The US executive has called for the sale of 270 million barrels of oil from the Strategic Petroleum Reserve (SPR) in its proposed 2018 budget. This, the White House said, would leave around half of the SPR’s inventory.
“Given the long-term trajectory of domestic energy production and transportation capabilities, a smaller SPR is projected to be able to continue to meet international obligations and emergency needs,” the budget statement said. The reduction in inventories would lead to the closure of two, of the four, Gulf Coast sites.
The budget suggested US$525 million might be raised in 2017 from SPR sales, rising to US$840 million in 2018.
The sale would raise US$1 billion in 2019, it said, with further revenue flows until 2027. The proceeds of the sale will go into the Treasury’s general fund for paying down the deficit. The total proceeds have been projected as US$16.6 billion over the period.
Assuming sales are carried out at a uniform rate over 10 years, this would equate to 74,000 bpd.
The proposed 2018 budget also noted the proposal from 2015, under which the government was due to sell US$350 million of crude from the SPR in 2018, in order to carry out modernisation work on the reserve. As the SPR is sold down, the funding requirements are expected to decline.
According to the Department of Energy (DoE) there are 687.7 million barrels of oil in the Texas and Louisiana salt caverns.
In addition to the proposed SPR sale, the budget has also suggested that the Northeast Gasoline Supply Reserve (NGSR) be sold off. The NGSR has around 1 million barrels, which the budget has suggested selling down in 2018. This fuel reserve is “operationally ineffective … and a cost-inefficient use of resources”, it said.
A number of commentators have suggested that the SPR be sold down. The Heritage Foundation, in an August 2015 report, described the reserve as a “useless tool for responding to supply shocks”, with the free market far better equipped to respond to crises, such as the Libyan civil war of 2011 or the invasion of Iraq in 1991.
However, the same think-tank, in a 2011 report, cautioned against the use of SPR sales. At that time, Heritage pointed out that sales from the SPR were limited by law, which requires the US president find that the market is in a state of “severe energy supply interruption”.
The International Energy Agency (IEA) requires its members, including the US, to hold in reserve 90 days of oil imports, suggesting some sales could take place and it would still be aligned with this target.
The US imported 10.06 million bpd of crude and products in 2016, while exports were 5.19 million bpd, giving a net import figure of 4.87 million bpd – requiring 438.3 million barrels in storage to comply with IEA regulations. This would suggest 249.4 million barrels may be surplus to requirement – short of what the US executive has proposed.