White House proposes selling half of SPR in 2018 budget request

The White House proposed selling nearly half the crude oil in the US Strategic Petroleum Reserve over 10 years beginning in fiscal 2018 as part of the proposed federal budget it released on May 23.

The White House proposed selling nearly half the crude oil in the US Strategic Petroleum Reserve over 10 years beginning in fiscal 2018 as part of the proposed federal budget it released on May 23.

It also called for an end to sharing federal revenue from new Gulf of Mexico oil and gas production with four Gulf Coast states that the 2006 Gulf of Mexico Energy Security Act authorized, and a start to leasing within the Arctic National Wildlife Refuge in fiscal 2022.

The budget proposal provided the first glimpse of how the administration of US President Donald Trump intends to pay for significant reforms it initially outlined in its earlier fiscal 2018 budget blueprint (OGJ Online, Mar. 16, 2017). The president reinforced commitments to streamline federal regulations and expand leasing and development of federally managed oil and gas resources in his budget message.

“We must increase development of America’s energy resources, strengthening our national security, lowering the price of electricity and transportation fuels, and driving down the cost of consumer goods so that every American individual and business has more money to save and invest,” he said. “A consistent, long-term supply of lower-cost American energy brings with it a much larger economy, more jobs, and greater security for the American people.”

About 270 million bbl of SPR crude would be sold by 2027, leaving the inventory at roughly half the 250-260 million bbl that is authorized currently. “Given the long-term trajectory of domestic energy production and transportation capabilities, a smaller SPR is projected to be able to continue to meet international obligations and emergency needs,” the budget said.

Two of the four Gulf Coast SPR sites would be closed, “as determined by a comprehensive analysis of footprint and operations to be conducted,” it said.

A free lunch

A veteran Washington energy observer strongly criticized the plan. “Congress, and now the White House, must believe in the concept of a free lunch,” said Larry Goldstein, special projects director at the Energy Policy Research Foundation Inc. (EPRINC). Noting that the US House Energy and Commerce Committee voted 84-0 to sell 64 million bbl of crude from the SPR over 8 years recently, he said the White House’s proposal was significantly more aggressive.

“You could make the case that we can get by with a smaller reserve. Domestic production has grown 4 million b/d and our coverage against imports has declined sharply,” Goldstein said. “Yet, as recently as 10 years ago, no one in government foresaw this good fortune. Prices have bounced from $140/bbl to as low as $27/bbl.”

The reserve acts as both an insurance policy and a deterrent because it not only reduces the pain of a foreign supply cutoff but also the probability that one will occur, Goldstein said. “The oil in the SPR has been paid for. If we were to sell it, what are the odds that we would replace it in the future? Would the infrastructure and capacity be maintained to receive [new supplies]? I strongly doubt it,” he said.

American Energy Alliance Pres. Thomas Pyle supported the proposed move. “The SPR is a relic from an era of undue supply concern. We now know, of course, that the US sits atop billions of barrels of oil waiting to be tapped,” he said.

One geographic area that is flush with petroleum resources—about 10 billion bbl—is the Alaskan Arctic, Pyle said. “Encouragingly, this budget anticipates oil and gas leasing in [ANWR] starting in 2022, which will not only shore up domestic supply, but also fill government coffers with leasing revenue.”

Revenue-sharing defended

The proposal to end the sharing of revenue from leasing and development of offshore federal oil and gas resources with affected coastal states also drew fire. “There are deal breakers for me in the current budget,” said US Sen. Bill Cassidy (R-La.), who is an Energy and Natural Resources Committee member. “For one, [it] fails to prioritize restoring Louisiana’s eroding coasts. This ensures our state can continue to produce energy needed by our entire nation. As the committee process moves forward, I will not only oppose cuts to the revenue-sharing program but continue to work to expand it for the Gulf Coast.”

National Ocean Industries Association Pres. Randall B. Luthi gave the administration’s proposed budget a mixed review. He supported proposals that would advance the safe and responsible development of offshore energy resources, particularly development of a new five-year US Outer Continental Shelf leasing program and streamlining permitting and inspection processes.

“However, budget proposals regarding gulf state revenue-sharing and the SPR appear to miss the mark on the administration’s stated goal of energy dominance,” Luthi said. “Eliminating revenue-sharing for offshore energy production would punish coastal states that support and host the development of homegrown energy and jobs, and would be a serious step backward.”

At the US Department of the Interior, Sec. Ryan Zinke said the White House’s proposed budget allows DOI to carry out its core mission of multiple use of public lands in a way that both conserves America’s iconic landscapes and supports resource development. “Being from the West, I’ve seen how years of bloated bureaucracy and DC-centric policies hurt our rural communities,” he said.

Specifically, the proposal would authorize $791 million in energy development outlays, divided as follows:

• $189 million onshore ($24 million more than the amount in the Fiscal 2017 Continuing Resolution) to strengthen oil, gas, and coal programs by improving the application and permitting processes and supporting related rights-of-way.

• $343 million offshore (a $7 million year-over-year increase), which includes $10 million to update the 5-year Outer Continental Shelf oil and gas program that became final toward the end of the Obama administration.

• $78 million for renewable energy “to keep pace with anticipated project interest.”

Proposals to end payments to Gulf Coast states under GOMESA and begin leasing on ANWR’s Coastal Plain are among legislative priorities aimed at saving taxpayers $5.8 billion, Zinke said.

The US Bureau of Land Management would receive $1.1 billion under the proposed fiscal 2018 budget, $162.7 million less than in 2017. “The president’s budget gives BLM the resources needed to carry out our multiple-use and sustained yield mission, which includes promoting American energy and mineral production on federal lands and supporting local economies,” BLM Acting Director Mike Nedd said.

A proposed $16-million increase in the oil and gas management program would help assure the agency has enough employees to process drilling permit applications and alleviate administrative burdens in processing ROW applications, he said.

The US Bureau of Ocean Energy Management would receive $171 million, unchanged from its 2017 budget, to support the administration’s efforts to expand OCS oil and gas exploration and production, foster energy security and job creation, and ensure responsible stewardship of the environment.

The US Bureau of Safety and Environmental Enforcement would receive $204.9 million, $600,000 more than in 2017. The proposed amount includes $112 million in current appropriations and $92.9 million in revenue from rental receipts, cost recoveries, and inspection fees.

Other proposed expenditures

The proposed budget includes $1.2 million more for training to ensure staff have the tools needed to streamline permitting and support efforts to efficiently provide for secure and reliable energy production and $12.7 million more for oil-spill research to help fill gaps in response, particularly in deep water and the Arctic offshore.

The US Environmental Protection Agency would receive nearly $5.65 billion, 31% less than under the 2017 Continuing Resolution.

EPA’s proposed $448 million of air-quality funding included nearly $100 million to support National Ambient Air Quality Standards implementation and discontinued funding for the Clean Power Plan, climate change research, and partnership programs. It requested $83.7 million for drinking water programs, $193 million to support surface water protection and wetlands program work, and $296 million for public protection from toxic chemicals.

The US Department of Energy’s National Energy Technology Laboratories would receive dedicated funding—$78 million for research and operations and $63 million for infrastructure—for the first time. Support for carbon-capture research would fall $50 million year-over-year to $16 million and for carbon storage by $15 million to $15 million from the assumed fiscal 2017 amount. Support for natural gas technologies research would drop by $30 million year-over-year to $6 million, and for unconventional fossil energy technologies by $2 million to $15 million.

The US Energy Information Administration would receive $118 million, $4 million less than its anticipated fiscal 2017 amount. The Federal Energy Regulatory Commission would receive $368 million, a $26 million year-over-year increase.

The US Pipeline and Hazardous Materials Safety Administration would receive $259 million, $10 million more than in fiscal 2017 with increases of $8 million for pipeline safety and $2 million for emergency preparedness grants.

Contact Nick Snow at nicks@pennwell.com.

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