Will the U.S. have enough oil to weather a big supply or price shock?

Chicago Tribune Finance 1 month ago

WASHINGTON The nation's Strategic Petroleum Reserve, designed to ease supply shortages and price shocks, has been shrinking and President Donald Trump wants to cut its budget.

That's stoking concern in Congress and among energy experts that one of the reserve's most crucial missions providing not only supplies but economic and psychological security in the event of a major disaster could be compromised.

The government could have smoothly responded to any oil supply disruptions related to the Sept. 14 attack on the Saudi oil fields. But it could have a more difficult time responding to a more catastrophic disruption, experts said.

"It's a problem," said House energy subcommittee chairman Bobby Rush, an Illinois Democrat, of plans to further reduce the reserve's supply.

"If there's a big disruption U.S. producers can't just jump in and replace the lost oil," said Samantha Gross, a foreign policy fellow at Washington's Brookings Institution. "We'll feel the price increase in the U.S. just like we have in the past."

The United States remains a net oil importer, and oil in the reserve still needs to be refined for consumer use, she pointed out.

After the attack on Saudi oil facilities earlier this month, Trump quickly said he would authorize withdrawals from the Strategic Petroleum Reserve if necessary.

The reserve has been often used to ease emergency situations. After Hurricane Harvey hit the Gulf Coast two years ago, for instance, the reserve sent 5.2 million barrels, and the amount was returned the next year, a Congressional Research Service report said.

The reserve is slated to get $235 million in federal money in the current fiscal year, which ends Sept. 30. In its fiscal 2020 budget, the Trump administration urged spending $174 million. The Democratic-run House earlier this year approved spending $214 million for the reserve in 2020. The funds are used for maintenance, security, operations and other functions.

The Republican-led Senate Appropriations energy and water development subcommittee is backing the Trump figure, and a full Senate vote on the energy and water budget, which includes the reserve funds, is expected within the next few weeks.

The administration's proposed major cuts would come in facilities operation and maintenance, as well as eliminating a gasoline special reserve aimed at easing any supply or price shock in the Northeast.

An Energy Department budget document described that reserve as "not cost efficient or operationally effective." The department did not respond to a request for comment.

The reserve consists of about 644 million barrels of oil or enough to supply the nation's petroleum product needs for about four months stored in underground salt caverns along the Gulf Coast. That's down from 726 million barrels 10 years ago and is expected to keep dropping as more oil is sold off.

The U.S. imports about 9% of its oil, including about 950,000 barrels per day, from the kingdom. The biggest U.S. foreign supplier is Canada, which provides 43% of this country's imported oil.

"We don't want to create what would potentially be a very, very serious problem for the American consumer. We want to keep it at its current levels," said Rush.

The specter of a major energy disruption was the reason the reserve was created in the 1970s, as sudden price spikes and shortages roiled the economy and helped trigger long lines at gas pumps.

The last crisis-related release from the reserve was in 2011, when the United States sent 30 million barrels of oil to Libya during a period of turmoil. Since then, the reserve has "loaned " oil to domestic refiners during emergencies.

During the Obama administration, views of the reserve changed. The United States had become less dependent on foreign oil, and vehicles were becoming more fuel efficient.

Starting in 2015, a series of budget agreements and other legislation mandated sales of the oil to help pay for other measures. For instance, 66 million barrels are to be sold off by fiscal 2025 to help pay for federal highway and bridge projects, according to a Congressional Research Service July report.

By 2027, the budget measures are expected to result in a reserve that has about 400 million gallons of oil, or enough to meet obligations for about three months in the event of a crisis.

Fueling the drive to draw the reserve down is a view that the private sector can handle any crisis, and slower-moving government would just get in the way.

"I'm confident the private sector could answer any price shock and do it quickly," said Nicolas Loris, deputy director at the Roe Institute for Economic Research at the conservative Heritage Foundation.

But key players in Congress are concerned.

"While the U.S. is now a top producing country, oil remains a global market and as such, Americans are still vulnerable to price shocks due to world events," said Rep. Marcy Kaptur, an Ohio Democrat who chairs the House appropriations energy and water development subcommittee, which writes spending legislation.

(c)2019 McClatchy Washington Bureau

Visit the McClatchy Washington Bureau at www.mcclatchydc.com

Distributed by Tribune Content Agency, LLC.


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