Marketplace: News Archives

Thursday, September 21, 2000
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It's Thursday, September 21st. I'm Sarah Gardner in for David Brancaccio.

Crude oil prices dropped more than a dollar a barrel today and some were giving Al Gore all the credit. As Marketplace's John Dimsdale reports, oil and politics have become a combustible mix.

Dimsdale: "Democrat Al Gore today called on the White House to release oil from government reserves to stabilize prices and ensure a supply of winter heating fuel."

Gore: "We know what is going on here and we have to end it. I promise you this. If I am President, I am going to stand up to big oil and demand fairer gasoline prices for our families and an end to unfair profiteering."

Dimsdale: "Notice the not-so-subtle reference to the fact that both candidates on the Republican ticket, George Bush and Richard Cheney, are former oil executives. The Bush campaign responded that the petroleum reserve should not be used for political purposes. On the talk show 'Live with Regis' this morning, George Bush blamed the Clinton administration for not promoting more domestic drilling of oil."

Bush: "It means we haven't had an energy policy in this country for a long period of time. It means we've just been hoping things will be going well for consumers. And that's not the case."

Dimsdale: "In Congress, Republicans blame administration environmental regulations for shutting down refineries. Oklahoma Senator Don Nickles said the country's reserves are crude oil, which will have to be refined into usable gasoline and heating oil."

Nickles: "One of the reasons we have a shortage in refineries and refinery capacity is because of the Gore-Clinton administration. They've imposed a lot of restrictions and so a lot of refineries have gone out of business, in my state and other states."

Dimsdale: "The finger pointing continued at a House hearing this afternoon on oil prices. A conversation between Connecticut Republican Christopher Shays and Energy Secretary Bill Richardson shows how political the search for solutions has become."

Shays: "The President, though, and the Vice President, have been making strong attacks against big oil and I just want to know what big oil is, and then we go from there."

Richardson: "Mr. Shays, this is a political campaign. I am the Secretary of Energy for the Clinton-Gore administration. I'm not interested in blaming anybody. I want to fix the problem."

Dimsdale: "President Clinton refused to take questions on the oil situation in a Rose Garden ceremony this morning. His press secretary says he is considering all options to deal with the oil shortages. In Washington, I'm John Dimsdale for Marketplace."

So just where is this emergency stockpile of oil the nation keeps on hand for emergencies? And how does it work? We called Barbara Shook, the Houston bureau chief for the Energy Intelligence Group, who first wanted to set us straight why these oil reserves were set up in the first place.

Shook: "The Strategic Petroleum Reserve was intended to be a cushion against a supply interruption as opposed to offering the government an opportunity intervene in the market for economic reasons. The price of oil is not set by any one company, or even any one country, as OPEC has learned much to its distress this year. The price is set in the marketplace by what people are willing to buy. Until somebody says, 'Oh no, I'm not going to buy anymore,' then the price will stay high. It the demand falls, then we'll see prices falling, too."

Why were the Strategic Petroleum Reserves created and when did this all get started?

Shook: "The actual physical work began in the late 1970s and continued through the early 1980s. It started under the Carter administration and was one of the United States' responses to the Arab oil embargo of 1973 and 74."

Now, what are these reserves? Physically, where are they and what do they look like?

Shook: "They are located along the Texas and Louisiana Gulf coast. Most of them are in Louisiana but we have several caverns in Texas, where I am. They are not big tanks above the ground. Instead, they are giant cavities, several thousand feet deep and several thousand feet thick that have been leached out of salt domes, massive salt deposits below the surface of the ground. They're kind of like a giant onion underneath the earth."

And this is crude oil?

Shook: "This is crude oil that has been bought from a variety of sources, mostly from Latin America, Mexico and Venezuela, and injected into these cavities for withdrawal in case we have an emergency."

When we release oil from these reserves, Barbara, how do we actually do it? One imagines someone turning on a spigot and the oil just flows. How does it work?

Shook: "It's almost that simple. Somebody actually pushes a button. The equipment is all electronically controlled."

So we started bringing in this oil back in the 70s. Has some of it been sitting there for over 25 years?

Shook: "Yes, some of it has because we haven't taped into it but just a couple of times. One time under President Bush during the Gulf War period and then two times this year. We've never taken a large volume of oil out and I remember the market got all excited at one point because some 16 million barrels were going to be withdrawn from the Strategic Petroleum Reserve. Well, the United States consumes more oil than that in one day."

Does oil get stale at all?

Shook: "It can but the type reservoirs, the cavities the oil is contained in beneath the ground, these salt domes, probably prevents more degradation than you would find if it were stored at atmospheric pressures and were exposed to the air even in tanks."

You've obviously visited some of the storage sites where this oil is kept. What do they actually look like?

Shook: "They're pretty barren. They're out in marshlands or prairies adjacent to marshlands along the gulf coast of Texas and Louisiana. You've got more trees over on the Louisiana side but the areas right around the facilities are pretty desolate looking to tell you the truth. There's a complex of pipes and a few tanks and valve assemblies and operations buildings."

Barbara Shook at Energy Intelligence Group. Shook may be right that the nation's emergency oil supply is kept at some rather "desolate" locations but their names make up for it: the "Big Hill" near Winnie, Texas and "Bayou Choktaw" in Iberville Parish, Louisiana are among the major oil reserve sites.

Today the Dow Jones Industrial Average rose nearly 77 points but the rest of the market was feeling poorly.

In other news today, AT&T's annual board meeting opened today. At least, we think it did. It's company policy never to publicly discuss the schedule or agenda for these sessions. This year the telecom giant may have more reasons for keeping mum. Marketplace's Michelle Brier Reports.

Brier: "AT&T board members have a lot on their plates. The company's stock has lost 50 percent of its value. Revenues from long distance services will probably be off by about eight percent this year. And, competition in cable and wireless operations is as tough as ever."

Adamik: "I think it's make or break time for AT&T."

Brier: "Brian Adamik is president of the Yankee Group. He says AT&T is likely headed for a major change."

Adamik: "The options include a possible merger with British Telecom. There's been speculation about that. There's been talk of them spinning off their wireless organization or merging or acquiring a company like Nextel or even merging the wireless assets with British Telecom. The third issue is what to do with their consumer long distance business."

Brier: "Adamik says AT&T must clarify its direction. But a reported power struggle within the company may interfere, says telecommunications analyst Michael Noll."

Noll: "The two major players in this struggle over who will lead AT&T is AT&T's current leader, Mike Armstrong, who came on board a few years ago, formerly from Hughes, and AT&T's largest shareowner, John Malone, who used to run TCI, which AT&T acquired a few years ago."

Brier: "Armstrong may be on the hot seat, but Brian Adamik at the Yankee Group says don't count him out."

Adamik: "I think Mike Armstrong's most important decisions are those he has yet to make. And I think those decisions he's yet to make are not going to be big mega-billion dollar mergers and acquisitions. They're going to be more strategic and will define the future of AT&T"

Brier: "The AT&T board meeting continues through Saturday. In New York, I'm Michelle Brier for Marketplace."

Paris. London. Bogota. They're all observing International Car-Free Day tomorrow. A response, they say, to grid-lock, global warming, road-rage and pollution. Boston decided to have its first car-free day today. Our intrepid reporters at the Marketplace Health Desk decided to give this car-free idea a whirl.

Palmer: "So it's Car-Free Day in Boston and Cambridge and the Boston bureau, that's me, Helen Palmer..."

Kaplan: "...and me, Madge Kaplan..."

Palmer: "...decided we should take it seriously and come to work on our bikes. What do you think, Madge? Less cars that usual?"

Kaplan: "Not at all. Just the usual maddening traffic."

Palmer: "Let's get on our way."

Kaplan: "Gorgeous day."

Palmer: "Great day for biking. Well, here I am at Broadway Bicycle shop and it was BBS that was involved in organizing today's bike-to-work day. Sarah Merrin and Suzanne Hunt, what's the idea behind it?"

Merrin: "We wanted to get the word out that alternative forms of transportation make sense for everyone. Here in Boston $14 billion is being spent on the Big Dig and simple stop lights are not being put up to make pedestrians and cyclists more safe."

Hunt: "You know, if you put more roads in you're going to get more cars. If you put more bike paths in you're going to get more bicyclists. One of the reasons it's important to have a bike-free day in Boston is people are afraid to ride here. We're notorious for bad driving."

Palmer: "I have to say, though, that this morning, out on my bike, there didn't seem to me to be more bikes than usual and there didn't seem to be more cars than usual."

Merrin: "That's true. I think that we have not succeeded but, you know, there's always next year."

Palmer: "Suzanne Hunt and Sarah Merrin, thank you very much. From the Boston bureau at WGBH, I'm Helen Palmer for Marketplace."

And finally, Microsoft chairman Bill Gates is still the richest American, according to Forbes Magazine, although Forbes says Mr. Gates is not quite as loaded this year. Microsoft's stock prices has taken a beating and that's knocked the chairman's net worth down to about $63 billion from $85 billion. Oracle CEO Larry Ellison is breathing down Gates' neck. He's number two at an estimated $58 billion.