The Bush administration is considering establishing regional reserves of gasoline, diesel fuel and jet
fuel to help avert the type of shortages that occurred following hurricanes this year, Energy Secretary
Samuel Bodman told reporters Oct 27. But he rejected the notion the White House was considering a tax on
the oil industry to fund a federal program designed to help poor families pay winter heating bills.
Bodman said the administration was pondering setting up regional reserves capable of providing a five-day
supply of gasoline, diesel fuel and jet fuel in case of shortages. "That matter is being discussed, but it
is a very complicated matter," he said. Among the impediments, Bodman said, were setting up reserves that
would accommodate the various blends of fuels used around the US, and making sure the stockpiles held fresh
fuel, as oil products, unlike crude, degrade.
American Petroleum Institute downstream manager Ed Murphy
told Platts Oct 27 the administration appeared to be serious about looking at the fuel reserve idea, but
there was no indication it would be proposed.
Deutsche Bank analyst Paul Sankey, in a research note Oct
27, said the White House plan involved requiring refiners to hold a statutory minimum level of reserves, a
mandate that could cost the industry between $100- and $500-mil/year, excluding working capital and
inventory costs. Setting up a federally owned products stockpile, like the existing 2-mil bbl
Northeast Home Heating
Oil Reserve or the 727-mil bbl capacity Strategic
Petroleum Reserve owned and operated by the government, could cost $12- to $15-bil, assuming the
stockpile was designed to hold a five-day supply of products, Murphy said. API was opposed to such a
reserve, he noted.
"These two storms -- Katrina and Rita -- were a 100-year
phenomenon. There's never been a disruption of this magnitude before" to oil and gas supply, Murphy said.
"The thing is, despite this, the effects of the storm are essentially over. Prices are down below where
they were before the storm. We got through a truly once-in-a-100-year event in a surprisingly short time.
Yes, there were some interruptions, some pain, but the system worked."
Given the effectiveness of the market in responding to the storm, "Do we need an insurance policy against a
one-in-100-year event?" Murphy asked. His answer: "If it is not going to cost us anything, sure. But this
is an expensive proposition." He also said there had been no comprehensive studies that such a stockpile
would help lower prices. "The forward curve is going to be significantly affected if the government
requires inventories be held," he said. "Who's going to take the risk of importing product from Europe if
the government is holding products that could be released before" the tanker from Europe arrives in the
market. Setting up a reserve "actually could make it more difficult to respond to shortage," he said.
Updated: Nov 7, 2005
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