US House votes to sell 80mn bl of oil reserves

OREANDA-NEWS. July 13, 2015. The US House of Representatives voted overwhelmingly today to sell 80mn bl of oil, or nearly 12pc of the US Strategic Petroleum Reserve (SPR), from 2018-2025 to help pay for a bill designed to spur medical innovations.

The House voted 344-77 in favor of the 21st Century Cures Act, a bill designed to speed research and development of new drugs and medical treatments.

"Today, we took a big leap on the path to cures," the bill's authors, led by House Energy and Commerce Committee chairman Fred Upton (R-Michigan) and representative Diana DeGette (D-Colorado), said in a joint statement.

To help defray the \\$10.4bn cost of the measure over 10 years, the bill would order the energy secretary to draw down 4mn bl of crude from the reserve in 2018, and then 5mn bl in 2019; 8mn bl in 2020; 8mn bl in 2021; 10mn bl in 2022; and 15mn bl/yr from 2023-25.

The SPR as of 3 July held 694.2mn bl of crude, according to DOE data.

The White House supports the bill overall but has voiced concerns about selling oil from the SPR. The Office of Management and Budget on 8 July pointed to the "critical importance of making the investments necessary to modernize" the reserve and "ensure it continues to support US energy security."

Despite the strong vote in the House, the bill's prospects in the Senate are far less certain. Senate Energy and Natural Resources Committee chairman Lisa Murkowski (R-Alaska) opposes tapping the SPR absent a supply emergency. And if oil from the reserve is to be sold, the proceeds of those sales should be used to bolster US energy security.

Under the terms of the House bill, the SPR drawdown would have to stop if the amount of oil in the reserve dropped below what would be needed to cover 90 days of emergency supplies. That figure is calculated by using the previous calendar year's net crude and product imports. As part of its commitment to the IEA, the US promises to maintain at least 90 days of import protection in both government-owned and commercial stocks.

DOE estimates the SPR provides about 137 days of import cover. The Energy Information Administration estimates the US' net imports of crude and products averaged 5.04mn b/d in 2014.

Congress has approved non-emergency sales of SPR oil in the past. In 1996, DOE sold 5.1mn bl of crude to pay for the decommissioning of the Weeks Island storage site, after the converted salt mine suffered a fracture.

And in 1996-97, DOE sold 23mn bl at Congress' direction to help reduce the federal budget deficit.

DOE in March 2014 conducted a test sale of oil from the SPR to assess the reserve's drawdown and distribution capabilities, selling nearly 5mn bl of sour crude at an average price of \\$93.75/bl. The test revealed potential problems with pipeline capacity, storage space and availability of US-flagged vessels if an emergency drawdown were required.

DOE announced plans in March to buy up to 5mn bl of sweet crude for the reserve's Bryan Mound storage site in Freeport, Texas.