One piece of the budget deal that the White House struck with Republicans speaks volumes about the transformation of the U.S. energy landscape in recent years.
Provisions to raise or save money include selling oil from the federal stockpile called the Strategic Petroleum Reserve, which contains 695 million barrels of oil stashed in caverns along the Gulf Coast.
Using the SPR to raise cash is easier when the U.S. is swimming in domestically produced oil tapped through hydraulic fracturing, and reliance on foreign imports is down sharply thanks to the drilling boom and increased conservation.
“The SPR piece of the budget deal probably would not have been possible without fracking,” said Kevin Book, managing director of the consulting firm ClearView Energy Partners.
The tentative budget deal, which would raise federal spending by $80 billion over two years, calls for the sale of 58 million barrels over seven years, beginning in fiscal year 2018.
While the amount of cash raised depends on oil prices, the Congressional Budget Office estimates the provision will raise about $5 billion. A related provision allows for other sales to raise $2 billion to modernize the infrastructure of the SPR, which was created in response to the Arab oil embargo of 1973-1974.
It’s the latest bill in recent months to use the SPR as an ATM, but it will be the first to reach the finish line if the deal hangs together.
The Senate passed a sweeping transportation-programs bill in July that envisions selling $9 billion worth of SPR oil, while a bill that the House passed that month to boost development of lifesaving drugs includes the sale of 80 million barrels.
Tapping the SPR to raise money—as opposed to using it to combat supply disruptions—would have been a much tougher sell at the outset of the Obama years, when the nation’s energy security looked more precarious.
In 2008, U.S. crude production had been tumbling for two decades and was down to around 5 million barrels per day.
But soon, advances in hydraulic fracturing—or “fracking”—and horizontal drilling began enabling producers to extract much more crude oil from shale formations in Texas, North Dakota, and elsewhere.
Crude-oil production is now around 9 million barrels per day despite some production loss due to the collapse in prices. And U.S. reliance on imports has been falling for years alongside the production surge (in fact, production surpassed imports in 2013 for the first time in roughly two decades).
This dramatic change has lessened concern about U.S. vulnerabilities to supply disruptions. To be sure, the country still buys lots and lots of foreign oil, with net imports of over 6 million barrels per day, but that’s well below the roughly 10 million barrels of daily imports a decade ago.
It also means the U.S. needs less oil in its stockpiles to meet the International Energy Agency requirements that countries hold enough supplies to meet 90 days worth of import levels.
“We would have had enough oil to sell some [per IEA requirements] even pre-shale boom, but there is no question the extra production provides an added buffer that opens up all of these discussions about monetizing this strategic asset,” said Jamie Webster, a senior analyst at the prominent consulting firm IHS.
And there is some precedent for using the SPR as a budget tool. In the mid-1990s—another era with a Democratic president and a GOP-controlled Congress—23 million barrels were sold in the name of deficit reduction.