Wednesday November 24, 1999

US ready to sell reserve oil if Y2K problems arise

By Tom Doggett

WASHINGTON, Nov 24 (Reuters) - The U.S. Department of Energy says if a Y2K computer problem causes a disruption in oil supplies it is prepared to sell crude oil from the nation's Strategic Petroleum Reserve (SPR).

The Energy Department has drawn up emergency plans to sell oil from the Strategic Petroleum Reserve (SPR) if necessary, but a drawdown is far from definite, said spokesman Robert Porter.

Should the need arise, crude oil could be withdrawn from the U.S. emergency stockpile and moved into the market in just 15 days, he told Reuters in response to queries about the department's Y2K preparations.

``I don't want to send out alarming signals that we are gearing up for an inevitable SPR drawdown because of Y2K. But we do go through the precautionary preparations for that,'' Porter said.

The Y2K problem refers to concerns that older computers and their software, which use the last two digits for the year in dates, may fail to recognize 2000 or mistake it for 1900, causing a crash on Jan. 1.

The possibility of supply disruptions due to Y2K computer problems combined with oil prices hitting nine year highs have prompted U.S. legislators to take a fresh look at the function of the Strategic Petroleum Reserve (SPR).

The SPR was created by Congress in the mid-1970s after the Arab oil embargo. It holds 571 million barrels of oil in underground salt caverns in Texas and Louisiana.

Last week, Democrat Charles Schumer of New York and Republican Susan Collins of Maine introduced a Senate bill that would allow sales of reserve oil if prices stayed above $25 a barrel for two weeks.

``With crude oil prices now approaching levels not seen in a decade, it would be in our nation's best interests if the president would consider releasing oil from our Strategic Petroleum Reserve,'' the lawmakers said in a letter to President Clinton on Tuesday.

On Monday, Energy Secretary Bill Richardson said that a sharp rise in world crude oil prices and Iraq's decision to halt its oil exports were not reason enough to open the spigot on the emergency stockpile.

U.S. crude prices this week soared to the highest level since the Gulf War, topping $27 a barrel on Monday after Iraq confirmed it would halt oil exports.

Under the Energy Department's contingency plan, Clinton would decide whether a reserve oil sale is necessary, with recommendations from the Energy Department.

``Once the president decides a drawdown of the SPR is necessary, then from the time he makes that decision until the time we move oil into the market can be as short as 15 days,'' Porter said.

He declined to say what specific thresholds must be reached to trigger a department recommendation for an SPR sale.

``We would prefer not to unduly influence the market by trying to give some pre-defined trigger,'' Porter said.

Still, he said department officials will be reviewing U.S. petroleum stock levels leading up to Jan. 1 and what -- if anything -- happens to foreign oil supplies after that.

``We'll be looking at the whole situation as we approach Jan. 1 and the aftermath of the Y2K rollover,'' he said. ``We'll be looking at all factors that influence the movement of oil.''

For example, if supplies drop sharply during the week before New Years from drivers rushing to fill their gasoline tanks, Porter said just the announcement of an SPR sale may be enough to reassure consumers that plenty of oil is available and the reserve sale could then be canceled.

``You could very well see the effect of an announcement being sufficient to calm markets and determine that supplies were adequate and never proceed with the actual sale,'' he said.

``Once you start the cycle, it does not mean that you can't stop it. It's not on autopilot,'' Porter said.

A similar situation occurred at the beginning of this decade when the Energy Department offered to sell 33 million barrels of reserve oil when Iraq invaded Kuwait.

When President George Bush announced the stockpile sale, oil prices began to stabilize and only 17 million barrels ended up being sold from the reserve, Porter said.