D. Dowd Muska

 

The SPR: Drain It, Sell It, Forget It

September 03, 2015

Ending the nation’s oil-export ban is a no-brainer. But while we’re at it, let’s ditch the Strategic Petroleum Reserve (SPR), too.

Currently containing a bit under 700 million barrels, the reserve, “the largest stockpile of government-owned emergency crude oil in the world” was born during the crescendo of resource-depletion silliness.

In 1972, The Limits to Growth set the apocalyptic tone. Once the nonsense nozzle was opened, no spine-chilling forecast was rejected by the purveyors (and acceptors) of conventional wisdom. MIT predicted that the “supply of oil will fail to meet increasing demand before the year 2000, most probably between 1985 and 1995.” Exxon warned that “oil production growth [could] taper off and possibly reach a plateau before the end of the century.” In 1979, NEWSWEEK claimed that at “present rates of consumption, America’s oil and gas will be gone within a decade.” As late as 1982, the Organization for Economic Co-operation and Development worried that “from the late 1980s onward, oil supplies will not be able to keep up with the demand for oil.”

Combine junk science with kooky economics, and throw in two Persian Gulf-based “oil shocks.” It made for widespread support of the SPR, viewed as a tool to deal with future oil “cutoffs.” Enabling legislation was signed by Gerald Ford, the reserve got underway during Jimmy Carter’s administration, and Ronald Reagan boasted that he was filling the SPR more quickly than his predecessor.

The reserve’s oil is stored in salt caverns at sites along the coastline of the Gulf of Mexico. Impervious to oil, at the bottom of the caverns, “salt has a strength comparable to concrete.” The typical SPR repository is as deep as One World Trade Center is high.

A fact sheet issued by the U.S. Department of Energy (DOE) called the SPR “the nation’s ‘energy insurance policy.’” If that’s what it is, taxpayers have been ripped off. In 1991, with Saddam Hussein in control of Kuwait’s oilfields and war looming, George H.W. Bush chose to drain some of the SPR. But when the “mother of all battles” turned out to be a pathetic rout, Poppy’s injection of petroleum became irrelevant. As the DOE documented: “The United States sold 17.3 million of the 33.8 million barrels originally offered.”

In 2000, a few months before the presidential election, Bill Clinton justified his decision to access the SPR by citing a possible shortage in heating oil. (Bill Richardson, then the Secretary of Energy, insisted that the move was “not political.”) A decade later, the Obama administration released another 30 million barrels, “in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries.” Even The Economist dinged Obama for wanting “to look like he’s doing something.”

Markets, time, and technology have rendered the SPR a superfluous “asset.” Since the 1970s, conservation, efficiency, and alternatives have made oil far less central to the U.S. economy. Suppliers -- former Soviet republics, nations along the Gulf of Guinea -- proliferated, and OPEC’s power dwindled. Finally, fracking has put what should be the last nail in the SPR’s coffin.

In May, production of crude in the United States was 9.5 million barrels per day -- 74 percent higher than it was five years earlier. Even the cratering of the global petroleum price hasn’t led to a sharp dive in domestic production. Drillers are constantly finding new and cheaper ways to tap black gold. Soon, America will get all the oil it needs from homegrown sources, Canada, and Mexico.

Selling the SPR’s oil won’t get Washington out of the red. Assuming $40 per barrel, the reserve is worth about $28 billion. (Some perspective: June’s federal budget deficit was $52 billion.) The most compelling reason to scrap the SPR is to acknowledge the truth, once and for all, of what really happened with oil during the Me Decade.

As the Institute for Energy Research’s Robert Bradley Jr. explained in a recent blog post, “The 1970s energy crisis cannot be properly interpreted without understanding the role of government intervention in precipitating and exacerbating the crisis.” Meddling in the Middle East snakepit, imposing price controls, establishing a petroleum-products allocation system, adopting a tax on “windfall” profits -- all worked to generate high prices and lengthy waits at gas stations. The SPR was a dubious “solution” to a problem Washington caused.

Federal energy policy is rarely burdened with coherence. But the existence of SPR takes Washington’s ignorance of petroleum economics to befuddling level. It’s long past time for the reserve to be eliminated.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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