[Congressional Record (Bound Edition), Volume 146 (2000), Part 1]
[Senate]
[Pages 340-344]
[From the U.S. Government Publishing Office, www.gpo.gov]



                         THE HIGH PRICE OF OIL

  Mr. MURKOWSKI. Mr. President, I would like to reflect a little bit on 
what is happening in our Nation. We got a little snow outside. Snow is 
not unknown to me or the State I represent. It is part of our 
livelihood. We live with the cold weather. We know how to handle it.
  But there is suddenly a great concern among a number of my colleagues 
and their constituents about the high price of heating and 
transportation fuels in the country, particularly in the northeastern 
part of the Nation. This morning in New Hampshire they said it was cold 
and clear. People were out to vote, but they were worried about the 
price of heating oil. I would like to discuss for a moment why some of 
these price increases are occurring, as well as appropriate and perhaps 
inappropriate ways we could respond.
  In mid-January, spot prices for heating oil spiked by about 50 cents. 
At one point, they closed at $1.36 per gallon. Gulf coast prices 
spiked, but they were pulled up, to a large degree, by the spike in New 
York State. One of the

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first places where consumers felt the impact was in home heating oil 
prices where, on January 21, they were up anywhere from 35 cents to 60 
cents per gallon in the Northeast over the prior week. This was also 
felt in diesel prices, which have also risen dramatically. This is 
causing our trucking industry to seriously consider steep price 
increases, or even parking some of their trucks for a while.
  If you have not bought an airplane ticket this month, you should try 
it because you will find there is a $20 surcharge added to your ticket. 
This is to offset the increased costs of fuel oil. You cannot run these 
aircraft on hot air. You run them on kerosene.
  What is the cause of this price increase? For the most part, there 
are short-term causes that have so dramatically impacted the price in 
the Northeast, but there are also long-term issues that have impacted 
and will continue to impact the Nation.
  If we are looking at a quick fix, we can do that or we can look at 
the long run and figure out how we are going to take care of this 
problem.
  The short term problems include the combination of relatively low 
stocks of inventory, forecasts for colder than normal weather through 
early February, some barges being delayed because of storms, and some 
unexpected refinery problems.
  Additionally, we have refineries that were in transition. We have not 
built any new refineries in this country for a couple of decades for a 
very good reason: Nobody wants to invest in them because of the concern 
over the environmental consequences, the Superfund exposure, and so 
forth.
  Here we are, on the one hand, with an increasing demand for petroleum 
products, but because of the laws that were made by Congress which are 
so draconian, the investment community is reluctant to put in new, 
efficient refineries.
  As a consequence of the low stocks, the existing refiners are 
scurrying to locate immediate supplies, a number of utilities are 
chasing the limited supply, and we have a peaking cold weather demand. 
As you walk home tonight you will feel it. In short, it was a basic 
problem of too much demand chasing too little supply.
  There is some relief in that the New York spot distillate problem 
appears to be easing because the current refinery capacity currently is 
adequate to meet the needs, but there is going to be some delay in 
getting the supply delivered. Additionally, the good news about the 
high prices is that it usually speeds the arrival of product from 
someplace else. Indeed, it has been reported that at least a dozen 
tankers full of heating oil are on their way from Europe heading to the 
East Coast right now. There is an indication that as a result of this 
the price has dropped in the last few days.
  Unfortunately, even when this immediate problem is resolved, it is 
possible recurrences will happen as stocks are likely to stay low for 
the remainder of the winter.
  According to the Energy Information Agency, the EIA, ``the low-stock 
situation is worldwide and is not necessarily limited to distillate. It 
stems directly from what is happening in the crude oil markets.'' That 
is what we have to look toward. A continuing crude oil supply shortage 
is driving crude prices up, causing refiners worldwide to draw down 
stocks as the higher crude prices squeeze margins.
  What is happening in those crude markets? If one looks at the 
worldwide crude market, it is evident there has been more petroleum 
demand than supply, requiring the use of stocks to meet petroleum 
demands.
  Following the extremely low prices at the beginning of 1999, OPEC, 
the Organization of Petroleum Exporting Countries, as well as Mexico, 
agreed to remove about 6 percent of the world's production from the 
market in order to work off excess inventories. And what else? To bring 
prices back. And they have been successful.
  Remarkably, the producing countries have shown strong discipline in 
adhering to these quotas. This has caused worldwide stocks, including 
those in the U.S., to be drawn down at very low levels. In particular, 
refiners drew stocks down in the fall rather than build them up for the 
winter.
  We are now in the middle of that winter, the usual high point of 
world demand, and we have low stocks. On top of this, OPEC members have 
been indicating that they will maintain their production cutbacks at 
least through March and possibly June, so there is no panacea here. The 
news, along with the cold weather, increased demand in Asia due to a 
faster than expected recovery of the Asian economy is behind the 
current crude surge which pushed west Texas intermediate crude past $30 
a barrel briefly in January.
  There is a response to this. One I think is inappropriate and the 
other is appropriate. Let's look at the first one: How should we react.
  A number of my colleagues and some senior members of the 
administration have made suggestions about how we should react to this. 
The first suggestion made by some of my colleagues is let's release the 
oil from the Strategic Petroleum Reserve, or SPR, to combat the high 
price of crude. This is the reserve we have in the salt caverns in the 
southern part of Louisiana and other areas. That oil is there for the 
national and energy security of the country in case there is an 
emergency.
  I believe such a decision to sell that oil would be disastrous from 
the standpoint of both national and security policy. Our Government has 
never tapped SPR to manipulate crude prices, and I do not think they 
should do so now. It is fair to say the administration tapped SPR to 
meet some of their budget requirements, but to manipulate crude prices 
is totally inappropriate.
  SPR was set up as a way to protect us from a severe supply 
disruption. By tapping SPR to manipulate price, we make ourselves even 
more vulnerable to the supply disruption. We need to recognize that 
price volatility has been a fundamental feature of crude oil markets 
for three decades and is common in the commodity markets.
  We also need to recognize we have made some classic policy blunders 
in attempting to reduce this volatility. Invariably, these measures, 
such as price controls in the seventies, clearly aggravated and 
perpetuated what would otherwise have been a much shorter lived 
problem.
  The second problem with this approach is it would only represent a 
partial plan. We cannot move forward with an energy strategy of ``sell 
oil when prices are high'' and not have a companion strategy of ``buy 
oil when prices are low.'' We have to mix the price structure in SPR. 
At one time, the administration proposed to buy and was buying at $40. 
The next minute, they wanted to sell at $27. There is a mentality up 
there that we somehow can make up the difference in volume. That does 
not work. What would be the purpose of depleting a reserve if we do not 
have a concrete plan to fill it?
  The second suggestion is to encourage other countries to ramp up 
their production levels so the United States can import more of their 
oil. Think about that. We are encouraging other nations to increase 
their production so we can get more of their oil so that we can be even 
more vulnerable to that particular supply. Even some of my friends on 
Pennsylvania Avenue have advocated this as a resolve.
  The Secretary of Energy has been quoted as saying: I am going to meet 
with the oil ministries of Venezuela, of Norway, Saudi Arabia, and 
others. This is a strategy to encourage the Venezuelans and Saudis to 
produce more oil and for the United States to become more dependent on 
those sources.
  Their strategy is to spend millions of dollars supporting development 
of oil fields in other nations. Here is the kicker: They have even 
supported policies that have allowed the Iraqis to produce more oil. 
That is our good friend, Saddam Hussein. Are the people of Iraq 
benefiting or are his Republican Guards? I do not have to tell you, Mr. 
President, because you know as well as I do.
  Their answers lead to nothing more than the export of American jobs 
and increased imports of foreign oil. Their answers make us more 
susceptible to price volatility in the future, not less.
  Finally, the third suggestion is that Congress appropriate more money 
next

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year to subsidize the Low-Income Housing Energy Assistance Program. I 
do not oppose this. However, throwing more money toward that program 
will not solve the underlying problem, and the underlying problem is 
very simple: We are not producing enough oil and gas in the United 
States. This is not to imply nothing can be done to protect ourselves 
from vulnerability to aggressive price policy by OPEC, there is a 
solution, and it begins at home.
  The old adage, charity begins at home, is a far better approach to 
reducing our vulnerability to OPEC pricing, and that should begin by 
addressing the problems of our domestic U.S. oil and gas industry. We 
can do that very easily. We do not have the luxury in the United States 
of manipulating stocks and influencing price. The reason we do not is 
because we are 56-percent dependent on imported oil. We are currently 
not that big, in terms of oil production, to manipulate world prices. 
We have to make our strategic decisions through drilling strategies, 
and when we look at what has happened to drilling in the United States, 
we ought to be gravely concerned about the future volatility of heating 
and transportation fuel prices in the U.S.
  In 1998, there was a decline of almost 60 percent in rigs drilling 
for oil in the United States. This was followed by a decline in the 
number of new and producing oil wells which was followed by a drop in 
our reserves. In 1998, only 24 percent of our domestic oil production 
was replaced by proven oil reserves.
  The bare results of 1998 was that thousands of oil industry workers 
were laid off, drilling contractors were cut to the bone, our stripper 
wells went dry, and marginal wells were shut in.
  This did not just happen. The administration knew what was going on. 
What did it do? It continued to thwart access by our domestic oil and 
gas industry to Federal lands where there was a promising likelihood of 
discovery.
  It continues to try to force an unfair rule change for calculating 
oil royalties down the throats of our domestic producers. This is a 
not-so-subtle message to our domestic producers--you are not wanted 
here. The only effect these policies will have is to ensure that we 
continue to be susceptible to being taken hostage by aggressive OPEC 
pricing strategies and that we continue to encourage an outflow of U.S. 
capital, ingenuity, and investment to foreign shores to produce foreign 
oil so we can become more dependent on those sources.
  Common sense tells us that if we are to become less dependent on OPEC 
pricing, if we want to be better able to respond to future price 
fluctuations, we must reinforce our domestic petroleum industry.
  I understand my Northeast colleagues' concern about their 
constituents paying too high a price for heating and transportation 
oil. Frankly, we pay a higher price in Alaska. But I am not here to 
debate that issue at this time. I am also puzzled that many of those 
same Members of this body have continued to support efforts that would 
increase our susceptibility to this price volatility. You can't have it 
both ways. We are dependent on foreign stocks for 56 percent of our 
supplies. The only way we are ever going to break this cycle of 
dependence on foreign oil and our vulnerability to price is by boosting 
our own production here at home.
  I can suggest that a good place to start is on the west coast. A good 
place to start is in my State of Alaska, where we have been supplying 
this Nation with 20 percent of its domestic oil for the last 20 years. 
Recently the U.S. Geologic Survey estimated that an area set aside by 
Congress for an evaluation of its oil and gas potential could have up 
to 16 billion barrels of recoverable oil. The 1998 estimate is the 
highest estimate ever published regarding the 1002 area. This body 
voted in 1995 to support environmentally sound exploration in this 
area. The Senate voted on this bill, but the Clinton administration 
vetoed the bill. They vetoed the ANWR bill. It has become a cry for 
environmentalism all over the country. If you initiate oil exploration 
in ANWR, you are going to violate this area, this pristine area.
  How many people have taken the time to understand the significance of 
ANWR? There are 19 million acres in ANWR. It is an area about the size 
of the State of South Carolina. What have we done to try to maintain 
protection in these areas? We have taken 8 million acres of the 19 
million acres and put it in wilderness in perpetuity. We have taken 
another 9.5 million acres and protected it as a refuge in perpetuity. 
But we set aside 1.5 million acres in the coastal plain, the so-called 
1002 area, under the jurisdiction of the Congress to make a 
determination whether that portion and that portion only could be 
opened up for exploration.
  Some of my colleagues talk about charity beginning at home, and 
suggest we ought to open up SPR. These are temporary measures that are 
basically impractical, that cut to the crux, if you will, of our 
national security interests, and don't resolve a long-term solution. 
What we should do is continue to advance science and technology, and 
develop domestic petroleum reserves.
  The conclusion is obvious: If you don't support the industry's 
expertise and capability through advanced technology to continue to 
explore whether it be onshore or offshore, then you better be prepared 
for higher prices and the Northeast corridor better be prepared for 
price hikes as a consequence of cold weather, because we are looking 
right down the double barrels of the guns of control. Those guns of 
control come from the Mideast countries.
  I think Secretary of Energy Bill Richardson has been quite correct in 
his response. He has agreed that the Strategic Petroleum Reserve is to 
be used only for emergencies associated with our national energy 
security interests and not for price manipulation. He has also 
postponed delivery on 5 million barrels of oil that the SPR would take 
at this time, an action which I think is responsible because it is 
intended to put more oil into the market and ease prices. It is going 
to help, but it is not going to help enough.
  The President has released 44 million in emergency heating fuel 
funds. While I support these efforts, they alone are not enough. These 
are stopgap measures. They don't address the real problem of our 
continuing reliance on foreign oil and the resulting fact that we are 
going to be dancing to the tune of OPEC for the foreseeable future 
until we have the intestinal fortitude to recognize that we can develop 
domestic sources of oil and gas in the United States, and we can keep 
our jobs at home and lessen our dependence on imported oil.
  Look at the facts. The fact is, during the tenure of this 
administration, U.S. demand for oil has increased 14 percent, and our 
domestic production, strangled by this administration's policies, has 
decreased 17 percent. You can't have it both ways. I am sympathetic to 
those Members who represent the Northeast corridor and are feeling the 
impact of a cold winter and high fuel prices. I would propose the 
following to address these concerns through the enhancement of a 
domestic industry policy.
  First, give the industry greater access to Federal lands in the 
United States, both on and offshore, limiting to those States that want 
OCS activity. Louisiana is a good example; Texas is another. They 
recognize the contribution. They recognize the capability of the 
industry to do it safely. For the most part, the industry has done a 
pretty good job.
  We should, second, develop incentive programs to make the U.S. oil 
and gas market more competitive in the world market. We should open up 
that tiny area of the Arctic oil reserve to environmentally sound 
exploration. Let's face it. Alaska produces 20 percent of the crude oil 
that this country enjoys today. That was authorized by the Senate on a 
tie vote where the Vice President had to break the tie to authorize the 
development of that.
  There was great speculation that the 800-mile pipeline would somehow 
stop the caribou, would stop the moose. That has survived earthquakes, 
dynamite, shootings. It is one of the construction wonders of the 
world. Where would we have been without it? You would have had higher 
prices today, Mr. President.
  Third, strengthen the Department of Energy's research and development

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program. We are going to be using petroleum products for a long, long 
time. You are not going to fly an airplane on solar or wind. You are 
going to fly it on fuel. Fourth, once and for all, throw out the MMS's 
attempts to change the rules on oil valuation.
  Finally, let me refer to some who suggest that we don't need to look 
to the future of oil. We have a lot of gas in this country. It is just 
a matter of time. Gas is cheap. Let me refer you to a recent report by 
the National Petroleum and Gas Council. The demand for gas is going to 
be increasing about one-third in the next 10 years. There are going to 
be about 14 million new hookups for gas. The expenditure for that gas 
is going to be about $1.5 trillion. Hearings that we have had in the 
Energy and Natural Resources Committee show us that we do not have the 
infrastructure in place and we don't have access domestically to areas 
that have the potential for producing gas because the administration 
won't open them up for exploration.
  I see my good friend from New York on the floor. I know of his 
interest in this crisis that is hitting the Northeast corridor. I 
encourage him and others to look toward a long-term solution. A long-
term solution speaks for itself. It suggests through technology, with 
proper environmental safeguards, we can encourage more oil and gas 
exploration and development right here in this country, as opposed to 
increasing our dependence on OPEC where we are going to continue to 
have this problem, not just this February, but we are going to have it 
this March. And we are going to have it next November and December and 
January, only by that time we might be 60 to 65 percent dependent on 
imported oil, as the Department of Energy suggests. Then you are going 
to have prices that are going to be coming down around our ears, and 
inflation will be attributed to a large degree to the price of oil and 
gas as a consequence to our increased dependence on imports.
  Bottom line: Charity begins at home.
  Mr. SCHUMER. Will the Senator from Alaska yield?
  Mr. MURKOWSKI. I am happy to yield for a question.
  Mr. SCHUMER. I thank the Senator.
  First, I thank him not only for his leadership on this issue but for 
his very thoughtful remarks, which I will certainly chew over and look 
at. I saw them on the screen and wanted to do that. I certainly agree 
with the Senator from Alaska, that what he is talking about deals with 
the long-term problem which we have to deal with and what myself and 
the Senator from Maine, Ms. Collins, and some of us have been talking 
about as a short-term problem, which is the oil. For instance, home 
heating oil is higher in my State than it has ever, ever been, even 
though the price of oil itself is not higher than it has ever, ever 
been.
  I would like to ask the Senator a question. On the short-term issue, 
which I understand the Senator's point, which is you are not going to 
solve the long-term issue. You will be back with short-term issues time 
and time again. But given the crisis that we have, the proposal that 
Senator Collins and I have made is to not deplete the oil reserve, the 
SPR, but rather to at this point sell a small amount of it, let's say 
500,000 barrels a day, from now until March 31, that the experts we 
have talked to have told us that that is likely to crack OPEC's unity, 
and also not just OPEC, but Mexico and Norway, which in the past had 
not always marched in lockstep with OPEC. I would be against depleting 
the reserve. The first question I ask the Senator is: If he was assured 
that the oil would be bought back at either a higher or lower price--
and most experts think it would be considerably lower--would that 
assuage some of his concerns? I don't want to burden the Senator, but 
he is an expert, and I would like to get the benefit of his wisdom.
  If a program were developed of swaps and were put in automatically so 
that oil was bought for the SPR when the price was rather low, oil was 
sold when the price was rather high, but there was a guaranteed 
commitment that if the oil was sold during a high price, that it would 
be bought back at a low price, and you could put a time limit on--one 
of the things mentioned was that you would have to do it in a year 
regardless--would that not deal with the long-term problem that the 
Senator is addressing in most of his remarks? But would that assuage 
some of his concerns about the short-term issue that many of us in the 
Northeast have such problems with?
  I yield to the Senator to answer that question.
  Mr. MURKOWSKI. I will respond to that. I recognize the sensitivity of 
my good friend, and the Senator from Maine, also. There are a couple of 
factors I think are very important to understand, and that is the 
ability of the strategic petroleum reserve to be moved out in a 
relatively short period of time the crude it has accumulated, or any 
portion of it, and transport it to refineries that aren't already up to 
the maximum capacity of their refining capability, and then move it to 
market because this winter isn't going to last forever. But right now, 
it is significant and very meaningful, as evidenced by the price 
associated with heating oil.
  As I indicated in my floor statement, we have evidence by the 
Department of Energy that there are a number of ships in transit from 
Europe bringing heating oil. So there will be price relief soon. As you 
and I know, the price goes up a lot faster than it comes down. The idea 
of swaps certainly has merit and has been done before. But, 
traditionally, the manner in which the Federal Government in 
manipulating the sales of SPR has resulted in a situation where we have 
purchased high and sold low, and there is a mentality that suggests 
that we will make up the difference, with the taxpayers taking it in 
the shorts, so to speak--I am not suggesting we would not go back and 
replace SPR. Indeed, there are some logistic problems with the idea. 
One, you don't move it out of SPR very fast because it is in the salt 
caverns and there is only so much pumping capability and you have to 
move it to the refinery and then you have to refine it. The realization 
is that the refineries, as I understand it, in proximity to the SPR are 
pretty much up to their designed capacity. So what we need is an SPR of 
heating oil for you. That would be my best assessment of the current 
situation. But I am sensitive to the Senator's concern.
  Mr. SCHUMER. I know the Senator is sensitive to that, and I very much 
appreciate that. The experts with whom I have checked at least have 
said it would take about 30 days from the time the President were to 
order selling of the SPR to the time it could be removed and refined 
appropriately. I think more to the point --or maybe not more to the 
point but also to the point, many people, certainly the majority I have 
talked to, believe that even if we were to announce we were going to 
sell some of the SPR on the open market, the odds are quite high that 
from that point, the OPEC nations, countries such as Mexico and 
Norway--that would crack their unity.
  My main goal, at least, in offering this solution is not simply to 
temporarily reduce the price of oil but rather to sort of break OPEC. 
In the past, what our Government would do would be go to the 
governments of Mexico and Norway and say, hey, help us out. In the 
past, they would. When they pumped a little more oil, the unity of the 
11 OPEC nations would crack. Well, Mexico and Norway are not fulfilling 
that role for a variety of reasons, some of which I am aware and some 
of which I am not. So we would be fulfilling the same role.
  I guess my only question to the Senator from Alaska, chairman of the 
Energy and Natural Resources Committee, is--and maybe my information is 
wrong--if it would take 30 days, would that change his view? Secondly, 
does he think that it might have a good chance, if we did even announce 
this and began to do it, to crack OPEC's unity and that would solve our 
problem--short-term admittedly and not long-term--right away rather 
than pumping small amounts of oil ourselves?
  Mr. MURKOWSKI. In response to my good friend from New York, I 
anticipate it would take at least 30-plus days to see any significant 
movement from

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the SPR, which is crude oil transported to a refinery in enough time to 
relieve the crisis of the high price in the Northeast. The problem is, 
the reserves of heating oil are down. I have discussed the rationale of 
why the reserves are low, but the fact is they are low. So as a 
consequence, we are left with a situation where price follows supply 
and demand, and we are certainly feeling the price. I think we should 
converse with our Secretary of Energy, who is attempting to interject 
with the Saudis, Venezuelans, Norwegians, and other oil-producing 
countries to try to encourage them to, if you will, increase their OPEC 
volume, which they have been remarkably solid in their ability to hold 
together and not do that.
  They operate under two theories. One is they would like to have the 
highest possible price and produce the least amount of oil. But if that 
cartel cracks, then they still have to have the same volume of dollars 
to benefit their government, so they will produce more oil to get it. 
What we have seen as a consequence is the cartel coming together and 
holding tough. Subject to the ability of the Secretary of Energy to 
convince them to do otherwise, I would not look for immediate relief 
from that area. I think there is relief coming, but your constituents 
are going to be exposed to some high prices. As sympathetic as I am, I 
don't know the answer.
  I just don't think SPR is going to be able to meet the demand in a 
timely enough manner by the time you get past another 30 days and some 
of this production in to your constituents. I don't think that is going 
to do what the market is doing now, which is bringing more heating oil 
that is already refined in Europe into the United States. I would much 
rather work ultimately for a long-term solution to our exposures 
because you have to look at the reality. We are going to be more and 
more exposed to the whims of OPEC. We have allowed Saddam Hussein and 
Iraq to come in with another 2 million barrels a day. That helps us and 
hurts us when you think about it. Who benefits from that? It is a 
complex problem. I have a hard time accepting that part of the role of 
SPR is to meet the domestic price manipulations as opposed to the 
philosophy that went into SPR, which was its design to be a strategic 
petroleum reserve in the sense of a time when our supplies may be cut 
off. There has been a great deal of criticism in my committee of the 
ability of SPR to be able to produce if a demand is there. There are a 
lot of shortcomings within SPR's makeup.
  Mr. SCHUMER. I thank the Senator.

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