Pirinc says US energy plan shouldn't focus on lowering oil imports

The Petroleum Industry Research Foundation Inc., New York City, has warned the Bush administration and Congress not to focus a national energy strategy on reducing oil imports. And it said they should consider increasing the size of the US Strategic Petroleum Reserve.

HOUSTON, Feb. 26�The Petroleum Industry Research Foundation Inc. (Pirinc), New York City, has warned the Bush Administration and Congress not to focus a national energy strategy on reducing oil imports.

Pirinc, in a report titled "Directions Toward a Balanced Energy Policy," observed, "The past year has brought the sharpest reminders in a generation of the importance of stable supplies of energy for maintaining living standards and supporting economic growth.

'"While tight world oil supply conditions for much of last year produced sharply higher crude oil prices, local supply problems were at least as important in their impact on consumers�and were not confined to oil. There have been natural gas supply shortfalls and price spikes, electricity supply shortfalls and spiraling costs in California, as well as price spikes in Northeast heating oil and Midwest reformulated gasoline that went far beyond changes in crude prices.

"Any discussion of energy policy must therefore go beyond global oil considerations and focus as well on measures to ease what have proved to be very painful domestic, local energy bottlenecks and minimize prospects of their recurrence."

Pirinc, an oil industry think tank, said that in their energy-policy considerations, the administration and Congress should remember, "There is no single policy action, or any single fuel, that can resolve all US energy concerns.

"Thus any sound energy policy must incorporate two principles, balance and diversity. A balanced mix of policies must be considered, addressing both the supply side, which was a low priority for the prior administration, as well as the demand side.

"A balanced approach would include a review of the previous administration's treatment of the 'orphan' of recent energy policy, coal, and the 'stepchild,' nuclear. A further consideration is that, especially in the case of energy, modest gains in supply can have disproportionately large effects, not least in avoiding local price spikes. Finally, the California electricity crisis highlights the critical importance of regulatory and market flexibility, and the high cost to be paid when they are absent."

Pirinc said, "Under any realistic energy scenario, it is inevitable and unavoidable that the US will continue to meet a substantial share, currently over 50%, of its oil requirements through imports.

"Import dependence per se should not be viewed as undesirable. Availability of imports, even at current prices, keeps energy costs to the US economy far lower than they would be otherwise. Moreover, major oil producers, including key Organization of Petroleum Exporting Country producers, view the US market, the largest in the world, as critical for their own economies and have acted to deepen their ties to it."

Pirinc said import dependence should not be confused with vulnerability to disruption in world oil supplies. It noted that as long as the US participates in the world oil market, a supply disruption anywhere will affect the US through its effects on worldwide oil prices.

"Thus while diversity of supply should remain a cornerstone of energy policy, it does not reduce the need for a large viable Strategic Petroleum Reserve. The best insurance against disruptions is a large stock of prompt barrels of replacement oil."

Pirinc said the administration should review the adequacy of the current size of the SPR, its funding, and its use.

"The SPR was designed to minimize economic dislocation during clear-cut supply interruptions and not as a tool to dampen price run-ups, as has recently been the case. In October of last year, the prior administration used the SPR in an attempt to lower crude prices through the so-called swap of 30 million bbl. The effects proved fleeting and the precedent unfortunate. The new administration should ensure that the SPR returns exclusively to its original purpose."

Pirinc said the SPR has declined relative to US import requirements and consideration should be given to raising the amounts in storage over a period of time. It said storage has dropped to an average of 565 million bbl last year from 592 million bbl in 1994-95.

"Last year, the SPR averaged 56 days of net oil imports, down sharply from early 1990s levels in excess of 80 days. Moreover, if the SPR remains at about 570 million bbl ... coverage will fall to 46 days by 2005."

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