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Congress Votes to Halt SPR Deliveries, Block Producer Access

Congress last week forwarded to the White House legislation to temporary suspend deliveries of crude oil to the Strategic Petroleum Reserve (SPR) in an attempt to ease gasoline prices. The measure would suspend SPR shipments until either the end of the year or when crude oil prices dip below $75/bbl. The White House indicated Thursday that President Bush, who has objected to halting SPR shipments, would not veto the measure, Reuters reported.

The Senate passed the measure (HR 6022) by unanimous consent last Wednesday, after it cleared the House of Representatives. The bill was similar to a previous SPR amendment adopted by the Senate on Tuesday as part of legislation to reauthorize federal flood insurance (S. 2284). The Senate went the extra step -- passing the SPR measure by unanimous consent -- so it wouldn't get tied up in conference committee over the flood legislation, and thus could be immediately sent to the president.

While Senate Republicans supported temporarily halting deliveries to the SPR, they said it was a drop in the bucket. Senate Democrats blocked Republicans efforts to attach an amendment to a flood bill that sought to make more federal onshore and offshore lands available to producers. The defeat of the Republican amendment (42-56), which was sponsored by Sen. Pete Domenici (R-NM) and cosponsored by 21 senators, came as no surprise. Even Domenici acknowledged prior to the vote that "we probably will not win."

The GOP proposal sought to open a portion of the Arctic National Wildlife Refuge to leasing and give coastal states the option to open their shore areas to oil and natural gas production, among other things. If the Republican measure had passed, it would have sent "such a big signal to the rest of the world," Domenici said.

"We're astonished, but not surprised" by the setback, said Barry Russell, president of the Independent Petroleum Association of America (IPAA). "The Senate's disappointing vote shows that once again, after our history of dependence on foreign oil and the more recent record high prices, policymakers have not made any progress to alleviate this threat to our economic and national security."

The support from both sides of the aisle to halt SPR shipments was a significant departure for Republicans, who in the past have opposed blocking shipments to the SPR to help relieve gasoline prices. Democrats, on the other hand, have traditionally believed that halting SPR shipments would ease prices in the market.

Temporarily suspending SPR deliveries will make 70,000 b/d available to the market, said Sen. Byron Dorgan (R-ND). While this is not a "giant step," he said, "this [is something that] we agree on. This we can do."

The IPAA said it understood the economics of halting SPR deliveries during a time of high prices. "However, we cannot fail to recognize that our true, strategic petroleum reserve is the oil and natural gas resources we have under American soil. Congress must understand that increased American oil and gas production is one of our most important solutions for the foreseeable future," Russell said.

The Senate Democrats did not try to attach their competing energy package to the flood bill. Rather, Senate Majority Leader Harry Reid (D-NV) may wait until later this month to bring up the Democratic version, possibly as a stand-alone bill or as separate amendments to other bills, said Bill Wicker, a spokesman for Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee. The Democrats' bill, The Consumer-First Energy Act of 2008, seeks to revoke $17 million in tax breaks for energy companies, impose a windfall profits tax on energy companies that don't invest in renewable energy sources and impose federal penalties for energy price gouging (see NGI, May 12).

Contrary to the Democratic package, the Republican amendment "does not hold out much promise for affecting the price" of oil or gas, Bingaman said on the Senate floor. Nor does it "do anything to deal with speculation" in the market, he noted. Rather than opening new lands to production, Congress should be concentrating on offering incentives to promote drilling in areas that have already been leased, he said.

Of the 7,124 permits that were issued to drill for oil and gas on federal lands last year, Bingaman estimated that only 5,243 were actually drilled. He said three-fourths of the lands leased onshore are not being produced. Producers are sitting on about 31 million acres, he noted. And of the 41 million acres leased offshore, Bingaman reported that 33 million acres are not being produced.

He noted that the Republican amendment left out one area "where it would be the easiest and fastest to get production" -- the eastern Gulf of Mexico. When the Senate last "debated offshore [and] onshore oil and gas production in this chamber in 2006, we made what I considered to be a very bad bargain. We put off limit...10 times the amount of natural gas that we opened up to exploration and drilling," Bingaman said.

"We made available for lease 2 Tcf of natural gas in the Gulf of Mexico, while putting off limit 22 Tcf of natural gas. We also put new areas of the Gulf of Mexico under moratoria for the first time, including portions of Lease Sale 181 area that were closest to the existing oil and gas infrastructure. These areas under current law [are] off limit until 2022 because of that provision that we passed into law in 2006."

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