Budget Deal Could Crack Open Strategic Oil Reserves for Second Time in U.S. History

Wellhead Pressure GaugeAlong the coasts of Texas and Louisiana lie dozens of massive underground salt caverns, hidden thousands of feet below the surface. Many of these naturally occurring salt domes are large enough to contain the Sears Tower (with room to spare), and since 1997 they have been used to store about 700 million barrels’ worth of oil. Collectively, these salt caverns are called the Strategic Petroleum Reserves (SPR), a Cold War creation that currently includes enough oil to power 100% of the United States’ energy needs for 35 days.

It’s the largest petroleum reserve in the world, and the new bi-partisan budget deal in Washington D.C. could turn the reserves into a revenue source for just the second time in history. The SPRs were created after the 1973 oil embargo, which kicked off a national recession. The massive reserve is meant to provide a cushion for the ups and downs in the oil and gas industry, but only once before have they been used as a source of revenue.

In the mid 1990s, 28 million barrels were sold to reduce the federal deficit, and the new budget plan calls for nearly 9% of the emergency reserve to be sold. It’s part of a two-year budget deal between President Barack Obama and a bipartisan group of legislators.

“In the next 2-3 years, numerous risks are associated with the plan to sell crude from the SPR,” says Marty Stetzer, President, EKT Interactive. “The geopolitical environment is very unsettled affecting the marginal crude suppliers to the United States; 60% of U.S. crude is shale production. Production cuts are inevitable if current prices extend through 2018. Releasing SPR crude will send yet another long signal to the oversupplied marketplace, extending depressed prices. The long term viability of a robust U.S. producer sector is important and currently at risk.”
The deal has already passed through the fractured U.S. Congress — a formidable feat in 2015 — and if all goes according to the budget plan, then 9% of the reserves would be sold off between 2018 and 2025. The revenue would then be used to replenish the Treasury’s general funds.

It would be just the fifth time in history the reserves have been opened, for sale or for use. Besides the Clinton-era sell off, the reserves have also been opened three times as a stop-gap measure in times of low supply, such as in the wake of Hurricane Katrina in 2005.

Currently, the reserves hold enough oil to power the country’s entire energy needs for 35 days. Officially, the reserves are required to hold “at least 90 days’ worth of net oil imports on hand for emergencies.” As of July 2015, the Wall Street Journal reported that the SPRs held enough oil to cover 138 days’ worth of imports.

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