How Fracking Helped Make the Budget Deal Happen

The surge in domestic oil production made it easier for lawmakers to sell oil from the nation’s strategic reserve.

A fracking wastewater storage facility just outside the city limits of Reno, Texas.
AP Photo/LM Otero
Oct. 27, 2015, 8 p.m.

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.

What We're Following See More »
AVOIDS SHUTDOWN WITH A FEW HOURS TO SPARE
Trump Signs Border Deal
1 days ago
THE LATEST

"President Trump signed a sweeping spending bill Friday afternoon, averting another partial government shutdown. The action came after Trump had declared a national emergency in a move designed to circumvent Congress and build additional barriers at the southern border, where he said the United States faces 'an invasion of our country.'"

Source:
REDIRECTS $8 BILLION
Trump Declares National Emergency
1 days ago
THE DETAILS

"President Donald Trump on Friday declared a state of emergency on the southern border and immediately direct $8 billion to construct or repair as many as 234 miles of a border barrier. The move — which is sure to invite vigorous legal challenges from activists and government officials — comes after Trump failed to get the $5.7 billion he was seeking from lawmakers. Instead, Trump agreed to sign a deal that included just $1.375 for border security."

Source:
COULD SOW DIVISION AMONG REPUBLICANS
House Will Condemn Emergency Declaration
1 days ago
THE DETAILS

"House Democrats are gearing up to pass a joint resolution disapproving of President Trump’s emergency declaration to build his U.S.-Mexico border wall, a move that will force Senate Republicans to vote on a contentious issue that divides their party. House Judiciary Committee Chairman Jerrold Nadler (D-N.Y.) said Thursday evening in an interview with The Washington Post that the House would take up the resolution in the coming days or weeks. The measure is expected to easily clear the Democratic-led House, and because it would be privileged, Senate Majority Leader Mitch McConnell (R-Ky.) would be forced to put the resolution to a vote that he could lose."

Source:
MILITARY CONSTRUCTION, DRUG FORFEITURE FUND
Where Will the Emergency Money Come From?
1 days ago
THE DETAILS

"ABC News has learned the president plans to announce on Friday his intention to spend about $8 billion on the border wall with a mix of spending from Congressional appropriations approved Thursday night, executive action and an emergency declaration. A senior White House official familiar with the plan told ABC News that $1.375 billion would come from the spending bill Congress passed Thursday; $600 million would come from the Treasury Department's drug forfeiture fund; $2.5 billion would come from the Pentagon's drug interdiction program; and through an emergency declaration: $3.5 billion from the Pentagon's military construction budget."

Source:
TRUMP SAYS HE WILL SIGN
House Passes Funding Deal
2 days ago
THE DETAILS

"The House passed a massive border and budget bill that would avert a shutdown and keep the government funded through the end of September. The Senate passed the measure earlier Thursday. The bill provides $1.375 billion for fences, far short of the $5.7 billion President Trump had demanded to fund steel walls. But the president says he will sign the legislation, and instead seek to fund his border wall by declaring a national emergency."

Source:
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login