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Page added on July 23, 2017

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US Owns 700 Million Barrels of Oil. Trump Wants to Sell It

Public Policy

The weather was hot and humid on July 21, 1977, the day the U.S. government began stockpiling oil. It started small. Just 412,000 barrels of Saudi Arabian light crude stashed in a Southeast Texas salt cavern. In the wake of the Arab oil embargo, which sent prices through the roof and forced Americans to ration gasoline, creating a national reserve seemed like an obvious way to protect U.S. consumers from global supply shocks.

“It’s hard to imagine if you weren’t there,’’ said John Herrington, the Energy secretary under President Ronald Reagan, who pushed to expand the reserve in the 1980s. “We were lining up at gas stations. We were turning down our thermostats.’’

Forty years later, the world has changed, and Washington is torn on whether the Strategic Petroleum Reserve has outlived its usefulness. The U.S. is awash in crude, imports are declining, yet the stockpile remains the largest in world, ballooning to nearly 700 million barrels of crude, enough to offset U.S. production for more than two months, stored in some 60 caverns in Texas and Louisiana.

In light of these changes, Herrington’s position has shifted. “I don’t see the need for a petroleum reserve now,’’ he said.

Shrinking Reserves

The government is far from united on the matter. The Energy Department this year kicked off a $2 billion, multiyear effort to upgrade the reserve and improve its ability to distribute oil during an emergency. President Donald Trump, on the other hand, wants to sell part of the reserve, a plan that lawmakers for now have ignored. So the hoard, and the salt caves, remain.

The caverns themselves are a marvel. For all the disputation in Washington, the place is eerily quiet. At Bryan Mound, about 60 miles south of Houston, the salty breeze from the Gulf of Mexico rustles through knee-high sea grass.

Bryan Mound is the largest of four reserve locations on the coast of Texas and Louisiana, able to hold about 247 million barrels of crude underground.

On the surface is a blue sign identifying Cavern 5 and a patch of cement. Two thousand feet (610 meters) below, a sprawling cave begins to open. Originally created by underground sulfur mining, the cavity twists and bloats another 2,000 feet down. Cavern 5 can hold about 37 million barrels of oil, the largest single accumulation of stored oil anywhere in the world.

The caverns are more cost-efficient than smaller above-ground storage tanks. When oil is pumped in, the saltwater is pushed out. To empty the oil, workers simply pump the saltwater back in.

That’s what’s happening now. The stockpile is shrinking.

Congress has, in recent years, ordered the Energy Department to sell 190 million barrels of oil to fill government budget holes, but it hasn’t authorized the agency to replace it. That means that by 2025, the stockpile will be 27 percent smaller. Such a drop in volume could warrant closing some reserve sites, according to Guy Caruso, former chief of the Energy Information Administration.

The agency this year completed two of more than a dozen planned sales of reserve oil, auctioning off about 16 million barrels. A January auction brought in an average price of $51.46 a barrel, while a March sale cleared an average of $45.42 a barrel, according to the Energy Department. The drawdowns have brought the current inventory down to 679 million barrels as of July 14.

Still Vulnerable

Proponents of maintaining the stockpile argue that the U.S. is not immune to price volatility, in spite of rising domestic production and declining imports.

“We’re still vulnerable,’’ said Robert McNally, former energy adviser to President George W. Bush and the president of the Bethesda, Maryland-based consulting firm Rapidan Group. “It’s short-sighted and deeply unwise to assume that today’s energy circumstances will be the same over the next few decades.’’

Christopher Smith, who led the Energy Department’s Office of Fossil Energy under President Barack Obama, argues that just the existence of the stockpile has a calming effect on markets. For U.S. refiners, the argument goes, the reserve serves as a kind of insurance policy, promising relief if times get tough.

The problem with that argument is that the U.S. has never established a clear policy for when to release oil, leaving it instead to the discretion of the president.

‘Economic Illiterates’

“We ought to dispose of the Strategic Petroleum Reserve because we’ve never figured out how to use it in a crisis,’’ said Philip Verleger, an economist who led the Treasury Department’s Office of Energy Policy under President Jimmy Carter and is now the head of an eponymous Carbondale, Colorado-based consulting firm. “The economic illiterates at the Energy Department say it works. But they haven’t used it when they needed to.’’

The stockpile has been used when extreme weather events, like Hurricane Katrina, threatened energy infrastructure on the Gulf Coast. It’s only been used once in response to a global emergency, during Operation Desert Storm in 1991. In 2011, the U.S. also released 30 million barrels in response to oil-supply disruption in Libya.

One of its more controversial uses came in September 2000, when Democratic President Bill Clinton released 30 million barrels to lower gasoline prices, a move that critics said was a way to influence the November election.

“We called that the use of the strategic ‘political’ reserve,’’ said McNally, a Republican. Still, he argues that the reserve remains an important foreign policy tool, especially when dealing with other major oil producers such as Saudi Arabia and Venezuela.

Case in point: As the Trump administration weighs banning crude imports from Venezuela as part of a potential sanctions package, White House advisers are considering whether such a move would warrant a release of oil from the reserve. Venezuela sells about 700,000 barrels a day to Gulf Coast refiners, so an embargo could squeeze refiner margins, and even raise gasoline prices. The oil reserve could give the U.S. some cushion.

Herrington, Reagan’s energy secretary, shrugs off the idea. “Venezuela, to me, is small potatoes,” he said. “And the oil from there is not particularly good.”

RIGZONE



17 Comments on "US Owns 700 Million Barrels of Oil. Trump Wants to Sell It"

  1. rockman on Sun, 23rd Jul 2017 10:20 am 

    “Herrington…shrugs off the idea…“ And the oil from there is not particularly good.” And one more idiotic statement from an “expert”. LOL. Venezuelan oil is neither “bad” or good. It’s just oil…heavy oil that is combined with our abundant light oil to produce exactly the blended oil our refineries require. The US refineries don’t buy Venezuelan oil just to be good neighbors…they do it because its local and relatively inexpensive. IOW they want it.

  2. arris kennedy on Sun, 23rd Jul 2017 10:54 am 

    we have wind generators everywhere as well as solar energy that does not require the use of petroleum fueled generators. why not make that our main energy sources for homes, businesses and factories? oil companies can still make money from oil as it is used to produce many products such as plastics, lubricants, tires just to name a few as well as the fuel to run our automobiles.

  3. Bob on Sun, 23rd Jul 2017 11:33 am 

    The SPR is for Emergencies! Like: We need to get the crop harvested or we will all starve. Or: Hurricane Sandy destroys NY! We need gas for our rescue vehicles. Or: War in the ME destroys SA oil facilities! The US needs oil to keep trucks on the road. This protection is what needs to be maintained to future use. Not: Let’s sell it because we think we will never need it.

  4. rockman on Sun, 23rd Jul 2017 3:38 pm 

    Bob – “Let’s sell it because we think we will never need it.” Exactly. The SPR is only capable of addressing relatively small and SHORT TERM supply disruptions. I doubt the majority of Americans truly understand the math and think it would help us for years if need be. Its biggest value is it psychological value to minimize market volatility IMHO.

  5. Anonymous on Sun, 23rd Jul 2017 4:34 pm 

    The storage cost is a waste. No reason for the government to be doing its own storage. That is socialism. The whole thing is 1970s thinking.

  6. Anonymouse on Sun, 23rd Jul 2017 5:57 pm 

    Thats right Nony\marmico\econ101, only commies stockpile stuff. Good capitalists sell off w/e isn’t nailed down to the lowest bidder.

    Its basic econ101, right nonytard?

  7. mark hallada on Sun, 23rd Jul 2017 6:07 pm 

    sell it all” pay off our debt . Get our SS benefits way up from what they are . Get the oil workers working .

  8. Makati1 on Sun, 23rd Jul 2017 6:35 pm 

    SO, Mark, how does 3 1/2 days income = paying off the $20+ trillion National Debt or even a bit of SS?

    Do the math:

    ~700 million bbls @ $50/bbl = ~$35 billion. TOTAL.

    The U$ government spends about $10 billion PER DAY. (~$4T per year)

    It is like a family having a garage sale to pay off their million dollar mortgage. They better be selling Lamborghinis, Picassos and bars of gold. lol

  9. Sissyfuss on Sun, 23rd Jul 2017 7:36 pm 

    Stop reading my mind, Mak. It’s getting crowded in there.

  10. Makati1 on Sun, 23rd Jul 2017 8:20 pm 

    Sissy, Perhaps it is just great minds thinking alike. Or just thinking. A rare idea for some here. lol

  11. bobinget on Sun, 23rd Jul 2017 8:42 pm 

    If Putin needs the US to sell off SPR then it must be in our interest.

  12. boat on Sun, 23rd Jul 2017 8:55 pm 

    anonreturd is of course wrong. The SPR should be 20x bigger along with 10-20 wells waiting to be fracked. Drill low and sell high is capitalism 101.

  13. rockman on Sun, 23rd Jul 2017 10:27 pm 

    Mak – Or try this: sell off the entire SPR and we can pay off a whopping 0.18% of our national debt. I like to think he was just being sarcastic and understands how little the SPR oil is worth.

  14. Makati1 on Sun, 23rd Jul 2017 11:05 pm 

    We shall see. With the level of insanity in DC, I think it may be real. Buy at $100. Sell at <$50. A real business deal and typical of Trump! lol

  15. Anonymouse on Sun, 23rd Jul 2017 11:26 pm 

    Didnt the set of pols that predated the current clown circus in washingdum also often talk about doing the very same thing, selling SPR crude? I wouldn’t think trump had much to do with any of that specifically. Selling off what public assets remain for pennies on the dollar does not seem tied to any particular figurehead in the white house.

  16. rockman on Mon, 24th Jul 2017 12:36 pm 

    A – True. From Dec 2016:

    “The U.S. government is slated to sell $375 million worth of crude oil from the country’s emergency reserve this winter after Congress passed a temporary spending bill on Friday that contained a measure authorizing the sale. President Barack Obama’s administration has pushed Congress to approve an up to $2 billion plan for a revamp of the SPR.”

    In April Congress approved President Clinton’s request to sell $227 million of SPR oil to help reduce the deficit.

    On July 8, 2008, Speaker of the House Nancy Pelosi wrote President George Bush to urge him to “draw down a small portion of the oil held in the SPR.

    And then there’s the position of President Bush in 2004: “With oil prices stuck above $40 a barrel, attention has turned to the U.S. Strategic Petroleum Reserve, a vast stockpile of oil stored underground that the U.S. continues to add to. While Democrats call for releasing some of those reserves to help ease oil prices, President Bush Wednesday repeated his long-standing position that the stockpile should only be used in the event of a critical cutoff of fuel needed to maintain the country’s national defense.”

  17. Jerome Purtzer on Mon, 24th Jul 2017 1:14 pm 

    The Donald did not reveal that after selling off the SPR he would keep the cash like any good kleptocracy.

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