House subcommittee wants to lease some oil reserve facilities to pay for infrastructure updates

House subcommittee wants to lease some oil reserve facilities to pay for infrastructure updates

A technician at the Strategic Petroleum Reserve inspects a crude oil transfer pipe in this 2013 file image. (Photo courtesy the Department of Energy)

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Energy, Policy

By Minghe Hu

WASHINGTON – A House energy subcommittee is pushing legislation to require the Energy Department to lease some of the Strategic Petroleum Reserve facilities to companies or foreign governments and use the profits to update old equipment and infrastructure.

The Strategic Petroleum Reserve is the world’s largest government-owned stockpile of emergency crude oil, stored in huge underground salt caverns along the coastline of the Gulf of Mexico. 

The 665.5 million barrels of crude oil stored there are worth about $42 billion. That exceeds its obligation as a member of the International Energy Agency under the International Energy Program to maintain at least 90 days of reserve oil. Congress authorized the reserve in response to the Organization of Arab Petroleum Exporting Countries’ oil embargo in 1973 and 1974. 

“The U.S. is arguably more energy secure now than ever before,” said subcommittee chairman Rep. Fred Upton, R-Mich. “We’re the number one world producer for oil and gas. Our imports of gas have declined about 70% since peaking in 2005.

“Our pipelines are full. Our refineries are operating at near peak capacity.”

Upton said he expects the House and Senate to pass the bill and get to the president before the end of the year.

Democratic Rep. Frank Pallone of New Jersey said the Trump administration has been considering releasing oil from the reserve to lower gas prices before the November midterm elections to help the Republican candidates.

“When you get to the point where the administration is publicly discussing using SPR for blatantly political purposes, then it is certainly a good time to discuss the future of the reserve,” Pallone said.

Charlie Cray, a senior research specialist at Greenpeace USA, said in a statement, that the country’s energy needs should never be treated as a “political chip” before an election. Instead, the government could stabilize the energy market by building up green infrastructure.

Congress has passed several laws authorizing the sale of crude oil from the reserve. These sales, totaling an estimated $16 billion, are projected to reduce the crude oil inventory from the current 660 million barrels to about 400 million barrels over the next decade, according to the subcommittee.

“Climate change is one of the greatest threats to our national security, a significant reason why the United States must continue to limit its burning of fossil fuels and instead make the transition to a green economy,” Cray said in the same statement.

The reserve’s facilities are more than 40 years old and haven’t been upgraded in 25 years, according to Steven Winberg, the Department of Energy’s assistant secretary for fossil energy. The DOE is developing a life extension program to upgrade the SPR system to operate for an additional 25 years. By leasing space to other countries or commercial operations, the upgrading expenses could be covered by the lease payments, Winberg said.

The DOE is conducting a study to identify which of the reserve’s storage caverns or related facilities likely will become underutilized or operationally inefficient and possibly be closed, he told the subcommittee.

However, the DOE has not done a great job assessing market changes, identifying the optimal size for the reserve, or analyzing possible needs for the oil, said Frank Rusco of the Government Accountability Office, the nonpartisan congressional investigative agency.

Rusco said Australia and New Zealand have shown interest in leasing space in the reserve since salt cavern storage is generally cheaper than tank or ship storage, and he predicted other countries also would be interested.

Texas Republican Rep. Joe Barton said that leasing the underused parts of the facilities is a win-win idea.

“Maybe it’ll work, maybe it won’t, but we’re not going to be worse off than we are,” Barton said. “We will probably be better off if the private sector makes a decision to utilize it because it’s going to give some funding that’s at the discretion of the secretary of energy to improve the facility.” 

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