Capital Commerce: Stockpile gas as well as crude?
Now here's a quaint idea: Stockpile gasoline, in addition to crude oil. Other developed nations do it, one reason those fussbudgets in old Europe were able to send extra gasoline to the United States after Hurricane Katrina hit. Now some in the United States are starting to embrace the idea. Senate Democrats Dick Durbin of Illinois and Charles Schumer of New York are proposing a national gasoline stockpile of 40 million barrels, modeled on the policies of other nations that require refiners to keep a certain volume of spare "product" on hand.
Some energy analysts support the idea. The United States has had a Strategic Petroleum Reserve since the oil shocks of the 1970s, to protect the economy against disruptions in the market. But those stores of crude oil, deep in salt caverns near the Gulf of Mexico, are of limited value when we don't have enough refineries to churn the black gold into usable gasoline and jet fuel. President Bush released some of the reserve to calm the jittery market after Katrina, for instance, but that didn't keep a lid on the price of gas at the pump.
The oil industry has been cool on the idea of keeping a stockpile here, arguing that it would be too hard to store and manage all the different gasoline blends required in various regions of the country. Gasoline can break down and degrade if stored too long. But Frank Verrastro, director of the energy program at the Center for Strategic and International Studies, says a solution is to have the industry hold the stock. Instead of the government holding the stores in "strategic locations," as the Democratic bill proposes, refiners could keep the supply at its terminals or near pipelines, so that it could turn over the inventory when needed. The government could then coordinate a release to protect U.S. consumers from price volatility in the event of a disruption, like the catastrophic hurricanes that rumbled through the Gulf of Mexico this year.
No business, of course, likes keeping a nonproducing asset on hand, especially in these times of just-in-time inventory management, admits Verrastro.
"But what's the value of insurance?" he asked. "You only need it when things are tight. And things have been tight on a sustained basis."
Capital Commerce tells usnews.com readers how decisions made in Washington affect business.
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