A House plan to use the nation’s emergency oil supply as a piggy bank to fund a new healthcare initiative is alarming the energy industry and raising wider questions about government spending.
But the idea of raising money by selling a portion of the 600 to 700 million barrels of crude oil in the Strategic Petroleum Reserve, or SPR, is too great a temptation for the House Energy and Commerce Committee’s leadership to let pass by.
The committee last month approved healthcare legislation called the 21st Century Cures Act, which would use the sale of eight million barrels of crude oil from the reserve to fund the legislation’s programs, including an extra $10 billion for the National Institutes of Health over five years.
The reserve was established in the 1970s in response to the Saudi-led oil embargo. The reserve was established as an emergency response mechanism that would deliver oil to refiners if supplies were cut off from the Middle East or other foreign sources.
It was not designed to be tapped as a funding source when money was scarce or to fit into any party’s budget priorities, energy and oil industry experts says.
Energy Secretary Ernest Moniz told a House energy committee hearing Tuesday that he has “considerable concern about using [the oil reserve] for anything other than energy security and resilience issues for which it is intended.”
But others who follow budget wrangling in Congress say to get used to such radical propositions — especially when the committee has jurisdiction over both energy and health policy.
“You have an intersection of a health policy issue and energy policy issue…[and] they have jurisdiction over both,” said Douglas Holtz-Eakin, president of the American Action Forum and former director of the Congressional Budget Office.
He said the committee has the authority to do as it pleases. And given the deep budget cuts in place under sequestration, the real question becomes: “Do we need an SPR?” Or, at least an SPR at its current level?
Holtz-Eakin pointed out that the reserve is a federal asset, much like federal land that is leased or sold to generate revenue.
An energy committee spokeswoman suggested the move is part of an emerging plan to join the committee’s healthcare and energy jurisdictions.
The panel assessed that the reserve has more oil than needed or that can be effectively managed based on infrastructure constraints and other problems, said the energy committee spokeswoman, who requested anonymity.
She said the committee decided the excess oil could be sold off to fund the committee’s healthcare priorities, while it works out legislation to define how the oil in the reserve can be used to pay for items such as the Cures Act.
But to many in the energy industry, the move could set a dangerous precedent.
“What could possibly be wrong with the precedent of using SPR revenues as a piggy bank for non-related government policies?” Stephen Brown, government affairs vice president for refiner Tesoro, asked in an email.
Guy Caruso, former head of the Energy Information Administration, says the move conflates two unrelated areas of policy.
“Start mixing up an energy emergency … tool with an admittedly public policy need, which is to pay for … medical costs …[and] the problem is, where do you stop?” Caruso said. “I don’t like the idea of mixing the one public policy need with another.”
Caruso is senior adviser at the Center for Strategic and International Studies, where he is focused on the future of the reserve. He thinks the committee’s proposition is not the best use of the asset.
Increased shale oil development in the U.S. is making the reserve less relevant. But Caruso points out that no one is certain how this new production will last. He says some project a drop in production in as little as a decade. So keeping the oil reserve intact may be useful.
More thought should be given to using the reserve more effectively, not for scrapping it altogether, he said.
Charles Drevna, who represented the refinery industry for more than a decade, raised more practical concerns. “First of all, if they are going to sell it now … can you wait until [the price of oil] goes up” to get what they paid for, he says. Drevna now serves as a distinguished senior fellow at the Institute for Energy Research in Washington.
“We can debate” whether the nation needs the SPR, he said. “I can argue we probably don’t need it anymore,” but if the House sells the crude now, it will be at a loss to the taxpayer. “Why would you do that?”
Most of the new oil in the reserve was bought when prices were at $90 per barrel or more. The oil currently is worth about $55-$60 per barrel.
The Senate could offer other barriers. Robert Dillon, a spokesman for Energy & Natural Resources Committee chief Lisa Murkowski, R-Alaska, suggested the debate over the reserve should hinge on finding its proper size. If oil is sold, the revenue should be used to maintain the reserve, not for other spending.
“Any sale of oil related to the right-sizing of the nation’s oil emergency stockpile should be used to strengthen our energy security,” Dillon said in an email. “For example, the SPR itself is in need of repairs that could be paid for out of the sale of SPR oil.”
American Enterprise Institute scholar Ben Zycher said if oil is sold, the wisest option would be to use it for deficit reduction, not for new sources of government spending.
Others representing the oil industry are advising caution, saying it is an emergency system that was expensive to create and should be kept to its original purpose.
Lee Fuller, federal affairs vice president with the Independent Petroleum Association of America, said whenever proposals are “not consistent with the basic purpose” of the program, it’s probably not “good policy.”
