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Insisting on US Crude for the SPR Is Misguided


These translations are done via Google Translate

Of all the sources of supply to American refiners, domestic shale output is the least likely to be disrupted.

A model of underground salt caverns at the Bryan Mound Strategic Petroleum Reserve.
A model of underground salt caverns at the Bryan Mound Strategic Petroleum Reserve.

America’s insistence on refilling the Strategic Petroleum Reserve with US crude is misguided.

The political pressures on an administration seen as anti-oil to buy domestic supplies are huge. You can bet that President Joe Biden would be accused of supporting foreign producers while hitting those at home if he replenished the SPR with crude from overseas.

But it would make much more sense if you step back from the politics and look at what the facility is actually for.

The stockpile exists to provide a safety net in the event of a disruption of supplies to US refineries.

It’s been used to offset losses in Gulf of Mexico production from hurricanes and, most recently, to counter the rerouting of global flows after Moscow’s troops invaded Ukraine, when a historic 180 million barrels were released.

Spread across salt caverns along the Gulf Coast, the SPR currently holds just under 360 million barrels of crude. That’s less than half the amount stored there at its peak in 2010 to 2011.

But it’s still well above the 90 days’ worth of net imports required by the International Energy Agency.

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How much should be stored in the reserve is one thing: Former President Donald Trump’s first complete budget proposal in 2017 included plans to halve its size to trim the national debt. That would have taken it close to the level it’s at now.

The type of crude that’s held there is a separate, but equally important, question.

In September, the Energy Department canceled a $108 million contract that included some very light crude from the Eagle Ford shale in Texas because it was incompatible with existing stocks.

But there’s another reason to avoid putting crude from US shale formations into the SPR. Of all the sources of supply to domestic refiners, it’s the least likely to be disrupted.

Hurricanes tend to obstruct production from the Gulf of Mexico, while geopolitical tensions hit overseas supplies. Both are much heavier than oil pumped from the Texas shales.

The SPR needs to hold the types of crude that refiners are most likely to need in the event of a stoppage, not the ones that meet a domestic political agenda.

–Julian Lee, Bloomberg News



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