Energy

US Could Sell Off 40 Percent Of Its Strategic Oil Reserves By 2027

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Michael Bastasch Energy Editor
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Congress has passed five pieces of legislation committing the Energy Department to sell off a substantial amount of strategic oil reserves over the next decade to finance more government spending.

If all the legislated sales are held, the Strategic Petroleum Reserve (SPR) could shrink 40 percent by 2027’s end (from 695 million to 410 million barrels), according to the U.S. Energy Information Administration (EIA).

Three bills passed in 2015 and 2016 entail energy officials to sell off 149 million barrels through 2025. Two recently passed bills entail another 107 million to be sold through 2027. Most SPR-sale revenues will go to the U.S. treasury.

Lawmakers have been increasingly willing to tap SPRs to finance more government spending or new programs. (E.G., 25 million SPR barrels availed 2016 health-care legislation aiming to expedite new treatments to market.)

The political calculus is simple: booming U.S.-oil production from hydraulic fracturing and horizontal drilling has reduced reliance on imported crude, which makes SPR less essential — i.e., SPR is ripe for legal plunder.

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The GOP tax-cut legislation entails 7 million SPR-oil barrels to be sold off over a two-year period starting in 2026. A February 2018 bipartisan budget deal avails 100 million barrels to be sold through 2027.

Tax cuts, however, came in conjunction with opening up the Arctic National Wildlife Refuge to oil-and-gas exploration.

The EIA said the oil sell-offs could happen “while still meeting requirements for petroleum-import coverage.” Currently, enough oil is stockpiled to supply Americans for 252 days if imports were totally cut off. That’s on top of commercial-oil stockpiles that add another “452 million barrels — equivalent to another 172 days of import protection,” EIA noted.

The SPR was created in the wake of the 1970s Arab-oil embargoes. Oil is stored in underground Gulf Coast caves large enough to hold 727 million barrels.

The energy administration noted a core SPR mission: “[to] hold enough oil stocks to carry out U.S. obligations under the International Energy Program — the 1974 treaty that established the International Energy Agency.” The U.S. must dispense 43 percent of released oil as part of any “collective action.” Petroleum-reserve releases are also used to temporarily stabilize oil markets when supply disruptions occur.

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