Congressional abuse of the Strategic Petroleum Reserve is a national security threat

The SPR is at a 40 year low and the DOE is continuing to sell more of it.

The U.S. Strategic Petroleum Reserve has been drained down to 368 million barrels in the week of April 2023, its lowest level since 1983, leaving the U.S. vulnerable to disruptions in the crude oil market or worse.

Earlier this year, Secretary Jennifer Granholm said the Biden administration would refill the SPR as soon as possible at oil prices between $67 and $72 per barrel. Yet when oil prices dropped below $72 earlier this year, DOE did nothing.

Reuters noted:

The administration intended to repurchase crude oil for the SPR when prices were at or below about $67-$72 a barrel, after last year's 180 million barrel sale dragged down the stockpile to its lowest level since 1983, the White House said in October.

Granholm explained recently that instead of buying crude oil, the SPR is currently selling crude oil from two of the four SPR storage sites in the United States, fulfilling the Congressional mandate to sell 26 million barrels in fiscal 2023 (emphasis added).

Because of the Congressionally mandated sales, she stated:

We cannot sell and take in (crude oil) at the same time. It could take a year to refill SPR (emphasis added).

In another report, DOE said:

The department succeeded last year in persuading Congress to cancel sales it had mandated of about 140 million barrels that had been set to take place from fiscal year 2024 to fiscal year 2027.

Still, the DOE is moving forward with a sale of 26 million barrels from the SPR that was mandated by Congress in earlier years to help fund the federal budget. The oil will be delivered from April 1 to June 20.

So what are these “Congressional mandates” to sell oil out of the SPR?

Congress started using sales of the SPR as “paid-for” items in spending bills in 2015. When a bill directs Congress to sell SPR crude oil at a future date, the future revenue from SPR sales is considered payment for some of the current spending in that bill, thereby reducing the impact of the expenditures on the federal deficit.

When the Congressional Budget Office scores the bill, they subtract the future revenue from the current spending. Such sleight-of-hand is how politicians are able to claim that a bill is “paid for” and will add little or nothing to the deficit.

An obvious problem with this approach is that future sales of SPR crude oil may come at a time when we should be increasing the oil reserves in the SPR instead of reducing them, as is the case now.

The table below, published by the Congressional Research Service, shows the obligations previous congresses have imposed on the SPR:

This table prepared in 2019 shows the bills and how much oil they obligate the DOE to sell oil out of the SPR. The obligations to sell oil in the eleven-year period total 271 million barrels, which is approximately 40% of the total capacity of the SPR. That requirement jeopardizes national security.

Even more concerning is that these obligations to sell oil from the SPR continue beyond 2028. The Infrastructure and Jobs Act of 2021, HB 3684, signed into law by President Biden on November 15, 2021, requires that 87.6 million barrels of crude be sold “during the period of fiscal years 2028 through 2031.” The bill gives some leeway with the provision that such sales are to be made “to the maximum extent practicable,” but similar verbiage has been used before, and DOE is selling crude oil anyway.

Instead of delaying the sale of 26 million barrels, DOE moved forward and is now selling SPR reserves. According to Secretary Granholm’s statement that the DOE cannot buy oil for and sell oil out of the SPR simultaneously, there will be no more SPR purchases for the next five years or longer.

This abuse of the Strategic Petroleum Reserve by Congress is a national security threat that should be addressed immediately by Congress. DOE should stop trying to guess what crude oil prices might be in the future and immediately start refilling the SPR while taking advantage of lower prices as opportunities arise, just as prudent investors do when adding investments to their portfolios.

Note: Readers wanting to review the recent timeline of the Strategic Petroleum Reserves can find updates I posted on August 2022, September 30, 2022, and December 2022 at edireland.substack.com.