U.S. Prepares To Sell Off Its Oil Reserves
By Tyler Durden
Submitted by Nick Cunningham via OilPrice.com,
The U.S. is beginning to wind down one of the core energy security policies of the past half century as the boom in domestic drilling eases concerns about supply.
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The U.S. Department of Energy could begin to sell off some of its strategic petroleum reserve (SPR) as soon as January, the beginning of a multi-year process to shrink the nation’s stockpile of oil. Congress has authorized DOE to sell off $375.4 million worth of oil in its recent budget resolution. The DOE said that such a sale could be held in January 2017.
To be sure, part of the motivation to sell crude is to finance upkeep for the SPR itself. The reserves are held in salt caverns in Louisiana and Texas, setup decades ago in the aftermath of the Arab Oil Embargo in 1973. The SPR system can hold more than 700 million barrels of oil, the largest strategic stockpile in the world. The idea is that the SPR holds 90 days’ worth of oil supplies, which could be released in the event of a global outage. A release has only occurred a handful of times, such as the Persian Gulf War, Hurricane Katrina and the Arab Spring.
Some of the storage systems are rusting and corroding after decades of use. In September, the DOE issued a report to Congress, which came to a dire conclusion about the condition of the reserve. “This equipment today is near, at, or beyond the end of its design life,” the report said. The sale “will allow the Department to take necessary steps to increase the integrity and extend the life” of the reserve, a DOE spokesperson said in December after the budget resolution was passed.
It is hard to overstate the significance of the SPR to U.S. energy policy. In fact, some analysts would argue the U.S. does not really have a comprehensive energy security policy. There is no coherent theory, policy or philosophy driving U.S. energy security concerns, other than the U.S. military policing the world to ensure the security of supply, a mission that has governed American actions abroad since the Carter administration at least.
The one cornerstone of energy security policy has been the SPR. As long as the U.S. had 3 months’ worth of supply, it could weather unexpected disruptions. The International Energy Agency was setup in the 1970s as well, and participating members – in addition to the U.S., the group includes Europe, Japan, Korea, Australia and New Zealand – also have pledged to hold a 90-day supply.
But U.S. policymakers no longer view the SPR is all that important. Even the more hawkish members of Congress have been lulled into a sense of security from the surge in U.S. oil production and the resulting crash in oil prices. The world is awash in oil, so why does the U.S. need to stockpile such a massive volume of oil at great expense? The ostensible reason of selling off oil from the SPR is …read more
Source: U.S. Prepares To Sell Off Its Oil Reserves
