Message to the Congress Reporting on Petroleum Imports and Energy Security

To the Congress of the United States:

Pursuant to Section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. 1862(c)(2)), I am reporting my determination with respect to the Department of Commerce's investigation into the effect of petroleum imports on the national security.

The Department's investigation was in response to a petition filed in December 1987 by the National Energy Security Committee. The Secretary of Commerce has concluded that there has been a substantial improvement in U.S. energy security since the last Section 232 petroleum finding in 1979. However, declining domestic oil production, rising oil imports, and growing Free World dependence on potentially insecure sources of supply raise a number of concerns, including vulnerability to a major supply disruption. The investigation found that the maintenance of U.S. access to sufficient supplies of petroleum is essential to our economic security, foreign policy flexibility, and defense preparedness. Given these factors, the Secretary of Commerce found that petroleum imports threaten to impair the national security.

However, taking into account the Administration's detailed program to improve energy security, transmitted to the Congress on May 6, 1987, the Secretary has recommended that no action to adjust imports under Section 232, such as an oil import fee, be taken because such action would not be cost effective and, in the long run, would impair rather than enhance national security.

I approve the Secretary of Commerce's finding, and based on his recommendation, I determine that no action to adjust oil imports under Section 232 need be taken.

My Administration has done a great deal to build the Nation's foundation for long-term energy security and to strengthen the domestic oil industry. We have decontrolled oil prices and eliminated allocation controls. The Strategic Petroleum Reserve (SPR) contains over 555 million barrels, compared to 108 million barrels 8 years ago. United States imports come from diversified sources, and there have been important developments in conservation and interfuel substitution that contribute significantly to enhancing U.S. energy security. In addition, implementation of the United States-Canada Free-Trade Agreement will promote increased bilateral energy trade and provide reliable supplies at competitive prices. Today the Nation is far less vulnerable to an oil supply disruption than in 1973 and 1979.

Despite these improvements, important energy security concerns remain. While lower oil prices have provided substantial benefits to the U.S. economy, they have also led to rising oil consumption, declining U.S. crude production, and rising oil imports. In addition, projections show that the Free World will become increasingly dependent on oil supplies from potentially insecure sources. Therefore, we must continue our efforts to ensure that these trends do not leave the Free World more vulnerable to economically damaging oil supply disruptions.

I was heartened by congressional action on some of my May 6, 1987, recommendations, such as repeal of the Windfall Profit Tax, repeal of restrictions on the use of natural gas, and reauthorization of the Price-Anderson Act for nuclear power plants.

However, a number of my recommendations to improve the Nation's energy security have not been acted upon. I once again urge the Congress to take the following actions:

(1) Enact comprehensive legislation to deregulate wellhead prices of natural gas and to mandate open access to natural gas pipelines.

(2) Permit environmentally sound oil exploration and development of the Arctic National Wildlife Refuge (ANWR) in Alaska and of the Outer Continental Shelf. These areas are the most promising prospects for discovering major new oil reserves in the United States.

(3) Increase the availability of the percentage depletion allowance used in calculation of independent oil and gas producers' income taxes by repealing the "transfer rule" and increasing the net income limitation to 100 percent.

(4) Continue to fill the SPR to reach the goal of 750 million barrels. The Naval Petroleum Reserves at Elk Hills, California, and Teapot Dome, Wyoming, should be sold as a means to accelerate the SPR fill rate and to pay for a new 10 million barrel Defense Petroleum Inventory.

(5) Enact a comprehensive reform of nuclear power licensing to streamline the process and reduce costs while enhancing public safety.

Given the nature of the international oil market, the United States alone cannot assure its energy security. Consequently, we continue to work closely with our partners in the International Energy Agency (IEA) to improve our mutual energy security. With our encouragement, our IEA partners have built up their strategic stocks to 400 million barrels. Together we are making significant progress towards a more balanced mix of energy options. The specific actions I have outlined above, when implemented, will make a further, significant contribution to improving the energy security of the United States and the Free World.

RONALD REAGAN

The White House,

January 3, 1989.