyed low prices for the last few years. So we'll just have to remember for next year and get prepared.
MARGARET WARNER: All right. And Gary Ross, how much higher prices?
GARY ROSS: Well, we're going to see higher natural gas prices, and if we don't get the SPR oil, we're going to see substantially higher oil prices even from where they are today. I mean, our analysis shows that, when all the refineries come back from maintenance in November and December, they're going to be running full out. And without additional oil, SPR oil, we think you're going to be drawing on already rather low crude oil stocks. So we think prices are going to be higher unless we get this oil.
MARGARET WARNER: All right, well, thank you all four very much.
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