Forty years ago, in the wake of the Arab oil embargo that made the United States acutely aware of just how dependent its economy was on imported crude, the government set up the Strategic Petroleum Reserve in a bid to make sure there were no repeats of the painful shortages the embargo caused.
Now, there are about 700 million barrels in the SPR. The U.S. is producing 9.42 million barrels daily, as of the week ending August 4th, a figure that is set to continue rising as shale producers keep on pumping more. Imports as of last week averaged 7.8 million barrels daily, with the four-week average at 8 million bpd. This means that the SPR holds crude oil equal to 40 days of local production plus imports.
Dallas News author Tom Benning quotes one House representative, Joe Barton, as saying that at current production rates and the upward trend, the U.S. simply doesn’t need all that oil sitting in underground caverns in Louisiana and Texas.
Trump obviously shares the opinion that the country doesn’t need so much oil–not at current production rates and falling imports. Yet, opponents of the idea to sell half of the reserve argue that what is true today might not be true a decade from now.
There are no guarantees the boom in oil production we are witnessing right now will keep its pace in the future, so it would be best to leave the SPR alone, which is what Congress is doing, to a certain extent.
There is more than one reason for leaving the SPR as it is, Dallas News’ Benning suggests, quoting government officials including the former head of the Energy Information Administration (EIA). In the last few years, the SPR has turned into what the EIA’s former head calls a piggy bank. Legislators have been selling portions of the reserve to plug budget holes and reduce deficits, and also for backing new bills. This has sparked a dispute on the actual purpose of the SPR.
Originally, the strings of the strategic oil purse were held tightly, allowing for sales either in case of a severe supply shortage—for instance if hurricanes damage oil transport infrastructure—or as part of U.S. obligations under the international energy program, according to legislation cited on the DoE website. Yet this legislation has been amended by newer acts that have turned the SPR into a piggy bank – a signal of the changing role of the reserve.
Piggy banks are a good thing to have, especially if you when faced with deficit. That’s why Congress has authorized the sale of a total of 190 million barrels from the reserve by 2025. Tellingly, no replacement of this crude has been envisaged in the relevant legislation.
So, it seems that Congress is doing the same thing that Trump wants: It’s just doing it at a slower pace, and a quieter one.
Full article: The Strategic Petroleum Reserve Is Slowly Dying (OilPrice)