The Strategic Petroleum Reserve

Jan. 23, 2003
MAKING FURTHER CONTINUING APPROPRIATIONS FOR FISCAL YEAR 2003

Mr. BINGAMAN. Mr. President, I submitted an amendment to extend the authority for the Strategic Petroleum Reserve. The Strategic Petroleum Reserve, SPR, is the major tool the United States has to deal with the impact of a significant disruption in oil supplies. Current authorizations to the President to release or drawdown oil from the SPR will expire on September 30, 2003.

Release of oil from the SPR, in coordination with stock drawdowns with other consumer nations is done pursuant to the International Energy Agency's International Energy Program, IEP, Agreement. Actions taken under this agreement seek to add more supply to a tight market, reducing the possibility of price spikes and economic havoc that oil markets experienced during such incidents as the Arab oil embargo. Decisions to withdraw crude oil from the SPR during an energy emergency are made by the President under the authorities of the Energy Policy and Conservation Act.

It is important to extend the SPR authority on this legislation. While it may be possible to move legislation through the Energy Committee, there is no guarantee that a separate bill would be completed and on the President's desk before September 30. Therefore, the prudent thing for the Senate to do is to add this language to the Omnibus Appropriation bill. Such precautionary action has already been taken with regard to Price Anderson authority which does not expire until the end in 2004.

My amendment incorporates the exact language that was agreed to last fall by the House and Senate conferees on H.R. 4, the comprehensive energy bill.

The amendment:
Permanently authorizes the Strategic Petroleum Reserve and our participation in the International Energy program.

Codifies current Administration policy that the reserve be filled to 700 million barrels which is its current capacity. This does not affect the Administration's discretion to adjust the timing and extent of fill in light of market conditions.

Permanently authorizes the Northeast Heating Oil Reserve program.

Current market disruptions such as political unrest in Venezuela and the potential threat of a war with Iraq have already led to unusually high oil prices and talk of potentially tapping the SPR. In the current market context, operation of the SPR should be a top concern to all Senators.

For the benefit of my colleagues, I thought I would talk a little about the current situation regarding oil production in two important oil producing states—Venezuela & Iraq. The current uncertainty over production in Venezuela and the possibility of war with Iraq has contributed to the high oil prices we see today.

On December 2, oil workers opposed to Venezuelan President Chavez, initiated a general strike, now in its 53rd day. The strike has nearly shut down the government-owned oil company PdVSA. Production has dropped from 2.7 million barrels per day to less than half a million. At the same time, world oil prices, currently at a 2 year high, have risen more than $8 per barrel, or 30 percent since the strike began. Oil market experts attribute half of the price increase to the political unrest and production uncertainty in Venezuela.

The U.S. imports a significant amount of Venezuelan crude. Roughly 16 percent of U.S. imports come from Venezuela, or what on average amounts to more than a million barrels per day, according to the EIA. In the absence of Venezuelan imports, U.S. refiners have had to dip into their own inventory stocks and resort to using other crudes. Absent Venezuelan imports, the U.S. has increased its import of Iraqi crude in the last month.

Even though OPEC overproduction helped cushion the strike's impact at the outset, U.S. refiners had to turn to their own inventories and to Iraqi crude to make up for lost imports. Those inventories are already below normal operational inventory level. Even if the strike were to end today, experts are unsure how long it will take to bring Venezuelan crude production back to its pre-strike level of three million barrels per day. It is unclear how carefully the oil wells in PdVSA's fields were shut down improperly, it may take more than six months to bring them back online.

Although some strikers have returned to work and the government succeeded in pumping up light crude production, Venezuela has not been able to restart production of its trademark heavy crude. To add to the uncertainty, Venezuela's Central Bank closed the country's foreign exchange market on Wednesday frustrating oil operators' ability to convert currency. The reliability of Iraqi crude supplies going forward is also uncertain.

The threat of war with Iraq has contributed to unusually high oil prices and talk of potentially tapping into the SPR. This region's importance to the stability of not only U.S. but also world markets cannot be understated.

Iraq represents 6 percent of U.S. petroleum imports and the Persian Gulf region represents 25 percent. If military conflict disrupts oil imports from Iraq or other gulf states, the larger shortfall may exceed OPEC's leftover capacity. Even under a benign war scenario, panicked buying and a rise in crude prices would still occur at the outset of the conflict. Price estimates from oil analysts at the Center for Strategic and International Studies range up to $80 barrel oil for the worst case scenario.

In addition to the impact of a war on oil from Iraq, we cannot be certain about Iraqi production after a conflict is concluded. If Iraqi oil fields are damaged during the war, Iraqi production could be reduced for a longer period of time.

In this period of very tight oil markets and continuing uncertainty about both Venezuelan and Iraqi production, we may have to look very seriously at releasing oil from the Strategic Petroleum Reserve this year. We should not take the risk that our authority to use the SPR will expire in September. I urge my colleagues to vote for my amendment and re-authorize SPR authority now.