July 15, 2015 at 4:42 pm ET
The Strategic Petroleum Reserve: Congress’s New Piggy Bank?
Deep within the salt deposits under the Louisiana and Texas coast sit billions of gallons of government-owned crude oil. The stockpile exists in the hope that it’ll never be used. But should a crisis send shocks through the global oil market, the Strategic Petroleum Reserve is expected to insulate Americans from gas lines and hardships.It’s 700 million barrels strong. It’s worth roughly $45 billion. And recently, Congress moved to use it as a piggy bank.
Last week, the House of Representatives passed the 21st Century Cures Act by a vote of 344-77. To help pay for the measure, the House proposed to raise $5 billion by selling 70 million barrels from the Strategic Petroleum Reserve over the course of 8 years. If the legislation in its current form passes the Senate and becomes law, it will drain the SPR by more than 10 percent in order to pay for medical research programs.
Congress has only called for the sale of reserve petroleum twice, to ballast the fiscal years 1996 and 1997 budgets – and even then, they only sold $227 million, and $220 million worth of oil, respectively. Usually, the administration authorizes sales to compensate for external shocks, such as the Persian Gulf War in 1991, or Hurricane Katrina in 2005.
The recent House bill could be a sign that the SPR, created in the aftermath of the 1973 oil embargo, is now fair game for legislative pay-fors. With oil prices at 10-year lows, causing experts to worry about a supply glut, and with the rise of natural gas, some energy policy veterans say the security value of the SPR has been lost on members of Congress.
“Most people weren’t even aware that was a part of the bill,” said Larry Goldstein, a director at the Washington-based Energy Policy Research Foundation. Goldstein said it was troubling the measure drew strong bipartisan support. “If you think this is a one-off, you’re wrong,” he said. “This is a painless way for Congress to fund pet projects.”
While using the SPR to fund an unrelated program sailed through the House, proponents of the medical-research bill might not have as much luck in the Senate.
“We understand that members are looking for funding sources, but we are concerned about the approach taken in the House,” said Robert Dillon, a spokesman for Republicans on the Senate Energy and Natural Resources Committee.
Dillon said that Chairman Lisa Murkowski (R-Alaska) maintains that any revenues earned by selling oil from the stockpile should be used to used to modernize the system, not to fund unrelated programs. Dillon cited “millions of dollars” in needed upgrades to the underground caverns in Louisiana and Texas as one part of the SPR that needs help.
Sen. Maria Cantwell of Washington, the top Democrat on the committee, agreed. “The SPR is currently our most important federal energy security asset,” said Rosemarie Calabro Tully, a spokeswoman for Cantwell, in an email. “Rather than raiding it, we must modernize it.”
In 2015, the Quadrennial Energy Review, a massive Department of Energy report on energy infrastructure, called for modernizing the SPR. In 2014, the Government Accountability Office recommended the Department of Energy reexamine the size of the SPR, without specifying whether it should be increased or decreased.
On using the SPR as a funding mechanism for other initiatives, Sen. Angus King (I-Maine), also a member of the Energy Committee, said in an interview that he would need to consider the issue on a case-by-case basis, but that he “probably would not support such a measure.”
While the Senate has not yet faced the issue directly, some in Washington suspect that the chamber might be more open to dipping into the SPR than Murkowski, Cantwell and King have let on.
“Yes, this is the new piggy bank,” said Steven Bell, who served on the staff of former Sen. Pete V. Domenici (R-N.M.) for 25 years and now works at the Bipartisan Policy Center, a Washington-based think tank. “I don’t find it a gimmick. I find it very intelligent in light of dramatically changed circumstances.”
Bell said that the probability of an “exogenous shock” to global oil markets that would seriously impact the U.S. economy was so unlikely that it made selling oil from the SPR “imminently defensible.” He said that the SPR was a wasted asset given that oil prices have dropped by 50 percent in the last year and because the U.S. is producing 9 million barrels of oil a day, plus “more natural gas than you can shake a stick at.”
When legislators look at the SPR, “all they see is the possibility of a piggy bank raid,” said Guy Caruso, who served as administrator of the Energy Information Administration under President George W. Bush. “It’s a classic look-around for ‘where do you get some money.’”
Caruso was critical of the House’s move, saying that more domestic oil production and fewer imports don’t justify raiding the SPR. “We shouldn’t use a strategic asset to try to solve other problems,” he said.
Or as Goldstein put it: “Supply dislocation anywhere is a price increase everywhere.”
That view is in line with the Obama administration’s.
“Today’s lower oil prices, increased domestic oil production and reduced oil import dependence may lead some to view the SPR as having diminished value as a tool in our energy security arsenal,” said Energy Secretary Ernie Moniz during an event in June hosted by the Energy Information Administration. “We don’t believe this is the case.”
As a member of the International Energy Agency, the U.S. is obligated to maintain a reserve of crude oil or production products equivalent to at least 90 days worth of net imports. The current stockpile holds about 137 days of import protection, according to the Department of Energy.