NCPA - National Center for Policy Analysis

Refiners See Little Benefit To Opening Petroleum Reserve

September 22, 2000

Al Gore is urging President Clinton to release oil from the nation's Strategic Petroleum Reserve. But refinery managers say the move would have little impact on supplies of home heating oil because oil refineries are already running at near peak capacity.

  • Refineries are running at 95 percent of capacity nationally and at 96.5 percent in the Gulf Coast region where the government's reserves are located.
  • Refining capacity is tight because no new refineries have been built since the 1970s.
  • Instead, the industry has spent $7 billion during the last decade to comply with stringent federal environmental rules, analysts say.

If Clinton agrees to the release, the amount would probably be about 1 million barrels a day, which could push the price of crude down about 10 percent to 15 percent temporarily. However, in response, some Middle East countries might reduce production to maintain prices.

The strategic reserve exists as an emergency supply in case of a major supply disruption or war, notes George W. Bush -- not as an aid in manipulating oil prices. It was created 24 years ago in response to the Middle East oil embargo and has not been tapped since the 1991 Persian Gulf War.

  • The reserve currently hold 571 million barrels of unrefined, crude oil.
  • The oil is stored in about 50 caverns leached out of salt domes.
  • Former Deputy Secretary of Energy Henson Moore told the White House Bulletin that "those reservoirs were not built to withstand a constant inflow and outflow of oil....Every time you move oil in and out of them, you're decreasing the lifespan for the reservoir."

The release is opposed by Treasury Secretary Lawrence Summers and Federal Reserve Board Chairman Alan Greenspan, according to a Summers memo to Clinton.

Sources: Alexei Barrionuevo, "Tapping the Strategic Petroleum Reserve Would Do Little for Heating Oil Supplies," Wall Street Journal; and Editorial, "Who'll Solve the 'Crisis'?" Investor's Business Daily, both on September 22, 2000; "Former Energy Official Sees Gore's Proposals As Ineffectual in Dealing with Underlying Crisis," White House Bulletin, September 21, 2000.

 

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