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Open Areas to Drilling, Don’t Open the Strategic Petroleum Reserve

Posted By Ryan McNulty On June 23, 2011 @ 2:13 pm In Energy | Comments Disabled

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The 28 member countries of the International Energy Agency (IEA) agreed to release 60 million barrels [1] of oil reserves—2 million barrels per day over 30 days—to offset the supply disruption as a result of the political unrest in Libya. The Obama Administration announced that 30 million of those barrels will be met by releasing supplies from our domestic Strategic Petroleum Reserve (SPR).

The problem is that releasing reserves from SPR does not pass legal, rational, or economic muster. A much more prudent move for the Administration would be to open access onshore and offshore for drilling and exploration. Doing so would minimize the impact of foreign supply reductions and help stabilize future energy prices.

The President’s authority to release reserves from the SPR, which holds about 727 million barrels, is limited by law. The Energy Policy and Conservation Act requires a presidential finding that there is a “severe energy supply interruption.” Three conditions must be met [2]:

  1. “An emergency situation exists and there is a significant reduction in supply which is of significant scope and duration;
  2. “A severe increase in the price of petroleum products has resulted from such emergency situation; and
  3. “Such price increase is likely to cause a major adverse impact on the national economy.”

Libyan production of oil has been offline for quite some time (almost three months), but Libya produces 2 percent of the world’s oil (about 1.5 million barrels per day) with most of its oil going to Europe. Does this constitute a significant reduction in supply? Or a severe increase in price? No. Rising demand for the better part of a year has steadily increased oil prices, and prices have since leveled off.

When the Administration first considered the release of reserves from the SPR, Senator Jeff Bingaman (D–NM), chair of the Energy and Natural Resources Committee, said [3]:

I believe that it would be appropriate for the president to be ready to consider a release of oil from our Strategic Petroleum Reserve if the situation in Libya deteriorates further. Any additional oil market disturbance—such as turmoil spreading from Libya to Algeria, or from Bahrain to Saudi Arabia—would clearly put us into a situation where there would be a very strong argument in favor of an SPR sale.

If that were the case, then perhaps there are justifiable geopolitical reasons to tap SPR; cutting off Saudi production would also likely meet the conditions in the Energy Policy and Conservation Act. But that hasn’t been the case. Given the current turmoil in the region, now is not the time give up the nation’s energy safety net, even if it is a small portion. And because it is a small increase in supply, the effects on gas prices in the United States will be marginal, especially as markets adjust to increased supply.

Releasing reserves now simply allows the Administration to avoid addressing the underlying problems with U.S. energy policy that exacerbate the market impact of global supply disruptions. The problem is that the Obama Administration is artificially constraining supply to the market by denying Americans access to domestic oil.

As the global economy recovers, and India and China continue to use more oil, global demand is only going to increase, and if the Administration has its way, the U.S. won’t be in a good position to help meet that demand. The Administration’s own Energy Information Administration projects that oil production will decline significantly [4] in 2011 and 2012.

Production in the western Gulf of Mexico dropped nearly one-third of a million barrels per day [5] since last April, and the increased production in 2010 is a result of increased horizontal drilling in North Dakota [6]. We can’t drill off [7] the Pacific Coast, Atlantic Coast, or the eastern Gulf of Mexico. The U.S. Environmental Appeals Board withheld air quality permits preventing Shell from moving forward to develop 27 billion barrels of oil off the coasts of Alaska. The Environmental Protection Agency already issued two air permits, but Earth Justice filed a petition to review the permits, delaying the process.

Thus far, the supply disruptions in the Middle East do not constitute a severe supply disruption. The SPR is not a political tool; it exists for moments of national crisis. Now is the time to open access to America’s onshore and offshore resources, not its energy supply backstop.

 


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/06/23/open-areas-to-drilling-don%e2%80%99t-open-the-strategic-petroleum-reserve/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/oil-rig-6-23-11.jpg

[2] conditions must be met: http://fossil.energy.gov/programs/reserves/spr/

[3] said: http://www.eenews.net/public/EEDaily/2011/03/03/3?page_type=print

[4] oil production will decline significantly: http://www.eia.gov/emeu/steo/pub/contents.html#US_Crude_Oil_And_Liquid_Fuels

[5] nearly one-third of a million barrels per day: http://naturalresources.house.gov/Issues/Issue/?IssueID=32333

[6] increased horizontal drilling in North Dakota: http://www.eia.doe.gov/oog/info/twip/twiparch/110427/twipprint.html

[7] can’t drill off: http://www.instituteforenergyresearch.org/2011/04/14/administration-actions-designed-to-increase-the-cost-and-reliability-of-energy/

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