More SPR Nonsense

I must say that I find it amazing that the same people can argue 1). We are too dependent upon fossil fuels; 2). We must find alternatives; 3). Carbon emissions are too high; 4). We need to promote higher fuel efficiency — and then 5). We must tap the Strategic Petroleum Reserve (SPR) to bring oil prices down so people can afford to consume more. This is utter rubbish, and I have addressed this once before (including the observation that nobody seemed to fact-check the claims that the SPR was being filled at a rate of 70,000 bbl/day).

Again, what is the purpose of the SPR?

In the event of an energy emergency, SPR oil would be distributed by competitive sale. The SPR has been used under these circumstances only twice (during Operation Desert Storm in 1991 and after Hurricane Katrina in 2005). Its formidable size (700-plus million barrels) makes it a significant deterrent to oil import cutoffs and a key tool of foreign policy.

However, the calls for tapping the reserve continue to come, because high prices apparently constitute an energy emergency in some people’s minds. Here’s the latest:

Eight Reasons to Release Oil from the Strategic Petroleum Reserve

Let’s look at a couple of the reasons given:

1. Record oil prices have hurt American families

Ordinary families are struggling with record high energy prices. Many families’ gas costs have increased by hundreds or even thousands of dollars a year. The price of home heating oil has doubled in the past year. And the Department of Energy predicts that average electricity prices will increase by 5 percent this year, and go up 9 percent in 2009.

Yes, and we are seeing significant drops in gasoline demand as a result. You know what that means? The people who argue for lower carbon emissions should be happy. And the kicker of this article is that the author, Daniel J. Weiss, is “the Director of Climate Strategy at American Progress, where he leads the Center’s clean energy and climate advocacy campaign.” What’s wrong with this picture? Do climate advocates think getting people to change is going to be easy? No, there is going to be cost, pain, and inconvenience. But people respond to price. They don’t respond to feel-good speeches about the need to cut back.

Let’s look at one more:

6. There is plenty of oil in the reserve to withstand a supply disruption

The SPR has more oil than ever before—706 million barrels, which is 98 percent capacity. Selling 50 million barrels over 100 days would still leave it filled to over 90 percent capacity. This is enough oil to cope with a complete foreign supply disruption for nearly two months, assuming zero reduction in demand in the wake of such a catastrophe.

This is just an argument that the SPR is bigger than it needs to be. Yet the authorization to fill (eventually to 1 billion barrels) was made as a part of the Energy Policy Act of 2005, which received broad support. As someone who is very concerned about disruptions of future oil supplies, I want a healthy volume in the SPR. I want it tapped only in the event of something like a major supply disruption that actually threatens to sharply reduce the amount of available oil. I didn’t want it tapped at $20 oil, and I won’t want it tapped at $500 oil.

Finally, let’s not forget the history here. Chuck Schumer has lobbied to have the SPR tapped since 1999, when oil was hitting the outrageous value of $20 a barrel. He got his way in 2000, as President Clinton caved leading up to the elections. Here Schumer (and others) are at it again in 2004, which was also an election year. Oil at that time had risen to $35 a barrel. (Here’s another article from someone who recognizes Schumer’s misguided logic in tapping the SPR).

Where would we be had we heeded these perpetual calls to tap the reserve? With higher gasoline consumption, higher carbon emissions, a drained SPR, and Senator Schumer complaining about fossil fuel consumption. We would be much more vulnerable to supply disruptions, and our financial position with respect to the SPR would be billions of dollars worse off than it is now (i.e., down 100 million barrels or more from today’s level with oil at $130/bbl).

High fuel prices have led to many positive changes in people’s behaviors. Demand is down, fuel efficiency is being embraced, and sales of SUVs are down. The very same people who advocate these things are the same people who would reverse these positive changes by tapping the SPR. It appears that they don’t understand that cheap energy is the very reason we became so dependent upon fossil fuels. We won’t wean from fossil fuels if they remain cheap. As I have noted before, a big reason that Europe’s per capita energy usage is half that of the U.S. is because they have maintained prices at artificially high levels. This caused them to develop different living/transportation/consumption preferences than is the case in the U.S.

If people are forced to tighten budgets – and heaven forbid carpool, ride the bus, or simply drive less as a result of high prices – that does not constitute an energy emergency. We need to get past these ridiculous calls to tap the SPR, and highlight the inconsistencies (and past history) of the positions of those who advocate such a move.

17 thoughts on “More SPR Nonsense”

  1. People will cry about the HIGH PRICES of gasoline but than go to STARBUCK and order a $5- 16 oz cup of coffee! The station that they just come from across from the
    STARBUCK store (SHELL, EXXON ect.)
    to put 15 gallon of gas @ $4.05/ga. plus or minus, sells a cup of 16oz of for $1.50. Moral of the story? Liberal Math: 1+1= 5. United States Education System and results at it best!

  2. Bingo.

    A few weeks ago, I was talking to some friends about the SPR. They were in favor of opening it up, and I was struggling to put my skepticism into words. I pointed out that the difference would be fairly slight and short-lived, but my deeper problem was exactly what you’ve said here. I wish I’d been able to say it as clearly.

    High oil prices hurt. I understand and I sympathize with this. Heroin withdrawal hurts, too, but no one seriously thinks that the goal of breaking a drug addiction is reconcilable with making it easier (and cheaper) to access that drug. If we want to be less reliant on oil, we need these high prices.

  3. But people respond to price. They don’t respond to feel-good speeches about the need to cut back.

    Exactly so. I’d say the same thing about CAFE regs, which have been ineffective. The high fuel taxes of most European countries have been effective.

    I must disagree with you on the SPR. A lot of hot money has been piling into energy futures as it flees from negative real yields on bonds and tanking stock markets. We can’t talk this money out of the market with feel-good speeches either – it only responds to fear. The SPR could be used to deliver a spanking, putting some downside risk into a trade that appears to be one-way. For example, the government could short 100mb of oil futures at $145/bbl and then not repurchase the contracts, instead delivering the 100mb to the buyers. Combined with a credible long-term energy policy involving higher fuel economy and increased domestic production, it could be enough to send the cockroaches scurrying for cover.

  4. Leave the oil in the SPR. It is for war-time type emergencies.
    Anyway, oil tanking hard today, again. Obviously, oil prices have plunged before in this cycle, only to rebound again to even higher heights. But if the futures speculators get hurt bad a few times, or if it looks like a top has been reached, look out below. This could slide run all the way back to “down” to $80. I say “down,” as most companies in the oil industry were making good money at $40 a barrel.
    The real risk is that we will see cheap gasoline again. If a Prezzy and Congress had any guts and brains, they would vow to never let gasoline be sold for less than $5 a gallon again in the United States.

  5. Ideas like opening the strategic oil reserve and cries for opening up off-shore drilling and ANWR that scare the hell out of me about our energy future. Unless we as a country recognize that there is no quick fix to the energy issues we face, we’re doomed to be living in a very ugly world in about 20 years. Never mind the environmental issues that come with burning the fossil fuels…how is the reliance on oil going to affect our lifestyles when it hits $250 and $300 a barrel, and we’re still relying on it for heating our houses and delivering our food?

    This, more than any other issue, needs to stop being an issue that politicians use for political gain and gladhanding the public. Stop trying to buy votes by trying to punish oil companies for “record profits” and saying you’ll suspend the gas tax and actually start preaching the only things that will get us through this — conservation and alternatives to oil.

  6. Benny said: “Leave the oil in the SPR. It is for war-time type emergencies.”

    Exactly right. It is a strategic reserve meant to be used in real emergencies — such as if we are at war and we need to send our B-2s to Iran to winkle out their atomic bomb capability with deep-penetrating bunker busters.

    Back in the day when our entire naval fleet burned bunker oil, we used to set aside Naval Petroleum Reserves (Teapot Dome in Wyoming being the most famous) to ensure we could keep our ships fueled and maintain control of the sea in national emergencies.

    The SPR is supposed to be a last reserve for our national defense — not as a way to manipulate prices.

  7. Directed toward Mr. Rapier- Completely unrelated, but would you happen to blog and comment under the screeen name armchair (or oremchair, or other combinations of this?) My friend read comments by this guy on the OilWatchdog site and felt they were right on (basically, he felt the same way, and had thought about writing similar opinions on multiple occasions, but obviously didn’t possess the extensive energy and economic background that armchair or oremchair had). Someone pointed me to you, and I was wondering if you were the person my friend should thank.

  8. The best argument for selling off the SPR is that it is worth a lot of money (about $95*10e9 today). The counter argument is that Congress is no more to be trusted with that money than hungry 6 year olds should be trusted with cookies.

  9. The folks who say that draining the SPR will benefit consumers are mostly the same folks who say that a possible several hundred thousand (or even million) barrels per day new production from offshore will not change prices (and will quote EIA analysis in support of their claim). But that doesn’t sound so good, so they say the new production will be only x days supply for the US.

  10. If Congress really wanted to “send a message” to world oil markets, it would be that the U.S. will tax gasoline so that it never falls below $5 a gallon again. And that $6 a gallon was slated in for 2010.
    The world would know that 5 mbd of demand was going to disappear in a few years, and maybe 8 mbd in 10 years — almost 10 percent of world demand. Almost certainly, gluts will result in the future, thanks to this policy.
    This is a much, much more powerful message than offshore drilling (which I support but know is not that big), or SPR withdrawals (pathetic).
    Almost immediately, we would begin transferring money to the US Treasury, and not oil thug states.
    It would be even more wonderful if we all agreed that money from the gas tax could only be used to pay down the national debt.
    Would voters go for it? I think if explained, yes. If not, the next prezzy should do it anyway.
    This is the best idea I had all day.

  11. I wouldn’t mind them selling some of the sour crude,and having it replaced with light sweet. About 60% of the reserve is sour crude. Don’t companies that buy from the SPR have to replace it within so many months?

  12. Of course if Bush did authorize the release of oil from the SPR the same politicians that are now calling for a release would turn around and claim Bush was using the release to benefit his party in an election year.

    Clinton ordered a release of 30 million barrels in late Sept of 2000 and was accused of using the release to boost Gore’s presidential campaign.

  13. High fuel prices have led to many positive changes in people’s behaviors.

    Famine would mostly solve our obesity epidemic, but I don’t recommend it. Nor do I applaud $140b oil which has us sending $700b/year to oil exporters and is decimating the rural poor and middle-class.

    You’re right calls to drain SPR are silly, though. A plan to sell 500k bpd for 100 days would immediately be met by an OPEC plan to reduce output 500k bpd for 100 days. Where exactly does this leave us after 100 days?

    Now, if we had a plan to eliminate oil imports and were starting to make actual progress it would make perfect sense to draw SPR down and hasten the process.

  14. Completely unrelated, but would you happen to blog and comment under the screeen name armchair

    I don’t, but as you can see above, armchair does post here sometimes. I have never registered at Oil Watchdog, but I have enjoyed his posts there. We clearly have a similar background, and he is informed on energy issues.

    Cheers, RR

Comments are closed.