Senate Bill Seeks to Halt Shipments to Strategic Reserve

Seven senators introduced legislation on Feb. 6 aimed at halting Energy Department shipments to the Strategic Petroleum Reserve when oil prices are high.

The measure would suspend DOE oil acquisitions for the rest of this year, or until oil prices falls to $50 per barrel or less. Oil is currently trading at roughly $87 per barrel and briefly surpassed $100 in early January before falling back.

"It puts upward pressure on oil and gas prices. It hurts consumers. It is exactly the wrong thing to do," said Sen. Byron Dorgan (D-N.D.), the bill's lead sponsor and the chairman of the Appropriations subcommittee that crafts DOE spending bills.

Other sponsors are Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) and Sens. Carl Levin (D-Mich.), Susan Collins (R-Maine), Joseph Lieberman (I-Conn.), Ron Wyden (D-Ore.) and John Kerry (D-Mass.).

Dorgan said he is eyeing multiple approaches to advance the measure. "If I can't move it as an authorization bill, I fully intend to include it on an appropriations bill," he said. "This will move this year."

DOE will add 11 million barrels of royalty-in-kind oil to the reserve through July and is planning further additions of in-kind oil after that. Under the in-kind program, oil producers provide the product to the government directly in lieu of paying royalties.

In addition, DOE may spend up to $584 million by the end of September on oil purchases to replace some of the SPR oil sold after 2005's Hurricane Katrina. The agency sold 11 million barrels to refiners after the storm, which badly disrupted Gulf Coast energy networks.

The combined additions of royalty-in-kind and purchased oil would add up to 125,000 barrels per day later this year -- 75,000 barrels from the in-kind oil and the rest from the purchases.

Dorgan, in alleging the oil additions are adding to consumer energy costs, pointed to the work of energy consultant Philip Verleger, who has said DOE additions to the reserve amid high prices have added as much as 10 percent to the price of light, sweet crude oil.

But Energy Secretary Samuel Bodman yesterday continued to defend diversion of oil to the reserve. He disagreed with the analysis that Dorgan cited, telling the Senate energy committee that taking the oil for the reserve off the market does not add "meaningfully" to consumer prices.

Filling the reserve helps boost U.S. energy security by providing a bigger cushion against supply disruptions, he said during a hearing on DOE's fiscal 2009 budget request.

Also, Bodman and other DOE officials said they first undertake market analysis before seeking contracts to obtain oil for the reserve, and also carefully evaluate bids.

But proponents of the new bill say DOE is coming to the wrong conclusion with the current additions of in-kind oil and the purchase plans. "The real issue here is, are we just going to put our policies on automatic pilot," Bingaman said at a press conference announcing the bill Feb. 7.

The reserve currently holds 698 million barrels and has a physical capacity of 727 million. The oil is stored in salt caverns along the Gulf of Mexico. DOE is proceeding with plans to expand the reserve to its authorized level of 1 billion barrels by adding a new site in Mississippi and expanding sites in Texas and Louisiana.

The Bush administration is also asking Congress to boost the capacity to 1.5 billion barrels, but lawmakers have not adopted the proposal.