HAND it to our elected offi cials. They can do half as much in twice the time as anyone else in the world.
I know, I know. That’s hardly a revelation, except that this time I have an explanation as to why our government is so inefficient.
Specifically, I’m talking about the Strategic Petroleum Reserve.
If you’ve been successfully avoiding the debate over oil prices you will need to know that the SPR – as it is known – consists of four big puddles of crude oil.
There are two each in Texas and Louisiana, and another storage site is being readied in Mississippi.
Back in mid-May, President Bush announced, with a lot of hoopla, that he was going to stop filling the SPR, which is the government’s emergency reserve in the event that oil-producing nations decide to slit their own throats by stopping shipments to their biggest customer, the US.
The idea was simple. With oil prices breaking the backs of American consumers, the government had no legitimate reason to be in the market buying crude and helping to bid up the price.
Sound reasoning even if it was mostly a public-relations gimmick.
The order to stop filling the reserve was sort of a compromise between those who wanted the SPR filled to its 727 million-barrel capacity, and those who believed Washington should be selling oil from the reserve to bring prices down in the marketplace.
No matter what side of the argument you favor, this much is clear: The president said the SPR would stop buying oil and the president is the boss.
But oil kept flowing into the reserve – until last week.
Between May and last week a considerable amount of oil went into the SPR each week.
Right now it has 707.2 million barrels, up from 702.6 million when the president signed the law.
Those 4.6 million extra barrels of oil that slipped into the SPR weren’t going to make much difference in the marketplace. After all, Americans use some 20 million barrels of oil each and every day.
Now it’s time to pull out a cliché – it’s the principle here that matters. Oil prices have been declining steadily for most of the summer.
And those extra 4.6 million barrels of oil could have been the difference between speculators being able to jack prices up because of a disappointing (for consumers) weekly petroleum report.
And if this country can’t accomplish this one simple task – essentially an order to “shut the tap” – can it really handle the much more complex goals of energy conservation, finding new sources of power, mining old ones and making cars more fuel efficient?
So why did it take until the week of Aug. 8 for the government to finally stop accepting new oil into the SPR?
In a June press release the Department of Energy simply said that it was delaying 2.1 million barrels of oil until spring, which would be after the home-heating season.
But the shipments had to continue through July because “shipment of these barrels was already underway and could not be practicably deferred.”
I pressed the DOE for more information, but it would only answer my questions via e-mail.
“Should the government have immediately stopped all deliveries, the contractors (from whom oil was being bought) could have claimed damages for many costs they incurred in preparing for delivery,” the DOE said.
“The DOE would be potentially liable for their losses associated with resale of those physical barrels, especially on such short notice, and with unwinding any associated hedges,” it added.
Alright, bottom line: the government might have lost some money. And been sued.
And that’s never happened before?
On the other hand, wasn’t putting a “Temporarily Out Of Business” sign on the SPR supposed to help the US economy by keeping companies in business?
And isn’t this whole drama being played out during a presidential election year when a lot is at stake?
And isn’t it coming at a time when millions of people are injeopardy of losing their homes because they can’t fuel their cars and pay their mortgages at the same time?
But the government couldn’t figure a way to get around a few contracts.
“The Department’s SPR office worked closely with suppliers to determine which quantities could be deferred. Of the 5.6 million barrels that remained to be delivered at the time the direction to defer was given, 2.2 million barrels were successfully deferred,” the DOE said.
“The remaining volumes were already in transit or suppliers had no way to reroute without excessive cost to the government,” it continued.
There we go again – excessive cost to the government.
Well, how about this; the government should have taken delivery of all the oil it could find and immediately rerouted the barrels onto the open market.
With a little extra oil showing up each week, and the recession already reducing demand, consumers might have seen the relief that the president (supposedly) intended in May.
My point, however, is bigger than an argument over how the SPR does or doesn’t work.
If Washington couldn’t solve a minor logistical problem like this, how is it going to handle not only burdensome energy prices, but also rising foreclosures; inflation; recession; Fannie Mae and Freddie Mac; struggling brokerage firms, teetering banks and a whole list of other problems.
How?