The Trump administration is considering paying U.S. companies to keep the oil they produce in the ground to help alleviate a historic glut.
The Energy Department is weighing a plan to purchase oil from small and medium-sized shale companies struggling from a price collapse on the condition that the producers don’t extract or deliver the oil, people familiar with the matter told the Washington Examiner.
The intervention could prop up struggling producers by giving them funding they need to pay their workers, while also keeping oil off the market at a time when global oil demand is expected to fall this year by a record amount due to the coronavirus halting economic activity and travel. Federal law provides the Energy Department authority to stock as much as 1 billion barrels of oil for emergencies. The Energy Department plan would pay companies to not produce as much as 365 million barrels worth of oil, Bloomberg reported, which then could be counted as part of the government’s emergency stockpile.
Bloomberg reported the law doesn’t dictate where the oil goes, meaning it doesn’t necessarily need to be stored in the nation’s emergency Strategic Petroleum Reserve. The government can instead ensure that the oil is not even extracted in the first place.
“DOE can do it,” said Dan Eberhart, CEO of oil services firm Canary and a donor to President Trump. “It’s basically an SPR fill without taking possession of the physical oil,” Eberhart told the Washington Examiner. “So the administration is buying oil low and could sell high later when the market rebounds. In the meantime, it reduces surplus on the market and keeps companies solvent. And that means Americans on the job and not in unemployment lines.”
But the move to purchase the oil, potentially costing billions of dollars, would require an appropriation from Congress. The Energy Department has not yet submitted a proposal to the Senate Energy and Natural Resources Committee, which has oversight over the agency, said a spokeswoman for the panel’s chairwoman Lisa Murkowski of Alaska.
“While we have not received a formal proposal from the Department of Energy, we look forward to fully reviewing the idea to purchase and store crude oil onsite in producing fields,” Grace Jang, the spokeswoman, told the Washington Examiner.
The new idea, which would be unprecedented, comes after the Energy Department has pursued other ways to keep oil off the market and help U.S. producers. It also comes after a recent deal touted by President Trump for Saudi Arabia-led OPEC, Russia, and other oil-producing nations to cut production by nearly 10 million barrels per day has not yet led to higher oil prices, as the oversupply problem has been overwhelmed by the decline in demand.
The Energy Department announced Tuesday it is negotiating contracts with nine U.S. companies to rent space in the Strategic Petroleum Reserve (SPR) to store excess oil.
That move was a fallback plan after after Congress, as part of its phase three coronavirus relief packages, chose not to fund a request from the Trump administration to purchase oil directly from U.S. companies to store in the SPR. Democrats opposed the move, forcing Republicans to relent. Without the necessary funding, the Energy Department withdrew a plan for buying 30 million barrels of oil, which would have been the first round of purchases for a total of 77 million barrels — the full amount of open capacity in the SPR.
A former Trump administration official, who confirmed the Energy Department is now considering paying producers to a keep a much larger amount of oil in the ground, said the agency would not be pursuing such a controversial project if Congress had agreed to fill the SPR at a moment when prices are low.
“That we are even contemplating an expansion of this scale underscores the inescapable logic of immediately refilling the Strategic Petroleum Reserve,” the official told the Washington Examiner.
Murkowski, her spokesperson said, would continue to press for Congress to make SPR purchases which “make sense at this time given market conditions.”
The senator, who represents a major oil-producing state, is not taking a position yet on the Energy Department’s consideration of buying crude to keep it in the ground.
Democrats, however, are unlikely to go for any plan perceived as bailing out the oil industry at a time when climate change is a top concern for them, and other American workers are suffering, including in the renewable energy industry.
“This is crazy stuff,” Rep. Jared Huffman of California told the Washington Examiner.
“I don’t think there is an adjective strong enough to describe the level of opposition to that kind of a naked bailout of the wealthiest industry in the history of the world,” added Huffman, who is a member of the House Select Climate Crisis Committee.
