ator Malcolm Wallop Page three March 28, 1991 One of the measures we support in this regard is a viable SPR oil leasing program. It is our understanding that in September of 1990 the Department of Energy (DOE) was given statutory authority to enter into contracts to store oil owned by others in the reserve. Such a program would help to fill the SPR at a minimal cost to the Federal Government. As soon as practicable, DOE should move forward with negotiations with a number of prospective suppliers to lease oil for the SPR. Now that the Persian Gulf situation has been resolved, the Middle East oil producing allies of the United States may be more willing than ever to enter into these types of agreements. To the extent that favorable leasing arrangements cannot be negotiated with producers, petroleum should continue to be acquired for the SPR through purchases to the extent possible given federal budgetary constraints. There are more than 560,000,000 barrels of crude oil in the SPR at this time. Although expansion is important, it is not urgent that the fill rate be increased unless the increase can be implemented without economic distortion. PMAA appreciates this additional opportunity to present its views and would be glad to provide any further information you may need. Enclosed are the responses to questions you raised in your Please let me know if we can provide you additional information. Enclosure Sincerely, Responses by Charles J. DiBona, President, American Petroleum Institute, to questions from Senator Malcolm Wallop (R-WY) for the record relating to the March 11, 1991 hearing on the Strategic Petroleum Reserve, Senate Committee on Energy and Natural Resources 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 supplies? Answer: The U.S. is heavily reliant on imported oil, which trades in a world market where its price as determined by the quantities supplied relative to demand is much higher than the cost of production in the major oil exporting countries. However, even if the U.S. did not rely on oil from the Middle East, where the cost of oil production is far below world prices, or on oil from other exporting areas, our economy nevertheless would be affected by events in the oil exporting nations. This is because a substantial oil supply disruption anywhere will affect oil prices in markets around the world. Thus, our economy and the economies of many other nations are vulnerable to energy shocks; they are damaged when oil prices rise sharply and helped when oil prices remain low. The most prudent federal energy policy is not to artificially raise domestic energy prices -- which would counterproductively slow our economy or to substitute more costly resources for imported oil, but rather to take costeffective steps that would improve our economic performance. These include such measures as providing greater access to public lands for energy development and avoiding overly stringent environmental and other regulations that unnecessarily impede domestic energy development. A large Strategic Petroleum Reserve, which can cushion the effects of any supply disruption, is an important part of such a prudent energy policy. Question 2: Do you agree that the United States must find the means to stimulate development of competitive supplies by assuring sufficient stability in domestic energy prices that investments can be made in the development of domestic alternatives? What mechanism would you propose to accomplish this objective? Answer: Since oil prices are set on world markets, we do not believe that the federal government should take special measures to assure stability of domestic energy prices. Price volatility does not necessarily reduce investment in domestic energy development, but extensive government intervention to stabilize energy prices might well discourage such investment. Rather than trying to stabilize energy prices, the federal government should encourage domestic energy investment by providing greater access to federal lands, adopting cost-effective environmental and other regulations, and implementing appropriate tax policies. If the federal government takes the proper steps, economically justified investments in domestic energy development will be made in response to market signals. 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. a. Would you agree that this requirement is in effect a surcharge on the importation of crude oil and petroleum products? b. What mechanism would you propose to fund expansion of the Strategic Petroleum Reserve under the present Federal budgetary constraints? - - Answer: The proposed requirement would have many of the same effects as a surcharge on imported oil, which I discussed in my testimony. Since the Strategic Petroleum Reserve serves a general public interest benefitting all Americans by protecting the economy in case of an oil supply disruption it should be funded from general revenues. In addition, P.L.101-383, which was enacted last year, permits the government to lease oil for storage in the Strategic Petroleum Reserve. This concept offers the potential for considerable federal budget savings in the near term. Such ways of saving money on the Strategic Petroleum Reserve should be fully explored. Appendix II-Additional Material Submitted for the Record STATEMENT on THE NATIONAL ENERGY SECURITY ACT OF 1991, S. 341 SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES for the U.S. CHAMBER OF COMMERCE by Jeffrey H. Joseph® March 11, 1991 The U.S. Chamber of Commerce appreciates this opportunity to express its views on Title VIII of the National Energy Security Act of 1991. All business enterprises require abundant supplies of energy at affordable prices in order to remain competitive, create jobs, and help pull the economy out of recession. Energy exploration and development on the Outer Continental Shelf (OCS) is an essential part of a balanced, effective energy policy. The Chamber supports a policy of sharing OCS lease revenues with coastal states affected by offshore oil and natural gas development. In particular, the establishment of an Impact Assistance Fund will assist development of the OCS by easing the burden on states and local governments that must provide the transportation, education, and other community services for the work force drawn to drilling regions. Providing a greater share of the financial benefits of new and existing development to coastal communities directly affected by OCS leasing activity is sound national policy and will create an incentive for states to become involved in the OCS leasing program. THE CURRENT CRUDE OIL AND NATURAL GAS SITUATION The Chamber is concerned about the current domestic oil supply situation. According to the U.S. Department of Energy (DOE), over the past 10 years oil has supplied approximately 42 percent of the nation's energy needs. Oil is not only a critical component of the nation's energy supply, but also is virtually the only liquid transportation fuel. The transportation sector alone consumes roughly 10 million barrels of oil each day. * Jeffrey H. Joseph is Vice President, Domestic Policy |