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Department of Energy

Washington, DC 20585

April 12, 1991

The Honorable J. Bennett Johnston
Committee on Energy and Natural Resources
United States Senate
Washington, DC 20510

Dear Mr. Chairman:

On March 11, 1991, Robert H. Gentile, Assistant Secretary for
Fossil Energy, testified before your committee on Titles VII and
VIII of s. 341.

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Following the hearing, you submitted written questions on behalf
of Senators Wallop and Akaka to supplement the record. Enclosed
are the answers to questions 1, 3, 4a, 4b, 4c, 5a, 5b, 5c, 7a,
7c, and 8, (Wallop), and answers to questions i, 2, 3, 4, 5, 6, 7,
10, 11, 12, and 15 (Akaka). The remaining answers are in the
clearing process and will be forwarded to you as expeditiously as

If we can be of further assistance to you or your staff, please
contact our Congressional Hearing Coordinator, Renee Wilhite,
(202) 586-4277.


Speuph C.

C. Kaupindle for

Jacquelihe Knox Brown
Assistant Secretary
Congressional and intergovernmental




Question 1:


Would you agree that many of today's energy
problems stem from reliance on an international
market-place where energy prices have no
relationship to the costs of production or the
full costs of maintaining access to those
We agree that in the international oil market,
prices are not directly tied to the costs of
production or to the full costs of maintaining
access to supplies. oil prices are affected by
OPEC actions and by other political and
governmental influences. However, we do not

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

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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 4: Would you comment on the effectiveness of the recent

coordinated IEA drawdown of strategic stocks.


In your judgment, was there full cooperation
among IEA members?

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total 2.5 million barrels per day (MMBD), of which 2

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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?
the United States still drawing down the SPR?


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.

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