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Saving Oil for a Rainy Day : Government's Stockpiles of Crude Growing Despite Program's Ongoing Controversy

December 13, 1987|DONALD WOUTAT | Times Staff Writer

FREEPORT, Tex. — From time to time, soldiers can be seen scampering around the fringes of an inconspicuous government complex south of here. When they're not dodging the resident alligators, they are exchanging laser gunfire with Wackenhut guards and local police and sheriff's deputies.

These are just games to prepare for real trouble, such as terrorists. James P. Davis, who manages the site for government contractor Boeing, declares: "I pity anybody who tries to invade here. It would be tougher than Fort Knox."

That is arguable--the government itself concedes that the security could be beefed up--but the analogy to Fort Knox is fitting. There is gold here, too, only it's black. This is the largest of a half-dozen underground salt domes in Texas and Louisiana into which the government has injected 537 million barrels of crude oil in the past 10 years.

The stockpiling continues, currently at a pace of 75,000 barrels a day. Most of it comes from Mexico, but oil from 18 nations has been stashed. More than 40 million barrels have been bought from Libya and Iran. Oil, after all, is oil.

The U.S. Strategic Petroleum Reserve, combined with smaller stockpiles in Germany, Japan and a few other Western nations, has made the world a different place from the one whose economy was rocked by disruptions in the output of oil in 1973-74 and again in 1979.

900-Million-Barrel Cushion

Today, the major oil importing nations enjoy several weeks' worth of government-controlled reserves totaling about 900 million barrels of oil as a cushion against a cutoff. The non-communist world uses about 46 million barrels a day. The two energy shocks of the 1970s involved disruptions of less than 2.5 million barrels a day.

Some credit the mere existence of the public stockpiles, along with the world's unused oil-producing capacity, for preventing a surge in the price of oil during the recent Middle East hostilities. And the reserves have clearly reduced the leverage of any hard-line Persian Gulf nation that would use oil as a weapon on the world scene.

"Anybody who argues against the Strategic Petroleum Reserve is either ignorant or illogical," says John Lichtblau, president of the Petroleum Industry Research Foundation, a respected industry think tank.

But burying the oil in the ground is only one battle. The war over when and how to exhume the stuff and deliver it to the gasoline pumps has yet to be fought, and it is a political and economic free-for-all waiting to happen.

The SPR has been a politically charged issue from the start, and the bickering continues today as Democratic congressmen claim credit for straightening out a mismanaged agency and dragging the Reagan Administration kicking and screaming to the altar of strategic oil stockpiles.

"We have found it almost impossible to deal with this Administration on SPR. They've tried to kill the damn thing twice," snipes Rep. Mike Synar (D-Okla.), chairman of a government operations subcommittee that overseas the reserve. "The Department of Energy came around as a Johnny-come-lately . . . it's a classic example of this Administration's failed leadership and lack of energy policy."

Some economists, meanwhile, complain that as a line of defense against a cutoff of oil supplies and the attendant surge in price--the reserve's primary purpose--its virtues have been overstated.

For example, Philip K. Verleger Jr. of the Institute for International Economics, author of an influential 1982 book, "Oil Markets in Turmoil," says oil prices today respond so quickly to the barest hint of swings in supply or demand that the economic damage from an oil cutoff would be done long before the government was able to sell its cache of oil.

"In theory, (the SPR) has meant a major change in the way one views the world oil market at a time of crisis. In actuality," Verleger says, "it may be of no use at all."

Such attacks are dismissed by Energy Secretary John S. Herrington as partisan politics or bad economics. The very existence of the reserves will ease the psychological fears of a shortage that could ignite prices, he insists. As for who did what to whom, Herrington says:

"It's one of the most successful programs in government today. Everyone wants to take credit for it."

The reserve has assumed a heightened importance since the dramatic 1986 fall in the price of oil caused Americans to start using more oil but to begin producing less of it. This has reversed a several-year decline in the nation's dependence on imported crude, which has risen to about 40% of our consumption from 30% in a year's time.

Rocky Start

Most of the increased demand has been met with oil from the Middle East, whose leading producers have been holding a rocky meeting of the Organization of Petroleum Exporting Countries. Though the cartel appears deeply divided now, many oil authorities expect its clout--and this country's vulnerability--to grow along with a rise in our reliance on imported oil to 50% of consumption by 1990.

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