Maureen Lorenzetti
Washington Editor
WASHINGTON, DC, July 28 -- Industry needs to take a second look at what its operational fuel inventory levels should be, according to a July 16 letter from Sec. of Energy Spencer Abraham to the National Petroleum Council.
"The American people need to be confident that the challenges related to petroleum refining and product supply in the US are being addressed," Abraham said in the letter.
Last month, when Abraham spoke to NPC members at their June 22 meeting, he called on industry leaders to examine various economic and regulatory issues associated with the US downstream sector (OGJ Online, June 22, 2004). At that time Abraham urged that a study be complete by Sept. 30. But now that timeline may have slipped slightly, according to industry and government sources.
In his latest correspondence to NPC, the secretary amended his request, saying he wanted the study complete "as timely as practicable." NPC officials Wednesday said the group is still consulting with its industry members on what the next course of action will be; DOE officials said they expect the study to be complete sometime this fall.
Abraham noted in his keynote address to NPC in June that industry has been using a Lower Operational Inventory (LOI) level of 270 million bbl for a number of years. "But is that a number which accurately reflects the realities of the marketplace in 2004, and should it be updated? At the end of the day, our goal is to provide a figure that best serves, and provides stability for, the global petroleum market. Does the 270 LOI do that?"
NPC conducted a 1998 study on petroleum inventories. In that report it did not specifically call for mandatory levels but NPC did caution that lower levels can impact price volatility under certain market conditions.
Among the items DOE is now formally asking NPC to consider as part of a new analysis include the following: current and future demand for refined products, domestic capacity to meet this demand, potential barriers to efficient markets, the influence of petroleum product supply on price, industry actions to meet environmental requirements, and the capital investment and other factors that will drive supply growth.
Abraham added that he would "appreciate the council's insights on how refining capacity, inventories, and demand patterns outside the US may impact meeting the consumer demand for refined petroleum domestically."
Contact Maureen Lorenzetti at [email protected].