The United States maintains a Strategic Petroleum Reserve at
four sites on the Gulf of Mexico,
with a total capacity of 727 million barrels (115.6×106 m3)
of crude oil. The maximum total withdrawal capability from the United
States Strategic Petroleum Reserve is
4.4 million barrels (700,000 m3) per day.
U.S.
mandates biggest non-emergency strategic oil sell-off, by
President Donald Trump unveiled a $4.4
trillion budget for next year that heralds an era of $1 trillion-plus federal
deficits and unlike the plan he released last year never comes close to
promising a balanced ledger even after 10 years time
The budget deal that the U.S. Congress
passed and President Donald Trump signed into law last Friday calls for selling
100 million barrels of the Strategic Petroleum Reserve (SPR) by 2027 to help
fund the government.
The sale of 100 million barrels of crude
oil in the next decade would represent the largest non-emergency sell-off of
strategic oil reserves and would equate to some 15% of the current stockpiles in the SPR.
The mandate for the SPR sale has drawn
criticism because, some experts say, it would blunt the purpose of the
strategic reserve to mitigate major global oil supply disruptions or price
shocks. Other critics have said that tapping the emergency oil reserve for
non-energy needs of the government is short-sighted and that the SPR should not
be used as a “government ATM.”
The Bipartisan Budget Act of 2018 mandates the Secretary of Energy
to draw down and sell from the SPR a total of 30 million barrels of crude oil
between fiscal years 2022 and 2025; another 35 million barrels during fiscal
year 2026; and an additional 35 million barrels in fiscal year 2027.
In addition, under a budget deal from
2015, the Secretary of Energy is authorized to draw down up to $350 million
worth of crude oil from the SPR in the 2018 fiscal year to use for
modernization of the reserve.
The budget deal also reduces the minimum
required level in the reserve under which no drawdowns can be made, to 350
million barrels from 450 million barrels.
OPEC hikes its 2018 forecast for oil
supply growth on a flood of US crude. Trump signs $400 billion budget bill but
decries spending increases he calls a 'waste'.
According to the Congressional Budget
Office, the sale of the 100 million barrels from the SPR would generate $6.36 billion between 2018 and 2027.
As of February 2, 2018, the SPR held a
total of 665.1 million barrels of crude oil, while the current storage capacity is 713.5 million barrels,
according to the Department of Energy. The average price paid for oil in the
Reserve is $29.70 per barrel.
After the sale authorized last week will
be completed by 2027, the SPR would hold 406 million barrels of oil, equal to
around 56% of its capacity, according to DoE estimates quoted by Platts.
Kevin Book, managing director at
ClearView Energy Partners, told Platts that the 100-million-barrel sale was “a
resounding declaration of lawmakers’ new perspective on energy security.”
But Book also told Bloomberg that “This is nothing short of
liquidation of a safety net.” Current and past energy officials also criticized
the proposal for the largest non-emergency strategic oil sale in U.S. history. According
to the Washington Post, the White House reportedly has unveiled plans to cut off the
station’s funding by 2024. Buzz60
Energy Undersecretary Mark Menezes told
Bloomberg in an interview that the SPR was not designed to serve as “a
government ATM.”
“My own view is that SPR was put in
place as an energy security mechanism to ensure that we had supply,” Menezes
noted.
Bob McNally, president of consultancy
Rapidan Energy Group and a former senior energy official at the White House
under President George W. Bush, told Bloomberg that “Selling the SPR to cover
non-energy budget expenses is deeply short-sighted and unwise.”
“In 1996 and 1997 we sold SPR barrels to
pay for unrelated budget expenses and I was in the White House when we put
those barrels back at higher prices starting about five years later, after
9/11,” McNally said.
“Geopolitical risk is alive and well in
the oil market, and the SPR is America’s only formal short-term line of defense
against oil supply disruptions and price spikes,” Robbie Diamond, president of
Securing America’s Future Energy, told Bloomberg.
While the proposed sale of 100 million
barrels of the SPR may be a bet on America’s energy independence and security
in the next decade, it is also raising concern that it could diminish the U.S.
ability to respond to sudden major outages of oil supply as geopolitical woes
are back on the oil market.
Oilprice.com is a USA
TODAY content partner offering energy industry news and commentary. Its content
is produced independently of USA TODAY.
Comments
If oil prices remain
high, we will be selling these reserves for more than we paid for them. We will also be creating space for
replenishing the reserves, hopefully at prices that continue to result in a
profit. The idea is to buy low and sell high.
If we can continue to build the pipelines we need, we will be in good
shape.
Crude oil prices have
risen from $64 bbl. in March 2018 to $75 bbl. in June 2018.
Norb Leahy, Dunwoody
GA Tea Party Leader
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