WATCHING GOVERNMENT RETHINKING THE SPR

Like its predecessors, the Clinton administration sees the Strategic Petroleum Reserve as a too-expensive luxury.

It is considering freezing the size of the SPR, which holds 592 million bbl at caverns in Texas and Louisiana.

Jack Riggs, a Department of Energy assistant secretary, recently asked House and Senate panels to revise the 1975 Energy Policy and Conservation Act (EPCA).

He said Congress should drop its requirement for a 75,000 b/d fill rate and postpone plans to expand SPR to 1 billion bbl from the authorized 750 million bbl.

Riggs noted Congress in the past has complied with several administrations' requests to halt SPR purchases because of budget constraints.

"While we are sympathetic with the desire to complete the 750 million bbl SPR ... the fill rate is unlikely to approach 75,000 b/d in the near future," Riggs said.

CHANGES SOUGHT

Riggs asked Congress not to require DOE to plan for an expansion of SPR to 1 billion bbl until it allocates funds to fill it to 750 million bbl. Otherwise, DOE will have to spend $7 million for a plan "which may be obsolete by the time we get to it."

He asked Congress to delete a mandate that DOE ship oil from the Elk Hills, Calif., Naval Petroleum Reserve to the SPR when NPR oil prices drop below a certain level.

Riggs said Congress should also strike a provision allowing DOE to allocate as much as 10% of the oil in a drawdown, arguing that all SPR oil should be auctioned on the open market.

And he said other changes might permit DOE to fill existing caverns if it can negotiate alternative financing, "leases," or similar contracts that would reduce the cash required to acquire oil.

The U.S. is trying to persuade its International Energy Agency partners that in case of a supply disruption, member countries should draw down stocks first and share supplies as "a measure of last resort."

A DIFFERENT MARKET

Edward Krapels, of Energy Security Analysis Inc., Washington, D.C., said Congress should reconsider the entire EPCA.

He said when the law was passed 20 years ago, major firms and some producing countries dominated the world oil market.

He said, "The oil business has become ever more efficient, swift, global, and sophisticated.

"In today's global oil market, supply, demand, and price are much better at coping with supply distributions. We saw how well the market worked in the 1990 Iraq-Kuwait conflict: Prices rose in August, remained high as long as the Iraqi threat remained viable and as long as the U.S. failed to draw on its huge reserves, then collapsed as soon as it became apparent Iraq was no threat to Saudi Arabia."

Krapels said IEA's emergency sharing program should be scrapped, and the SPR drawdown policy should be integrated with financial markets that dominate oil pricing, even to the point of selling options to SPR oil.