What to do with a vast government complex of underground salt caverns that once held hundreds of millions of barrels of oil?
As Congress steadily sells off the oil contained within the Strategic Petroleum Reserve – residing 1,000 feet beneath the surface of coastal Texas and Louisiana – Democrats and Republicans are now exploring a concept that would have been inconceivable a decade ago: Allowing others to store oil in unused sections of the reserve.
Under a new bill sponsored by Rep. Joe Barton, R-Ellis, and Rep. Bobby Rush, D-Illinois, the government would make the more than four-decade old facility available to both the private sector and foreign governments, adding 200 million barrels of storage capacity at a time increasing volumes of crude are flowing to the Gulf Coast.
“We haven’t changed the mission of the SPR since it was established in the 1970s. This is long overdue,” Barton said in an interview Wednesday. “This [legislation[ would be a way to improve the efficiency of the oil markets, generate some income for the taxpayer and it would be a way to modernize the infrastructure of the Strategic Petroleum Reserve.”
Constructed following the Arab oil embargo of the 1970s, the reserve is designed to pump millions of barrels a day into the global oil market during supply shortages, offsetting potentially damaging price spikes.
But with an oil shale boom on and the United States far less dependent on foreign crude that it was just a decade ago, lawmakers and economists at-large have debated the necessity of maintaining a reserve that is now nearing the end of its intended life.
Over the next nine years, Congress is planning to sell close to 300 million barrels of crude from the reserve – worth roughly $21 billion at today’s prices – to fund everything from medical research to highway construction to maintenance of the reserve itself.
With domestic oil production only expected to grow in the years ahead, increased demand for storage in the nation’s refining hub along the Gulf Coast could offer the government an opportunity to cash in, said Kevin Book, managing director of the Washington-based consulting firm ClearView Energy Partners.
“If our crude production is 11 million barrels a day now, and it’s building to 12 million barrels a day, we’re going to need storage,” he said. “Salt caverns are cheap, so it’s a pretty enticing option.”
But before Congress can begin counting the money, they will need to convince potential customers that the reserve is even viable.
A 2015 report from the Energy Department described a long backlog of maintenance work, as well as an out-of-date design of pipelines and shipping terminals that could not effectively get oil to market in the event of an emergency. Two years ago, a large water pipe burst at the Big Hill reserve in East Texas – one of four facilities that make up the reserve – shutting down the facility for weeks, as contractors made emergency repairs.
“It would be interesting if they could lease it out, but I don’t know if anyone would be interested,” said Fred Beach, assistant director of the University of Texas Energy Institute. “This is built by the government. Failing infrastructure crap.”
At the same time, a rise in oil prices has drained storage facilities worldwide, leaving the Gulf Coast with more capacity than it needs right now. Assistant Energy Secretary Steven Winberg testified in a hearing before the House Energy and Commerce Committee Tuesday that storage facilities along the Gulf Coast were less than 50 percent full, “suggesting readily available, privately-owned existing storage capacity.
A concept conceived of less than four weeks ago, Barton said, staff members are still working out the details on how the petroleum reserve would be leased and how much revenue it could generate. But the Texas congressman said he was confident the interest was there.
“I have talked to some [in the oil sector]. There is interest. It’s mostly positive. I’ve not had anyone tell me it’s a bad idea,” he said.
The American Petroleum Institute, the industry’s largest lobbying group, said it was still reviewing the legislation.
With bipartisan backing, the primary question is how quickly Congress might get the legislation to President Donald Trump’s desk.
Rep. Fred Upton, chair of the House Energy and Commerce Committee, said he hopes to have the legislation on the House floor for a vote “in the coming months.” And if history is any guide, Senate Republicans and Democrats are expected to find a way to move the legislation as well.
“Congress has been happy to take money out of the SPR whenever it’s come up before,” Book said.
