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Department of Energy
Washington, DC 20585
April 12, 1991
The Honorable J. Bennett Johnston
Dear Mr. Chairman:
On March 11, 1991, Robert H. Gentile, Assistant Secretary for
Following the hearing, you submitted written questions on behalf
If we can be of further assistance to you or your staff, please
C. Kaupindle for
Jacquelihe Knox Brown
QUESTIONS FROM SENATOR WALLOP
Would you agree that many of today's energy
believe it is accurate to say that today's energy
prices have no relationship to the costs of production or the costs of maintaining access to suppliers. Over the long term, the basic laws of supply and demand dc operate in the world oil market. For example, during the mid-1980s world
oil prices fell sharply in spite of OPEC's efforts to maintain higher price levels through production quotas. The quotas were rendered ineffective, in
large part, by higher oil production from non-OPEC
countries resulting from the sharp increases in
oil prices during the 1970s.
As the National Energy Strategy points out, we are
however, reduce our vulnerability to disruptions
in the world market by the demand, supply and
contingency preparedness measures set forth in the
Question 3. As you are aware, S. 341 contains a provision which would
establish a price differential between domestic and imported crude oil and petroleum products. This is accomplished by requiring that approximately 9 percent of crude oil and petroleum product imports, or the equivalent, be furnished to the Federal government for use in both filling the Strategic Petroleum Reserve and meeting the fuel requirements of the Department of Defense. Would you agree that this requirement is in effect a surcharge on the
importation of crude oil and petroleum products? Answer: We agree that this requirement is in effect a charge on the
importation of crude oil and petroleum products.
QUESTION FROM MALCOLM WALLOP
Question 4: Would you comment on the effectiveness of the recent
coordinated IEA drawdown of strategic stocks.
In your judgment, was there full cooperation
total 2.5 million barrels per day (MMBD), of which 2
What was the estimated effect on international energy prices?
We do not believe that it is possible to quantify the
effects on international energy prices of the
coordinated response; but, we believe the stability
in oil prices was due, in part, to the successful
development and implementation of an IEA coordinated
Is the coordinated drawdown still in effect?
Although the coordinated response plan was officially QUESTIONS FROM SENATOR WALCOP
deactivated on March 6 by the IEA Governing Board,
implementation continued through the end of March by
the United States and other IEA countries.
Question 5a: What are the Department's plans for use of the funds received
from the recent drawdown of the SPR?
The Department plans to use the funds received from the recent
drawdown of the SPR to acquire oil to fill the SPR. Our initial
approach will be to pursue attractive acquisition contracts with foreign producers, including use of new authorities granted in
Public Law 101-383.
Question 5b: When does the Department intend to begin expending these funds
for replacement of the crude oil drawn down?
The Department intends to resume filling the SPR as soon as possible, following exploration of attractive alternatives to
direct purchase. The budget, which was prepared before the recent drawdown, assumed resumption of fill in mid-FY 1992, but this timing will be reviewed in the context of progress made in
negotiating an acquisition approach.
Question 5c: Are you considering the leasing of crude oil, rather than the
purchase of the replacement crude oil? Answer: We are considering a number of acquisition methods, including
"leasing," rather than relying exclusively on conventional direct purchases. Our budget assumes a "lease" approach.