Oil Stockpile Stuck in Controversy

DURING last year's first-ever emergency drawdown from the Strategic Petroleum Reserve, several million barrels of oil passed through the St. James Terminal here.

The drawdown proved to skeptics that oil could be pumped from the reserve when needed, Frank Lemoine, site manager for the SPR terminal, says proudly. The terminal, a complex of storage tanks, pipelines, and loading docks, is nestled between sugar cane plantations and the Mississippi River.

The question today, though, is how to finish filling the reserve. Congress and the Bush administration agree that the capacity should be expanded to 1 billion barrels from the current 750 million, but there is no consensus on how to obtain the additional oil.

The 568 million barrels now stored in underground caverns in Texas and Louisiana were purchased by the Department of Energy (DOE) with federal tax dollars. But those are not forthcoming at a time when Washington's budget deficit could swallow a supertanker.

"The problem is, there's not a very strong constituency for the SPR," says Jack Riggs, chief of staff on the House Subcommittee on Energy and Power.

"It's one of those programs that benefits everybody, but nobody really knows it. So when the appropriations committee sits down to divide up the money available for energy programs, the SPR is kind of last one on the list," he says.

The subcommittee is chaired by Rep. Philip Sharp (D) of Indiana, the leading advocate in Congress for filling and expanding the SPR and using it in timely fashion. The subcommittee came up with a plan, currently in the House's version of the energy bill, requiring the SPR to be filled at a rate of 150,000 barrels per day.

Instead of appropriating money for the DOE to buy oil, the bill would order importers of foreign oil and refiners of domestic oil to "set aside" enough to achieve that fill rate, amounting to about 1 percent of their volume. The companies would retain ownership of the oil, but they would only get to use it during a drawdown emergency.

The fill rate would be maintained until the SPR reached the billion-barrel mark. If by then that amount was less than a 90-day supply of oil imports, which all observers expect to rise as US production declines, then the set-aside would continue.

"Needless to say, we don't think that's a very good idea," says James Randolph, assistant secretary of energy for fossil energy. It would be troublesome to administer a system involving hundreds of companies and thousands of transactions with oil of different qualities and prices. But more fundamentally, the administration objects to what would in essence be a tax on the oil industry.

"The question is," Mr. Riggs responds, "should taxpayers or oil consumers pay for what is essentially an insurance policy" for the nation's economy?

His answer: "We are insuring against a risk that is caused by our consumption of oil, so it's fair that oil consumers pay the premium for that insurance policy." The cost would be only half a cent per gallon of gasoline, which refiners and importers could either absorb or pass on to consumers.

"You keep passing it along to the consumer and the consumer doesn't appreciate that," counters Jere Smith, a spokesman for Phillips Petroleum in Bartlesville, Okla. He says the government could buy the oil as before, but "they'd rather stick it to the industry" than worsen the federal deficit.

The American Petroleum Institute, the oil industry's lobby, adds that the burden would reach $15 billion by the time the SPR was filled.

The SPR section of the House energy bill still must survive review by the Ways and Means Committee, debate on the House floor, and then a conference with the Senate, which has no such provision in its version of the energy bill.

The set-aside provision would not take effect immediately, but would give the administration until 1993 to achieve the 150,000 b.p.d. fill rate by some other way, such as leasing oil from an exporting country. "Every indication is they will continue to be unsuccessful" at leasing oil, Riggs says.

Mr. Randolph admits that impatience with such attempts led Energy Secretary James Watkins to announce in February that the SPR would resume purchases of oil in the usual way. Such purchases were suspended in August 1990, when Iraq invaded Kuwait. DOE has some $800 million to spend, consisting of prior allocations and $438 million from the 1990 test sale and 1991 emergency sale of SPR oil.

"Time is going by," Randolph says. But the DOE isn't closing the door to "imaginative ways of getting reserves without direct impact to the taxpayer," he says. "Talks are continuing" with unspecified producers. Resuming market purchases, he says, may prompt hesitant foreign producers to consummate a leasing deal with the DOE.

Randolph says part of the problem has been Congress's insistence on approving any leasing deal. "We think it would be very difficult to negotiate a deal if you wound up with three or four hundred negotiators on our side," Randolph says.

Meanwhile, the DOE will soon spend $50 million on its first oil purchases since the Gulf war. The SPR should begin receiving the oil in May.