Jeff Bingaman United States Senator from New Mexico

WASHINGTON – Two years ago, U.S. Senators Jeff Bingaman and Byron Dorgan (D-N.D.) worked to prevent the Bush administration from filling the Strategic Petroleum Reserve with crude oil in 2008 – a move that has saved taxpayers more than $600 million according to new information from the Department of Energy.

At the time, the two senators argued that it made no sense to pay high prices of more than $100 per barrel for oil that was just going underground to save for a rainy day. Their legislation became law in May 2008 and the purchases of crude oil stopped until the end of 2008 when prices of oil dropped dramatically.

Department of Energy's James Markowsky, assistant secretary office of fossil energy, wrote to the senators this week to report the savings:

"In 2009, we calculate the combined cost for the 19.5 million barrels to be $1.1 billion, or a saving of approximately $600 million compared to what would have been incurred in 2008."

Bingaman and Dorgan led the charge in the Senate to pass The Strategic Petroleum Reserve Fill Suspension and Consumer Protection Act of 2008 and are pleased to hear their common-sense initiative has led to such dramatic savings for the American taxpayer, without putting national security at risk.  The legislation, which passed 97-1, disrupted the Department of Energy's "auto-pilot" filling of the Reserve, which did not reflect the realities of the marketplace.  Instead, the legislation forced the Department to re-enter the oil market after prices had collapsed from $150 per barrel to $30 a barrel, securing a much better deal for taxpayers.

"Taxpayers were going to get a bad deal if we paid peak prices for oil to fill the last bit of the reserve.  It was amazing to me that we had to pass a law to stop the Bush administration from wasting $600 million of hard-earned taxpayer dollars," said Bingaman, who chairs the Senate Energy and Natural Resources Committee.

The entire letter from Markowsky is below:

Dear Mr. Chairman:

This is in response to your December 17, 2009, request for a cost analysis of the savings to the Treasury and taxpayers as a result of the passage on May 19, 2008, of the Strategic Petroleum Reserve Fill Protection act of 2008 (Pub. L. 110-232).

Prior to enactment of this legislation, the Strategic Petroleum Reserve (SPR) had planned to acquire crude oil to fill its 727 million barrel capacity by the end of 2008 through a combination of the royalty-in-kind (RIK) exchange program with the Department of the Interior and competitive open market purchases using the available proceeds from the 2005 Hurricane Katrina drawdown sale. Using dollar cost averaging over the five-month period from August through December 2008, the Katrina balance of $584 million would have purchased approximately 7.1 million barrels of lower cost sour crude oil at then-prevailing prices in the U.S. gulf (average $81.98 per barrel). An additional RIK transfer of 12.4 million barrels in the period July through November 2008 would have been valued at approximately $1.1 billion (average $91.74 per barrel). We estimate the total 19.5 million barrels would have had a combined cost of $1.7 billion in direct expenditure and royalty value forgone to the Treasury.

In January 2009, the SPR reentered the market at its lower point in five years to contract for the purchase of $10.7 million barrels with a value of $553 million dollars (average $51.82 per barrel). The increased purchase volume reduced the RIK transfer required to complete fill $8.8 million barrels over the period April through December 2009, valued at $575 million ($65.19 per barrel). In 2009, we calculate the combined cost for the 19.5 million barrels to be $1.1 billion, or a savings of approximately $600 million compared to what would have been incurred in 2008.

The analysis above is summarized in tabular form in the enclosure. If you require further information, please contact me or Ms. Betty A. Nolan, Senior Advisor, Office of Congressional and Intergovernmental Affairs, at (202) 586-5450. 

                                                                                                    Sincerely,                                                                                                   James J. Markowsky                                                                                                 Assistant Secretary                                                                                                 Office of Fossil Energy