Strategic Petroleum Reserve Tapped for Struggling Refineries

Published October 4, 2017

The U.S. Department of Energy is releasing oil from the nation’s Strategic Petroleum Reserve (SPR), to relieve pressure on struggling refineries hit by Hurricane Harvey.

Energy Secretary Rick Perry authorized the emergency drawdown of 500,000 barrels of oil in August after Harvey closed many offshore oil rigs and pipelines in the Gulf of Mexico and refineries in East Texas and Louisiana.

The federally owned SPR is the world’s largest emergency supply of crude oil, stored in huge underground salt caverns along the coastline of the Gulf of Mexico.

It was designed to provide a steady flow of oil during energy emergencies such as natural disasters or politically motivated bans on oil exports to the United States from other countries. The SPR has a capacity of 713.5 million barrels.

Government in Oil Business

The SPR was created after two energy crises in the mid-1970s, and it had much more to do with price and allocation controls by the federal government than anything else, says Robert L. Bradley Jr., CEO and founder of the Institute for Energy Research.

“The result of the Arab oil embargos was it got our government into the oil business,” said Bradley. “The idea was to fill up the SPR in normal times and draw it down in times of crisis.

“The problem is the government never knows what a crisis really is, or when to buy and when to sell, and then they’re always waiting for the next crisis,” Bradley said. “The SPR is an expense to taxpayers, who have gotten very little in return.”

Calls for Privatization

Bradley recommends privatizing SPR to get government out of the oil stockpile business, allowing private entrepreneurs to make decisions about when to buy and sell oil from the reserve.

“Rick Perry is applying some free market ideas to the SPR because there is really no plan to put the oil back in,” said Bradley. “It’s a one-way deal where the Trump administration takes the oil out through budgetary maneuvers just to raise revenue.

“This sort of piecemeal privatization is a good thing,” Bradley said. “We’re getting a little bit of money back and without taxpayers bearing the expense of putting the oil back into the reserve.”

Bradley says when government enters the oil and gas markets, it is prone to manipulate supply and demand for political reasons.

“Ultimately, you don’t want government in the business of always being the one to decide when to take oil out or put it in,” said Bradley. “In the past, the reserve has been used by the federal government as a club to jawbone prices for political ends.

“Perry’s action needs to be a one-way street for free market advocates to support it, drawing the oil down so our government can get out of the stockpiling business.” Bradley said. “We don’t know what the SPR is going to look like in the future, but it should be privatized, and then the new owners will decide when to release it.”

Kenneth Artz ([email protected]) writes from Dallas, Texas.