[Congressional Record (Bound Edition), Volume 146 (2000), Part 17]
[House]
[Pages 25569-25572]
[From the U.S. Government Publishing Office, www.gpo.gov]



         WHERE HAS THE STRATEGIC PETROLEUM RESERVE REALLY GONE?

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Pennsylvania (Mr. Gekas) is recognized for 5 minutes.
  Mr. GEKAS. Mr. Speaker, every American citizen will remember the 
heightened crisis that occurred in our oil situation and our fuel and 
its rising prices over the summer. Many of us wondered what was next. 
Well, what was next was that sometime in September the President, after 
being urged by Vice President Gore, released 30 million barrels of oil 
from the Strategic Petroleum Reserve.
  Now, the first shock wave that occurred when that announcement was 
made was, what is going on here? The Strategic Petroleum Reserve is 
exactly that, Strategic Petroleum Reserve, meaning that it is to be 
used and was to be intended to be used for strategic purposes for 
defense purposes, for the national security of our Nation. That is, 
there would be a pool, literally a pool, of oil held back from the 
normal market so that if oil was cut off from the Middle East and we 
did not have our required fuel available for our Armed Forces, then 
this reserve would be at hand to protect our people in a national 
security situation.
  Well, let us set that aside, as important as that is, and that is 
very important. We still have reservations about even approaching this 
Strategic Petroleum Reserve unless there be some kind of emergency 
action, some threat to our security at hand. In any event, put that 
aside for the moment. Many people were concerned that because of the 
rising fuel prices and even some shortages that were occurring, that 
the Northeast would find itself in this winter coming that it would be 
short of

[[Page 25570]]

fuel for their home heating needs. So ostensibly, the directive by the 
President was to release these 30 million barrels for home heating. 
Well, at least we said the target is a humane one, is a proper one.
  Then what did we learn? We found in the Wall Street Journal report 
and various other newspapers, including one from Bangor, Maine, where, 
of course, one of the areas would be that would most require this home 
heating oil, complained that what they discovered was that the 30 
million barrels that were being released from our strategic reserve 
were going to be sent to Europe by the oil refineries. That is, the oil 
bidders would buy this oil and then instead of sending it to New 
England would sell it on the market to Europe. Well, this is 
outlandish. We do not know if that is correct, but all the evidence 
yields a conclusion that that would be the case.
  Moreover, out of the 30 million barrels, 30 million barrels that were 
released, it appears that only about 250,000 under any circumstances, 
250,000 only would be delivered to the Northeast in time to help this 
winter. What we did was author a letter to the Secretary of Energy, our 
former colleague, Bill Richardson, to ask these questions: Is this oil 
going to Europe or is it not? And if it is not, why will only 250,000 
barrels be finding its way to the home heating oil needs of the 
Northeast, which needs much more than that?
  The letter was sent. No response was forthcoming. My staff contacted 
the Energy Department several times, and we did not receive a proper 
response, or any response. The Congress in its own way in committee 
hearings evoked the same kind of questions out of the circumstances. We 
do not know what the final answer is.
  What all of this shows is, dipping into the Strategic Petroleum 
Reserves for our national security purposes already waiting in reserve, 
as the title implies, and using it for home heating oil which never 
arrives there, that is not government at its best. Yet, that is what 
Secretary Richardson said, this is government at its best. What it 
shows is that much more can be done and much better use can be made of 
our Strategic Petroleum Reserves.
  I have introduced a bill, H.R. 4035, which calls upon a blue ribbon 
commission to be able to declare independence for the United States, 
again, to declare independence, this time energy independence, within 
10 years, to take full cognizance of all the oil reserves in Alaska, in 
offshore drilling, in the Midwest and far West, in Oklahoma and Texas 
which have been traditionally the source of our domestic oil drillings; 
to look at solar energy; to look at hydroelectric; natural gas and 
coal, and declare independence for our country so that we do not have 
to depend on OPEC.
  Mr. Speaker, I would also like to insert the following articles into 
the Record.

       [From the Wall Street Journal, Thursday, October 5, 2000]

            Europe's Low Oil Supplies May Blunt U.S. Effort

                (By Alexei Barrionuevo and John Fialka)

       Low supplies of heating oil in Europe are threatening to 
     blunt the impact of releasing 30 million barrels of crude 
     from the U.S. Strategic Petroleum Reserve.
       Europe's market for heating oil is 50% bigger than the U.S. 
     heating-oil market, Europe's stocks are even tighter and 
     prices there are a few cents a gallon higher, so U.S. 
     refiners have a renewed incentive to ship heating oil across 
     the Atlantic.
       Further, a June fire at critical export refinery in Kuwait 
     continues to upset the flow of heating oil across world 
     markets.
       Yesterday, the Energy Department said 11 companies were 
     awarded a total of 30 million barrels of crude from the 
     strategic reserve after submitting bids last week. The 
     companies promised to return 31.5 million barrels to the 
     federal stockpile next year as payment. The winners included 
     Marathon Ashland Petroleum LLC, Valero Energy Corp. and 
     Equiva Trading Co., the trading arm of Equilon Enterprises 
     LLC and Motiva Enterprises LLC.
       In offering oil today for oil later, the department said 
     again it is seeking to avert a potential heating-oil shortage 
     this winter. Energy Secretary Bill Richardson said the 
     administration remains concerned about heating-oil supplies 
     in New England, where inventories are 65% below normal 
     levels.
       Mr. Richardson called the release of oil from the strategic 
     reserve ``government at its best'' and noted that the 
     International Energy Agency, based in Paris, applauds the 
     U.S. action.
       Since the crude-oil swaps were announced two weeks ago, oil 
     prices have slid from a high of more than $37 a barrel to 
     settle at $31.43, down 64 cents, yesterday for the November 
     contract of West Texas Intermediate crude.
       In Europe, where storage capacity is greater, stocks of 
     middle distillates, primarily heating oil, slid to 221 
     million barrels in July, down 20% from a year earlier, 
     according to the International Energy Agency in Paris, and 
     the stocks didn't grow in August. Germany has residential 
     storage capacity of about 225 million barrels, but it has 
     only about 125 million barrels socked away.
       ``Europe is tighter than the States,'' said Gary Ross, 
     chief executive of Pira Energy Group in New York. ``So they 
     are likely to be a constant drain on our distillate supplies, 
     thereby somewhat thwarting the efforts of the administration 
     to augment distillate supply by the SPR swaps.''
       U.S. exports of heating oil to Europe ballooned nearly six 
     times in the first seven months of this year to about 1.4 
     million barrels, compared with the year-earlier period, 
     according to the most recent figures of the Department of 
     Energy's Energy Information Administration. Total exports to 
     all countries, however, declined slightly by 2.5% to 31.7 
     million barrels. ``Europe needed the distillate more than 
     Asia, and Asia has added substantial distillate-refining 
     capability, so they are more self-sufficient now,'' said 
     Larry Goldstein, president of the Petroleum Industry Research 
     Foundation in New York.
       Industry experts estimate that in recent weeks shipments 
     have continued to pick up.
       Refiners continue to be skeptical that the strategic-
     reserve release alone with help increase heating-oil supplies 
     short term. ``It is not going to generate one additional 
     barrel of heating oil,'' because refineries already are at or 
     near capacity, said Carlton Adams, a spokesman for Conoco, 
     Inc., which bid unsuccessfully for 1.5 million barrels. 
     Conoco hoped to run the crude through its Ponca City, Okla., 
     refinery, which ran a record 201,900 barrels a day the last 
     week of September.
       The strategic-reserve oil won't be unloaded from the 
     reserve tanks until later this month or early in November it 
     will be December by the time the oil is refined and shipped 
     to the Northeast.
       Major pipelines from the Gulf, including Colonial Pipeline 
     Co., say they have been fuller than normal recently because 
     of low stocks in the Northeast.
       The world-wide problems with heating oil have been 
     compounded by a devastating fire at Kuwait's Mina al-Ahmadi 
     refinery in late June that cut Middle East production by 
     half. That has led European refiners to divert some supply to 
     African countries, including Egypt.
       Asia is the one major refining market in the world with 
     spare capacity. In Singapore, in particular, refineries are 
     only running at about 65% of capacity.
       While higher refining profit margins in the U.S. and Europe 
     could draw more shipments from Asia, refineries there say 
     they face technical challenges in meeting U.S. and European 
     environmental specifications for sulfur content. In the U.S., 
     such air standards are governed by individual states, which 
     would have to decide to temporarily relax sulfur requirements 
     to open the market to supply from more of the world.
       An Environmental Protection Act official says the agency is 
     talking to states about the possibility of relaxing standards 
     limiting the sulfur content in home heating oil. Northeastern 
     states have such standards, and if supplies get tight, they 
     could block the possibility of using higher sulfur fuel 
     stocks intended for off-road construction equipment. They 
     could also block shipments of imported heating oil from being 
     used.
                                  ____


   [From the Bangor Daily News Bangor, ME, Friday, October 13, 2000]

           Collins, Snowe Criticize Oil Reserve Release Plan

        (By Alex Canizares and Myron Struck States News Service)

       Washington--In a rush to release emergency oil, the Energy 
     Department failed to make even rudimentary checks on some of 
     the successful bidders--offering millions of barrels of oil 
     to several one-man operations with little experience handling 
     large amounts of oil.
       Some of these small companies--including one that operates 
     out of a New York City apartment and another just recently 
     incorporated in Florida--were reported to be having trouble 
     obtaining last-minute financial backing to sew up the deals.
       A failure to get the required letters of credit this week 
     could force the Energy Department to reopen some of the bids, 
     preventing the release of all 30 million barrels of oil from 
     the government's emergency stocks before the end of November 
     as planned, department officials said.
       President Clinton on Sept. 22 ordered the release, under a 
     ``swap'' arrangement, of 30 million barrels of oil from the 
     Strategic Petroleum Reserve to ease tight supplies before 
     winter. The Energy Department announced Oct. 4 the names of 
     11 companies that would take the oil.

[[Page 25571]]

       But the selection of several of the bidders has astonished 
     some within the oil industry and prompted a call for a 
     congressional investigation into the bidding process and 
     whether it is primarily benefiting oil speculators.
       U.S. Sen. Susan Collins, who pushed with other New England 
     politicians for the release of oil from the reserve, said the 
     Clinton administration has ``unfortunately . . . mishandled 
     something that was a good idea.
       ``I was surprised that the administration did not require 
     bidders to prove their financial worth in advance,'' Collins 
     said. ``The unusual step of letting winning bidders prove 
     their worth after the fact allowed questionable companies to 
     get involved in the process--including some with no 
     experience in the oil business.''
       Collins also is upset that oil that should be heating homes 
     in the Northeast this winter is being shipped to foreign 
     countries because oil companies are getting a better price 
     for the product overseas.
       It now appears that more than two-thirds of the oil set to 
     be released from the Strategic Petroleum Reserve will end up 
     in foreign markets, an action proponents say will help ease 
     the world crisis, but an action that critics say does nothing 
     to solve the woes of New England, which faces tight supplies 
     for the winter months.
       ``Bids for oil from the Strategic Petroleum Reserve should 
     have included provisions that prohibited companies from 
     exporting crude oil from the SPR,'' Collins said. ``Since the 
     administration did not include such language, the Department 
     of Commerce should now deny export licenses to any company 
     seeking to export'' this crude.
       U.S. Sen. Olympia Snowe, a leader in the Senate in seeking 
     the release of the oil, also now is critical of how the 
     release has evolved. She has met with Senate Energy and 
     Natural Resources Committee Chairman Frank Murkowski, R-
     Alaska, to express her concerns and has also raised this 
     issue with Energy Secretary Bill Richardson.
       ``The bottom line is that something is very wrong when we 
     find ourselves in this precarious position for the second 
     winter in a row,'' Snowe said, ``While I believe the release 
     from the SPR is a welcome, if long overdue, step, it is clear 
     that we need to find long-term solutions to the supply 
     problem in order to make sure people are not plunged into 
     uncertainty every winter as to whether or not they will have 
     oil to heat their homes.''
       Snowe also has seized on the export issue as critical to 
     resolving this winter's fuel oil shortage in the Northeast.
       In a letter to Clinton, Snowe asked the administration to 
     address the issue and outline a means of keeping the oil in 
     the United States. She also has posed the question to 
     Richardson. Both queries have gone unanswered, she said.
       ``I find this situation outrageous, especially since the 
     U.S. exported over 27.6 barrels of home heating oil for the 
     first six months of this year--at the very time our home 
     heating oil inventories in New England were reaching 
     dangerously low levels. Ironically, the amount of home 
     heating oil exported nearly matches the deficit we are now 
     experiencing,'' she said.
       Elsewhere on Capitol Hill, an effort by U.S. Rep. John E. 
     Baldacci to press the White House to temporarily ban home 
     heating oil exports to ease the supply shortage has taken 
     off, with 77 members of the House joining in writing to 
     Clinton.
       The letter plays off the fact that some U.S. oil companies 
     and refiners have been increasing home heating oil exports to 
     take advantage of higher prices in Europe. Normally, the 
     United States imports more fuel than it exports.
       The call to action came after several steps the Clinton 
     administration has taken to lower prices, including a 30-
     million-barrel swap of crude oil from the reserve and the 
     release of $400 million in emergency oil assistance to low-
     income households. The Energy Department also is setting up a 
     2-million-barrel Northeast home heating oil reserve.
       The lawmakers co-signing the letter urged Clinton to 
     encourage other countries to sue their strategic oil reserves 
     to help boost inventories. The lawmakers said the president 
     has authority to stem exports temporarily under the Export 
     Administration Act.
                                  ____


        [From the Wall Street Journal, Friday, October 20, 2000]

                Release of Oil Barely Helps Needy States

               (By John J. Fialka and Alexei Barrionuevo)

       Washington--An Energy Department official conceded that the 
     Clinton administration's decision to release 30 million 
     barrels of crude oil from the nation's Strategic petroleum 
     Reserve may yield only an additional 250,000 barrels of home-
     heating oil for fuel-short areas such as New England.
       Under prodding from Republican members of a House Commerce 
     subcommittee, Robert S. Kripowicz, an acting assistant 
     secretary of energy, acknowledged that the administration's 
     forecast that the move would result in three million to five 
     million more barrels of heating oil was overly optimistic.
       However, he said that if diesel fuel refined from the oil 
     was also sent into the home-heating oil market, it could 
     raise newly available stocks to 2.5 million barrels. But 
     several committee members, noting that truckers and other 
     powerful market forces might block such a shift, called the 
     estimate unrealistic.
       ``Clinton-Gore math,'' said GOP Rep. Joe Barton of Texas, 
     the panel's chairman, who had an aide display the Energy 
     Department market forecast on a large chart. The forecast 
     assumed that--given tight U.S. refinery capacity--20 million 
     barrels of the government oil would block a similar amount of 
     foreign oil that would otherwise have been imported into the 
     U.S., making only 10 million barrels of the oil available to 
     U.S. refiners,
       An official of one refining company told the panel that the 
     release of the SPR oil caused transportation problems that 
     will delay its shipment. John P. Surma, senior vice president 
     of Marathon Ashland Petroleum LLC, which was awarded 3.9 
     million barrels of the oil, said the oil has overloaded a key 
     terminal at Nederland, Texas. ``As a result,'' he testified, 
     ``some of the SPR crude oil will likely not be delivered 
     until December.''
       Mr. Kripowicz said he wasn't aware of any delays at the 
     terminal, asserting that oil companies can use several 
     alternative routes.
       Another apparently unforeseen obstacle looms in the form of 
     the Jones Act, an 80-year-old maritime law requiring refiners 
     and traders to use U.S.-flagged, U.S.-crewed ships to move 
     crude oil and petroleum products from one U.S. port to 
     another. Large companies such as BP Amoco PLC and Exxon Mobil 
     Corp. have locked in the use of the better ships, leaving 
     others to scrounge for the costly, less-desirable ships that 
     are left over. The search for such ships is critical because 
     oil pipelines are running near capacity.
       ``Right now, rates are so high that if there were domestic 
     vessels, they would be showing themselves,'' said Larry 
     Goldstein, president of the Petroleum Industry Research 
     Foundation in New York.
       Buddy Neubauer, a vice president for Valero Energy Corp., a 
     San Antonio refiner, said that ``there is a shortage of 
     tonnage, and a strong winter could exacerbate the problem.'' 
     But he added that some ships could become available ``if the 
     price is right.''
       A shortage of such ships appears to be delaying another 
     recipient of SPR oil, Morgan Stanley Dean Witter & Co., 
     shipping brokers said. But John Shapiro, Morgan Stanley's 
     head of world trading, said: ``The oil will get to where it 
     is intended in the U.S. without any problem.''
       At House and Senate committee hearings, Republicans 
     repeatedly criticized the fact that the Energy Department 
     awarded 10 million barrels of the reserve oil to three small 
     entrepreneurs with no experience in oil deals. Two of therm 
     later dropped out, forcing the government to redo the 
     bidding.


                            Not Enough Ships

       World trade is growing faster than the world shipping 
     fleet. Percent changes 1998 to 2002.

                          [Figures in percent]
------------------------------------------------------------------------
                    Vessel/Trade                        Trade    Fleeet
------------------------------------------------------------------------
Dry Bulk............................................    3-4       1-2
Tanker..............................................    2-3       1-2
Product.............................................    4-5       3-4
Crude...............................................    1-2       0-1
General Cargo.......................................    6-7       2-3
Container...........................................   8-10      8-10
                                                     -------------------
    Total...........................................    3-4       1-2
------------------------------------------------------------------------
Source: U.S. Maritime Administration.


                                  ____
       [From the Wall Street Journal, Tuesday, October 17, 2000]

                 U.S. Tightens Rules for Bidding on Oil

               (By John J. Fialka and Alexei Barrionuevo)

       Washington--The Energy Department tightened its rules for 
     traders who want to bid on oil from the nation's Strategic 
     Petroleum Reserve, requiring them to post a substantial bond 
     for the oil they are requesting before their bids will be 
     considered.
       The changes came after two small companies that made the 
     largest bids in the recent auction for government oil won 
     awards for a total of seven million barrels. The deals fell 
     through when they failed to obtain the necessary financial 
     backing.
       The failures of the two small entrepreneurs, both 
     inexperienced in big oil deals, and the success of a third, 
     who quickly sold his interest to a major oil-trading firm, 
     embarrassed some DOE officials and spurred an investigation 
     by the Senate Energy Committee.
       The Senate panel has summoned Energy Secretary Bill 
     Richardson and other DOE officials to a hearing Thursday to 
     discuss the swap, which committee chairman Frank Murkowski 
     (R., Alaska) called a ``considerable risk to national 
     security.'' The 30 million barrels offered for the swap come 
     from a 570 million-barrel reserve of crude oil set up by 
     Congress in the 1970s as a safeguard against oil import 
     disruptions.
       Sen. Murkowski and oil-industry experts also questioned 
     whether the swap of the 30 million barrels, when completed, 
     would fulfill the Clinton administration's original 
     expectation: that it would result in three million to five 
     million barrels of home heating oil that could be shipped to 
     the fuel-short

[[Page 25572]]

     Northeast in time for the winter heating season. Profit 
     margins are now higher on transportation fuel and the crude 
     oil could go to meet demand for that.
       The Clinton administration announced the offer last month, 
     using a rule that allows the swap of oil from the reserve if 
     the deals result in the return of more oil to the reserve. 
     The offer of the swap resulted in bids that promised to 
     return 1.56 million barrels above the amount borrowed, 
     meaning that the average among the 11 winning bids was a 
     promise of a 5% return.
       The government accepted offers from Lance Stroud of New 
     York and Renard D. Euell of Denver, individuals who officials 
     said promised returns of 12% and 10%, respectively, but their 
     bids failed last week when major traders and oil companies 
     refused to deal with them. The failure of their bids lowered 
     the government's potential return for the swap of the 
     remaining 23 million barrels to about 3.5%.
       The DOE started a new round of bidding on the seven million 
     barrels yesterday. Under the new rules, bidders must post a 
     bond of $3 million or covering 5% of the oil they are bidding 
     on, whichever is less. ``We know that these two bidders 
     worked hard to make them [the bids] successful, but 
     unfortunately they weren't able to do that,'' said Robert S. 
     Kripowicz, the DOE acting assistant secretary in charge of 
     the program. He said putting the financial-guarantee 
     requirement in the 80-page bid application form ``does raise 
     the bar somewhat in terms of what you have to have in place 
     before you submit a bid.'' Still, he said, it wouldn't bar 
     small bidders that made trading arrangements with larger 
     companies. Ronald Peek, a Tallahassee, Fla., entrepreneur who 
     sold his award of three million barrels to Hess Energy 
     Trading Co. for an undisclosed sum couldn't be reached for 
     comment.
       In announcing the swaps plan, DOE was banking on a 10% to 
     20% heating-oil yield from refiners on the Gulf Coast, where 
     the SPR reserves are located. But refiners there are 
     currently converting only 8% of what they put into their 
     refineries into heating oil. While they are posting above-
     average yields of 34% total distillates--which include 
     heating oil, diesel and jet fuel--refiners are mostly focused 
     on making on-road diesel fuel and jet fuel.
       This is because the profit margins for diesel and jet fuel 
     are higher now than for heating oil, and because 
     transportation costs to ship products from the Gulf Coast to 
     the Northeast have nearly doubled this year. The price of jet 
     fuel is running four cents a gallon higher than heating oil, 
     and diesel is running one cent higher. ``Right now, that is 
     the highest jet-fuel-to-heating-oil differential I have seen 
     in a long time,'' said Kenneth D. Miller, a senior principal 
     at Purvin & Gertz, a Houston energy consulting firm. 
     ``Speculation on being short of jet fuel in the winter is 
     driving this.''
       Gulf Coast refiners could convert more diesel into heating 
     oil, but the economic incentives might not be there, said 
     John Hohnholt, senior vice president for refining at Valero 
     Energy Corp. in San Antonio. ``But the transportation issue 
     plays a major role in that decision,'' Mr. Hohnholt said. 
     Pipelines are busier than normal and the domestic tanker 
     fleet is stretched thin.
                                  ____


        [From the Dallas Morning News, Friday, October 13, 2000]

 Sweetheart Deals? Strategic Reserve Contracts Look Highly Questionable

       It hasn't taken long for some of the subterranean politics 
     of oil to spew to the surface.
       Succumbing to the political pressure of rising oil prices, 
     the Clinton administration last month authorized the release 
     of 30 million barrels of oil from the nation's emergency oil 
     supply. The purported goal was to release enough oil onto the 
     market to force down soaring prices.
       Eleven companies got a piece of the action, including 
     several smaller, mostly unknown oil companies with little or 
     no oil marketing experience. Now two of the three small 
     companies awarded oil from the strategic petroleum reserve 
     are having trouble getting the letters of credit guaranteeing 
     the full value of the oil they need in order to complete the 
     deal. One reportedly operates out of a New York apartment 
     building. Another reportedly was incorporated about a month 
     before the White House announced plans to tap the reserve.
       If these companies can't come up with letters of credit to 
     complete the transaction, then they'll have to back out of 
     the contracts. Presumably that will delay the release of oil 
     since the Energy Department had earmarked these three small 
     firms to handle nearly one-third of the 30 million barrels. 
     One forfeited its bid Thursday, but the other two have until 
     midnight today to obtain letters of credit.
       But this tale gets worse. There are no contract 
     restrictions preventing companies from eventually exporting 
     the oil they receive from the reserve to Europe where it 
     could command a higher price, say some congressional leaders. 
     It is possible that heating oil could end up outside the 
     United States, and the Northeast would still shiver this 
     winter. With refineries running at near capacity and Middle 
     East tensions rising, chances already are slim that tapping 
     the reserve will make much of a lasting dent in energy 
     prices.
       Senate Energy Committee Chairman Frank H. Murkowski, a 
     critic of using the reserve to tinker with market prices, 
     wants the Energy Department to explain how all this could 
     happen. ``If the stated purpose for the swap was to supply 
     the Northeast with home heating oil, why wasn't there a 
     contractual obligation that made sure it will get there?
       Good question. The possible answers aren't pretty, though. 
     Either the Energy Department conducted an incomplete review 
     of credentials, or these are blatantly sweetheart deals. 
     Consumers deserve an answer.

                          ____________________