Trump Wants to Sell Half the U.S. Strategic Oil Reserve For More Cash
The U.S. energy boom means America imports less oil — but is selling emergency stocks a good idea?
President Donald Trump is considering selling half the U.S. Strategic Petroleum Reserve to help tackle the country’s ballooning deficit, leaving some to question whether the reserve is still useful anymore.
The strategic reserve, 700-million odd barrels of crude stored in tanks and underground salt caverns in Texas and Louisiana, was created after the oil shocks of the 1970s, when OPEC slapped an embargo on exports to the West, spooking consumers and spiking prices. As a result, the United States, like other members of the International Energy Agency, agreed to keep a 90-day day supply of oil imports on hand (in government and private stocks) to make it easier to weather unexpected disruptions.
But these days, the United States doesn’t import oil like it used to. In 2006, at the height of U.S. dependence on foreign oil, the country imported more than 14 million barrels a day; currently, the United States imports about 10 million barrels a day. The difference is due to the boom in U.S. oil production unleashed by the shale revolution.
That’s why some experts say the reserve is bigger than it needs to be, tying up billions of dollars underground. (The current value of the SPR is about $35 billion.)
“Given the long-term trajectory of domestic energy production and transportation capabilities, a smaller SPR is projected to be able to continue to meet international obligations and emergency needs,” a White House budget document released Tuesday says.
The Heritage Foundation, a leading conservative think tank that’s widely credited with influencing Trump’s federal budget, proposed pulling the plug on the SPR entirely in 2015. “The SPR has been a useless tool for responding to supply shocks, which have occurred rarely throughout history,” Heritage expert Nicolas Loris wrote.
But plenty of others say the reserve should remain in place, as a hedge against supply disruptions and a safety net for any emergencies. In 2011, when the Libyan uprising poleaxed crude production there, the United States and other countries opened their reserves to ensure adequate supplies.
“While we’ve been lulled into a false sense of complacency by the current period of relatively low oil prices, disruptions and volatility in the oil market are alive and well,” said Robbie Diamond, president and CEO of Securing America’s Future Energy, a Washington-based non-profit pushing for decreasing U.S. dependence on foreign oil. He called the Trump administration’s plan “misguided,” adding the SPR is “America’s only formal short-term line of defense against oil supply disruptions and price spikes.”
The White House said it would roughly halve the amount of crude stored in the SPR over the next ten years, selling off 270 million barrels of oil and leaving 260 million in reserve. It also proposed selling off the entire emergency gasoline stockpile in the northeast, created after Hurricane Sandy in 2012, totaling 1 million barrels of gasoline. It anticipates the government could trim the national debt by $16.6 billion with these moves.
It wouldn’t be the first time the government tapped the SPR for some extra revenue. In 2000, former President Bill Clinton sold off 30 million barrels of the SPR to lower energy prices and ease fuel shortages. Most recently, in 2015, Congress agreed to sell off 8 percent of the reserve from 2018 to 2025 to for extra cash. Trump’s plan would come on top of that.
The move is likely to spark fierce debate in Congress. The announcement could also pour cold water on the Organization of Petroleum Exporting Countries (OPEC). More U.S. oil hitting the market, even if staggered over time, would just add more barrels to an already overloaded market, potentially making life tougher for big oil producers.
Talk of the United States emptying the SPR will be just one more thing for OPEC oil ministers to discuss when they gather in Vienna on Thursday with an eye toward extending production cuts into next year, all part of a plan to shore up prices that have collapsed since 2014.
Photo credit: Stephen Chernin/Getty Images
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