Senators See Need for U.S. Gas Reserve
Friday, September 30, 2005
Two U.S. senators yesterday called for the creation of a government stockpile of gasoline that could be tapped to prevent shortages and to help hold down prices when hurricanes or other events disrupt supplies.
The idea appears to be gaining some traction among lawmakers who are under pressure from constituents to do something about high gasoline prices. But the oil industry and some other lawmakers are intent on defeating the measure, saying it would interfere with the market and discourage needed imports.
Sens. Charles E. Schumer (D-N.Y.) and Richard J. Durbin (D-Ill.) said at a news conference that their legislation also calls for emergency reserves of jet fuel. Several Gulf Coast refineries remain shut down because of damage from hurricanes Katrina and Rita, creating tight supplies and higher prices for gasoline, jet fuel and other products.
"With the energy markets stretched to the max, Hurricanes Rita and Katrina wreaking havoc with our Gulf refiners, and greedy oil companies jacking up prices at the pump, we need to create rainy day reserves for gasoline and jet fuel," Schumer said.
The hurricanes' impact on Gulf Coast refineries has called attention to a tight market for gasoline and jet fuel -- the result of increasing demand and refineries that have not kept pace. The market conditions are exacerbated by oil companies that have reduced gasoline inventories in recent years, which can lead to bigger price spikes during disruptions.
The United States already has a Strategic Petroleum Reserve stocked with crude oil, which was created in the 1970s following the Arab oil embargo. At the time, analysts said there was plenty of refining capacity and the overwhelming fear was guarding against a disruption in oil imports. In 2000, the United States created an emergency stockpile of home heating oil.
A number of European countries began creating emergency stockpiles of gasoline and other oil products in the 1960s to protect against disruptions. Many of the countries require oil companies to maintain the reserves, and governments decide when to open them.
The Senate proposal -- along with a similar measure in the House sponsored by Rep. Sherrod Brown (D-Ohio) -- calls on the government to build and maintain the gasoline reserves.
Earlier this month, the 26 member countries of the International Energy Agency, including the United States and a number of European countries, agreed to release stocks in their reserves of oil, gasoline or other oil products as a way to prevent shortages after Hurricane Katrina. The agency, which coordinates energy policy during supply emergencies, had authorized only one previous release, after Iraq invaded Kuwait in 1990.
Oil industry representatives said the congressional proposals would cost too much and raised logistical questions such as where the storage tanks would be located, where the oil products would come from to fill them given the tight market, and which of the many grades of gasoline required across the country would be stored.
They said countries that export gasoline to the United States would be more reluctant to do so after supply disruptions because release of gas reserves would lower prices. They added that the market worked under the current system because higher prices reduced demand, encouraged imports and prevented shortages.
"The experience we went through with Katrina is about as difficult as we can imagine," said Bob Slaughter, president of the Washington-based National Petrochemical & Refiners Association. "The truth of the matter is that things came out fairly well. There were some spot shortages involved. They were being mitigated. Save for Rita, the prices were being mitigated."
Sarah Emerson, managing director for the consulting firm Energy Security Analysis Inc. in Wakefield, Mass., said creating government reserves would keep prices artificially low during supply disruptions. She said the country would conserve more if higher gasoline costs were passed along to consumers.
Higher prices encourage drivers "to make decisions about their consumption that are a bit more fuel efficient . . . as opposed to buying an SUV that's twice as big as they need," Emerson said.
But consumer advocates and some lawmakers said refiners do not want the reserves because they could reduce the industry's profits. Oil companies say their profits result from tight supplies and elevated prices on commodities markets. Some consumer advocates said that oil companies have failed to build more capacity as a way of keeping supplies tight and profits high, while the industry cites regulatory barriers and concerns about future profits.
Brown, the Ohio congressman, introduced legislation calling for emergency gasoline reserves in 2003 out of a concern about isolated supply disruptions and price spikes. The measure was defeated, and Brown introduced it anew after the recent hurricanes.
He said he is not optimistic it will be approved with oil industry opposition. "In this Congress, if it's an issue that the oil companies don't like, it's defeated," Brown said.