Energy
Floor Speech
ENERGY -- (Senate - July 17, 2008)
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Mr. STEVENS. Mr. President, I am here once again because the price of oil remains at a historic high. It has come down slightly today, and I hope that will continue. As a matter of fact, I hope people listen to what we are saying so it will come down because I do think this drop has something to do with the fact that everybody is talking about speculation.
There is no question that my people, Alaskans, are paying more for fuel oil and gasoline and petroleum products than anyone in the country despite the fact that we produce almost a million barrels of oil a day. We don't have any gasoline refineries. We have refineries for jet fuel because we have such an enormous traffic, through our State, of commercial cargo planes. Of course, during the summertime we have enormous tourist traffic to our State by the airlines.
It is a great problem for us right now because we have less than a million people spread out over an area that is more than twice the size of Texas. We are absolutely fuel-intensive in terms of our lifestyle because 70 percent of our cities can be reached only by air year round. We really have to deal with the problems that are presented by this energy crisis.
I applaud the President lifting the offshore drilling ban. I do think it sent a signal to the country that it is a very serious thing. After all, his father placed that in effect, and it has been there, and it really is something that has to be dealt with.
The difficulty is that even with the ban lifted and even with full approval of the Congress, we are going to the Outer Continental Shelf now to determine how much we can produce. We know we can produce a great amount, but how much we can produce from the Outer Continental Shelf? Two-thirds of the Outer Continental Shelf is off our State, and there is only one oil well there now. There are hundreds of thousands of wells in the other one-third, but because of the constant opposition of those who oppose exploration and development in our State, we are stymied.
Take for instance the leases on the Chukchi Sea, which is the area off the northwest coast of Alaska, some 70 miles off the coast. The oil industry has obtained leases there to explore for and develop that area for its oil and gas potential. That has been, now, tied up for over a year by a series of lawsuits. One of them is claiming that oil and gas exploration would harm the polar bear. I want the Senate to know that just a week ago, the ice at that area was 17 feet deep. The ice is not disappearing the way people say it is, particularly in the period of time when the polar bears are there. But beyond that, the difficulty is there is a whole series of things that--these people who are against exploration and development in my State have caused wildlife to be listed as endangered or at least threatened, and they are using those findings in order to delay the development of new facilities to bring us the new production we need, the new production the Government needs.
It reminds me of the time I spent here on the floor--almost 4 years--in the seventies when the first group litigated again and again to delay the oil pipeline. Finally, we reached the stress point where we had to ask the Senate to do something it had never done before and hasn't done since, and that is to close the courts of the United States to this constant delay in building that pipeline. We finally brought that amendment to the floor. It was debated at length for 4 days, and it ended up with a tie vote--the only tie vote at the time of the then Nixon administration. Vice President Agnew broke the tie. It was 49 to 49.
Think of what that means. At that time, there was a paradigm that the Senate would not filibuster anything that involved national security. The availability of oil to meet our needs is a matter of national security, but we faced a filibuster ever since then, in terms of trying to develop the Arctic.
One of the things we ought to look to today, though, is the letter that has been sent by almost all the airlines in the United States. AirTran, Alaska Airlines, American Airlines, Continental, Delta, Hawaiian, JetBlue, Midwest Airlines, Southwest, United, and U.S. Airways, all joined in sending a letter to the holders of their frequent flier programs dealing with the problem of the skyrocketing oil and fuel prices and what they are doing to destroy the capability to provide air transportation to the United States.
I read before and let me read again this one paragraph. I think it is absolutely something everyone should understand. I am quoting now from this letter signed by all the presidents and heads of these companies.
Mr. President, I ask again to have it printed in the Record following my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. STEVENS. The letter says:
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil future contracts, and that reflects just the transactions that are known. Speculators buy up a large amount of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that the current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
If those pieces of paper that represent future delivery of oil are purchased by people who are just speculating and that purchaser ends up, after selling the paper, acquiring it again, to me, that is absolute proof of a criminal conspiracy in this country.
I think this speculation has to stop. We have to start talking more about it, and we have to do something about it. What I would do is make sure it is a criminal matter if someone acquires the same piece of paper dealing with futures in oil and has no ability to use the oil. I really do not think there is any reason--I can understand a company might buy ahead for 2 or 3 years in oil and buy futures and hedge against the price, that, in fact, it might go up, but people who buy those pieces of paper solely to manipulate the price--and that is what happens when someone not involved, these institutional investors, buys a piece of paper to buy oil in the future and then sells it to another institutional investor and then another one. If that piece of paper ends up in the same hands the second time, to me, that is a criminal conspiracy, and it is time we looked at that and understood it. This letter sets it forth.
Believe me, any Member of the Senate who ignores this letter ignores the fact that every single frequent flier person in the country has it in their hands. I don't know about the rest of you, but I am getting thousands of letters from people who are sending me this letter and saying: What are you going to do about it? I say what we have to do about it is send a signal to these speculators to take notice that Congress is serious about speculators.
I know there is a difference of opinion out here on the floor of the Senate, there is no question about it, but in the last 5 years, investments in commodity index funds jumped from $13 billion to $260 billion. That means institutional investors have gone from owning $13 billion worth of oil futures to $260 billion in oil futures.
Now, someone tell me that is not a conspiracy.
Let me put up this chart. This chart represents the so-called NYMEX oil futures. The red on the chart represents the price of oil; the gold represents the volume of trading. The volume of trading has gone up, but the price has gone up more than twice as much as the volume.
There is only one thing that can drive up a spike like that. That is speculation, it is not demand. Someone told me not to try to understand supply and demand in the oil business. I think I know something about oil demand in the oil business, because we tried to meet that demand in terms of our State. We had a better chance of satisfying the demand of the United States than any State. But to have this situation go along I think is wrong, to go forward I think is wrong.
I have personally talked to one of the economists. I must say he does not share my feelings that we ought to make this a crime immediately, because, it is my understanding, he does not believe we have seen evidence of criminal conduct yet.
But I say it is criminal conduct if someone owns one of those pieces of paper twice. There is no reason to sell a future in oil and then turn around and buy it later at a higher price. They are actually being acquired and turned over more than 20 times before the oil is delivered. That ought to be something the Justice Department and the CFTC should have notified us on before it took the time of all of these presidents of these companies to send this letter to their customers so they can send it on to us. These people have told their customers to contact us. Well, this is one time I hope all of us listen to what they are saying. Because there is no question that we have to find some way to restrict this trading to those who need oil in the future, those who legitimately hedge to try and save their customers money, not to cost them more money but to save money. A true hedge would save money for the customers of the particular person who acquired the futures.
I think the legislation Senator Feinstein and I introduced some time ago represents an important step toward breaking this bubble. The position limits we would place on institutional investors would be very minimal and would make them stay away from market manipulation.
If we can see these investments shift away from the energy commodities and back to the stock markets the way we have in the last few days, I think the stock market would recover.
I thank my friend from New Hampshire for letting me use part of his time. But I say, we cannot stop at mandating transparency. We have to do something to put these people in fear before they will stop this action of driving this price up.
Exhibit 1
An Open letter to All Airline Customers:
Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.
For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.
Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.
Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.
The nation needs to pull together to reform the oil markets and solve this growing problem.
We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.
Robert Fornaro, Chairman, President and CEO, AirTran Airways; Bill Ayer, Chairman, President and CEO, Alaska Airlines, Inc.; Gerard J. Arpey, Chairman, President and CEO, American Airlines, Inc.; Lawrence W. Kellner, Chairman and CEO, Continental Airlines, Inc.; Richard Anderson, CEO, Delta Air Lines, Inc.; Mark B. Dunkerley, President and CEO, Hawaiian Airlines, Inc.; Dave Barger, CEO, JetBlue Airways Corporation; Timothy E. Hoeksema, Chairman, President and CEO, Midwest Airlines; Douglas M. Steenland, President and CEO, Northwest Airlines, Inc.; Gary Kelly, Chairman and CEO, Southwest Airlines Co.; Glenn F. Tilton, Chairman, President and CEO, United Airlines, Inc.; Douglas Parker, Chairman and CEO, US Airways Group, Inc.
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