[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.]
The 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
- The producer loses $100 billion a year!
- 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“).