Chuck Schumer boasted about stripping funding from the stimulus bill for filling the Strategic Petroleum Reserve (SPR). But Schumer’s midnight work amounted to a bailout for OPEC and Russia, and a dagger to the heart of American energy independence. It was the most shameful aspect of the $2.2 trillion stimulus package.
No world actor is more pleased at this than Vladimir Putin.
Schumer called the SPR funding an expensive bailout for “Big Oil.” His big lie reminds me of what Voltaire said about the Holy Roman Empire, that it was none of the three: neither an empire, nor Roman, nor holy. In the same way, the SPR funding was neither expensive, nor a bailout, nor aimed at Big Oil.
What is the Strategic Petroleum Reserve?
The Strategic Petroleum Reserve is exactly what it sounds like. It is the nation’s reserve supply of oil to protect us against global shortages. It started as the Naval Petroleum Reserve, created to ensure our warships would never run short of fuel for military operations. After the oil shocks of the 1970’s, President Carter called on Congress to expand the reserve capacity for the entire nation. Nobody who remembers waiting in line for hours to buy gasoline, or checking the calendar to see whether we were allowed to buy gas on that day, will doubt the need for the SPR.
The federal government buys crude oil and stores it in enormous salt caverns in Louisiana and East Texas. It is authorized to store over 700 million barrels of oil, which provides nearly five months of oil at current consumption, and up to a year of oil under various rationing scenarios. Since the Clinton administration, Presidents also have bought and sold oil from the SPR to cushion price swings and shocks in the international oil markets.
Filling the SPR Is Not Expensive
Presidents Clinton and Obama sold oil from the SPR on several occasions, mostly to drive down gas prices before elections. President Bush filled the SPR to full capacity, to counter instability. I was a senior official in the Department of Energy in those years, and our policy was to try to fill the reserves when prices were low. When prices were high, we could sell the oil and ease the federal deficit by the resulting profit.
Prices now are at near-historic lows. The stimulus bill allocated funds to buy 70 million barrels of oil, to top off the reservoirs. Given the recent drop in oil prices (from about $58 to about $20 per barrel) as a result of the Wuhan virus economic slump and the price war between Saudi Arabia and Russia, those 70 million barrels would cost about $3 billion less than they did three weeks ago. That is a major cost saving for the federal government.
Filling the SPR Is Not Aimed at ‘Big Oil’
The solicitation for bids to fill the SPR was restricted to small businesses who were domestic producers of oil and gas. No company with more than 5,000 employees was allowed to bid on the contract. From the DOE solicitation:
“all Crude Oil shipments received by the SPR pursuant to this solicitation will be sourced
from: (i) individuals, corporations, partnerships, or governmental entities,
(ii) which are either United States citizens, incorporated or organized in the
United States, or governmental entities of the United States or one of its
states, and (iii) which employ fewer than 5,000 employees.”
“Big Oil,” by definition and by the wording of the offering, was excluded from the contracts. Chuck Schumer knew this, and he knew that his statement was a lie.
Filling the SPR Is Not a Bailout
Once the economic slowdown is over, oil prices will go back up, probably before the end of the summer. Once they do, the government could recoup the entire cost by selling just over a third of what they bought now. That is not a bailout, it’s a safe, stable investment.
Buying oil for the SPR now would, however, prop up oil prices. That would provide immediate relief to the thousands of American producers of oil and gas that have propelled our nation to energy independence for the first time in recent history. Since President Trump lifted restrictions on domestic energy production, America has become a net exporter of oil and gas, rather than a net importer.
This has helped fuel the economic boom of the Trump presidency, and created millions of American jobs. But extracting oil from “tight” formations, as U.S. producers do, costs more than pumping it from free-flowing wells in Saudi Arabia. In order to cover their production costs and make a profit, U.S. producers need market prices to remain around $45 per barrel.
Government Action Created the Crisis
Market prices fell because of government action: shutting down travel and commercial activity to curb the spread of the Wuhan virus. When the Saudis proposed that producers prop up prices, Russia rejected the idea, sparking a price war and further decline. At current prices, American producers will have to stop producing and ‘shut in’ their wells.
Shutting in a well cannot be reversed without a huge reinvestment and months of work. It will mean not only a loss of income for millions of Americans, but the permanent destruction of hundreds of thousands of jobs. It also will mean an end to American energy independence, and the foreign policy independence that comes with it, for many years.
Schumer’s Gift to Putin
No world actor is more pleased at this prospect than Vladimir Putin. The Saudis, Iranians, Venezuelans, and other producers are also pleased. Chuck Schumer gave them the greatest gift they have had in more than a decade. He did it with his eyes wide open, proving that he’s not on the side of American strength, American independence, and American jobs. In the dead of night, he threw all of those away, and bailed out Russia and the OPEC cartel, leaving millions of Americans holding the bag. And he’s proud of it.