To immediately address the high cost of energy, U.S. Senators Susan Collins (R-ME), Carl Levin (D-MI), Joseph Lieberman (ID-CT), and Norm Coleman (R-MN) are urging the Department of Energy to temporarily suspend filling the Strategic Petroleum Reserve (SPR). In a letter to Secretary Samuel Bodman, the Senators say that they believe that the continued filling of the SPR will cause increased demand pressure on the oil market, increasing oil prices on both the wholesale and consumer levels.
“It makes no sense whatsoever for the Department of Energy to purchase more oil for the SPR at a time when prices are at record highs. The Department should not be taking oil off the market and adding to pressures on supplies when consumers are struggling to heat their homes and fill their gas tanks,” Senator Collins said. “DOE has not presented any compelling national security justification for buying oil at this time, and its actions certainly appear to be contrary to the Levin-Collins provisions of the 2005 energy act.”
Senator Levin stated; “This is absolutely the wrong time to put oil into the SPR. The Administration should be working to provide relief to American consumers and businesses rather than helping to boost oil and gasoline prices. The Department should immediately suspend the upcoming deposits.”
“There is evidence that the flow of oil into the strategic reserve recently has had a significant impact on the prices consumers pay for heating oil and at the gas pump,” said Senator Lieberman. “That is not supposed to happen under current law.”
“When prices are near record highs, DOE needs to be more strategic about the Strategic Petroleum Reserve. Congress has directed DOE to avoid acquiring oil for SPR if it will drive oil prices up or adversely affect oil inventories – in the current energy market DOE should temporarily suspend filling the SPR,” said Senator Coleman. “It is my hope the Secretary will heed our concerns and postpone SPR deliveries until filling the reserve will no longer have a negative affect on oil prices consumers pay as current oil prices are putting a terrible strain on America’s working families.”
A full text of the letter follows:
Dear Secretary Bodman:
In light of record-high crude oil prices and the devastating impact on many Americans struggling to heat their homes this winter, we are writing to urge you to suspend temporarily filling the Strategic Petroleum Reserve (SPR).
On January 2, the price crude oil on the New York Mercantile Exchange briefly reached $100/barrel. This caps a rapid rise in prices from $71/barrel in August 2007, an increase that cannot be explained by increased demand or tight supplies alone. This winter, the Energy Information Administration estimates that households can expect to pay between 10 to 22 percent more for heating fuels than during the 2006-2007 winter. In the state of Maine, for example, consumers face home heating oil prices 17 percent higher than this time last year ($2.31/gallon in December 2006 compared to $3.28/gallon as of December 31, 2007). No one should be forced to choose between medicine and food or heat, but the rapid increase in crude oil prices has pushed many citizens into exactly such crisis situations.
Section 301(c) of P.L. 109-58, the Energy Policy Act of 2005 (“the Levin-Collins amendment”), requires the Department of Energy (DOE) to follow procedures for the acquisition of oil for the SPR that “avoid incurring excessive cost or appreciably affecting the price of petroleum products to consumers” and “avoid adversely affecting current and futures prices, supplies, and inventories of oil.” At a recent joint hearing of the Senate Homeland Security and Government Affairs Committee’s Permanent Subcommittee on Investigations and the Senate Energy and Natural Committee’s Subcommittee on Energy, one of the witnesses, Dr. Philip Verleger, stated that his analysis shows that a significant portion of the rise in crude oil prices since August was caused by DOE’s decision to fill the SPR.
In enacting Section 301(c), Congress intended DOE to resume use of the sensible business model it employed prior to 2002 for acquiring oil for the SPR — buying more oil for the SPR when prices were low and supplies were plentiful, and less oil when prices were high and supplies were tight. Instead, DOE is buying oil when prices are nearing record highs and supplies are tight, taking valuable oil off the market at the very time more supply would ease prices. DOE has presented no compelling justification for this course of action which disregards the significant impact of the SPR fill program upon oil prices, consumers, and the U.S. economy.
The SPR already contains nearly 700 million barrels of oil. DOE plans to acquire almost 13 million more barrels of oil for the SPR in the first six months of 2008, in connection with the Department of Interior’s royalty-in-kind program. A deferral of these deposits would increase oil supplies to the U.S. market and help decrease record-high prices with no detriment to the SPR’s ability to supply oil in the event of a supply disruption.
Based on futures market prices and the Department’s own forecasting of crude oil prices, a deferral of SPR deliveries until later in the year would allow the Department to acquire oil at a substantial discount compared to today’s prices, saving the taxpayers millions of dollars. These funds could be used to fund increases in programs such as the Low Income Home Energy Assistance Program that provides states funding to operate home energy assistance programs for low-income families, the elderly, and others who may be on limited incomes and in need of assistance.
Thank you for your prompt attention to this urgent matter.