The 118th US Congress was seated early last month, with its newly Republican majority eager to, among other things, start crafting an America First energy policy. Legislation advanced Jan. 12, 2023, aimed to prevent Strategic Petroleum Reserve (SPR) crude oil from being shipped to China.
The bill, H.R. 22, certainly looks the part: it has a bogeyman (China), an American good (government-owned oil), and a proposed solution. Accordingly, it passed on a bipartisan basis, 331-97. The degree to which it will actually help the country, however, remains open to question.
Under current law, the Department of Energy (DOE) must sell SPR crude to the highest bidders unless the bidding company is under US sanctions. One such bidder in a recent auction was Unipec America Inc., a Houston-based oil-trading subsidiary of China Petroleum & Chemical Corp. (Sinopec), which bid for and won nearly 1 million bbl.
The new bill would prohibit SPR sales to “entities under the ownership, control, or influence of the Chinese Communist Party” and goes further by barring any oil sold by DOE from the SPR from ending up in China.
A separate bill, H.R. 21, would prohibit future SPR releases “except in the case of a severe energy supply interruption” unless the DOE “has developed a plan to increase the percentage of Federal lands…leased for oil and gas production by the same percentage” as the planned SPR drawdown. This bill passed on a near party-line vote, 221-205.
President Biden has said he would veto H.R. 21—with the Office of Management and Budget remarking that “oil and gas companies are currently sitting on thousands of unused but approved permits that they can use to further increase production right now”—and the future of either is unclear in the Democrat-controlled Senate. But neither should even have been proposed.
H.R. 21 is an absurdly crafted effort to limit executive power in a time of crisis that wouldn’t have even been put forward were Republicans in charge of that branch of government. DOE has the authority to execute SPR sales. But, on the other side of the equation, it can only put Federal acreage up for lease. It can’t compel companies to actually lease it.
H.R. 22, meanwhile, fixes a problem that barely exists. Since 2017, according to DOE, less than 3% of oil released from the SPR has been shipped to China. And SPR crude exports are a tiny fraction of overall US petroleum exports to the country over that period. These peaked in May 2020 at more than 46 million bbl (according to the Energy Information Administration), roughly 40 million bbl of which was crude (according to commodity data and analytics firm Kpler). The entire Biden SPR release totaled 180 million bbl over several months, less than 5.4 million of which would have travelled to China using the trend over the past 5 years, and less than 1 million bbl of which was cited in crafting this legislation
The SPR was established to help keep US businesses operating and citizens driving in the event of an oil-supply emergency. Serious discussion can be had regarding whether and what magnitude of price dislocation is severe enough to constitute a supply emergency and warrant releases. It would be disastrous to need those supplies and not have them.
To tap the SPR for the sake of politically motivated market manipulation is wrong. To put it on an unreachable shelf is stupid. Hopefully efforts at crafting a serious energy policy lie ahead.