With gasoline prices showing no signs of easing, a number of readers are wondering why the U.S. doesn’t tap into the millions of barrels of crude oil it has stored up in case of an emergency. If this isn’t an emergency, they’re wondering, what is?
Why aren't we tapping our so-called "strategic reserves?" Sure, we might be able to keep people in their homes, but they won't be able to fill their tanks up to keep their jobs so they can keep their homes. Sounds pretty strategic to me.
— Keri, Fairfax, Va.
It sounds like a good idea to a lot of readers. And it sounds like a good idea to House Speaker Nancy Pelosi, who called on the White House last week to tap the U.S Strategic Petroleum Reserve to try to reverse the surge in oil and gasoline prices.
The idea of stockpiling crude oil in case of emergency goes back to World War II, but it wasn’t until the 1973-74 Arab oil embargo that the project got off the ground (or, rather, into the ground). In 1977, the government began pumping oil into several underground formations known as salt domes located near the Gulf of Mexico, where much of the infrastructure for producing, storing and shipping U.S.-produced oil was already in place. Today, there are about 700 million barrels in storage, with plans to expand the reserve to a billion barrels.
Those reserves have been tapped a few times in the past — starting with the 1991 Iraqi invasion of Kuwait, which interrupted oil shipments. That first-ever drawdown of about 34 million barrels was part of a global effort coordinated by the International Energy Agency, which oversees oil reserves held by other countries.
In 2000, President Clinton tapped some 30 million barrels of oil from the SPR to head off possible shortages of heating oil during the upcoming winter. And in September 2005, President Bush offered up about 21 million barrels to make up for oil production shutdowns after Hurricane Katrina inflicted widespread damage to drilling rigs and pipelines in the Gulf of Mexico.
Unfortunately, there’s little evidence that tapping the reserve today would have any impact on gas prices. For the moment, refiners seem to be getting all the crude oil they need. The recent surge in oil prices is largely based on the fear of future interruptions in supplies, and the belief that the global growth in demand for oil will continue to outpace the growth in new supplies.
One indication that tapping the SPR wouldn’t help much in the current market is the recent decision to stop shipping about 70,000 barrels a day into the reserves, after Congress ordered the White House to do so. That added roughly 2 million barrels of oil a month to supplies — but oil prices have continued to rise anyway.
Even if the White House agreed to tap the oil stockpile, it would amount to a drop in the barrel of global demand. A drawdown of, say, 30 million barrels sounds like a lot of oil. But with the world burning through about 86 million barrels every day, that 30 million barrels would be consumed in about eight hours.
You could always draw deeper into those reserves. But then you’d risk leaving the country vulnerable to an actual cutoff of oil — which would leave drivers without gasoline at any price. Given the recent saber-rattling from Tehran, that’s a real danger. Iran sits next to the 21-mile wide Strait of Hormuz, through which about a fifth of the world's oil supply passes every day. As it recently demonstrated with a highly-publicized test missile launch, it wouldn't be hard for the Iranians to throw a substantial monkey wrench into the global flow of oil.
Has anyone considered using the oil shale deposits in Colorado? The U.S. has the largest reserves of oil shale in the world by far. In a RAND Corporation report in 2005, it stated that oil shale production would be economically viable when oil reached $75 dollar per barrel.
— Joe, Norfolk, Va.
A lot of people have considered it very carefully, and a number of companies are moving forward with pilot projects to test a variety of methods of extracting this form of “unconventional” oil. But it’s not likely to make a big dent in growing U.S. demand or offer price relief at the gas pump anytime soon.
The problem is that producing oil from shale (and its geological cousin known as tar sands) is much more expensive because the fuel is trapped in porous rock and has to be mined, crushed and heated before the oil can be extracted. Generating all that heat requires costly sources of energy. The process also requires large volumes of water — which is in short supply in Colorado and other western states where oil shale deposits are located.
The other major issue with oil shale projection is that the environmental impact can be much greater than with conventional oil. Modern drilling techniques — especially horizontal drilling — have reduced the footprint required to extract oil from the ground. But oil shale production is really a mining operation: you have to dig up millions of tons of rock, extract the oil and then dispose of the rock. That also means that the total “proven” reserves tend to overstate the availability of the oil. Much of the shale is buried so deeply in the ground, it’s highly unlikely it could ever be tapped.
These deposits aren’t new discoveries. The rise in oil prices in the 1970s spurred development of oil shale in the 1980s. But most of these projects were abandoned when oil prices fell back below the cost of production. At $140 a barrel, the economics are much more compelling. But investors in oil shale production have to be convinced that oil prices won’t crash again before they'll make the large bets needed to expand oil shale production again.
At current oil prices, other “unconventional” liquid fossil fuels — including fuel made from coal or natural gas — also become economically viable. We’ll have to see if oil prices remain at these levels before producers are convinced the required investments will pay off.
In its latest Annual Energy Outlook, the Department of Energy estimates that, if oil prices stay above $100 a barrel, unconventional oil production could add another 1.5 million barrels per day to U.S. production by 2030, with most of that coming from liquid fuel made from coal.
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