Use oil reserve to shield consumers from market jolts
By BILL RICHARDSON
August 15, 2006
Oil prices skyrocketed recently after British Petroleum announced it was shutting down a major Alaskan oil pipeline. It was feared the loss could be as much as 400,000 barrels of oil a day, or 8 percent of domestic production.
Now it appears that the pipeline failure will cut Prudhoe Bay production by only half, taking 200,000 barrels a day off the market. That good news and the Middle East cease-fire have allowed oil prices to settle somewhat.
However, action still needs to be taken now to help ease this oil price jolt and relieve consumers' pain at the pump.
First, the United States should tap the Strategic Petroleum Reserve. The Bush administration has indicated its willingness to do this, but compare its reaction to this relatively small loss of oil to the administration response in 2002 when labor instability in Venezuela shorted world oil markets by almost 2.5 million barrels of oil a day. At that time, the White House had to be pressured to stop pulling oil off the market, let alone consider releasing Strategic Petroleum Reserve oil into the market. In fact, Vice President Dick Cheney in the past has stated that he does not think tapping the reserve is necessary except in a "dire emergency," such as the loss of "5 to 6 million barrels a day."
Why this abrupt, 180-degree policy shift? Could the administration, threatened with the loss of Republican control of Congress, be motivated by more than a new-found appreciation for the value of stable oil markets?
The BP pipeline failure drove oil prices to more than $76 a barrel, only a nickel off the all-time high, while Iowa consumers are struggling with gas prices at nearly $3 a gallon.
Second, I would tap the reserve with a significant twist. The federal government should negotiate an oil exchange with BP to repay the reserve with interest for every barrel of oil withdrawn during the pipeline shutdown.
This oil "loan" would keep the marketplace whole for now, with repayment plus interest from BP in the form of a significantly greater quantity of oil back into the reserve at a later date. This would calm markets, stabilize prices and have minimal impact on overall levels of oil in the reserve. Also, in accepting the government's terms of such a loan, BP would be demonstrating that it is trying to be a good corporate citizen.
The reserve should be viewed as a vital tool to increase energy security and protect energy consumers. This was the policy posture that I as energy secretary took in 2000 when our exchange of reserve oil lowered prices from $37 to $31 a barrel in the course of a week. This translated into savings at the pump and adequate heating oil supplies for the Northeast that winter. In addition, this "loan" of reserve oil to the markets was paid back with interest, in the form of a more oil into the reserve, at no cost to the taxpayer.
Short- and long-term solutions exist to our current energy crisis. However, both will take leadership and the ability to lead tough negotiations with "big oil," two things that seem to be lacking in Washington.
In the longer term, our policies and technology investments should acknowledge that we depend on oil at our peril. Breaking our oil addiction will require a major, "man-on-the-moon" type of effort focused on new technologies and renewable energy, including Iowa-grown corn-based ethanol. Long-term energy security will be won only when we diversify our portfolio and keep our petro dollars at home.
In the short term, our obligation is to working families who struggle to make ends meet. This obligation should be met through leadership, recognition of the new realities of the global oil marketplace, a willingness to use the petroleum reserve as a more effective tool in that marketplace - and the courage to demand responsibility and accountability from corporate America.