SPR Tap on Tap?

Government said to be considering requests to open reserve; pols call for relief

Published in CSP Daily News

WASHINGTON -- The U.S. government said it was considering an oil industry request to open up its Strategic Petroleum Reserve (SPR) after Hurricane Katrina battered crude production sites, reported international news service Agence France Presse (AFP). And U.S. Senator Jon Corzine (D-N.J.) and Illinois Givernor Rod Blagojevich have separately called for President Bush to tap the SPR.

The Department of Energy (DOE) said it was "currently reviewing that request, and will review any additional requests if they are made. If a loan is approved, an announcement [image-nocss] will be made at that time," according to a brief statement obtained by AFP.

The DOE did not specify who had made the request, but ordinarily the 700-million-barrel emergency reserve is only opened up at the request of an oil company. Following Hurricane Ivan in September 2004, the DOE released more than 5 million barrels of crude oil to a number of refiners including Premcor, ConocoPhillips and Shell Trading to ensure smooth supplies.

Two Louisiana tanker terminals badly affected by KatrinaPort Fourchon and the Louisiana Offshore Oil Portcombined handle more than 20% of all the crude oil imported into the United States. According to U.S. government data, Katrina has also shut down an estimated 95% of crude production and 88% of natural gas output in the Gulf of Mexico, which accounts for a quarter of total U.S. oil output. A total of 735 oil and natural-gas rigs and platforms remained evacuated, according to the federal Minerals Management Service.

Energy Secretary Samuel Bodman said Monday the government stood ready to help if requested to tap the SPR. "Looking at the broader impacts on the nation, we are mindful that the affected region contributes a significant amount of our oil, gas and refined product supply," he said in a statement.

"The administration has been clear that the [SPR] is a national security asset that can be used to protect American consumers and our economy in the event of a major supply disruption, including natural disasters."

Extra supplies from the SPR could help calm the market, Wachovia economist Jason Schenker said. But he added: "At the end of the day, it may not matter for gasoline and heating oil prices how much crude comes out of the SPR. After all, it will not matter how much crude is available if the refineries are shut down and can't run the crude they have.

President Bush should release crude oil from the nation's emergency stockpile to help lower prices, U.S. Senator Jon Corzine said, according to a Bloomberg report. We have gotten to a situation where releasing some of the strategic reserves makes a lot of sense,'' he said in an interview. You don't have to do a great deal sometimes to lean against the wind of markets by providing supply.''

And Gov. Blagojevich has once again called on President Bush to help bring down the cost of gasoline in the United States by releasing additional oil supplies from the SPR.

Two weeks ago, I wrote to you, asking that you authorize the release of thirty million barrels of oil from the nation's [SPR] in order to help bring down gas prices for consumers, the governor wrote in his letter to the president, according to Blagojevich's website. With the onset of Hurricane Katrina and its effect upon oil shipments and production from the Gulf Coast, I respectfully request that you reconsider the option of releasing oil from the [SPR]. The Gulf of Mexico produces approximately one quarter of our national domestic output of oil. Limitations to that supply will likely have an extremely detrimental impact on oil prices and gas prices. Prices are expected to increase by 25 to 45 cents a gallon today alone. As a nation, we need to take action, and we need to take action now. Only you can single-handedly authorize the release of oil from the [SPR] and save consumers money every time they fill up their cars.

Monday morning, gas stations across Illinois increased their pricesin some cases as much as 40 cents to nearly $3 a gallon, the website said.

Blagojevich pointed out that tapping the SPR in response to a hurricane is not unprecedented. Last year when Hurricane Ivan disrupted gasoline supplies, the government exchanged more than 5 million barrels of crude oil from the reserve. In his letter, he said that in 2000, an oil swap was used to withdraw 30 million barrels over a 30-day period. The move helped bring prices down by more than $6 per barrel and wholesale gasoline prices by 14 cents per gallon. At that time, a barrel of oil cost $33. Today, that same barrel of oil costs $70.

After we made our initial request two weeks ago, your office rejected our request, saying that the [SPR] could only be used in cases of emergencies, and that sky rocketing gas prices was not an emergency. I'm sure we can all agree that a Category 4 hurricane cannot be considered anything but an emergency, meeting the criteria your office has set for authorizing the release of oil, the governor wrote.