Senate Energy Committee Probes Strategic Reserve Policy

The Senate Energy and Natural Resources Committee will turn its attention to the Strategic Petroleum Reserve this week as lawmakers continue to criticize Energy Department additions to the reserve when oil prices are at near-record levels.

The committee meets tomorrow for what Democratic spokesman Bill Wicker said will be a broad review of oil inventories.

Topics likely to surface are DOE's continued use of royalty-in-kind oil to add to the reserve and plans to also purchase crude for the SPR later this year.

Committee Chairman Jeff Bingaman (D-N.M.) recently cosponsored a bill that would suspend DOE oil acquisitions for the rest of this year, or until oil prices fall to $50 per barrel or less. Oil is currently trading at close to $100 per barrel.

Sen. Byron Dorgan (D-N.D.), the lead sponsor of the bill, is also a member of the committee. DOE critics say adding to the reserve is putting upward pressure on prices and thereby hurting consumers.

But Energy Secretary Samuel Bodman has repeatedly said that crude volumes being added to the reserve are too small to meaningfully affect prices. DOE officials also say they conduct market analyses before making decisions about adding oil to the reserve.

DOE will add roughly 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, DOE officials said this month.

The reserve, which is held in salt caverns along the gulf coast, currently holds almost 699 million barrels and has a capacity of 727 million barrels.

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.