Jim McTague explains in his latest “D.C. Current” column for Barron’s why the Strategic Petroleum Reserve amounts to an “oily boondoggle.”
Ah, boondoggles! They cost us taxpayers dearly, but they’re worth their weight in political gold. A boondoggle can birth rare bipartisan consensus among warring Democratic and Republican congressmen. Case in point: the $40 billion Strategic Petroleum Reserve, or SPR, which costs more than $200 million per year to operate. The Obama administration wants to spend $1.5 billion to $2 billion for upgrades to this money pit’s aging infrastructure. Sequestration be damned, the House Energy and Commerce Committee is practically rubber-stamping the wasteful proposal. At a hearing in April, nary a dissenting voice was heard.
The SPR is a network of 60 operational salt caverns, carved out in 1975 after the Arab oil embargo, that hold up to 713.5 million barrels of oil. It’s an anachronism. The private market is now capable of responding to the sort of supply disruptions envisioned by President Ford. The SPR also is superfluous. Under a yellowing international treaty signed in the immediate aftermath of the embargo, the U.S. is required to maintain public and private reserves to fuel the economy for 90 days. In 2014, the SPR had 106 days’ worth of oil, and private industry had additional reserves of 141 days. Anyway, as the Cato Institute’s Peter Van Doren posits, “The government shouldn’t be in the commodities business.”
Ken Glozer, president of OMB Professionals, a consulting firm, and former executive in the Office of Management and Budget, believes that the Strategic Petroleum Reserve should be sold and the proceeds used to reduce the nation’s projected $486 billion deficit for this fiscal year. There are about 691 million barrels of oil in the SPR today, with an estimated market value of $41 billion. Had Congress moved to end the boondoggle a year ago, before oil prices slid, it could have pocketed nearly $70 billion. Oh well, that bird has flown.
