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Amid U.S. politics and oil policy, Texas workers prime the pumps

THE BALTIMORE SUN

FREEPORT, TEXAS - In some ways, this place, with its verdant marshes and deep blue lakes, has the character of a wildlife refuge. Workers tape off areas where endangered birds come to nest. Alligators crawl out of the swamps. Even the giant white tanks and clusters of steel piping are unremarkable, considering what you're looking at: ground zero in the battle to lower oil prices, stabilize the global economy and, of course, win the White House.

It's what you don't see that matters here. Buried deep underground are 20 salt caverns, each big enough to fit a World Trade Center tower, that together can hold 232 million barrels of crude oil.

These 500 acres on the Gulf of Mexico, known as Bryan Mound, are part of the nation's $20 billion Strategic Petroleum Reserve - the world's largest stockpile of oil - which President Clinton has decided to tap in the first emergency drawdown since the Persian Gulf war to ease heating oil shortages and lower fuel prices.

The ensuing controversy - Republicans are calling the move an irresponsible use of emergency supplies to woo voters in the weeks before the presidential election - has made this once-obscure corner of the world a breakfast-table topic.

"Before this, most people didn't have a clue what the SPR was," said operations supervisor Terry Easterling. "This week, I've been watching more news than football games."

What it also means for the 100 or so people who work at Bryan Mound is that the operation they spend their lives training for will be put to the test in a few short weeks.

Bidding opened Monday for the 30 million barrels that Clinton ordered drawn from the reserve, which the winning oil companies will buy now and sell back later in greater quantities, presumably when the price is lower. Delivery is expected in early November.

Practical concerns

So, as the debate rages on the campaign trail over who's more to blame for oil prices - Clinton-Gore energy policies or Big Oil supporters of the Bush-Cheney ticket - the issues at Bryan Mound are more practical.

Are there any water leaks? What work orders are outstanding? On Monday, workers were busy replacing a valve at the meter skid, which measures how much oil is on its way to the dock. Managers were taking the bits of early information from Washington - word is that this site will probably be asked for sour (high-sulphur) oil - and putting plans together. How much of the 30 million barrels will come from Bryan Mound and how much from the other three reserve sites in Texas and Louisiana is yet to be determined.

In general, the system is ready to go, says Greg Magallanez, the site operations specialist. In a routine, 15-minute test last month, it successfully pumped oil at its maximum capacity, the rate of 1.5 million barrels a day. Working here is like training for the Olympics, "but not knowing what day it's going to happen," Magallanez said. "We have to be ready every day."

The mammoth job of moving reserve oil involves a complex network of pipes, machinery and procedure that boils down to this: Take water out of the Brazos River and pump it into the caverns, which displaces the oil and pushes it out. (Since oil is lighter than water, it floats on top.)

The oil is cooled, measured, sampled and sent to the dock, where it feeds a network of pipelines that extend to various regions of the country, all within 15 days of the president's order. The pipelines take it to refineries, which turn it into gasoline, home heating oil or jet fuel, then put it on the market.

The reserve was created in 1975 after the Arab oil embargo threatened the nation's economy - largely to send a signal that U.S. foreign policy would not be held hostage to demands of oil exporting countries.

Since then, the reserve has been tapped in one other national crisis, during the Persian Gulf war in 1991, when President Bush ordered 21 million barrels sold. Several temporary swaps helped oil companies with supply or transportation problems. In 1996, Congress approved a nonemergency sale of 28 million barrels to lower gas prices and raise revenue for federal education spending.

Yesterday, sweet crude oil for delivery in November stood at $31.46 a barrel on the New York Mercantile Exchange, down 4 cents. The November contract for home heating oil rose 1.74 cents per gallon to 95.05 cents.

Besides tapping the reserve, the Department of Energy is pressing refiners to delay shutdowns for seasonal maintenance and increase production of heating oil. But analysts said it is uncertain whether this would alleviate a critical shortage that is the result of several colliding forces.

Normally, low heating oil inventories trigger more imports from Europe, which didn't occur this time because supplies in Europe also were tight, said Stephen A. Smith, oil analyst at Dain Rauscher Wessels in Houston. Meanwhile, U.S. refineries, operating at near-capacity, were reluctant to add capacity because returns on investment have been unattractive.

Last summer, refiners devoted most of their capacity to producing gasoline, which also was in short supply, so they made less heating oil, Smith said. No sooner did gasoline inventories return to seasonal norms than Saddam Hussein began making threats against Kuwait. Nervous traders bid crude prices higher.

Although borrowing small amounts of oil might not threaten the stockpile, it reduces the insurance for bigger emergencies, said Amy Jaffe, senior energy adviser at the James A. Baker III Institute for Public Policy at Rice University in Houston.

"We've seen all the oil workers in Nigeria go on strike," she said. "We could easily lose one or two million barrels per day of oil capacity overnight because of a natural disaster or unexpected political event in the Middle East, and that's what the SPR is there for."

The changing market

But the oil market has changed since the reserve was created, and the government's action is needed to create a cushion where one no longer exists, said Edward Morse, executive adviser to Hess Energy Trading Co. in New York and former deputy assistant secretary of state for international energy policy in the Carter and Reagan administrations.

Twenty-five years ago, oil was not traded on the spot market - prices were fixed - so when supply dropped, the only response was rationing, and long lines at the gas pump. Now, with market-based pricing, the only way for the market to react is for prices to shoot up, sometimes overnight, and sometimes to intolerable levels, Morse said. That dampens demand and, in turn, economic growth, and leads to inflation.

"We are in a situation that is unprecedented," Morse said. "There are no shock absorbers in the system, no inventories to rely on if there's a sudden change in market conditions, such as a cold spell or Iraq not exporting oil."

Morse said the nature of today's changing market means that the reserve oil shouldn't be simply "parked" in caverns for decades, but rather put to use in the market to enhance its value - leased out and replaced in higher quantities when market conditions make such a trade profitable.

At Bryan Mound, employees said they don't get much involved with those issues. Whatever the politics, they're honored to serve the country.

"Some people serve in the armed forces," said Easterling, who's worked here 20 years. "This is another way of helping out, not just spending the taxpayers' money, but giving a little bit of it back."

Claiming credit

Still, by the time the oil gets to the market in November, the oil crisis of 2000 might be history. Gasoline prices were likely to drop in any event as a recent increase in production by OPEC countries makes its way to U.S. markets, analysts said. Energy Department officials hope the lower price of crude will bring down the price of heating oil, though that's a shaky proposition because of short supplies.

"Markets typically move faster than politicians," Smith said, adding that politicians still take the credit. "It's the grand story of the rooster who thought his crowing was the thing that caused the sun to rise each morning."

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