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If you had $100 billion in oil money, what would you spend it on? Tune in Wednesday, 9:15 am EST

By Joe Romm  

"If you had $100 billion in oil money, what would you spend it on? Tune in Wednesday, 9:15 am EST"

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[This question is the subject of a hearing Wednesday morning where I am a witness. At least that's how I view the House Select Committee on Energy Independence and Global Warming hearing on selling oil from the Strategic Petroleum Reserve. A live webcast should be available here.]

100-billion.jpgThe headline question is not an abstract one for the American public. Taxpayers do have $100 billion in oil we bought since 1975 that was placed in the Strategic Petroleum Reserve (SPR).

Despite the name, the SPR does not have any strategic value. It was created at a time when people worried that countries could withhold oil from us. But now we have a global market. The only impacts of some country withholding a significant amount of oil, say two million barrels a day (which is a little more than 2% of global consumption), is

  1. The producer loses $100 billion a year!
  2. Prices rise.

I have not yet found a plausible “crisis” scenario in which we would use large amounts of that oil, assuming the current situation is not close to being dire enough. Since its inception, there have been only two emergency sales of crude oil from the SPR. After Hurricane Katrina disrupted oil flow from the Gulf of Mexico in 2005, 11 million barrels of oil were sold. In the wake of the Persian Gulf War 21 million barrels were sold in 1990-91. [In 1996-97, 28 million barrels were sold for nonemergency reasons.] In other words, a mere 32 million barrels were sold over the years during crises.

I can’t imagine we’re going to keep this relatively useless “reserve” for many more decades.

By mid-century, we need to be almost completely off of oil to avoid catastrophic climate impacts. So sometime in the next few decades we’re going to sell it off — I can’t imagine we’re going to keep $100 billion under the mattress forever.

Sure, we could hold onto it for a few years, since prices may well go up more. But I think we need the money now to jump-start the transition to a clean energy economy. And yes, it might lower prices, which will be the subject of a later post. What to spend the money on? What else but accelerating the deployment of energy efficiency, conservation, recycled energy, wind power, solar photovoltaics, solar baseload, and plug-in hybrids? And some would also be well spent helping low-income families deal with high energy bills.

And it always bears repeating that we shouldn’t sell off the SPR without simultaneously beginning an aggressive oil conservation program (see “Bursting the Oil Bubble: Lower oil prices now with conservation and the “Fort Knox” of oil“).

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7 Responses to If you had $100 billion in oil money, what would you spend it on? Tune in Wednesday, 9:15 am EST

  1. Ben says:

    Joe,

    Do any other major oil-consuming countries employ a similar type of SPR? If so, have they entertained the thought of selling off their reserves as well?

  2. paulm says:

    US could sell it to the Chinese at a huge profit over the next decade!

    I do think the Saudis will have a big announcement coming up soon…and then those reserves will come in handy to smooth over the change over to sustainable energy.

  3. Joe says:

    Most major industrialized countries have reserves.

  4. David B. Benson says:

    Spend it on negawatts. In particular, aiding low income people to improve their insulation.

  5. Robert says:

    Joe – it’s all about the Strait of Hormuz

    http://en.wikipedia.org/wiki/Strait_of_Hormuz

    “On June 29, 2008, the commander of Iran’s Revolutionary Guard, Ali Mohammed Jafari, stated that if Iran were attacked by Israel or the United States, it would seal off the Strait of Hormuz, thereby wreaking havoc in oil markets.”

    The fact the all the major indusrial countries have SPRs is enough to stop such threats becoming reality.

  6. Jay Alt says:

    Do any other major oil-consuming countries employ a similar type of SPR? If so, have they entertained the thought of selling off their reserves as well?

    After Katrina, the German government released refined gasoline from their reserve. The US released crude, which could not be refined due to damaged refineries. Which made more sense?

  7. Russ says:

    Robert writes:
    “On June 29, 2008, the commander of Iran’s Revolutionary Guard, Ali Mohammed Jafari, stated that if Iran were attacked by Israel or the United States, it would seal off the Strait of Hormuz, thereby wreaking havoc in oil markets.”

    The fact the all the major indusrial countries have SPRs is enough to stop such threats becoming reality.

    The mere existence of SPRs is not enough to prevent the havoc which would indeed ensue if Hormuz became untenable. Nobody feels secure when he’s forced to tap into his emergency hoard, and markets are all about the perception of security, so prices for the oil still available would likely go stratospheric.

    As for supply itself, America’s SPR, assuming it was evenly distributed (physically), would suffice for not much more than one month. Of course, this oil is not evenly distributed, and in such a crisis how would you deliver it far from the storage depot?

    No, Joe is right, the SPR has no “strategic” value, in any geopolitical sense.
    At best it could be earmarked for emergency vehicles (and of course police, national guard, etc.) in a situation of dire shortage.