[Congressional Record Volume 146, Number 127 (Thursday, October 12, 2000)]
[Senate]
[Pages S10486-S10488]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE BREAKDOWN IN PEACE PROCESS IN MIDDLE EAST AND ITS EFFECT ON THE
ENERGY CRISIS
Mr. MURKOWSKI. Mr. President, my purpose in coming before the Senate
at this late hour is to bring to your attention a rather catastrophic
situation that is occurring in the world today.
We are all familiar with the devastation associated with the
breakdown of the peace process in the Mideast and the tensions
associated with the conflict between Israel and the Palestinians. I
think it is important to recognize another significant factor that has
occurred today; that is, the price of oil has increased about $3.40 a
barrel in one day. Currently oil closed at roughly $36.40. That is just
a few cents under the all-time high of 3\1/2\ weeks ago where oil
closed at $37 a barrel.
Clearly, our increased dependence on Mideast oil, where we import
about 58 percent of the total oil we consume, is a significant factor
in recognizing that any conflict in the Mideast not only affects oil
prices in the United States, because our supply is threatened, but it
affects our stock market which has dropped rather dramatically today as
well.
Let me highlight a few things that I think represent an inconsistency
in the administration's policies towards developing a sound energy
policy.
Perhaps you noticed, I am not wearing a dark shirt, a dark tie, the
kind worn by Regis on ``Who Wants To Be A Millionaire?'' As you know,
this is a TV show on ABC where contestants compete to win up to $1
million in prizes. It is my understanding that to win, contestants on
the TV show must answer some questions, just as the administration has
had to answer a series of questions regarding the lack of an energy
policy.
If contestants on the TV show get stumped by a question, they can use
a so-called lifeline. For example, they can phone a friend. Well, we
have seen when oil prices rose, this administration phoned their
friends. They phoned the Saudis and asked them for more crude oil, and
the Saudis obliged.
Now, contestants can ask the audience--in other words, consult the
polls--to see who has the right answers. Doesn't that sound familiar?
The administration, of course, loves polls.
Finally, TV contestants can use a 50/50 where only two choices are
presented, one of which is the right answer, helps them out a little
bit, not unlike the two contrasting energy policies that were presented
by the major Presidential candidates. Well, the administration has used
about all of its lifelines and still doesn't have an answer with regard
to the energy policy. Now we find we are playing the game ``Who Wants
to be a Millionaire'' with the Strategic Petroleum Reserve at the
expense of our national energy security.
Some of the lucky winners, speculators who bid on this crude oil
released from SPR recently, stand to profit handsomely; there is no
question about it. But we should reflect on what the purpose was. The
purpose was to build up heating oil inventories in the Northeast. Well,
it is pretty hard to make a case that anything realistic has been done
as a consequence of the SPR sale to build up those reserves.
I recall that the Vice President called on the President a few weeks
ago to authorize the release of 30 million barrels of oil from the SPR.
That was on September 21. Interestingly enough, the President responded
the very next day. It is important to grasp that the aim of the
emergency release, according to the administration, was to increase
heating oil stocks in the Northeast and prevent high heating oil prices
this winter. But what has been the result, Mr. President? Heating oil
stocks in the Northeast have actually declined. They have declined
600,000 barrels since the President made his announcement. Those
figures, which we reviewed, came from the American Petroleum Institute.
That is a very disturbing trend because we are entering the winter
season. It is getting colder up there and the reserves, again, are
600,000 barrels less than when the President made his announcement on
September 21.
One can question the motive. Was the motive to lower prices and
provide an excuse, cover, throughout the winter heating season, and
perhaps throughout the elections, to ensure that the administration was
doing something about the energy problem, something about the price of
oil, something about our dependence on the Mideast, something about
meeting the obligation of having adequate heating oil reserves?
I think the administration's premise was flawed from the start. If
you consider these realistic facts, at the time of the SPR release, our
refineries were operating at between 95 and 96 percent of capacity.
That is a fact. Now, the oil in SPR is crude oil. In order to refine
it, it has to go to a refinery. Furthermore, our pipelines for crude
and finished product are already operating to capacity. We haven't had
a new refinery for nearly two decades. And 37 refineries have been
closed in this country in the last 10 years. So what we have is a
situation where we have a bottleneck at our refineries, regardless of
how much crude oil we have.
New heating oil resulting from SPR releases can't be delivered until
late November at the earliest because you have to take this oil out of
the SPR in the salt caverns of Louisiana on the gulf coast and you can
only recover about 4 million barrels a day maximum, and you have to
move it through a pipeline, put it on a tanker, and transport it to a
refinery that is already full. There would be no guarantee that the
crude oil released from SPR would have to be turned into heating oil
for use in the United States. In other words, when they made this sale,
they didn't make any requirement that
[[Page S10487]]
whoever was the successful bidder on the sale was prohibited from
exporting it. As a matter of fact, they didn't even have to turn it
into heating oil. There is no provision in the contractual terms that
mandates if you are the successful bidder for the SPR oil, you have to
either turn it into heating oil and put it in a reserve in the United
States, or, for that matter, you can export the oil. You certainly
don't have to refine the oil.
The Wall Street Journal reported last week that heating oil from the
United States is now being exported to Europe. We checked on that and
found out that that is true. The heating oil market there is 50 percent
larger than the U.S. market. Stocks are tight and prices are a few
cents a gallon higher. I mentioned this to some of the principals in
the Department of Energy and they said: We are letting the free market
work.
I said: It is certainly working because that is where it is going--to
the highest return, which is Europe.
So refiners are able to ship heating oil over to Europe because they
pay a premium price at a time when there is a real shortage here in the
United States.
Another question is, Why didn't the administration, when it put up 30
million barrels, put in a prohibition on exporting that oil, a mandate
that it had to be refined, a mandate that it had to go into a reserve?
We took oil out of the Strategic Petroleum Reserve, which was designed
to address our needs should there be a curtailment of supply from the
Mideast, and here we have a situation where no provision was even given
to ensure that the action of taking 30 million barrels out of SPR
resulted in any increase in our domestic heating oil supply for the
Northeast part of the country.
And now the Department of Energy's Information Administration says
that nearly two-thirds of the oil released from SPR--or 20 million
barrels--will simply displace foreign imported oil. What that means is
that we don't have the capacity in our refineries to take 30 million
barrels; we are going to take 10. So instead of 30 million barrels, we
will only get 10 million barrels of new crude actually from the SPR
because of the displacement that I just explained.
Now, the Department of Energy claims that these 10 million barrels
can still yield 3 million to 4 million barrels of heating oil. On the
other hand, the industry tells us--and they are in the business because
they have to refine it--that roughly 800,000 to 900,000 barrels of
heating oil is all we are going to get out of the 10 million barrels
that are refined. I don't know who is correct, but I suspect the
industry is. In any event, recognize that the United States uses
roughly 1 million barrels of heating oil a day.
So this pulldown of the SPR has either resulted in a 3-day supply or
a 1-day supply. It sent a signal that we are so desperate that we are
willing to reduce our Strategic Petroleum Reserve for the specific
purpose of increasing the supply of heating oil, which we haven't
achieved. One can question whether there was another motivation. Could
that motivation have been to manipulate prices because prices did fall
from $37 to about $32 after the announcement was made by the President
that we were going to go in and sell 30 million barrels of SPR. But I
point out where the price is today; the price closed at roughly $36.40
today. We are right back where we started.
As a consequence, the SPR release will, as I have said, likely end up
representing less than 1 day's supply of heating oil. It is clear to me
that the release of oil from the SPR won't help at all in increasing
heating oil supplies in the Northeast this winter. If this had been the
real concern of the administration, why would they turn away the
invitation offered by Venezuela's state oil company, PDV, to produce
heating oil for direct delivery to the United States? Well, we have
asked the Secretary this. We asked him in an extended letter.
(Mr. CRAIG assumed the Chair.)
Mr. MURKOWSKI. This administration seems to have limited success in
the real goal and, as I have indicated, it appears to be manipulating
prices in the world market for, one can only conclude, a political
effect. Crude oil prices, as I said, were at a 10-year high, $37 a
barrel. After SPR, they hit $32. But today, as I have indicated, they
are back up to $36.40. Along the way, they might be making some
millionaires out of the speculators who were lucky enough to win a bid
on SPR oil. We asked the Secretary to explain how those went out, who
got them, how were they offered because if it is true, how did the
administration, with this kind of an opportunity for speculators who
didn't have to put up any financial requirement, prove a capability to
get their bid? It appears that anyone was eligible to play.
Let's look at some of the bidders. Without being specific, very
little was required of anyone who wanted to bid on the SPR oil. They
did not have to show any financial capacity. The excuse was they were
going to take care of that later. That was the official response from
the Department of Energy. You didn't have to have any previous
experience in the energy market; no track record. You didn't have to
have any agreements with refiners who refine the oil. You didn't have
any guarantee of even access to refiners and no guarantee that heating
oil would be reserved specifically for the Northeast.
They made this bid proposal without any requirement that you could
not export it, without any requirement that it be held in the United
States for the Northeast reserve.
As a consequence, what have we really accomplished? All the winning
bidders needed to do was promise to return more oil to SPR than the
other bidders. You might have a pretty inexperienced bidder who wanted
to get the bid and who didn't have to put up any financial
responsibility proof, bid high, and get an award. Once you get an
award, you can turn around and market it. For the larger companies that
have the financial capacity, it is perhaps a little different.
I don't begrudge anyone for making a return on an investment. But it
is a rather peculiar and I would suggest a poor way for government to
do business.
As I think back at government sales, for example, in the forests, the
Forest Service requires a participant who is putting up a bid to also
show financial responsibility. You have to put up a letter of guarantee
in your bank to even bid.
What happened here is we had the letters go out from the Department
of Energy to prospective bidders. They simply bid and got an award.
Then they have to put up the financial responsibility under a letter of
credit after the fact.
In the meantime, if they are a broker, as a few of these folks were,
with no experience and no refinery capacity, they are simply going to
bid on the oil, and hopefully the price of oil will increase. They can
sell their position to somebody else and walk away with a couple of
million dollars.
I guess that is part of what makes America great. But, by the same
token, you wonder to whom that profit should belong. Should it belong
to the taxpayer or the speculator who puts up nothing for the
opportunity to get a position and then be fortunate enough to sell it
so he can make a few bucks?
We will have to see either today or tomorrow, when the letters of
credit are due, whether some of these speculators have the financial
capacity to actually meet the conditions after the fact. But I can tell
you this. I have checked with several of the companies. These
speculators have been busy trying to resell their positions. We will
see how many are able to make good on their promises.
But it is important to recognize the winners. What do they get? I
don't want you to misunderstand. But they basically get to borrow the
crude from SPR. And, if the price goes up, they can sell it at a higher
price. They can take the money and buy back cheaper oil in 10 to 12
months to replace what they have borrowed from SPR with interest and,
of course, keep any profits as a result. There is potentially millions
of dollars--at whose expense? The taxpayer.
I have a little bit of background in banking and business. I can tell
you it is a poor way to do business, to put out a bid proposal without
any financial requirement for performance. That is what the Department
of Energy has done. I think it is totally inappropriate when other
Government agencies such as the Forest Service have a proven list of
bidders.
I want to make another observation.
[[Page S10488]]
Isn't it rather peculiar that we have a Strategic Petroleum Reserve
with about a 56-day supply of oil in case this country finds its oil
supplies in the Mideast, on which we are 58-percent dependent, cut off
by some action and we don't have an approved list of bidders who have
already proven their financial capacity or the wherewithal to refine
the oil and get it to market so we can do this in a process of a very
short time? If the supply is disrupted, we are going to need to move it
in a short period of time. It doesn't appear to be the case.
The Department of Energy evidently doesn't have a standing list of
bidders who are willing to take the oil at a price, refine it, and get
it out to the market. It appears that what we have done here is put
this out to the highest bidder, and some of these speculators say: I
didn't have to put up anything. I have nothing to lose. If I get a
position, I can turn around and try to sell my position hoping that the
price of oil has gone up, as it has today $3.50, and make a few bucks
without any risk individually--because they haven't had to put up
anything.
Let's get this straight. I think this was done at a considerable risk
to our national security, and as a consequence, the release of oil from
SPR by this administration has not contributed one identifiable barrel
to the heating oil reserve for the Northeast part of this country.
Remember what we have achieved so far in the sale is identification
that perhaps we will get at least a day's worth of heating oil. But it
is not going to arrive until sometime in November.
Further, most of the crude oil released from SPR appears to be going
into the foreign markets because they are paying a higher price in
Europe than we are paying in the United States. There is no prohibition
against the export. The only folks who appear to benefit will be
perhaps a few of the speculators and a few of the oil companies that
hit the jackpot. I can't imagine the Vice President is going to
generate any expanded support from it. But the losers are really the
fuel-starved consumers in the Northeast, the people this was designed
to help.
I think that raises a number of questions regarding the
administration's ability to basically manage the SPR.
When I think of the situation, as I have seen it evolve, I think the
Secretary and the administration owe us a few answers.
For example, who bid on crude oil from SPR and what did they offer?
Why were the winning bids selected?
Who didn't get selected and why?
Whom were the bids sent out to?
What assurances did the administration get that oil release from SPR
would be turned into heating oil in the Northeast?
How did the winning bidders plan to refine SPR oil?
How will they get it to market?
Why didn't the Department of Energy have a preapproved list of
bidders that might be required in a real supply emergency?
Why wasn't financial responsibility part of the bidding process,
similar to the way the Forest Service puts up timber for bid with
financial requirements to be part of the bid submission?
I have asked these questions of the Secretary. I look forward to his
response.
With regard to our national energy security, I think this
administration really needs to respond to this question. The question
is: Is that your final answer? Because that is simply not good enough
for the American people.
In conclusion, it is my intention, as chairman of the Energy and
Natural Resources Committee, to hold a hearing, which I intend to call
for next Thursday, on the Strategic Petroleum Reserve, to try to
generate the factual information relative to just what has been
accomplished and what assurances people of the Northeast have that this
action will actually result in any increase in our reserves of heating
oil for the coming winter in view of the circumstances that exist
today--the conflict in the Mideast, the tensions, and the realization
that, indeed, we are at a time when we have become so dependent on
imported oil that our national energy security is dictated by the likes
of Saddam Hussein, Iraq, and others who do not necessarily look for the
best interests of the United States when they sell their product to us.
I am always reflective on Saddam Hussein and the realization that now
we are importing about 750,000 barrels a day from Iraq. How quickly the
American people forget that we lost 147 lives in 1992 in the Persian
Gulf war; we had 437 wounded. The cost to the taxpayer was in the
billions of dollars.
Now we are looking to Saddam Hussein as a savior for our addiction to
oil. I think it is further interesting to note the action taken by
Saddam Hussein in relationship to the demand on Iraq from the U.N. to
begin to pay Kuwait for reparations from the conflict there in the
invasion from Iraq into Kuwait. Saddam Hussein told the U.N., if you
require payment now, I will reduce my oil production. It is my
understanding that the U.N. said: We will talk about it next quarter.
If you look at where we are today, we find the world's production and
the world's consumption are almost equal. There is a little bit more
production than there is consumption--just about 1 million barrels a
day. But Saddam Hussein is producing 2.9 million barrels a day. His
threat to cut production could increase the price of oil from $36 today
to $56 tomorrow.
I always recall the issue of Israel and our commitment to Israel's
security. He ends virtually every speech with ``Death to Israel.'' If
there ever is a threat to peace in the Middle East, it comes from Iraq.
They are building up their missile-delivery capability, their
biological capability, and as a consequence of what we are seeing today
in the Middle East, the crisis is increasing by the hour, and as a
consequence the threat is increasing.
So this is all coupled with dependence, an increased growing
dependence on imported oil and the inability of the administration to
face up to appropriate relief associated with reducing our dependence
on imported oil by producing more oil at home in the overthrust belt in
Wyoming, Colorado, Utah--areas where the Federal Government is now
taking nearly 60 percent of the public land and putting it off limits.
In my State of Alaska, we are attempting to open up the small sliver
of ANWR, roughly a footprint of 2,000 acres out of 19 million acres, a
potential supply of 16 billion barrels that would replace what we
import from Saudi Arabia over a 30-year period. These are the actions
that could be taken as well as conservation and tax incentives to
address our energy security.
If we were to take these actions, there is no question in my mind we
would be sending a strong signal to the Middle East. We would see a
very significant drop in oil, much more so than occurred the other day
when the President announced the sale of 30 million barrels from the
SPR. I suggest we could expect at least a $10 to $15 a barrel drop in
the price of oil.
I was thinking about the remarks of the previous speaker relative to
the political season we are in. I was reminded in the debate last night
of a statement by the Vice President that he always opposed energy
taxes. I guess perhaps the Vice President overlooked the fact that when
the administration came in in 1993 the first tax they proposed was the
Btu tax, British thermal unit, a tax on energy. It was defeated in this
body.
However, shortly thereafter there was the effort by the Vice
President, who was sitting in the chair of the Presiding Officer, and
there was a tie vote in the Senate. The issue was the gas tax, 4.5
cents a gallon. The Vice President broke that tie and that gas tax went
into effect.
In conclusion, I assume that the Vice President overlooked his record
on increasing energy taxes and perhaps he should revisit his record and
his memory.
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