A committee of the U.S. House of Representatives last month approved selling some oil from the Strategic Petroleum Reserve to pay for speeding government approvals for new medicine.
It’s like raiding your kids’ college fund to buy groceries. Selling an asset, in this case oil, to fund a stop-gap budgetary measure that ought to be paid for through traditional funding avenues is not just short-sighted, it’s foolhardy.
Short-sighted spending initiatives aren’t a congressional novelty, of course, but there’s a bigger issue behind the House’s interest in raiding the SPR, one that lawmakers on the House Energy and Commerce Committee seem unwilling to address fully.
The 21 Century Cures Act that the committee approved would overhaul the process for approving new drugs and medical devices by pumping an additional $13billion over 10 years into the National Institutes of Health and the Food and Drug Administration.
Rather than tapping Medicare or Medicaid funds to pay for the process, lawmakers opted for the political expediency of selling about 8 million barrels from the reserve. What better way to pay for a pet program than to tap a pool of money that is, literally, sitting in the ground?
The SPR, set up in 1977, comprises four underground storage sites in Texas and Louisiana that can hold as much as 727 million barrels of oil. Currently, it holds about 691 million barrels worth about $18billion.
The idea of selling our oil reserves has gained steam in recent years as rising U.S. production from hydraulic fracturing has unleashed a new era of domestic energy abundance. Producers in the middle of the country have called for lifting the 40-year ban on oil exports to allow their crude to fetch a higher price on the global market.
If oil were any ordinary commodity, the argument would be a no-brainer. Oil, though, is intertwined with issues of national security, and there are enough gray-headed lawmakers who still remember the gasoline rationing of the 1970s to resist the idea that we should sell a vital and finite national resource.
Producers argue that exporting oil would actually help keep a lid on gasoline prices here at home while giving the U.S. greater influence on the global market.
How the U.S. handles the SPR is the first step in addressing the export issue because it makes no sense to sell reserves into an already oversold market unless, perhaps, it’s part of a broader export strategy. The danger in using the SPR to fund the Cures Act is that it sets the reserve up as an ATM that can be tapped whenever Congress wants to skirt the appropriations process.
Those sorts of sales could hammer U.S. oil producers by weakening prices even more while ripping off taxpayers by selling on the cheap oil that was bought for the reserve at higher prices.
Dallas oilman Boone Pickens has been calling for years to liquidate the SPR, and many Republicans like the idea purely on ideological grounds. After all, the SPR exists for one purpose: to manipulate markets. The U.S. holds the oil in reserve with the intent of selling it if oil prices soar high enough to pose an economic threat.
But the fate of the SPR transcends mere political ideology. It’s a safety net we no longer need, and not just because we are producing more oil than we have since the Beatles broke up.
Energy markets are becoming more diversified. Fuels compete in ways they haven’t before. Admittedly, these changes are small so far, but they are gaining ground. Natural gas is gaining broader use for transportation, and it has become the fuel of choice for generating electricity.
Wind and solar power produce only a tiny fraction of our energy needs, but they are becoming more prominent. Technology is making them more reliable and reducing their negative effects on electricity grids. Viable, and enticing, electric cars are already on the road, and the technology is likely to grow more appealing as battery technology improves. And even gasoline powered cars are far more fuel efficient than they were a decade ago.
Average fuel efficiency for passenger vehicles rose 25 percent during that period, after remaining unchanged since 1990, according the National Highway Transportation Safety Administration.
None of this means that any of these technologies will replace our reliance on oil, but it will begin to erode demand at the margins.
The future of energy security lies not in stockpiling oil but in research and development, in innovation, and in changing attitudes toward the tradeoffs we make in our energy use.
Diversifying America’s fuel portfolio is good for both the economy and national security. In this context, the House committee’s decision to liquidate the SPR might make sense at some point. But the proceeds should be reinvested in this diversification effort, not used to plug budget holes that lawmakers lack the political courage to address on their own merits.
More important, if America is going to sell its oil reserves, we have to have a plan. Are we going to export oil? What role do we intend to play in the oil markets if we do? Are we going to invest in broadening our energy dependency?
These are difficult questions that lawmakers have dodged for more than four decades. The last administration to have anything that came close to an energy plan was Jimmy Carter’s, and even then, the plan crumbled as quickly as oil prices fell.
Since then, our “plan” has basically been a combination of hoping and begging – hoping oil remains cheap and begging the Saudis to produce more when it didn’t. That’s as short- sighted as selling oil reserves to pay for getting drugs to market faster.
Loren Steffy is a managing director with the communications firm 30 Point Strategies. He is a writer at large for Texas Monthly and the author of Drowning in Oil: BP and the Reckless Pursuit of Profit and The Man Who Thought Like a Ship. Follow him on Twitter: @lsteffy; on Facebook or at lorensteffy.com.