Wednesday, 31 May 2017

President’s Budget Proposes Selling Half of National Petroleum Reserve

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May 31, 2017 at 5:35 pm by | Photography by PAUL J.RICHARDS/AFP/Getty Images

Gulfport, UNITED STATES: The Shell Oil refinery appears shut down to a minimum in Pascagoula, Mississippi, 30 August 2005, after the high winds and waves of Hurricane Katrina. The US government said it was considering an oil industry request to open up its Strategic Petroleum Reserve 30 August 2005 after Hurricane Katrina battered crude production sites in the country's south. AFP Photo/PAUL J. RICHARDS (Photo credit should read PAUL J.RICHARDS/AFP/Getty Images)

Following up on sales set in motion by the Department of Energy at the end of the Obama administration, President Trump has proposed in his budget to begin selling oil from the  U.S. Strategic Petroleum Reserve next year. After a decade of domestic production increases brought about by the shale-drilling boom, the country’s reliance on imported oil has fallen, decreasing the need to maintain the 688-million-barrel, 141-day supply at its current level, the administration said.

The Strategic Petroleum Reserve (SPR)—the largest emergency petroleum supply in the world—is stored in four underground cavern complexes on the Gulf coasts of Louisiana and Texas. It was created in 1975 in response to the oil embargo by member nations in the Organization of Petroleum Exporting Countries (OPEC) in 1973–1974. In the years since, it has been used a handful of times to stabilize oil prices during emergencies—notably in 1991 during Operation Desert Storm and in 2005 after Hurricane Katrina. The last time the SPR was filled to its 714-million-barrel capacity was in 2009.

The president’s plan would begin the sales of SPR crude in October, at the beginning of the 2018 fiscal year. The administration estimates it will bring in $500 million in revenue the first year, with prices increasing over 10 years of sales. The Department of Energy sold 16.4 million barrels from the SPR earlier this year to pay for maintenance and repair of its facilities.

Selling off crude oil to pad federal coffers is nothing new. The Department of Energy sold 12.8 million barrels in 1996 to help balance the federal budget and continues to use it to fund legislation.

For those worried that the United States is putting itself at risk by shedding a few hundred million barrels of crude, there’s probably not much to fear. Although the International Energy Agency, to which the United States belongs, requires its members to maintain a 90-day supply relative to imported oil, the current SPR supply exceeds that threshold by a wide margin.

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