Using the Strategic Petroleum Reserve is Not the Answer to High Prices

All the buzz yesterday on the talk shows (besides Michele Bachmann repeating her talking point dozens of times on Meet the Press rather than actually answering questions) was tapping the Strategic Oil Reserve to somehow lower gasoline prices.  To even suggest such a move is not only a bad idea and bad policy, it won’t help.

First, a little history.  The Strategic Petroleum Reserve, or SPR, made up primarily of salt dome storage along the Texas and Louisiana coasts, was created after the oil shock of 1973 – 1974, when OPEC flexed its muscles by embargoing oil exports to the US to punish us for our Israeli policies at the time.  The emargo had the desired effects; first it drove oil prices to historic levels and second, it scared the bejesus out of everyone, including our elected leaders.   Injections of crude oil began in 1977, and was not actually filled to it’s working capacity of around 727 million barrels until the end of 2009.  The reserve was established to be used in emergencies such as wars and embargos, and it has been used for that a couple of times, notably Gulf War 1 and during the Gulf of Mexico production shut down during and after Hurricane Katrina.  About 30 million barrels were drawn down during each event.  It was used for political purposes in late 2000, when President Clinton arranged a “swap” of about 30 million barrels with private industry to help fuel prices during that year’s Middle East tensions.  The swap moved government oil into the private sector, to be returned the following year.  After several re-negotiations of the deal, all the oil was finally returned to the SPR by 2004.  This use of the SPR certainly didn’t meet the emergency or war standard, and some believe it was used to manipulate fuel oil prices downward during the price spikes in those years.

Which brings us to today.  White House Chief of Staff William Daley yesterday, coincidently, also on Meet the Press, suggested that the administration is considering tapping the reserve in response to rising crude prices due to the latest unrest in the MIddle East.  That idea is not only stupid, it just won’t work.  Currently, the US is importing about 11 million barrels of crude oil and petroleum products per day of which about 8.6 million barrels comes in as crude.  We currently consume about 19 to 20 million barrels per day of liquid petroleum products, making our import percentage about 60% of daily use.  With a 727 million barrel inventory in the SPR, that would give us about two months supply if all imports were cut off.  If only half was cut off, that still only give us 4 months, and we would be completely vulnerable to energy supply disruptions and unrest in the Middle East.

Which brings us to the real issue…the only way to reduce gasoline prices is to use less.  That is the only way.  Our elected leaders have been kicking the can down the road for over 40 years since the first oil shock, and continue to do that today, only fiddling around the edges of comprehensive energy policy. We must deal with this problem now, expanding our use of renewables, natural gas, and have an adult conversation about mass transit and nuclear power.

Until we do, we’ll continue to be at risk for our own future, and will continue tossing around stupid ideas like drawing from the SPR before we really need it.
 

Bob Cavnar, a 30-year veteran of the oil and gas industry, is the author of Disaster on the Horizon: High Stakes, High Risks, and the Story Behind the Deepwater Well Blowout. He is CEO of Luca Technologies.

 

Comments

  1. alienHunter says

    Your honesty concerning your industry is refreshing to say the least. As for me, I’m thinking real hard about a Hybrid for transportation. Wouldn’t it help if ‘everyone’ planning on a car purchase settle on a Hybrid type auto?

  2. Voice says

    Alternative fuels and hybrid technology! When I was in elementary school 40 years ago we were talking about this, for goodness sake.
    I got my hybrid almost two years ago, and have truly enjoyed getting almost 40 MPG. I paid no more for the car than I would for non-hybrid technology. I’m sold.
    Maybe it’s just me, but it’s my little way of thumbing my nose at the big oil companies. I know we’ll be over the $4.50 mark in no time, but it won’t be as painful for me as it is for the folks driving the gas-guzzlers.

  3. Paul Amos Pruitt says

    Here is another helpful hint. If you find someone who owns stock in any of the major oil companies, then slap the crap out of them! REALLY DO IT! If all those silly hand-wringing stock holders start screaming SELL! SELL! The price will go down!
    Just try it!

  4. carguy says

    That Bachmann is one WACKY broad. Sheeeesh. I don’t hink I have EVER seen anybody quite like her. Aside from the “entertainment value”, I don’t see why the networks persist in interviewing her. I guess it’s that “train wreck” scenario again.
    I agree that that we do not need to tap the SPR. I suppose we are destined for $4-4.50/gal gas pretty darn soon. Oil seems to go from $70/barrell to $120/barrell in just weeks. We can’t seem to find a happy medium. Why is that Bob???

  5. doug says

    I’m predicting that the price of oil will go down eventually, because when/if civilization ends, their won’t be much need for oil. This is not a joke…The thing that most people who think they know a bit about global warming, don’t understand is, the very long lag time carbon stays in the climate system. In other words..even if we quit emitting greenhouse gases tomorrow…we would still be feeling the effects of it longer than any of us are alive.
    http://www2.ucar.edu/news/2904/climate-change-drought-may-threaten-much-globe-within-decades

  6. carguy says

    What about the apocalypse predicted by the Mayan calendar. December 21, 2012? That would end the current oil crisis.
    Not much of a “silver lining” though, I admit. Of course, there’s always the chance the Mayans were wrong. Perhaps we should have a Plan “B”.

  7. Voice says

    carguy, I stand by my assertion last year that the only reason the Mayan calendar stopped at 12/2012 is because they ran out of rocks. :-)

  8. carguy says

    I’m not losing any sleep over that. I agree. Unless the Mayans got that directly from the BIG GUY himself, I always figure it was conjecture at best.
    As unhappy as God must be with us most of time, I’d like to think he’s willing to give us a little more time to “straighten up and fly right”. He’s put a lot of work into this species and this planet.
    If I was HIM, when I just couldn’t take it any more, I’d throw a big rock at us and see if we can figure out how to deflect it. (NEO mitigation for you astronomy buffs). I don’t think he’s just gonna come down here and “pull the plug” so to speak. What fun would THAT be?
    Then, again, maybe the Mayans were “connected”. Maybe that IS God’s message to us. But, why would he do that four days before Christmas???? Doesn’t make any sense to me.

  9. Don says

    High prices are inevitable. The number of new cars sold in China and India is roughly the same as the number sold in the USA. But where many of those sold here are replacements for units already in the gas line, the ones sold there are being added to the line.
    We can’t do squat about the price. All we can do is limit its effect on us by reducing our own usage.

  10. van59 says

    Unfortunately, the culture of this country says that those making the money and in control ain’t gonna wantta see any long-range thinking of methods to deal with any probable change to their current status even given acknowledgement of reckoning day as long as they believe it won’t effect them personally because they already have it made.
    In this example, the oil patch has too much invested in the present technology to shift into something along the lines of an Appllo-go-to-the-moon long-term invent new energy sources to replace oil esp.
    We’ve seen this same effect with the auto industry.
    It will take a lot of kicking and screaming after being backed into that proverbial corner to bring about any meaningful change, IMO.

  11. carguy says

    The Shell station around the corner increased the price of gas 5 cents WHILE I was filling up. Then, it went up another 2 cents while I walked to the cash register. I’m glad I didn’t have to take pee.

  12. carguy says

    I understand several aquifers in the SW are really low. “Really low” being a technical term, of course. I fully believe this MAY be a significant problem. And, aside from hauling icebergs down here from the North Pole, I don’t have an answer. And I’m 1/16 Cherokee.

  13. doug says

    Lol Carguy.
    Unfortunately, I have interacted a bit with some of the most respected climate scientists in the world, and have followed their discussions between each other as well. I’ve probably read up on the subject for way too many hours in the last three years. (Maybe it’s why I’m unemployed)
    I admit I do not come from much of a science background, so I had to learn a few things. One of those things is just how up an up things work in the science community. What I mean by that is there REALLY isn’t any biases built into the scientific method, or how science progresses. It’s a self regulating system. So…unlike the fossil fuel industry, the way science works is that they are not predisposed to any position. This suprised me…I thought their might be some outside influences ie. money maybe making a little difference in how the science progresses? Nope. There are individual scientists that lie of course, but their conclusions get weeded out in the scientific method, through the peer reviewed process.
    So…knowing this now..if is extremely telling that approaching 100% of climate scientists say the earth is warming, and 98% say it is because of greenhouse gases. The warming we are experiencing is unlike anything civilization has ever faced. That’s the problem…civilization has grown up around a relatively stable climate. That is changing…and we are going into uncharted territory.
    I’ve looked at what the contrarians say in detail, spending hours on what they say too, and have come to the conclusion they are flat out wrong. As I wrote before..there’s a certain point where the reality of humanity’s situation, just hits you in the face like a bucket of cold water. YOU WAKE UP. And by waking up, I mean..that no matter what the odds of us as a human community, solving this problem, WE NEED TO GO FOR IT ANYWAYS! And that’s because serious people REALLY ARE talking about the end of human civilization as a possible outcome. But do we REALLY want to experience even half of that? Hell no!
    By waking up, I mean too that we need to put our other silly concerns aside, and focus on this problem. I called one of my Senators yesterday, but plan on getting REALLY SERIOUS SOON, as in doing nothing but calling influential people for several days out of a month. It’s not pleasant to know what I know, and with it comes responsibility.
    If you really want to know, (any many people don’t) I really recommend realclimate.org.

  14. alienHunter says

    Kind of a side issue…Have you investigated the rise in planetary temperatures in our solar system

  15. doug says

    Hi Alien,
    No, I don’t know anything about a rise in temperatures in the solar system. Too busy worrying about just what’s on this earth. Ya know the tropics are going to get slammed by global warming and there is an article in today’s New York Times about how the coffee crop is getting killed in Brazil, because of rising temperatures. Also Kenya sits right on the equator (where my fiancee is from) and they are having a terrible drought. The maps all predict this…Food price index world wide is at an all time high, and it seems hard not to attribute that to all of the heat and drought related crop failures that have been going on. For the first time that I can remember, were looking at millions and millions and millions of people dying because of crop failures, and this is likely only the beginning…There’s some really good solutions to mitigating this problem, if we would only divert some of our resources to it. Ya know, I hate to say it, but having a passive population doesn’t help much. People WILL wake up in this Country because circumstances will force them too, but I hope it isn’t too late.

  16. alienHunter says

    Some years ago the Catholic Pope commented that the world has the resources to feed its population. He said that it’s just a matter of the desire to distribute them. He also said that humankind has reached a point in its development that it is capable of transcending its human nature. I believe that it is all true, but as yet, unrealized.

  17. Deward Bowles says

    I have thought about this for sometime now and I have come to the conclusion that I have to agree with Bob.
    The fact is that it would have little if any impact on the price of oil. It may make sense from the point of view that it appeals to people because at least the government is doing something for them. However there is simply not enough oil in the reserve to even make a dent in the world prices and without a reserve (particularly now), would be a strategic blunder at this point.

  18. patentech says

    Why not tap the reserve if only to foil speculators in crude oil. We can do this for a week or two and see what happens. Nothing ventured, nothing gained. Besides, it would be a source of income for the federal government.

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