John Barrow

Mr. BARROW

Mr. BARROW. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days to revise and extend their remarks and include extraneous material on the bill under consideration.

Mr. BARROW. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, gas prices are outrageous and we need to act. Families are hurting and are looking to us to do anything and everything that can help. There's no silver bullet, but there sure are things we can be doing better. One way is to make better use of our energy feedstocks, use what we ought to use today and save what we need to save for tomorrow. The goal of this bill, H.R. 6578, the Consumer Energy Supply Act, is simple: to increase the supply of oil in the United States that can be refined into gas. The bill will direct the Department of Energy to release 70 million barrels of light sweet crude oil from the Strategic Petroleum Reserve. The bill requires the sale or exchange of light sweet crude to begin 15 days after enactment and to be completed within 6 months. Under the bill the revenue from the release will go into the SPR petroleum account to purchase more oil so the SPR will end up with more oil than it started out with. The bill will make sure that the SPR level will not fall below 90 percent of the current level during the exchange. Now, the type of oil that will be released from the SPR is light sweet crude, which is the easiest and the cheapest to turn into gas. And the oil that will replace the light oil will be heavy sour crude which happens to be the oil that is best suited to be refined into diesel. What we need more of in this country is the highest and best use of all of our energy feedstocks. And this bill takes the oil that we pump back into the ground to save for later and puts that oil to its highest and best use right now and replaces that oil with oil whose highest and best use is to be held in reserve for a true national emergency. This bill makes it easier and cheaper to get this fuel to the market right now while making sure we aren't putting our future needs at risk. We need to use today what is good for today and save for tomorrow what is good for tomorrow. Because our refineries need more oil they can refine quickly to get gas and diesel on the market, this bill gives it to them. Adding heavy sour crude to the SPR in its place will make sure that the SPR will be more effective if a real emergency arises. That is because the heavy oil we will be swapping for light oil can be refined to the diesel fuel needed to power our trucks, our trains and our military needs in times of a true emergency. In April this year, the acting director for natural resources of the Government Accountability Office, Frank Rusco, gave Congress a detailed report to modernize the Strategic Petroleum Reserve and improve its flexibility and effectiveness. The Department of Energy has completed a study in 2005 which produced similar conclusions. This legislation will ensure that the SPR is more reflective of our Nation's modern refining capacity and that its strategic capabilities are better used while providing more oil available for refining right here in the U.S. Mr. Speaker, I would like to submit these two documents for the Record. Mr. Speaker, this bill will ease market tensions. It will help unlock some of the value in the SPR without negatively affecting the overall capacity or our strategic reserve policy. A release from the SPR will also help reduce the effects of market speculation on oil prices by sending the message that Congress is prepared to defend American families and businesses from these corrosive prices. That is what this bill will do. That is why it is a good idea for us to pass it. And that is why I urge my colleagues to vote for the bill. [From the United States Government Accountability Office] Testimony Before the Select Committee on Energy Independence and Global Warming, House of Representatives Strategic Petroleum Reserve: Improving the Cost Effectiveness of Filling the Reserve (Statement of Frank Rusco, Acting Director Natural Resources and Environment) Why GAO Did This Study The Strategic Petroleum Reserve (SPR) was created in 1975 to help protect the U.S. economy from oil supply disruptions and currently holds about 700 million barrels of crude oil. The Energy Policy Act of 2005 directed the Department of Energy (DOE) to increase the SPR storage capacity from 727 million barrels to 1 billion barrels, which it plans to accomplish by 2018. Since 1999, oil for the SPR has generally been obtained through the royalty-in-kind program, whereby the government receives oil instead of cash for payment of royalties on leases of federal property. The Department of Interior's Minerals Management Service (MMS) collects the royalty oil and transfers it to DOE, which then trades it for oil suitable for the SPR. As DOE begins to expand the SPR, past experiences can help inform future efforts to fill the reserve in the most cost- effective manner. In that context, GAO's testimony today will focus on: (1) Factors GAO recommends DOE consider when filling the SPR, and (2) the cost-effectiveness of using oil received through the royalty-in-kind program to fill the SPR. To address these issues, GAO relied on its 2006 report on the SPR, as well as its ongoing review of the royalty-in-kind program, where GAO interviewed officials at both DOE and MMS, and reviewed DOE's SPR policies and procedures. DOE provided comments on a draft of this testimony, which we incorporated where appropriate. What GAO Found To decrease the cost of filling the reserve and improve its efficiency, GAO recommended in previous work that DOE should include at least 10 percent heavy crude oil in the SPR. If DOE bought 100 million barrels of heavy crude oil during its expansion of the SPR it could save over $1 billion in nominal terms, assuming a price differential of $12 between the price of light crude oil and the lower price of heavy crude oil, the average differential over the last five years. Having heavy crude oil in the SPR would also make the SPR more compatible with many U.S. refineries, helping these refineries run more efficiently in the event that a supply disruption triggers use of the SPR. DOE indicated that, due to the planned SPR expansion, determinations of the amount of heavy oil to include in the SPR should wait until it prepares a new study of U.S. Gulf Coast refining requirements. In addition, we recommended that DOE consider acquiring a steady dollar value--rather than a steady volume--of oil over time when filling the SPR. This ``dollar-cost-averaging'' approach would allow DOE to acquire more oil when prices are low and less when prices are high. GAO found that if DOE had used this purchasing approach between October 2001 through August 2005, it could have saved approximately $590 million, or over 10 percent, in fill costs. GAO's simulations indicate that DOE could save money using this approach for future SPR fills, regardless of whether oil prices are trending up or down as long as there is price volatility. GAO also recommends that DOE consider giving companies participating in the royalty-in-kind program additional flexibility to defer oil deliveries in exchange for providing additional barrels of oil. DOE has granted limited deferrals in the past, and expanding their use could further decrease SPR fill costs. While DOE indicated that its November 2006 rule on SPR acquisition procedures addressed our recommendations, this rule does not specifically address how to implement a dollar-cost-averaging strategy. Purchasing oil to fill the SPR--as DOE did until 1994--is likely to be more cost-effective than exchanging oil from the royalty-in-kind program for other oil to fill the SPR. The latter method adds administrative complexity to the task of filling the SPR, increasing the potential for waste and inefficiency. A January 2008 DOE Inspector General report found that DOE is unable to ensure that it receives all of the royalty oil that MMS provides. In addition, we found that DOE's method for evaluating bids has been more robust for cash purchases than royalty-in-kind exchanges, increasing the likelihood that cash purchases are more cost-effective. For example, in April 2007, DOE solicited two different types of bids--one to purchase oil for the SPR in cash and one to exchange royalty oil for other oil to fill the SPR. DOE rejected offers to purchase oil when the spot price was about $69 per barrel, yet in the same month, DOE exchanged royalty- in-kind oil for other oil to put in the SPR at about the same price. Because the government would have otherwise sold this royalty-in-kind oil, DOE committed the government to pay, through forgone revenues to the U.S. Treasury, roughly the same price per barrel that DOE concluded was too high to purchase directly. Mr. Chairman and Members of the Committee: We are pleased to be here today to participate in the Committee's hearing on the Strategic Petroleum Reserve (SPR). Congress authorized the SPR in 1975 to protect the nation from oil supply disruptions following the Arab oil embargo of 1973 and 1974 that led to sharp increases in oil prices. The federal government owns the SPR, and the Department of Energy (DOE) operates it. The SPR currently has the capacity to store up to 727 million barrels of crude oil in salt caverns in Texas and Louisiana. As of April 21, 2008, current inventory of the SPR stood at 701.3 million barrels of oil, which is roughly equivalent to 58 days of net oil imports. DOE made direct purchases of crude oil until 1994, when purchases were suspended due to the federal budget deficit, and in fiscal years 1996 and 1997 approximately 28 million barrels of oil were sold to reduce the deficit. Since DOE resumed filling the SPR in 1999, it has obtained oil from the Department of the Interior's Minerals Management Service (MMS) ``royalty-in-kind'' program. Through this program, the MMS receives oil instead of cash for payments of royalties from companies that lease federal property for oil and gas development. MMS contracts for some of this royalty oil to be delivered to designated oil terminal locations or ``market centers'' where DOE takes possession. Because the royalty oil often does not meet SPR quality specifications, and because the market centers can be distant from SPR storage sites, DOE generally awards contracts to exchange royalty oil at the market center for SPR-quality oil delivered to SPR facilities. Obtaining oil for the SPR through the royalty-in- kind program avoids the need for Congress to make outlays to finance oil purchases, but the foregone revenues associated with using royalty-in-kind oil to trade for SPR oil imply an equivalent loss of revenue because MMS would otherwise sell the oil and deposit the revenues with the U.S. Treasury. Interior estimates that the forgone revenue attributable to using the royalty-in-kind program to fill the SPR were $4.6 billion from fiscal year 2000 through fiscal year 2007. The Energy Policy Act of 2005 directed DOE to increase the SPR storage capacity to 1 billion barrels and to fill it ``as expeditiously as practicable without incurring excessive cost or appreciably affecting the price of petroleum products to consumers.'' It required DOE to select sites to expand the SPR's storage capacity within 1 year of enactment, by August 2006. On February 14, 2007, Secretary of Energy William Bodman designated three sites for the expansion, including a 160 million barrel facility in Richton, Mississippi, an 80 million barrel expansion of a facility in Big Hill, Texas, and a 33 million barrel expansion of a facility in Bayou Choctaw, Louisiana. In its June 2007 SPR plan, DOE anticipated these expansions would begin in fiscal year 2008 and be complete in 2018. DOE also indicated that it would prefer to continue using the royalty-in-kind program to fill the additional storage capacity. DOE estimates the capital cost for the SPR expansion at approximately $3.67 billion, and estimates the cost of operating and maintaining the expanded portion of the SPR at $35 to $40 million per year. As DOE begins to expand the SPR, past experiences may help inform future efforts to fill the SPR in the most cost- effective manner. In that context, our testimony today will focus on: (1) Factors we recommend DOE consider when filling the SPR, and (2) the cost-effectiveness of using oil received through the royalty-in-kind program to fill the SPR. To address these issues, we are summarizing work from our August 2006 report on the SPR and our ongoing review of the royalty-in-kind program. For our August 2006 report, we contracted with the National Academy of Sciences to convene a group of 13 industry, academic, governmental, and nongovernmental experts to collect opinions on the impacts of past SPR fill and use and on recommendations for the future. We also reviewed records and reports from DOE and the International Energy Agency. In addition, for our ongoing review of the royalty-in-kind program for this committee and others, we identified and reviewed applicable laws and documentation on DOE policies and procedures for evaluating SPR purchase and exchange bids, and interviewed officials at both Interior and DOE. We have also drawn upon previous GAO reports on the royalty-in- kind program. We conducted our work on this testimony from January to April 2008 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In summary To fill the SPR in a more cost-effective manner, we recommended in previous work that DOE include in the SPR at least 10 percent heavy crude oils, which are more compatible with many U.S. refiners and generally cheaper to acquire than the lighter oils that comprise the SPR's volume. DOE indicated that, due to the planned SPR expansion, such determinations should wait until it prepares a new study of U.S. Gulf Coast heavy sour crude refining requirements. In addition, we recommended that DOE consider acquiring a steady dollar value of oil over time and allowing oil companies more flexibility to defer delivery of royalty-in-kind exchanges to the SPR when prices are likely to decline in return for additional deliveries in the future. In updating us on the status of this recommendation, DOE indicated that its November 8, 2006, rule on SPR acquisition procedures addressed our recommendations; however, this rule does not specifically address both how to implement a dollar-cost- averaging strategy and how to provide industry with more deferral flexibility. In subsequent comment, DOE noted that the November 8, 2006, acquisition procedures do not address dollar-cost-averaging, but they do address flexibility of purchasing and scheduling in volatile markets. Filling the SPR with oil purchased in cash is likely to be more cost-effective than filling the SPR through the royalty- in-kind program for several reasons. For example, the royalty-in-kind program adds a layer of administrative complexity to the task of filling the SPR, increasing the potential for waste or inefficiency. Moreover, DOE has evaluated the cost of cash purchases more thoroughly than exchanges, increasing the * * * With that, Mr. Speaker, I reserve the balance of my time.

Mr. BARROW. Reserving the right to object, Mr. Speaker, I would like for us instead to proceed with the speakers that we have identified, and we will address this later on as circumstances warrant at the end of the debate time that is allotted. So I do object at this time with the understanding that I will be glad to consider such a request at the appropriate time at the end of the time allotted for debate.

Mr. BARROW. Mr. Speaker, I'm pleased to yield 3 minutes to the gentleman from Texas (Mr. Lampson).

Mr. BARROW. I yield the gentleman an additional 30 seconds.

Mr. BARROW. Mr. Speaker, I am pleased to yield 2 minutes to the gentleman from Massachusetts (Mr. Markey).

Mr. BARROW. Mr. Speaker, regrettably, I do need to object, and I would be happy to consider such a request at the end of the time allotted for debate.

Mr. BARROW. Mr. Speaker, I am pleased to yield 2 minutes to the gentleman from Maryland (Mr. Van Hollen).

Mr. BARROW. Mr. Speaker, I reserve the balance of my time.

Mr. BARROW. Mr. Speaker, I am pleased to yield 1 minute to the distinguished Speaker of the House, the gentlewoman from California (Ms. Pelosi).

Mr. BARROW. Mr. Speaker, at this time I am pleased to yield 2 minutes to the gentleman from Illinois (Mr. Emanuel). (Mr. EMANUEL asked and was given permission to revise and extend his remarks.)

Mr. BARROW. Mr. Speaker, I am pleased to yield 2 minutes to the gentleman from Texas (Mr. Gene Green).

Mr. BARROW. I yield the gentleman an additional 30 seconds.

Mr. BARROW. Mr. Speaker, I am pleased to yield 2 minutes to the gentleman from Texas (Mr. Edwards).

Mr. BARROW of Georgia

Mr. BARROW of Georgia. I yield the gentleman an additional 30 seconds, Mr. Speaker.

Mr. BARROW

Mr. BARROW. Mr. Speaker, at this time I am pleased to yield an additional 2 minutes to the author of this legislation, the distinguished gentleman from Texas (Mr. Lampson).

Mr. BARROW. I object.

Mr. BARROW. Mr. Speaker, I'm pleased to yield an additional 2 minutes to the distinguished coauthor of this legislation, the gentleman from Massachusetts (Mr. Markey).

Mr. BARROW. Mr. Speaker, before proposing accommodation to my friend from Texas, I would like to confirm the amount of time that we have left. It's my understanding we have 5 minutes remaining; is that correct?

Mr. BARROW. Mr. Speaker, what I propose to do is reserve the balance of our time and at the same time ask unanimous consent that my friend from Texas may be allowed to control 3 minutes of our remaining time.

Mr. BARROW. We have no further speakers on our side. I would reserve the balance of our time.

Mr. BARROW. Mr. Speaker, I yield myself such time as I may consume. In the course of this debate, from time to time it has seemed as though folks were talking about this as if this was draw-down authority, as if this was just a pure draw-down from the Strategic Petroleum Reserve. I think it's important to emphasize this is not a draw-down proposal. This legislation proposes a swap. It proposes a swap for that which is best saved for tomorrow in exchange for that which is best used today. We propose to put in the ground what we should save for tomorrow, and put back into the system what we're getting out of the ground now which is best used today. We should use today what's best for today and save for tomorrow what's best for tomorrow. Also, much has been made, or rather, little has been made of the fact that this is just 3\1/2\ days of national consumption being added into the supply system. Only 1 percent of national consumption is being talked about here. When Mark Twain was born, he was the 100th person born in the town of Hannibal, Missouri. He said, you know, when I was born, I increased the population of my town by 1 percent. That's more than most folks can say in this world. Well, by this legislation, we can increase the supply of oil and what we've refined into gas in this country by 1 percent, and that's more than we can say about most of the pieces of legislation that we get to vote on from time to time. Also, it's important to recognize that this 3\1/2\ days, this extra 1 percent, is a far greater percent of the thing on which the world price rests. The world price rests on the very thin margin between daily worldwide production and daily worldwide consumption. What is that margin? That margin is a mere 1 million barrels a day. So we're talking about putting into the system 70 times the world's daily float, the difference between daily production and daily consumption. That is a very significant factor. It is not only a decent percentage of what we consume; it's a very significant factor of that very thin margin that contributes the most to the runaway cost of gas and oil in the world today. With that, Mr. Speaker, I wish to commend my colleague from Texas for his conduct and debate.

Mr. BARROW. I yield back the balance of my time.

Mr. BARROW

Mr. BARROW. Madam Speaker, due to Georgia's primary elections, I was absent from the House of Monday, July 14, and Tuesday, July 15, and missed several rollcall votes. Had I been present I would have voted in the following manner: H. Res. 1067--``Yes''; H. Res. 1080--``Yes''; H. Con. Res. 297--``Yes''; H. Res. 1259--``Yes''; H. Res. 1323--``Yes''; Passage, Objections of the President Notwithstanding, of H.R. 6331-- ``Yes''; Motion To Refer Kucinich Privileged Resolution--Yes; H.R. 5803--``Yes''; and H. Res. 1090--``Yes.''

Mr. BARROW

Mr. BARROW. Mr. Speaker, I am pleased to yield 1\1/2\ minutes to the distinguished chairman of the Committee on Energy and Commerce, the gentleman from Michigan (Mr. Dingell).