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Mr. HALL. Seems like it's about $72 billion over the 5 year period, is that the expectation from the Btu tax?

Secretary O'LEARY. That's correct.

Mr. HALL. The Railroad Commission has indicated that 12.5 percent of that total tax would be paid by my State, even though we have less than 7 percent of the population.

I am not sure about the facts and statistics for Louisiana or some of the other States, but it impacts very heavily on our aluminum industry, our chemicals industry or transportation or airlines and on and on, and a good answer could be that it's a tax on oil, and that oil has known a great heyday, but I would ask you to always remember that they are not all like the television show “Dallas” down there, that when you hit oil as heavily as you have hit it, you're hitting tool-pushers, roughnecks, little people, and I would also say that a lot of the leaders in the oil patch, the contractors, the chairmen of the board, are still driving Continentals and Cadillacs, but they are 1978 models and 1980 and 1982.

guess what I am getting around to is why in the world did you exempt ethanol from the Btu tax

Secretary O'LEARY. Is this a question that Mr. Hall wants me to answer or not?

Mr. HALL. You know, for political reasons it's dirty fuel, it's not a viable fuel except for some tax credits. The Senate has already expressed itself against that exemption. I know Senator Byrd is a pretty tough guy to deal with on carbons but from the standpoint of fairness

I hope you will reconsider. The gentleman from Florida had asked you about how the consumer will know. Of course a lot of that depends on where you place the tax and I think we are going to expect some relief along that line but I just, I hope you'll remember though, and I have used up most of my time to ask my questions. I'd recognize you now if you would like to comment on any of that.

Secretary O'LEARY. Let's see. I am understanding both from your colleague and from you a question and interest with respect to point of collection.

Mr. HALL. Yes, ma'am.

Secretary O'LEARY. Suffice it to say, I will continue to study that issue and reflect fairly the points of view that have been so vigorously placed before me today. I understand my obligation to do that and I will do that.

With respect to ethanol, I would simply say this. In looking at the equity issues across income classes, across sectors of the economy, and bowing to concerns with respect to alternatives and concerns with respect to the farm community generally, this is one of the exceptions that we have embraced. I clearly understand if you do not agree with it, but I would point out to you of all the exceptions so far touted, I can't find anybody agreeing 100 percent with any of them and that let's me know that we have probably done the thing fairly.

Mr. HALL. I would like to have 100 percent and I'll be talking to you later about it, thank you.

Secretary O'LEARY. Yes, sir.

Mr. SHARP. The time of the gentleman has expired. I know we have a practical problem. We have a couple other members that we

thought were going to rush in here to get their questioning in, and the Secretary had informed us that she needs to be at the White House. I'd hoped to have a second round, but we are really getting tight on time.

What I would like to do is sort of give everybody 30 seconds or so if we could quickly. I want to take mine, to mention, first of all, there are other members who wanted to submit additional questions as is customary, and we will be doing that.

I did want to indicate something that I thought the Secretary was going to announce today, and we want to be sure the information is available. There are two concerns about the Strategic Petroleum Reserve problems that the Department is going to be addressing with respect to excessive gas content in portions of the supply, and a problem of temperature of the Strategic Petroleum Reserve crude oil in certain locations.

These will require some corrective action which the Department is now providing the analysis to the committee and to the public. I also hope that the money that will be necessary which I understand is not likely to be more than $60 million over a 3 to 4 year period, that that will hopefully not come out of further purchases for the reserve, but if you would like to comment quickly I'll give you that opportunity and then I'll recognize other colleagues quickly.

Secretary O'LEARY. Fair enough. I'll do this quickly by saying I have a written report that I will leave with the committee today which indicates we have a real handle on the nature of the problem. We need to do some more assessment but we understand how to relieve both problems.

They can be done within the framework of this budget. You are absolutely correct. The amount to be expended is approximately $60 million. My sense is that this money does not totally exist in the budget for repairing the infrastructure of the SPR caverns and I need to get back to discuss thoroughly with you thoroughly how much of that is likely to have to come out of fill.

I don't want to commit today because there is an assessment to be completed and I would like to see where we can find other money.

Mr. SHARP. I appreciate that and, Madam Secretary, let me just quickly say I do think there's some important shifts in priorities. I hope those can be sustained and obviously because of the large deficit problem, we are all going to have to revisit these budgets over the next several years to find further places to save in order to do the things that we think are important. I realize this is the first step and appreciate your strong work here. [The report referred to follows:]


April 19, 1993.



Recent samples of crude oil taken from storage caverns at the Strategic Petroleum Reserve (SPR), the Nation's emergency oil stockpile, have shown the existence of two problems which, although readily correctable, could reduce the availability of some of the oil inventory for a drawdown in the near-term.

The two problems are: (1) A higher-than-normal gas content in some of the crude oil, apparently from years of intrusion of methane from the surrounding salt formations; (2) Slightly elevated temperatures of some of the crude oil, due to geothermal heating, which has increased the vapor pressure of the oil.

While both phenomena are not uncommon in conventional oil fields, their presence in the SPR crude oil likely means that additional equipment and changes in certain operational configurations will be necessary to ensure that the Reserve can deliver crude oil at the proper specifications for commercial transportation and refining.

Although detailed chemical and physical analyses are still being performed, it appears that as much as 200 million barrels of the SPR inventory may require treatment. Two-thirds of the stockpiled crude oil-nearly 400 million barrels

does not appear to require treatment and is available for immediate drawdown should it be required.

The cost of the additional equipment necessary to correct the two problems is believed to be no higher than $60 million, likely to be spread over the next 3-4 years. Problem No. 1: Gas Content of Crude Oil

This is the more important of the two problems. While it is not uncommon for crude oil produced at an oil field to have some dissolved gas, the gas separates when brought to the surface and exposed to atmospheric pressure. Since we analyze samples of all shipments of crude oil to the Strategic Reserve, we know that the oil did not contain the gas when it was delivered.

Once placed in the deep underground salt caverns at the Strategic Petroleum Reserve, the oil is under pressure. This means that a greater volume of gas can be dissolved in the oil than would be the case at atmospheric pressure. Although there are several theories as to why the SPR oil has excess gas, the most likely is that over many years, gas in the surrounding salt formations has slowly intruded into the storage caverns and dissolved in the crude. Analysis of the salt domes prior to creation of the oil storage caverns showed the presence of gas in some areas, but the likelihood of it migrating into the caverns was deemed remote because of the high pressures present in the caverns.

Oil samples taken recently from the Reserve show that some of the caverns at Bayou Choctaw and West Hackberry and most of the caverns at Bryan Mound and Big Hill have between 1 and 5 cubic feet of excess gas per barrel of oil. The presence of dissolved gas in the crude oil poses no safety or other concerns as long as the oil remains in the underground caverns. It does not mean that the oil is unusable; only that the gas content will have to be reduced before the oil can be moved to commercial markets.

When the oil is brought to the surface, the gas will come out of solution. Allowing this to occur too quickly could create foaming in terminal storage tanks. This has the potential to tist the floating roofs common to many of the larger storage tanks, and in turn, release excessive quantities of vapors. Mixed with air, these vapors could create a potentially explosive situation. Vapor releases at other places along the delivery route or in a tanker or barge or at a refinery could pose similar hazards.

Therefore, we will not consider shipping oil with a significant quantity of dissolved gas to commercial facilities. To bring this oil to the specifications required by terminals, pipelines, tankers and refiners, the dissolved gas must be removed. Problem No. 2: Geothermal Heating of Oil

The depth of the stored oil (caverns extend 2,000 to 5,000 feet below the surface) subjects it to geothermal heat. Our analyses show that the average temperature of the oil in the caverns is rising at a rate of approximately 2-3 degrees F. As the temperature rises, the vapor pressure of the crude oil increases. Oil that has been in the caverns for long periods of time now has a vapor pressure that is higher than permitted by commercial handling regulations. It too poses a safety risk because of the potential for the vapors to be released during transport or aboveground storage. Corrective Actions:

Neither problem is difficult to solve. Removing gas from the crude oil can be accomplished by standard, commercially available gas separation equipment. At this point, it appears that the best approach will be to install transportable oil gas separators, bring the affected oil to the surface, remove the gas, and reinject it into the caverns. It makes the most economical sense to do this with relatively small-scale equipment over a period of about 3 years—rather than, for example, building much larger and more expensive gas separation units that would handle large quantities of oil at the time of a drawdown.

In the future, it may be necessary to routinely cycle crude oil through this equipment every few years to ensure that any gas buildup is removed.

We also believe there are possibilities for contracting with nearby private facilities to treat the gas once it is separated from the oil. There may be options for obtaining a Btu-equivalent amount of crude oil in exchange for the gas.

A more detailed analysis of this option will be completed by June. We could have the first degassing unit installed by the spring of 1994 and degasification of all of the affected oil at the Reserve could be completed by January 1996.

We currently believe that reducing the temperature of the crude oil should be done at the time of the drawdown. Some of the Reserve caverns have a single well design which appears to solve the problem for those caverns. A single well design has two concentric pipes. During a drawdown, water would be injected down the inner pipe into the cavern to force out oil. The oil would move up through the outer pipe to the surface. The incoming water would cool the oil moving out of the cavern.

Other caverns are configured with two wells—one for water injection and a separate well for oil removal. In these cases, the most economical approach appears to be to reroute the initial section of the piping on the surface so that the water injection pipe and the oil removal pipe are installed in a heat exchanger arrangement. In this way, the same heat removal process would occur on the surface for a dual pipe design as would occur within the caverns for a single well design. At the present time, it appears this surface reconfiguration can be accomplished by rerouting a few hundred or, in some cases a few thousand feet of piping at each site. Cost Estimates:

Cost estimates are very preliminary at the present time. However, it appears that a maximum cost of both the degassing units and heat exchange piping reconfiguration will be no more than $60 million. We would propose to spread these costs over the next 3 to 4 years and are currently working with the Office of Management and Budget and appropriate Congressional committees to make these funds available. Conclusion:

While both problems are unexpected, neither diminishes the effectiveness of the Strategic Petroleum Reserve as a source of crude oil should there be an energy emergency. While a maximum of 200 million barrels may be temporarily unavailable for drawdown, over the next 3 years this amount will diminish steadily (by approximately 400,000 barrels per day when the degassing units are installed and put into operation). With the inventory currently available, we still have the capability to withdraw oil at up to 3.5 million barrels per day, only a slight reduction in the 3.9 million barrel rate that existed before this situation was discovered. The nearly 400 million barrels of unaffected oil is adequate to respond to any emergency situation we believe is plausible, particularly in the foreseeable future.

Mr. SHARP. Let me quickly recognize Mr. Crapo would be next and give him about 30 seconds.

Mr. CRAPO. Thank you, and I'm sorry we didn't have time to go further into the IFR information. I'm sure that we'll have other opportunities to do so.

I just wanted to make more of a statement and then you could just respond to it, and that is I do believe there are some areas of common ground here. I have noted that the budget does have research funding available for continuation of the actinide research, and my main concern is making sure that we have the ability to demonstrate the effectiveness of that research.

I know that one of the key issues is going to be waste disposal that we need to address, and I am convinced that the actinide research is critical and will be a part of that solution, so I just state that I look forward to continuing this discussion with you about that critical element of our energy plan.

Secretary O'LEARY. Fair enough. I would like to respond quickly by saying we hung on to the actinide project because I, too, believe it provides some answers for the short term with respect to volumes of waste.

Clearly, when I was speaking to Mr. Washington with respect to international cooperation, where we might have to go to test many of the methodologies we'll be developing in R&D in this area, is to international partnerships. The more we seek them, the more I think we have an opportunity to participate abroad, and this may be one of the answers. It is certainly one of those that I am focusing on.

Mr. SHARP. Mr. Washington, sorry. I had hoped to give you 5 more minutes.

Mr. WASHINGTON. That's quite all right, Mr. Chairman. I understand the need for the Secretary to get to something more important.

Very quickly, on my other subject, why, and I'm sure there's a short, easy answer and I just haven't thought of it, why you're requesting more money for nuclear weapons testing from $416 to $461 when we are under a moratorium?

Secretary O'LEARY. Well, fair enough. As you may recall, Mr. Washington, we also have responsibility under the Hatfield Amendment to go forward with 15 more tests. Again, lay persons spent a lot of time trying to understand this. It is clear to me that those tests need to be completed so that we are certain that our systems we're holding in reserve are safe and reliable, and more importantly, reliable for the long-term.

Mr. WASHINGTON. Do you read those tests to be absolutely necessary though?

Secretary O'LEARY. Yes, sir.

Mr. WASHINGTON. I thought the administration hadn't made a commitment that that is the ceiling but not the floor, that you don't have to conduct all the tests.

Secretary O'LEARY. Absolutely, and let me tell you where we are in that process. The Department, working with our sister agencies, is even now completing a report and going forward to the President, who will in point of fact decide whether we do the 15 or some number fewer than the 15. So understand that this is a contingency, but it occurred to us better have it in now than come seek it later.

Mr. SHARP. Thank you. The gentleman from Illinois, Mr. Hastert.

Mr. HASTERT. I just again want to say, Madam Secretary, thank you for being here today and replying to my friend from Texas who has a question about ethanol, I just have to tell you I know those oil moguls out there are driving 1978 Mercedes and things but we've got those corn farmers in Illinois that are driving 1970 Chevys and we are domestically renewable fuel and we hope to be able to trade those up to more fuel-efficient automobiles but we need the ethanol provision to get that done, thank you.

Mr. SHARP. The gentleman from Louisiana.
Mr. TAUZIN. I'll try to avoid any corny statements.

Quickly, Madam Secretary, we proffered an idea to the administration and to you and we're sending it on to Mr. Bentsen too. I would just call it again to your attention.

There are two ways for us to back off foreign oil. One is to make it more costly for Americans. The other is to do something good for domestic production, to get it back up again, and as long as we have in our tax code a foreign earned income tax credit that gives a credit to companies to go overseas and produce instead of directing that credit to domestic production, we're off on the wrong tangent.

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