[Congressional Record Volume 145, Number 163 (Wednesday, November 17, 1999)]
[Senate]
[Pages S14734-S14735]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SCHUMER (for himself and Ms. Collins):
  S. 1951. A bill to provide the Secretary of Energy with authority to 
draw down the Strategic Petroleum Reserve when oil and gas prices in 
the United States rise sharply because of anticompetitive activity, and 
to require the President, through the Secretary of Energy, to consult 
with Congress regarding the sale of oil from the Strategic Petroleum 
Reserve; to the Committee on Energy and Natural Resources.


                        oil price safeguard act

  Ms. COLLINS. Mr. President, I rise this afternoon to join my 
distinguished colleague, Senator Schumer, in introducing legislation 
that provides an effective option to the President and the Secretary of 
Energy to address the unfair, harmful manipulation in the global oil 
market. The Oil Price Safeguard Act would help to moderate sharp spikes 
in oil and gas prices caused by price fixing and production quotas 
through the judicious use of our enormous petroleum reserves.
  The global oil market is dominated by an international cartel with 
the ability to dramatically affect the price of oil. The eleven member 
countries of the Organization of Petroleum Exporting Countries known as 
OPEC supply over 40 percent of the world's oil and possess 78 percent 
of the world's total proven crude oil reserves. Their control of the 
world's oil supply allows these countries to collude to drive up the 
price of oil. OPEC has power to dominate the market and when it wields 
this power, consumers lose. Mr. President, if OPEC operated in the 
United States, the Department of Justice would undoubtedly prosecute 
the cartel for violation of U.S. anti-trust laws, but the cartel is 
beyond the reach of our antitrust enforcement.
  To appreciate how much economic power OPEC wields, it is helpful to 
review the historical relationship between world oil prices and the 
U.S. Gross Domestic Product. When OPEC cuts production to increase 
profits, the American consumer suffers, as does our economy. Rising oil 
prices increase transportation and manufacturing costs, dampening 
economic growth.
  The chart behind me entitled, ``Oil is a Vital Resource for the U.S. 
Economy,'' was prepared by the Energy Information Administration of the 
Department of Energy. On this chart, world oil prices are represented 
by the blue line, and U.S. Gross Domestic Product is represented by the 
red line. It is easy to see the inverse relationship between the two. 
When world oil prices are high, U.S. Gross Domestic Product drops. For 
example, in the late 1970s and early 1980s, as the price of oil 
climbed, the U.S. economy slumped into a deep recession. Conversely, 
the strength currently enjoyed by the U.S. economy was until recently 
accompanied by low oil prices.
  If these historical trends hold, the current rise in crude oil prices 
is a serious threat to our economic prosperity. This second chart 
entitled ``EIA Crude Oil Price Outlook,'' shows that crude oil prices 
have risen since January 1999 and are expected to continue rising this 
winter. To a large extent, this chart demonstrates the ability of OPEC 
to drive the price of oil up. It is chilling, that the Federal agency 
responsible for projecting energy prices for the government is 
predicting that the price of oil will be above $25 a barrel into 
January of next year. This prediction underscores the need for the 
legislation Senator Schumer and I introduce today.
  The bottom line is that consumers, as well as businesses, are hurt by 
expensive petroleum products. A rise in crude oil prices increases the 
price of home heating oil and gasoline. Northern states like Maine are 
particularly hard hit by increased oil prices because of the need to 
heat homes through long cold winters. Since about 6 out of 10 Maine 
homes burn oil and the average household uses 800 gallons annually 
increases in oil prices have a dramatic impact on the state's 
population and particularly on low-income families and seniors.
  A rural state like Maine is also hard hit by increased gasoline 
prices at the pump since rural residents often travel further distances 
than those living in urban or suburban areas. For example, my 
constituents in Aroostook County are currently paying close to $1.50 a 
gallon for regular octane gasoline. At the same time, higher petroleum 
prices increase the cost of transporting oil and gasoline to rural 
areas, like Northern Maine.
  At a recent OPEC meeting, the member nations reasserted their resolve 
to maintain high crude oil prices through production quotas. This is 
particularly troubling considering that the Energy Information 
Administration has projected that if New England experiences a 
particularly cold winter, the price of home heating oil could reach as 
high as $1.20 per gallon. This is 50 percent higher than what New 
Englanders paid for oil last year. Even if this winter has normal 
weather, the Energy Information Administration predicts significantly 
increased oil prices due in large measure to the OPEC production 
reductions. This chart, ``Crude and Distillate Price Outlook Higher 
than Last Winter'' shows projections for steeply increased prices in 
crude oil and, consequently, home heating oil. As you can see, prices 
have risen already and are expected to reach levels higher than those 
experienced during the winter of 1996-97.
  Even if our diplomatic efforts fail to break OPEC's choke-hold on the 
world oil supply, we need not sit idly as oil and gas prices rise well-
beyond where they would be in a normally-functioning market.
  The United States has a tool available to ease the sting of this 
unfair market manipulation. The United States owns the largest 
strategic reserve of crude oil in the world. The Strategic Petroleum 
Reserve (SPR) consists of roughly 571 million barrels of crude oil held 
in salt caverns in Texas and Louisiana. The Energy Policy and 
Conservation Act allows the Secretary of Energy to sell oil from the 
reserve if the President makes certain findings set forth in the law. 
In order to tap into the Reserve, the President must determine that an 
emergency situation exists causing significant and lasting reductions 
in the supply of oil and severe price increases likely to cause a major 
adverse impact on the national economy. In the history of the Reserve, 
the President has only made this declaration once, during the Gulf War.
  The legislation I am proud to sponsor with Senator Schumer today, who 
has been a leader on this issue, will give the President more 
flexibility in using the Strategic Petroleum Reserve to protect 
American consumers. Specifically, this measure will amend the Energy 
Policy and Conservation Act to authorize a draw down of the reserve 
when the President finds that a significant reduction in the supply of 
oil has been caused by anti-competitive conduct. While many, myself 
included, believe that the President currently should consider ordering 
a draw down to counteract OPEC's latest market-distorting production 
quotas, this legislation will make it clear that he has the power to do 
so. It will also ensure that the proceeds from a draw-down of the 
Reserve are used to replenish its oil. The bill does by mandating that 
the proceeds are deposited in a special account designed for that 
purpose. We want to give the President the authority to use the SPR to 
restore market discipline, but not to permanently deplete the reserve 
in the process.
  To further encourage the use of the SPR to offset harmful and 
uncompetitive activities of foreign pricing cartels, the Oil Price 
Safeguard Act will require the Secretary of Energy to consult with 
Congress regarding the sale of oil from the Reserve. If the price of a 
barrel of crude exceeds 25 dollars for a period greater than 14 days, 
the

[[Page S14735]]

President, through the Secretary of Energy, will be required to submit 
to Congress a report within thirty days. This report will have four 
parts. First, it will detail the causes and potential consequences of 
the price increase. Second, it will provide an estimate of the likely 
duration of the price increase, based on analyses and forecasts of the 
Energy Information Administration. Third, it will provide an analysis 
of the effects of the price increase on the cost of home heating oil. 
And fourth, the report will provide a specific rationale for why the 
President does or does not support a draw down and distribution of oil 
from the SPR to counteract anti-competitive behavior in the oil market.
  The bill we are introducing today will grant important new authority 
to the President to protect consumers from the market-distorting 
behavior of foreign cartels. It will require the President to explain 
to Congress and the American people why actions available to the 
President have not been exercised to protect consumers. I urge my 
colleagues to join Senator Schumer and me in working for expeditious 
passage of this important measure.
  I yield to my colleague, the distinguished Senator from New York, so 
he may provide further explanation of our legislation. I commend him 
for his leadership on this issue.
  Mr. SCHUMER. I thank Senator Collins from Maine for her leadership on 
this issue. She has well represented her constituents on an issue of 
great concern. Like Maine, northern New York--much of New York--is very 
concerned with the prices of oil; not only gasoline but some heating 
oil, which--just as it is in Maine--is going through the roof in New 
York as we come into this winter season, which, thus far anyway, has 
been colder than people have predicted. I thank the Senator for 
garnering time to talk about our legislation, and I look forward to 
working with her on this issue.
  Two months ago, I wrote President Clinton and Energy Secretary 
Richardson requesting that they look into the possibility of releasing 
a modest amount of oil from our Nation's well-stocked Strategic 
Petroleum Reserve. I made this request not because the price of crude 
oil was rising, but rather because global oil prices had recently more 
than doubled, primarily due to the new-found unity between OPEC members 
and allies to uphold rigid supply quotas--not free market but rigid 
supply quotas.
  OPEC's decision in September to maintain the supply quotas meant the 
daily global oil supply would remain millions of barrels below last 
year's levels--and millions of barrels per day below global demand. The 
effects this decision would have on oil prices were clear. Yesterday, 
my colleagues--listen to this--oil closed at nearly $26 a barrel, and 
many industry experts now believe it will go to $30 or even $35 a 
barrel this winter.
  Most industry and financial experts believe oil prices above $25 per 
barrel for an extended period will adversely affect economic growth, 
even if you come from Arizona; not only will it raise your gasoline 
prices--you don't have to worry about home heating oil, but $35 per 
barrel is clearly recessionary.
  The effects will be felt most among the poor and elderly, both at the 
gas pump and in a sharp increase in the cost of home heating oil. It 
will effect our manufacturing, transportation, as well as other 
businesses that rely on oil.
  I don't believe in interfering with free markets. But these OPEC 
decisions are not examples of fair economic play. In fact, OPEC 
recently announced that it would not even revisit the supply until 
March of 2000. With American and global oil demand increasing, and a 
cold winter forecast for North America, OPEC's continued supply quota 
could have a severely detrimental effect on the U.S. economy over the 
coming months, and may very well throw sand in the gears of the global 
economy.
  Unfortunately, OPEC, with more than 40 percent market share in the 
global oil market, can have inordinate power over the global economy.
  So the question is, Should we rely on the judgment of OPEC ministers 
to make the right decision when it comes to the American and the world 
economy? The answer is clearly no.
  The next question is, What can we do about it?
  My colleague from Maine, Senator Collins, and I have worked together 
to formulate what we believe is a reasonable response policy by the 
U.S. Government to instances when foreign oil producers collude to 
manipulate oil prices to a level that will likely cause a significant 
adverse impact on our economy, not to mention gasoline, which could go 
to a $1.60, $1.70, or even higher a gallon, and home heating oil that 
could go, in my part of the country, from $1 to $1.25 a gallon.

  Here is how our legislation works. It works within the parameters of 
the 1975 Energy Policy and Conservation Act, which set up the U.S. 
Strategic Petroleum Reserve and the Energy Policy Act of 1992, which 
described oil supply reductions leading to severe price increases as a 
potential national emergency.
  We simply add a provision that allows the Energy Secretary to order a 
drawdown of the SPR when oil and gas prices in the U.S. rise sharply 
because of anticompetitive conduct of foreign oil producers.
  Oil supply can fall short for many natural, market-based reasons. But 
when the shortfall is due to opportunistic manipulations by foreign 
producers, especially to the degree that it will harm our economic 
well-being, we have the right to act in our own defense.
  That is why our bill also requires the administration to report to 
Congress within 30 days after the price of oil sustains a price higher 
than $25 for more than 2 weeks. This reporting requirement--which will 
get Congress more involved in SPR policies--simply calls for a 
comprehensive review of the causes and likely consequences of the price 
increase. It also requires the President to explain why the 
administration does or does not --we don't force his hand--support the 
drawdown and distribution of oil from the SPR.
  Before concluding, I want to make a few things clear about this 
legislation. First, it doesn't attempt in any way to bring oil prices 
down to what some would call unreasonable levels. Most of us believe 
oil prices were unrealistically low last winter, and that OPEC's 
initial supply cuts were an understandable strategy to achieve a better 
balance between global supply and demand.
  But to maintain the cuts despite the price recovery and the projected 
growth in demand amounts to nothing less than price gouging.
  OPEC is currently enjoying unity as a cartel not seen since the early 
1980s.
  The bill also protects our national security by requiring that 
proceeds from the sale of oil from the SPR be used only to resupply the 
SPR, with profits from sales remaining in the SPR account. Therefore, 
in the long run, we are not going to deplete the oil reserve. We are 
just going to use it to try to bring oil prices to a reasonable level.
  And with the SPR currently stocked at 570 million barrels, we have 
more than enough oil to release several hundred thousand barrels a day 
in the event of a supply crisis without undercutting our stockpile. 
This should be more than sufficient to pressure oil producers to 
increase their supply to more realistically meet demand.
  The bottom line is this legislation would show foreign producers the 
U.S. can and may well intervene when unfair markets threaten our 
domestic economy. We will say loud and clear our national economic 
health is a national security issue. That knowledge may be sufficient 
to prevent OPEC from extensive oil market manipulations in the first 
place.
  A signal to OPEC that we are willing to use some of our strategic 
reserves to stabilize oil prices is consistent with the prudent long-
term approach toward maintaining a stable economy.
  Mr. President, this legislation is a measured, bipartisan response to 
a vital economic issue. I look forward to debating and passing this 
legislation next year.
  With that, I yield back my time to the good Senator from Maine and 
thank her for her leadership.
  Ms. COLLINS. Mr. President, it has been a pleasure to work with the 
Senator from New York on this issue.
                                 ______