Strategic Petroleum Reserve No Longer Key Part Of U.S. National Security

The U.S. Strategic Petroleum Reserve (SPR), once seen as a cornerstone of America’s energy security, is losing its shine in Washington.

The SPR was established in the aftermath of the 1973-1974 oil embargo, which led to high gasoline prices, fuel rationing, price controls, and long lines at gas stations. The U.S. government decided to stockpile oil in salt caverns in Texas and Louisiana, fuel that could be used in the event of a supply outage. Today, the SPR holds 695 million barrels of oil.

In the decades since, oil from the SPR has only been released a handful of times – including the Persian Gulf War in 1990-1991, Hurricane Katrina in 2005, and during the Arab Spring in 2011.

Sales from the SPR have often undergone quite a bit of scrutiny in the U.S. Congress. It is seen as a stockpile only to be tapped as a last resort measure, with the intention to supply the market only when there is a short-term disruption in supply (as in the examples mentioned above). Even the 2011 sale from the SPR was met with harsh criticism from certain members of Congress, who argued that the petroleum release was not needed. Related: Here’s How To Play Low Oil Prices

When President Barack Obama announced the sale of 30 million barrels following turmoil in Libya that knocked supplies offline and raised oil prices, Republicans were incensed. “But by tapping the Strategic Petroleum Reserve, the President is using a national security instrument to address his domestic political problems. The SPR was created to mitigate sudden supply disruptions. This action threatens our ability to respond to a genuine national security crisis and means we must ultimately find the resources to replenish the reserve – at significant cost to taxpayers,” House Speaker John Boehner said in a statement in June 2011.

However, times have changed, apparently. The U.S. Senate reportedly reached a bipartisan agreement this week on a long-term transportation bill that would fund the nation’s highways and transit systems. The problem with transportation legislation is that much of the funding comes from the federal gasoline tax, which, standing at 18.4 cents per gallon, has gone unchanged in over two decades. A combination of inflation and more fuel efficient cars means that the 18.4 cents per gallon tax does not go as far in funding transportation projects as it once did.

But with Congress unwilling to raise the gas tax, they are hunting for other sources of revenue to fund the six-year transportation bill. As a result, they have resorted to raiding the SPR. The bipartisan bill reportedly calls for the sale of 101 million barrels of oil from the SPR between 2018 and 2025. Related: Schlumberger Vs. Halliburton: Which Is The Better Buy Right Now?

Although it is unclear if the bill will pass, what is interesting about the move is that the Senate has shed any pretense of national security with the move to sell off crude from the SPR. In 2011, President Obama ostensibly sold off oil in order to supply a disrupted market. His critics argued that it was a cynical political move intended to reduce the price of oil rather than make up for any physical shortage of actual crude oil on the market. But still, the White House argued it was needed.

Now the Senate isn’t even pretending to be pursuing any energy security objectives. The call for the sale of 101 million barrels is being pursued because it will raise an estimated $9 billion for transportation projects. Rather than do what many economists think need to be done – raise the gasoline tax – the Senate has instead decided to abandon a bulwark of U.S. energy security policy put in place four decades ago.

The top Senator on energy issues, Lisa Murkowski (R-AK), admonished her Senate colleagues for dipping into the SPR for an unrelated funding purpose. “The Strategic Petroleum Reserve is a vital national security asset that must be maintained in case of serious future supply disruptions,” Murkowski said in a July 21 statement. “While I recognize that a long-term highway bill is a priority, a shortsighted sale that undermines our emergency preparedness could have real and lasting impacts on our security. On the merits and in its timing, this is simply the wrong approach.” Related: Good News For Coal Exporters From The Unlikeliest Of Sources

Of course, maybe the Senate is not off base. Maybe the SPR is no longer needed the way it once was. Even though it is not at capacity, the SPR held 106 days’ worth of oil supply as of May 2014, well above the 90-day supply that the U.S. has pledged to safeguard as a member of the International Energy Agency. And after considering the fact that the private sector holds even more in storage, it could be argued that the U.S. has excess supply sitting on the sidelines, way more than it needs for supply disruptions. That presents an opportunity to downsize the SPR, and in the meantime, use the proceeds for other purposes.

However, there are a variety of reasons why the government should think twice before dismantling or downsizing the SPR. For example, the shale revolution that has cut oil imports may not last over the long-term. Moreover, the U.S. will not be immune to supply disruptions just because it does not import as much oil as it once did.

Still, those arguments are apparently not as potent on Capitol Hill as they once were. As little as four years ago, the President was being accused of undermining U.S. national security by selling SPR oil in order to soften oil prices, which, if true, was at least related to the mission of the SPR. Now, with even less fanfare, a bipartisan group in Congress no longer seems to mind deviating from the mission, and instead seeks to simply sell SPR oil for cash.

By Nick Cunningham of Oilprice.com

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