The Arab oil embargo on America About forty years ago, the stakeholders placed a ban on oil exports to the U.S. in an event known as the Arab oil embargo. The embargo made the US realize how dependent it was on imported oil from other parts of the world. To prevent re-occurrence of such dependency, the U.S. government set up the Strategic Petroleum Reserve (SPR), to make up for sudden shortages in oil supply. The reserve is perhaps, one of the largest in the world and the U.S. was no longer at the mercy of any other country for oil imports in the last four decades
Going by the estimated 700 million barrels of crude oil in the Strategic Petroleum Reserve, and the daily US production of 9.42 million barrels, the SPR may no longer be necessary. U.S. crude production is set to increase as shale producers keep pumping more oil. More so, the daily import currently averages 7.8 million barrels, at an average value of 8 million barrels in four weeks. In essence, that the SPR capacity is about forty days of local production and imports.
Oil in the underground caverns might have outlived its usefulness
Tom Benning, a Dallas newspaper writer quotes U.S. House Representative Joe Barton saying “at the present production rate and the upward trend, the US does not need all the oil sitting in reservoirs in Louisiana and Texas”. Although, Barton noted that prices are not encouraging enough to engage in profitable sales of the reserves.
President Trump also shares the same view that America does not need the reserve at the current production rate coupled with the fact that the nation is less dependent on imports.
The aim of setting SPR up is practically defeated
In the last couple of years, the SPR has turned to what some analyst termed a piggy bank. The name piggy bank name is apt due to the fact that Legislators have been selling part of the reserve to plug budget deficits, and make up for other holes in the budget, as well as using the windfall to finance new bills. With these trends, the actual purpose of setting up SPR is now questionable because the world’s largest oil reserve is being depleted for other reasons other than its original reason.
Department of Energy sells the oil
The department of energy, who is the custodian of the SPR, is selling some of the oil in the reserve already. Earlier this year, there were few SPR auctions in which up to 17 million barrels of oil were sold – another auction is scheduled to take place soon. Interestingly, a particular 2016 law gives the Department of Energy can sell up to 25 million barrels from the SPR each year for three years running, starting from 2017.
Initially, the SPR was held as the last resort, only available for sales when there is an unavoidable shortage in supply, like in the case of hurricane damage to supply infrastructure. However, the story has changed, the Congress approved sales of 190 million barrels from the reserve by 2025.
Many industy analysts believe that it is reckless to sell off the SPR becuase what is true today in terms of production and less dependence on import, may not be true in about ten years. There is no assurance that the boom in oil production that the U.S. is experiencing now, will continue at the same pace in the future. So depleting SPR may be a self destruct move on the part of the U.S. government.