08-05-2015, 11:41 AM
"Not sane," "dreadful," "super dumb" – these
were the words lawmakers and experts used to describe a Senate plan to sell off the nation's emergency supply of crude oil to pay for highway upgrades.
[READ: Boehner Calls for an End to the Decades-Old Ban on U.S. Oil Exports]
"It would be like cashing in our home insurance
policy to pay for repaving the driveway," Sen.
Lisa Murkowsi, R-Alaska and chairwoman of the Energy and Natural Resources Committee, told reporters last week.
"The Strategic Petroleum Reserve is a vital national security asset that must be maintained in case of serious future supply disruptions." It could also, she added, potentially be harnessed to support allies whose supplies are cut off.
Yet in a Congress led by Republicans resolved
not to raise taxes, senators last week advanced a six-year transportation bill that harnesses the reserve to pay for roads, bridges and transit.
That bill follows a House measure passed last
month that would fund health care research by
selling oil from the reserve.
"The most dangerous place to stand in
Washington is between Congress and free
money," says energy consultant Bob McNally,
former special assistant on the National
Economic Council and former senior director for international energy on the National Security Council under President George W. Bush.
"Congress has gotten a whiff of that with the
Strategic Petroleum Reserve. While I disagree
with this, I expect there will be a drawdown." If either measure is approved, it wouldn't be the
first time the reserve was tapped for large
amounts of oil – that's happened five times
previously – but it would come at a time that
booming U.S. oil and gas production has
dropped oil to its lowest price in four years, and with no great change expected anytime soon.
"Selling oil at current prices is nuts," says Steven Kopits, managing director of the consulting firm Princeton Energy Advisors (and he of the phrase "super dumb"). "Markets are really fragile right now: If you put a million barrels on the market, you're going to tank prices by $10 a barrel."
With oil hovering at around $50, that's as much as 20 percent. But if the U.S. is sitting atop and producing so much home-grown oil, why is the Strategic Petroleum Reserve necessary anyway?
The International Energy Agency, of which the U.S. is a part, calls on its 28 member nations to hold a 90-day supply of oil. But now that the U.S. is by some measures the world's largest producer of crude oil, do we still need it?
Some Experts Say No
The product of 1970s-era energy-supply fears
after the Arab oil embargo, the reserve is a
vestige of a bygone era that has more in
common with nuclear weapons or the gold
reserve than any kind of insurance policy, says
Fred Beach, deputy director of the Energy Institute at the University of Texas-Austin.
"It would be hard to use it any realistic way," he
contends. "It was expensive to build, it was an
expensive thing to fill, and it's an expensive
thing to maintain."
The reserve is not one but actually four sites
along the Gulf Coast in Louisiana and Texas.
Made up of enormous underground salt caverns – huge gray arenas and tunnels filled with the sweet and sour smells of crude – the reserve can hold as many as 727 million barrels of oil – enough to fill the Empire State Building more than 100 times, with some left over for the Chrysler Building a few blocks away.
Just under 700 million barrels of oil was sitting there in July. But when it comes to deploying all that oil, Beach has a point: While the U.S. only has enough oil to supply about 36 days of demand – well shy of the 90-day benchmark – it can only pump out as much as 4.4 million barrels per day, the Energy Department says, just a fifth of what's consumed every day. And that rate has been made even slower by
booming U.S. domestic production, experts say.
The crude that flows through America's
pipelines has switched directions: Refineries
that once took imported oil and then injected it
through the heart of the country as gasoline, diesel and other petroleum products are now
taking in domestic crude from those same
regions that are now churning out so much oil. It would take far more than 100 days for the U.S. to empty its reserve.
"Those pipelines have been reversed," says Jim Smith, professor of oil and gas management at Southern Methodist University. "We are hampered now."
[MORE: How Ending Iran Sanctions May Impact Oil Markets]
And even if the U.S. could quickly use its reserve – if, say, supplies from overseas were suddenly cut off, or an earthquake or huge storm ravaged shale producers in the Midwest – there's still the question of how selling the U.S. stockpile would affect the market.
"Are low oil prices good or bad? If you're buying gasoline, you want low oil prices; if you're an oil producer, you want high prices," Beach says. "It's very non-free-marketish because it's controlled by the government, and who wants the government to have such a big hammer to influence prices?"
This gets to a main reason why Murkowski and other senators – long champions of the oil and gas industry – oppose selling the reserve, Beach suspects: "They're answering to their oil constituency. They want to keep the price up by not selling off the SPR," he says.
But Others Are Less Certain
were the words lawmakers and experts used to describe a Senate plan to sell off the nation's emergency supply of crude oil to pay for highway upgrades.
[READ: Boehner Calls for an End to the Decades-Old Ban on U.S. Oil Exports]
"It would be like cashing in our home insurance
policy to pay for repaving the driveway," Sen.
Lisa Murkowsi, R-Alaska and chairwoman of the Energy and Natural Resources Committee, told reporters last week.
"The Strategic Petroleum Reserve is a vital national security asset that must be maintained in case of serious future supply disruptions." It could also, she added, potentially be harnessed to support allies whose supplies are cut off.
Yet in a Congress led by Republicans resolved
not to raise taxes, senators last week advanced a six-year transportation bill that harnesses the reserve to pay for roads, bridges and transit.
That bill follows a House measure passed last
month that would fund health care research by
selling oil from the reserve.
"The most dangerous place to stand in
Washington is between Congress and free
money," says energy consultant Bob McNally,
former special assistant on the National
Economic Council and former senior director for international energy on the National Security Council under President George W. Bush.
"Congress has gotten a whiff of that with the
Strategic Petroleum Reserve. While I disagree
with this, I expect there will be a drawdown." If either measure is approved, it wouldn't be the
first time the reserve was tapped for large
amounts of oil – that's happened five times
previously – but it would come at a time that
booming U.S. oil and gas production has
dropped oil to its lowest price in four years, and with no great change expected anytime soon.
"Selling oil at current prices is nuts," says Steven Kopits, managing director of the consulting firm Princeton Energy Advisors (and he of the phrase "super dumb"). "Markets are really fragile right now: If you put a million barrels on the market, you're going to tank prices by $10 a barrel."
With oil hovering at around $50, that's as much as 20 percent. But if the U.S. is sitting atop and producing so much home-grown oil, why is the Strategic Petroleum Reserve necessary anyway?
The International Energy Agency, of which the U.S. is a part, calls on its 28 member nations to hold a 90-day supply of oil. But now that the U.S. is by some measures the world's largest producer of crude oil, do we still need it?
Some Experts Say No
The product of 1970s-era energy-supply fears
after the Arab oil embargo, the reserve is a
vestige of a bygone era that has more in
common with nuclear weapons or the gold
reserve than any kind of insurance policy, says
Fred Beach, deputy director of the Energy Institute at the University of Texas-Austin.
"It would be hard to use it any realistic way," he
contends. "It was expensive to build, it was an
expensive thing to fill, and it's an expensive
thing to maintain."
The reserve is not one but actually four sites
along the Gulf Coast in Louisiana and Texas.
Made up of enormous underground salt caverns – huge gray arenas and tunnels filled with the sweet and sour smells of crude – the reserve can hold as many as 727 million barrels of oil – enough to fill the Empire State Building more than 100 times, with some left over for the Chrysler Building a few blocks away.
Just under 700 million barrels of oil was sitting there in July. But when it comes to deploying all that oil, Beach has a point: While the U.S. only has enough oil to supply about 36 days of demand – well shy of the 90-day benchmark – it can only pump out as much as 4.4 million barrels per day, the Energy Department says, just a fifth of what's consumed every day. And that rate has been made even slower by
booming U.S. domestic production, experts say.
The crude that flows through America's
pipelines has switched directions: Refineries
that once took imported oil and then injected it
through the heart of the country as gasoline, diesel and other petroleum products are now
taking in domestic crude from those same
regions that are now churning out so much oil. It would take far more than 100 days for the U.S. to empty its reserve.
"Those pipelines have been reversed," says Jim Smith, professor of oil and gas management at Southern Methodist University. "We are hampered now."
[MORE: How Ending Iran Sanctions May Impact Oil Markets]
And even if the U.S. could quickly use its reserve – if, say, supplies from overseas were suddenly cut off, or an earthquake or huge storm ravaged shale producers in the Midwest – there's still the question of how selling the U.S. stockpile would affect the market.
"Are low oil prices good or bad? If you're buying gasoline, you want low oil prices; if you're an oil producer, you want high prices," Beach says. "It's very non-free-marketish because it's controlled by the government, and who wants the government to have such a big hammer to influence prices?"
This gets to a main reason why Murkowski and other senators – long champions of the oil and gas industry – oppose selling the reserve, Beach suspects: "They're answering to their oil constituency. They want to keep the price up by not selling off the SPR," he says.
But Others Are Less Certain