[Congressional Record (Bound Edition), Volume 146 (2000), Part 15]
[Senate]
[Pages 22657-22660]
[From the U.S. 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 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.

[[Page 22658]]

  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.

                                                      Committee on


                                 Energy and Natural Resources,

                                 Washington, DC, October 11, 2000.
     Hon. Bill Richardson,
     Secretary of Energy, U.S. Department of Energy, Washington, 
         DC.
       Dear Mr. Secretary: I am writing to request that the 
     Department provide the Committee the following information 
     with respect to the proposed exchange of 30 million barrels 
     of crude oil from the Strategic Petroleum Reserve:
       1. A list of the bidders for the SPR oil.
       2. For each bidder, the date on which their bid was 
     submitted, the amount of SPR oil they bid for and the bid 
     they made.
       3. For each winning bidder, the amount and type of SPR oil 
     they were awarded and the terms of the award.
       4. For each winning bidder, the assurance they provided 
     that they will be able to return oil to the SPR as is 
     required.
       5. Why DOE did not have any financial qualification for 
     bidders.
       6. For each losing bidder, the reasons why their bid was 
     not accepted.
       7. A list of all persons who the Department contacted to 
     inform them of the proposed exchange, and the means by which 
     such person was contacted.
       8. Provisions in the contracts that require heating oil to 
     be refined from the SPR oil.
       9. Provisions in the contracts that require heating oil 
     refined from the SPR oil to be delivered to the Northeast 
     market.
       10. Provisions in the contracts that prohibit the export of 
     the SPR oil or petroleum product refined from the SPR oil, 
     including export by exchange.
       Please provide the Committee with this information as soon 
     as possible, no later than 12:00 p.m., Monday, October 16, 
     2000. If you or your staff have any questions you may contact 
     Mr. Brian Malnak (224-4970).
           Sincerely,
                                               Frank H. Murkowski,
                                                         Chairman.

  (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

[[Page 22659]]

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.
  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,

[[Page 22660]]

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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