House budget deal calls for 100mn bl SPR sale

OREANDA-NEWS. October 29, 2015. A bipartisan, two-year budget deal under consideration in the Republican-controlled US House of Representatives would authorize the sale of more than 100mn bl of oil from the US Strategic Petroleum Reserve (SPR) by 2025.

The bill being considered by the House Rules Committee would order the sale of 58mn bl of oil from 2018-2025 – 5mn/yr from 2018-2021, then 8mn in 2022 and 10mn/yr in 2023-25. That money would be handed over to the US Treasury.

The bill also would authorize the sale of up to \\$2bn worth of oil from 2017-2020 to pay for repairs and upgrades to the reserve's infrastructure. Assuming an oil price of \\$45/bl, that authorization would equate to the sale of another 45mn bl of oil for a total of 103mn bl, bringing the reserve down to 592.1mn bl.

The reserve as of 23 October held 695.1mn bl - 266.1mn bl of sweet and 429mn bl of sour crude, according to Energy Department data. The average price paid for the oil in the reserve was \\$29.70/bl.

The legislation, then, envisions the sale of about 15pc of the reserve over an eight-year period.

The SPR last year provided 137 days of cover for a loss of crude and product imports, based on 2014 imports of about 5.07mn b/d, Energy Information Administration (EIA) data show. That is substantially higher than the 90 day cover required by law.

Assuming the same level of imports as last year, a sale of 103mn bl of oil from the SPR would amount to about 117 days of cover. But US net crude and oil imports are the decline, falling to 4.74mn b/d during the first seven months of 2015. Absent some change in the SPR's inventory, the reserve's import cover could rise to 256 days by 2020.

The bill stipulates that the Energy Department not draw down so much crude as to limit the authority to sell oil under emergencies as laid out in the 1975 Energy Policy and Conservation Act. That statute sets a minimum volume to be kept in the reserve of 500mn bl, with the stipulation that the government not release more than 30mn bl within a 60-day period to address a supply shortage.

Energy research firm ClearView Energy Partners managing director Kevin Book said that means to sustain the full capabilities of the reserve, the reserve cannot drop below 530mn bl.

Lawmakers for months have been eyeing the reserve as a way to fund other priorities. The House voted on 10 July to sell 80mn bl of oil from the SPR from 2018-2025 to help pay for a bill to speed approval of new drugs and medical devices.

The Senate less than three weeks later passed a highway bill that would be funded in part by selling 101mn bl from the reserve over from 2018-2025.