Senate bill would sell 101mn bl from oil reserve

OREANDA-NEWS. July 22, 2015. Senators today rolled out a six-year highway bill that would direct the Energy Department to sell 101mn bl, or nearly 15pc, of the US Strategic Petroleum Reserve (SPR) during fiscal years 2018-2025.

Proponents estimate those oil sales would generate \\$9bn, which would equate to an average price of \\$89.11/bl.

Just 11 days after the US House of Representatives voted to sell 80mn bl from the SPR to help pay for legislation designed to spur medical innovations, Senate majority leader Mitch McConnell (R-Kentucky) and Environmental and Public Works ranking Democrat Barbara Boxer (California) unveiled the bipartisan Developing a Reliable and Innovative Vision for the Economy (DRIVE) Act to fund highway projects.

"This is a six-year highway authorization that will allow planning for important, long-term projects around the country," McConnell said.

The bill provides three years of guaranteed funding for the highway trust fund. The existing funding mechanism expires on 31 July.

To help provide funding for road projects, the DRIVE Act envisions selling 4mn bl from the SPR in 2018; 5mn in 2019; 8mn in 2020; 8mn in 2012; 10mn in 2022; 16mn in 2023; 25mn in 2024 and 25mn in 2025.

The SPR, as of 17 July, held 695.1mn bl of crude, 266.1mn bl of which was sweet and 429mn bl was sour.

The measure appears to have broad support. But Senate Energy and Natural Resources Committee chairman Lisa Murkowski (R-Alaska) argued that the reserve is a national security asset that must be maintained to guard against possible future supply disruptions. While she deems the highway bill important, Murkowski warned against using the SPR to fund short-term needs.

The House has passed its own highway bill that would extend funding until 18 December. That bill does not contemplate selling oil from the reserve, but the House easily passed the 21st Century Cures Act, which called for selling 80mn bl from 2018-2025.

Murkowski pointed to \\$2bn in repair work and additional infrastructure needs required for the SPR. Murkowski contends that if lawmakers want to sell oil from the reserve, the proceeds should first be use pay for upgrades to the reserve itself.

President Barack Obama's administration has raised its own concerns about selling oil from the reserve to pay for other purposes. 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." But the administration did not oppose the Cures Act, despite the funding concerns.

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, the Energy Department 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, the Energy Department sold 23mn bl at Congress' direction to help reduce the federal budget deficit.

The Energy Department 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.