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

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 1, 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
possible.

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

Question 1:

Answer:

QUESTIONS FROM SENATOR WALLOP

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
supplies?

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.

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As the National Energy Strategy points out, we are part of an interdependent, international world oil market. We cannot change that reality. We can,

however, reduce our vulnerability to disruptions

in the world market by the demand, supply and
contingency preparedness measures set forth in the

NES.

Question 3. As you are aware, S. 341 contains a provision which would

Answer:

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?

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.

Answer:

Answer:

Answer:

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

There has been excellent cooperation among IEA
members in planning their individual country
responses to the IEA Contingency Plan. OECD

countries committed to make available to the market a
total 2.5 million barrels per day (MMBD), of which 2
million barrels per day were from strategic (1.5
MMBD) and commercial (.5 MMBD) stocks. Individual
member commitments were implemented flexibly. Actual
results are being evaluated by the IEA. We will

provide the IEA evaluation of the

when it is available.

Contingency Plan

b. 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

response.

Is

C. Is the coordinated drawdown still in effect?
the United States still drawing down the SPR?
Although the coordinated response plan was officially
deactivated on March 6 by the IEA Governing Board,
implementation continued through the end of March by
the United States and other IEA countries.

QUESTIONS FROM SENATOR WALLOP

Question 5a: What are the Department's plans for use of the funds received from the recent drawdown of the SPR?

Answer:

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?

Answer:

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.