Washington, DC�US President Bill Clinton Monday ordered the Department of Energy to establish a temporary 2 million bbl northeastern US home heating oil reserve by October.
Clinton said, "Winter may seem far off on this hot day, but if we don't do something now, reserve stocks of heating oil may not be in place before the cold weather comes. This action will leave us far better prepared to face the winter months."
The New England states experienced a heating oil price spike last January, and the US Energy Information Administration warned again last week that low distillate stocks could cause more price jumps next winter.
Clinton also urged Congress to reauthorize the Energy Policy and Conservation Act (EPCA), which authorizes operation of the Strategic Petroleum Reserve (SPR). In that bill, he said Congress should authorize a permanent Northeast heating oil reserve with appropriate criteria for its use.
The White House said DOE has legal authority to create an interim stockpile. Within 2 weeks, through the Defense Energy Supply Center, DOE will solicit offers to swap SPR crude from the West Hackberry site in southern Louisiana for heating oil.
Bidders will supply the distillate, transportation, and interim storage facilities. Contracts will be awarded to companies offering the best exchange value for the SPR crude.
Energy Sec. Bill Richardson said, "Even on an accelerated timetable, it will take several weeks before winning companies will be able to arrange for storage facilities and acquire the heating oil. That meant we had to act before the end of this month or put many Americans at risk of running short of heating oil this winter."
Legal changes
The White House said DOE could have created a permanent reserve under current law if it amended its SPR operating plan, but that would have required a 60-day delay for comment. It said the Energy Secretary has full authority to obtain crude or refined products for the SPR and place them in interim storage as he deems appropriate.
Richardson also will ask Congress to approve an amendment to the SPR plan allowing permanent storage of home heating oil.
DOE said, even though Congress has not reauthorized EPCA, which expired Mar. 31, legislators did approve funding for DOE to operate the SPR, implying legal authority for exchanges.
The White House said Congress also must draft less restrictive criteria for use of the heating oil reserve. Without a special trigger, current law would not allow the distillate reserve to be used unless there was a "national supply emergency," the same criteria as for SPR crude oil.
Last week, Frank Murkowski (R-Alas.), the Senate Energy Committee chairman, proposed narrow language for a distillate trigger. Under his plan, the difference between the price of crude and distillate must jump 15% over 2 weeks or 25% over 4 weeks, or distillate prices must be 60% greater than a 5-year seasonally adjusted rolling average.
API response
The American Petroleum Institute is concerned about the effects the heating oil reserve might have on the performance of the free market.
�While we do not yet know the details of the president�s proposal," said API, "we are concerned about government intervention in the marketplace and its effect on the private markets. We also have questions about possible unintended consequences of creating a regional reserve.
�There is a danger, for instance, that the requirement to fill this reserve could divert home heating oil needed to build inventories. The presence of this reserve could displace private inventory and discourage importers, and it could discourage suppliers from moving additional heating oil when a shortage occurs.
�Last year�s home heating oil problem was mainly related to weather," said API, "which impeded deliveries because there are no pipelines serving New England. Having a regional reserve does not help when the weather conditions are so severe that home heating oil cannot be moved into each individual Northeast market."
API also says the need to produce additional supplies of heating oil may adversely affect US refiners' ability to manufacture adequate gasoline during this high-demand season: �The industry is working hard to supply gasoline for this driving season and has begun to build inventories for the heating season. Adding an additional strain of the creation of a heating oil reserve may add unnecessarily to this burden.�