In a release of part of the draft budget for fiscal 2018, the Trump administration has proposed halving the strategic petroleum reserve, which will raise some US$500 million during the fiscal year and US$16.6 billion over the next ten years, according to Bloomberg.
Among the other measures aimed at increasing budget revenues from the oil and gas industry is stopping oil royalty payments for the Gulf of Mexico states, opening up the Alaska national Wildlife Refuge for drillers, and selling power transmission lines in the West. As Bloomberg notes, most of these are likely to face opposition in Congress.
The proposed oil sales from the strategic reserve will add to already approved sales of 190 million barrels of crude, to take place between this year and 2025. These sales were passed by the previous presidential administration in 2015 and 2016. The strategic reserve currently holds 687.7 million barrels. According to Bloomberg, halving the reserve will violate the minimum threshold requirement, which is 450 million barrels of oil.
The idea to open up protected lands for oil and gas exploration may at first sound like a boon for the oil industry, but in fact the industry’s reaction to earlier plans by the President to expand Arctic drilling has been less than enthusiastic, due to the high production costs in the Arctic. Environmental opposition is also bound to be a problem, but costs are the bigger one. Shale may be thriving in a price environment of US$50 a barrel, but that won’t be true for Arctic oil.
As for the Gulf Coast plan, President Trump’s idea is not new: President Obama, too, tried to cut the royalties to Gulf Coast states from offshore drillers near their coastline. At the time, state governments put up fierce opposition, and this is likely to repeat now. To date, Gulf Coast states receive 37.5 percent of the royalties GOM drillers pay into the federal budget and use a lot of the money for environmental restoration programs. Yet in the unlikely scenario of the President winning their support for the measure, the additional federal revenue would be to the tune of US$3.56 billion over the next decade.
By Irina Slav for Oilprice.com
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