President Clinton last week ordered the Department of Energy totrade crude oil from the Strategic Petroleum Reserve for twomillion barrels of heating oil to be stored temporarily in theNortheast as protection against fuel shortages this winter.

While the decision may provide some degree of energy security inthe Northeast, where fuel oil was in short supply last winter, itprobably is not enough to calm the storm that’s brewing on CapitolHill.

Sens. Frank Murkowski (R-AK), Charles E. Schumer (D-NY) andSusan Collins (R-ME) all expressed concerns publicly last weekabout low energy inventories, tight supply and high prices. Apotential energy crisis in the works, they said, includingshortages and extreme prices this winter.

“All it will take is a run of bad weather to spring the trap onthe American people,” said Schumer.

“There is a coming price shock for consumers this winter whenthey start using natural gas,” said Murkowski in a statement. “Eventhough demand has skyrocketed for this fuel, supply has remainedconstant. Prices for natural gas are reaching historic highs andstorage, which is usually high during the summer months isextremely low this summer,” he noted. “Since 50% of Americans heattheir homes with natural gas, the Northeast’s heating oil problemslast year may look like a picnic compared to the howling we willhear this winter. If we do not move to address this situationquickly, we will soon face the consequences of an energy policythat is adrift.”

Schumer, who claims his state will be the “epicenter” of thenatural gas, fuel oil and electricity “shortfalls and pricespikes,” went into panic mode, calling on the president to set up aPresidential Energy Commission made up of representatives fromenergy producing and consuming states to explore short-term andlong-term responses to the “potential energy crisis.” Schumer andCollins plan to introduce legislation requesting the formation ofthe new commission.

Using data that was a couple months old, Schumer referred to”record low” U.S. inventories of natural gas, crude oil and heatingoil coupled with increasing demand for electricity. He warned thesituation could lead to “the most serious domestic energy crisissince the 1970s.”

“Never in our history have we seen U.S. stocks of natural gas,crude oil and heating oil shrink so low at the same time. And inNew York City, our electricity usage has already surpassed ourgenerating capacity,” said Schumer. “A confluence of shortages inall the major energy components are coming together at once to formwhat could be the ‘perfect’ energy crisis. All it would take is anunseasonably hot summer, or a cool winter to push us over theline.”

Schumer said a new commission could “focus on both the supplyand demand side of the energy equation… We need to get ahead ofthe curve.”

He said Energy Information Administration data shows thatinventories of crude oil, natural gas, home heating oil and dieselfuel are all at 24-year lows. He cites EIA data showing that gasinventories have been lower than 1,450 Bcf at the end of May onlytwice in the past besides this year: in 1996 at 1,161 Bcf and in1997 at 1,365. Meanwhile, he noted gas prices on June 30 at$4.43/Mcf were at record levels of more than twice the 24-yearnational average or $1.80 and more than twice prices in January2000 of $2.12/Mcf. Storage injections this summer have been abouthalf the average rate, he said, because of high demand and flatsupplies. His announcement, however, came out prior to the AmericanGas Association’s report last week of the highest weekly storageinjection (97 Bcf for the week ending July 7) in more than twoyears. AGA’s Chris McGill, director of gas supply and storage, saidlast week Schumer’s concern about the natural gas situation ismisplaced. McGill said the storage inventory situation is not thatfar from normal and there is absolutely no reason to panic. “I knowthat the local distribution companies and other companies that putgas in storage for firm customers are going to have it there,” hesaid (see related story this issue). Working gas levels in storagecurrently are 8.5% below the five-year average.

The situation is slightly different for crude oil inventories,which are 11% below the 24-year average. Schumer noted oil priceson July 7 were 50% more than the 24-year average. In June, heatingoil and diesel fuel inventories of about 103.7 million barrels wereabout 26% below the 24-year historic average of 140.2 millionbarrels. Since 1976, distillate stocks have been this low onlytwice: 1989 and 1996. In addition, he noted, heating oil prices at84.6 cents on June 30 were twice the average June price and 23cents greater than the next highest June price of 61.7 cents in1992.

Schumer also highlighted the power situation in his home statewhere demand behind Consolidated Edison’s citygate grew by 700 MWbetween 1989 and 1996 to 10,950 MW and soared by another 700 MWbetween 1996 and 1999 to 11,650 MW.

Schumer blames OPEC first. The origin of the energy shortage, hesaid, began with OPEC’s supply cuts in March of last year. Thosecuts began to dry up crude and distillate inventories, which led torecord heating oil prices last winter and record gasoline pricesthis summer. The strong economy is to blame for the power andnatural gas situations, he said.

The Clinton Administration, meanwhile, believes its decision toadd a heating oil element to the Strategic Petroleum Reserve willprovide adequate insurance “so that consumers won’t be leftliterally out in the cold this winter,” said DOE Secretary BillRichardson. “While it might be difficult to focus the nation’sattention on sub-freezing temperatures during the middle of July,it is important we set up this reserve now so that there will beadequate supplies of heating oil come this winter.”

Under current law, the administration lacks the power to releasethe oil, and the president is appealing to Congress to approve amechanism for its release. “Time is running out,” he said last weekbefore departing for State College, PA, to address the NationalGovernors’ Association. “Winter may seem far off on this hot day,but if we don’t do something now, reserve stocks of heating oil maynot be in place before the cold weather comes.”

Last month, the House approved an amendment to a $21.7 billionspending bill for energy and water programs that would set up a twomillion bbl reserve that the energy secretary could tap into whenprice spikes cause financial hardships in the Northeast. Theamendment, sponsored by Rep. Don Sherwood (R-PA), also reauthorizesthe president’s power to withdraw oil from the Strategic PetroleumReserve. The Senate has not acted on it.

Clinton urged lawmakers to approve his overall energy proposal,which includes a series of tax incentives, comprehensiveelectricity restructuring and a reauthorization of the StrategicPetroleum Reserve.

“The action I take today will leave us far better prepared toface the winter months, but it does not relieve Congress of theresponsibility to act,” he said.

The strategic reserve has been used only once, by President Bushduring the 1991 Persian Gulf War. The DOE plans to offer anexchange of crude oil from the SPR to companies willing and able toprovide up to two million barrels of emergency heating oil and thenecessary Northeast storage facilities in time for the heatingseason. If authorized, the crude oil would come from the Reserve’sWest Hackberry site in Louisiana and will be offered through theDefense Energy Supply Center, an arm of the Department of Defensethat routinely procures petroleum for the military. The Center willissue a solicitation within the next two weeks that will specifythe terms and deadlines for the program. DOE wants the heating oilin storage by October.

The distillate reserve would be located at no more than foursites in the Northeast. The two million bbl reserve should providerelief from weather-related shortages for about 10 days, DOE said.The reserve should cost the American taxpayer about $8million/year.

The American Petroleum Institute came out against the reserveplan last week, however. API is concerned about the effects on themarket of building heating oil reserve. By creating the reserve,the government may be diverting heating oil away from privateinventories and exacerbating the problem, API said. It also may bediverting oil away from refiners who desperately need to rebuildgasoline stocks.

Rocco Canonica

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