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Using the Strategic Petroleum Reserve is Not the Answer to High Prices

All the buzz yesterday on the talk shows (besides Michele Bachmann repeating her talking point dozens of times on Meet the Press rather than actually answering questions) was tapping the Strategic Oil Reserve to somehow lower gasoline prices.  To even suggest such a move is not only a bad idea and bad policy, it won’t help. First, a little history.  The Strategic Petroleum Reserve, or SPR, made up primarily of salt dome storage along the Texas and Louisiana coasts, was created after the oil shock of 1973 – 1974, when OPEC flexed its muscles by embargoing oil exports to the US to punish us for our Israeli policies at the time.  The emargo had the desired effects; first it drove oil prices to historic levels and second, it scared the bejesus out of everyone, including our elected leaders.   Injections of crude oil began in 1977, and was not actually filled to it’s working capacity of around 727 million barrels until the end of 2009.  The reserve was established to be used in emergencies such as wars and embargos, and it has been used for that a couple of times, notably Gulf War 1 and during the Gulf of Mexico production shut down during and after Hurricane Katrina.  About 30 million barrels were drawn down during each event.  It was used for political purposes in late 2000, when President Clinton arranged a “swap” of about 30 million barrels with private industry to help fuel prices during that year’s Middle East tensions.  The swap moved government oil into the private sector, to be returned the following year.  After several re-negotiations of the deal, all the oil was finally returned to the SPR by 2004.  This use of the SPR certainly didn’t meet the emergency or war standard, and some believe it was used to manipulate fuel oil prices downward during the price spikes in those years. Which brings us to today.  White House Chief of Staff William Daley yesterday, coincidently, also on Meet the Press, suggested that the administration is considering tapping the reserve in response to rising crude prices due to the latest unrest in the MIddle East.  That idea is not only stupid, it just won’t work.  Currently, the US is importing about 11 million barrels of crude oil and petroleum products per day of which about 8.6 million barrels comes in as crude.  We currently consume about 19 to 20 million barrels per day of liquid petroleum products, making our import percentage about 60% of daily use.  With a 727 million barrel inventory in the SPR, that would give us about two months supply if all imports were cut off.  If only half was cut off, that still only give us 4 months, and we would be completely vulnerable to energy supply disruptions and unrest in the Middle East. Which brings us to the real issue…the only way to reduce gasoline prices is to use less.  That is the only way.  Our elected leaders have been kicking the can down the road for over 40 years since the first oil shock, and continue to do that today, only fiddling around the edges of comprehensive energy policy. We must deal with this problem now, expanding our use of renewables, natural gas, and have an adult conversation about mass transit and nuclear power. Until we do, we’ll continue to be at risk for our own future, and will continue tossing around stupid ideas like drawing from the SPR before we really need it. Read the original article on The Daily Hurricane.
disasteronthehorizon Bob Cavnar is the author of Disaster on the Horizon.

Bob Cavnar is a 30-year veteran of the oil and gas industry with deep experience in operations, start-ups, turn-arounds, and management of both public and private companies. He was most recently President and Chief Executive Officer of Milagro Exploration, a large, privately held oil and gas exploration firm based in Houston, Texas with operations along the Texas, Louisiana, Mississippi Gulf Coasts, and offshore in the Gulf of Mexico. Cavnar holds a Master of Business Administration degree from Southern Methodist University and completed the Program for Management Development at the Harvard Business School. He blogs at

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