One in an Occasional Series
The government has lost $3 billion in the oil business since November without lifting a finger.
Plunging international oil prices have eroded the value of the Strategic Petroleum Reserve from $14 billion to $11 billion, and prices are still dropping.
Congressional supporters of the reserve see the current bargain-basement prices as precisely the reason to keep pumping oil into storage in Louisiana and Texas salt domes. The administration uses the same plunging prices to justify its proposal for a moratorium on filling the reserve.
"Oil prices will never be this cheap again," said Rep. Mike Synar (D-Okla.). "In the long run, cheap oil will discourage conservation and increase dependence on foreign oil. The lowering of oil prices is not a sign of weakness" in the Organization of Petroleum Exporting Countries. "It's a membership drive for OPEC."
Conversely, the Strategic Petroleum Reserve is "basically a dinosaur," said Milton Copulos, a senior analyst with the conservative Heritage Foundation. "It's nice that we've got it, but there is no reason to continue to spend money on it. The fact that something is cheap is no reason to buy more than you need."
The fight over the oil reserve represents a fundamental split between those who feel that the energy crisis may be over and those who think it is only in remission.
Eleven years ago, the Strategic Petroleum Reserve easily passed Congress as insulation against another oil embargo. The Energy Department paid an average of $28 a barrel, but the delivered price is now $22 a barrel and falling. Even so, few question the policy of having an oil reserve.
"The initial estimates showed oil consumption going up, demand continuing, prices rising and interruptions likely. No one could have had the foresight to see prices going down in 1986," said Ed Rothschild, assistant director of Citizen/Labor Energy Coalition.
Initially, the president was authorized to store up to 1 billion barrels of oil in salt domes in Louisiana and Texas. Today, the reserve contains 494 million barrels and the administration proposes for the second year in a row an indefinite moratorium when the reserve reaches 500 million barrels in April.
Those who think we can stop filling the reserve "misunderstand the nature of energy security," said Sen. Bill Bradley (D-N.J.).
"Even if we were to import no oil from the Persian Gulf, our allies do. If there is an interruption there, the price jumps worldwide. America, the world's biggest oil consumer, would be hurt the most," he said.
Danny A. Boggs, deputy secretary of energy, said the "basic purpose of the reserve is to prevent a disruption in the physical supply of oil. It is not to provide relief for the entire world oil market." Any size of reserve, he said, "would have a minor effect on the world market."
"If oil were free," said Boggs, "we could store an indefinite amount. But we have to draw the line. In today's circumstances, we have an adequate level of protection."
Bradley said another "issue that should be addressed" is that the reserve buys all its oil from Mexico, which he said desperately needs money to repay billions of dollars in loans from American banks.
Richard D. Furiga, deputy assistant secretary for the Strategic Petroleum Reserve, dismissed the concern. "I'm a very small part of Mexico's total sales," he said. "I'm only taking 50,000 barrels a day from Mexico [of total sales] of 1 million barrels."
In essence, said William W. Hogan, a professor at the Kennedy School of Government at Harvard University, the reserve is "always a budgetary issue. Not because we don't need it, but because it has a negative impact on the current budget. The expense goes on the budget of the current president, and the benefits go to a later president," said Hogan, who has studied the reserve for the government.
For the last two years, the battle between Congress and the White House over the reserve has involved the additional question of "deferrals" -- the tactic of not spending money that Congress has appropriated.
"In the last 18 months the administration has started and stopped three contracts through deferrals," said Synar. "This is no way to run the government. A moratorium doesn't stop the program, it just delays it, and costs more money in the long run."
The General Accounting Office "provided estimates of some costs that will be associated with the moratorium," the House Government Operations Committee said in a report critical of the deferrals last year. "GAO testified that it would cost $3 [million] to $4 million just to dismantle and store equipment to be put at the Big Hill [Tex.] site in a standby condition . . . . DOE could terminate [an electrical] power contract altogether for a $1.4 million penalty, but this might mean that DOE would have no power for maintenance of the site," it said.
"If this delay is for one year or longer, the equipment warranties will have expired before the equipment is ever placed in service," testified Frank Walk of Walk, Haydel & Associates Inc., a reserve contractor.
But Furiga said, "We don't intend to let the equipment get rusty, and we will maintain equipment just like any industrial plant would. I don't see the warranties as a big problem. I feel we have a really adequate maintenance program . . . .
"We haven't canceled any contracts, we're just not awarding any new contracts," he said. "We're not wasting money in having a moratorium, we're just not spending it.
"The name of the game," he said, "is reducing the deficit.