Oil insurance

As Congress prepares to reconcile two plans for a home heating oil reserve in the Northeast that could avert repeats of this winter’s shortages and price hikes, oil industry experts are calling the whole idea merely feel-good politicking in an election year, a waste of time and energy that won’t keep anybody warmer or wealthier.

And who better to judge than the very folks who brought the Northeast shortage and price spikes?

The American Petroleum Institute, the New England Fuel Institute, and no doubt other oil-oriented institutes yet to be heard from say neither the House version, a 2 million barrel reserve in the Northeast, nor the Senate’s preference, a 6.7 million reserve split between the Northeast and the Gulf Coast, will ensure adequate supply or stable prices. The industry view is that these drops in the bucket (the Northeast uses about 90 million barrels of heating oil in a typical year) would not be nearly enough to relieve a severe shortage, but, by some strange coincidence, could be enough to skew prices; only a major pipeline from Maine to Virginia and a lot of new storage tanks will provide a long-term solution.

Could be, but as Congress enters year 11 of planning to start thinking about perhaps developing a long-range solution, a feel-good, short-term fix might be just what’s needed to get things moving.

An extremely harsh winter of 1989 got Congress talking about a Northeast reserve for refined heating oil, as opposed to the existing strategic reserves of crude; the idea being that when heating oil is in short supply, the dead of winter, people can’t wait weeks for refining and transport. In 1996, Congress agreed on the concept and directed the Department of Energy to conduct a study. In 1998, DOE released the study, suggesting either the 6.7 million split reserve or the 2 million Northeast reserve. DOE found that the 2 million option is best from the cost-benefit angle, it won’t meddle in the marketplace, it won’t take up enough existing storage to cause problems and, no, it won’t be a permanent remedy. It will, says Rep. John Baldacci, sponsor of the House version, “be a two-week insurance policy, a good hedge.”

There are plenty of other reasons for this reserve. The pipeline and major expansion of storage might be a good idea; lots of luck getting the environmental permits. The problem this winter was not caused by an OPEC conspiracy, it was a conspiracy of lousy weather, shipping delays and the growing propensity of business, including the refining business, to keep just enough inventory on hand to meet immediate needs — a two-week cushion for something so vulnerable to minor glitches makes sense. The small reserve won’t keep prices from rising in the winter, but it would help prevent wild, sudden increases and a lot of worry — the savings to LIHEAP, the low-income heating assistance program, that could result from this modest, moderating influence only improves the cost-benefit ratio.

And, as Rep Baldacci observes, “It’s time to act, while everybody still remembers last winter. The further we get away from a problem, the less we act. We’ve got government’s attention now.” Got the attention of all those oil-related institutes, too.