In a continuing effort to address high energy prices, U.S. Senator Susan Collins today joined several of her colleagues in introducing legislation that would suspend acquisition of petroleum to fill the Strategic Petroleum Reserve (SPR) for one year, or until the price of petroleum falls to $50 or less per barrel for 90 days during the year.
“It simply does not make sense for the Department of Energy to be purchasing oil for the Strategic Petroleum Reserve at a time when oil prices are near $90 per barrel,” said Senator Collins. “The federal government is taking oil off the market and thus driving up prices at a time when consumers are struggling to pay their fuel bills. This defies the laws of supply and demand. It is also a bad deal for taxpayers for the Administration to be purchasing oil when prices are so high.”
Senator Collins worked with Senator Carl Levin (D-MI) on a bipartisan provision that was included in the Energy Policy Act of 2005 that requires the Department of Energy to procedures for obtaining oil for the SPR, with particular regard to the effect that acquiring oil for the SPR would have on oil prices and supplies.
In addition, last month, Senator Collins wrote a letter to Energy Secretary Samuel Bodman requesting that it temporarily suspend filling the SPR.
A full text of the letter, dated January 10, follows:
Dear Secretary Bodman:
In light of record-high crude oil prices and the devastating impact on many Americans struggling to heat their homes this winter, we are writing to urge you to suspend temporarily filling the Strategic Petroleum Reserve (SPR).
On January 2, the price crude oil on the New York Mercantile Exchange briefly reached $100/barrel. This caps a rapid rise in prices from $71/barrel in August 2007, an increase that cannot be explained by increased demand or tight supplies alone. This winter, the Energy Information Administration estimates that households can expect to pay between 10 to 22 percent more for heating fuels than during the 2006-2007 winter. In the state of Maine, for example, consumers face home heating oil prices 17 percent higher than this time last year ($2.31/gallon in December 2006 compared to $3.28/gallon as of December 31, 2007). No one should be forced to choose between medicine and food or heat, but the rapid increase in crude oil prices has pushed many citizens into exactly such crisis situations.
Section 301(c) of P.L. 109-58, the Energy Policy Act of 2005 (“the Levin-Collins amendment”), requires the Department of Energy (DOE) to follow procedures for the acquisition of oil for the SPR that "avoid incurring excessive cost or appreciably affecting the price of petroleum products to consumers” and “avoid adversely affecting current and futures prices, supplies, and inventories of oil." At a recent joint hearing of the Senate Homeland Security and Government Affairs Committee’s Permanent Subcommittee on Investigations and the Senate Energy and Natural Committee’s Subcommittee on Energy, one of the witnesses, Dr. Philip Verleger, stated that his analysis shows that a significant portion of the rise in crude oil prices since August was caused by DOE’s decision to fill the SPR.
In enacting Section 301(c), Congress intended DOE to resume use of the sensible business model it employed prior to 2002 for acquiring oil for the SPR — buying more oil for the SPR when prices were low and supplies were plentiful, and less oil when prices were high and supplies were tight. Instead, DOE is buying oil when prices are nearing record highs and supplies are tight, taking valuable oil off the market at the very time more supply would ease prices. DOE has presented no compelling justification for this course of action which disregards the significant impact of the SPR fill program upon oil prices, consumers, and the U.S. economy.
The SPR already contains nearly 700 million barrels of oil. DOE plans to acquire almost 13 million more barrels of oil for the SPR in the first six months of 2008, in connection with the Department of Interior’s royalty-in-kind program. A deferral of these deposits would increase oil supplies to the U.S. market and help decrease record-high prices with no detriment to the SPR’s ability to supply oil in the event of a supply disruption.
Based on futures market prices and the Department’s own forecasting of crude oil prices, a deferral of SPR deliveries until later in the year would allow the Department to acquire oil at a substantial discount compared to today’s prices, saving the taxpayers millions of dollars. These funds could be used to fund increases in programs such as the Low Income Home Energy Assistance Program that provides states funding to operate home energy assistance programs for low-income families, the elderly, and others who may be on limited incomes and in need of assistance.
Thank you for your prompt attention to this urgent matter.
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