My oral testimony on dealing with oil — short term and long

Today at 9:15 am is the Select Committee on Energy Independence and Global Warming hearing, “Immediate Relief from High Oil Prices: Deploying the Strategic Petroleum Reserve.”

Live webcast at

My 5-minute Oral Statement (~750 words):

Mr. Chairman, members of the Committee.

I have three main points. First, we tried offshore drilling in 2006 and oil prices doubled.

Second, the only plausible remaining strategy for reducing oil prices fast is opening up the Strategic Petroleum Reserve or SPRO while making a major push for oil conservation.

Third, we’re going to sell off the SPRO by mid-century anyway. Why not do it now when consumers need the relief, and we can use the money to help end our oil addiction.

We must be honest with the public. Oil prices are headed much higher over the next 5 to 10 years unless we jumpstart the transition to low-cost alternative fuels, something even oilman T. Boone Pickens has said.

Conservatives insist that more offshore drilling will lower prices. But that is the one strategy we know has failed. We tried opening up most of the Gulf of Mexico to offshore drilling two years ago, but oil prices have doubled since then. Ending the moratorium on coastal drilling — where there is maybe one-fifth the oil already available for drilling in the Gulf — offers no realistic hope of reducing oil prices. Indeed, the Bush administration’s own energy experts have made the same point.

But selling a relatively modest amount of crude oil from the SPRO while promoting oil efficiency could pop the speculative oil price bubble and lower prices. It worked very well when President Bush’s father did it during Desert Storm, as my CHART shows [I will post on this later today].

On January 16, 1991, the President announced he would sell 34 million barrels from the Reserve to QUOTE “minimize world oil market disruptions.” That day oil sold for $32 per barrel. The next day, the price dropped by one-third to $21 per barrel. Oil remained in the $20 per barrel range during and after the war.

So imagine what would happen if the president announced he was going to sell 180 million barrels over the next year at a rate of 500,000 barrels a day. I advocate combining that sale with a strong push for oil conservation. This president — or more realistically the next president — should use his bully pulpit to launch a national oil efficiency education campaign urging consumers and businesses to take a variety of steps to reduce gasoline use. That could easily double the oil provided by the SPRO.

If oil prices did drop, that would vindicate this strategy. If oil prices did not drop, that would demonstrate how useless the strategic reserve is.

Let’s face it. The strategic reserve is not strategic. It was created at a time when people worried that countries could withhold oil from us. But now we have a global market, so that isn’t possible. We have replaced oil shortages with price spikes. So if we don’t use the SPRO to deal with our current price spike, when would we ever use it? After all, in the entire three-decade history of the SPRO, a mere 32 million barrels were sold during crises.

So I can’t imagine we’re going to keep this relatively useless “reserve” for many more decades. As you know better than anyone Mr. Chairman, we need to be almost completely off of oil by mid-century to avoid catastrophic climate impacts. So sometime soon we’re going to sell off the SPRO’s oil- I can’t imagine we are seriously going to keep $100 billion under the mattress forever.
I think we could use the price relief now. We could generate 20 to 25 billion dollars this year alone. Some of that could help low-income families deal with high energy bills. And some could jump-start the transition to a clean energy economy and end our oil addiction.

Gasoline prices are headed much higher unless we begin an aggressive switch to the only domestic alternative fuel that is both abundant and much cheaper than gasoline, namely electricity. We need to start spending billions of dollars accelerating the deployment of plug-in hybrids, energy efficiency, recycled energy, wind power, solar photovoltaics, and solar baseload.
In conclusion, conservatives argue oil prices will drop if we end the federal moratorium on coastal drilling – even though that might deliver only 100,000 barrels of oil a day sometime after 2020. How can anyone who believes that oppose releasing 500,000 barrels a day of oil starting now?

Of course, the first strategy would benefit oil companies and the second strategy would benefit the American people so that may explain who supports what.

9 Responses to My oral testimony on dealing with oil — short term and long

  1. John McCormick says:

    The energy conservation demand and consumer pain are bashing heads and your written testimony amplifies that.

    Higher oil prices are slowly causing public attitudes to shift to driving less and buying more efficient vehicles. The former reduces AGW gases and the latter, one can assume, will allow reestablishing old patterns and lifestyles that include driving wherever anyone chooses.

    This gasoline price transition needs a floor price to assure consumers oil will never again be cheap…but that is what they wish for and what your SPRO suggestion, for the short term, will inadvertently aid. I do not mean you are calling for cheap oil and I see the argument in the hearing as being drilling versus what?

    I only raise the obvious tension that will continue in the AGW debate as the world limps blindly toward the oil peak.

    John McCormick

  2. Jon says:

    Great job. Thank you.

  3. Joe says:

    Jon — Thanks. That was a good hearing.

  4. Joe says:

    John — I personally would be very interested to see how much oil prices would drop if we opened up some of the SPRO. If it were a lot, then frankly the people arguing that this was a speculative bubble were correct. If not, then that will send a strong signal that the situation is dire, that oil has peaked.

  5. Trinifar says:

    You may want to fix the typo: “I think we cut use the price relief now.”

  6. Nick Kong says:

    Great work today, Joe. I thought your arguments came through resoundingly.

  7. Joe says:

    Thanks, Nick. Some of the members really got what I was saying. I was also very happy most of the Dems understand the critical need to end our addiction to oil. And I learned a lot too. Hopefully, I will be able to interview James May, CEO of the Air Transport Association, about what $200 a barrel oil would do to the airline industry.

  8. Rick says:

    Joe, what do you think of switching over to electric cars and reregulating aviation? This would allow the surplus fuel can be polymerized for jet fuel, or at lease a greater proportion of crude oil is reformulated to jet fuel. Then regulation would protect long haul roots over water to be preserved. Finally we build long haul high speed bullet trains for transcontinental transportation. This allows us to drive when we must. We can still travel across country in far greater comfort than we could if we flew and we still save a critical part of the aviation industry until some time when even flying is replaced by something that doesn’t require carbon-based fuels.

  9. Well said, Joe.

    This retired oil company executive agrees with you that we should use SPR releases to manage prices downward. The economy will take at least 5 years to adjust and recover if oil prices stay where they have been. If I controlled the votes in Congress, I would make a substantial increase in CAFE standards the quid pro quo for opening the SPR.

    There is, of course, the contrary view–expressed by John McCormack above and by many, many others elsewhere–that high prices are a good way, or the best way, or only the way to ration consumption. I disagree with that view. I would impose efficiency standards, mandate markets for clean energy, set emission limits, mandate use of BACT and BARCT, etc. And if we do a good job of that and also allow trading of credits, I don’t object, so long as we don’t allow phantom credits as the EU does or allow credits for cleaning up super-dirty plants in places like China where we should insist they use BACT.

    Attempting to do all this by manipulating market prices, which will unavoidably be volatile, will not work and will cost more than regulation, IMHO. So long as we are staggering along under the burden of high energy prices, which includes the transfer to oil producing nations of about 1% of aggregate US household wealth each year, it will be more difficult to find the economic resilience and the political will to shut down existing power plants and refineries and do the other things that need doing.

    One more point, if we succeed in bringing about dramatically reduced per-capita use of petroleum in the US and also get India and China to impose efficiency standards on transportation, oil will once again get very cheap–if not permanently, at least from time to time.

    Joe, you’ve been saying high prices are here forever, but today you argued to make them lower. You should declare yourself clearly on the question whether high prices are the problem or the solution.